I will not respond to the previous remark. All I would say in relation to some of the comments made is that I used to have to say in a previous incarnation that some of my friends were social workers; now I have to say that some of my friends are in the Treasury. I am not sure that they are quite as sinister as the noble Lord suggests.
I shall address Amendments Nos. 176 and 177 together. The prudential borrowing code will balance the need to provide a framework that safeguards NHS finances while giving foundation trusts freedoms to borrow without reference to the regulator or to the Secretary of State.
Amendments Nos. 176 and 177 would take away that balance of safeguarding patients' interests while allowing freedom to innovate. That would either reduce the NHS to a market with no protections for NHS patients and services or give no clarity about what prudential borrowing means. Amendment No. 176 in particular would allow foundation trusts to borrow up to 1 per cent of their income irrespective of their outgoings. That is quite inappropriate, since the ability to service debt is more likely to be determined by cash flow than by income alone.
Amendment No. 177 would allow foundation trusts to borrow without limit, provided that protected assets were not at risk, but that is not a safeguard against financial failure. Even without being able to secure borrowing against protected property, a foundation trust could run up unaffordable debt. We consider the amendments to be a trifle irresponsible and the level of risk of failure is simply not acceptable for organisations which will be providing an essential public service.
I fear it is likely that I shall continue to be accused of being timid, but that is the Government's position. In any event, Clause 16 already provides that foundation trusts may not use protected property as security for loans without the approval of the regulator. This safeguard ensures that the property of a foundation trust that is used to provide essential NHS services is not endangered by the trust's borrowing. That is another attempt by us to protect essential services for NHS patients.
I turn to Amendment No. 178. The principle that an NHS foundation trust should not be penalised because its prudential borrowing limit is revised to a level below its current borrowing is correct, but the amendment is unnecessary. The regulator has no powers to intervene in a loan or other borrowing agreement a foundation trust has already undertaken. Any such agreements would not be affected by a change in a foundation trust's borrowing limit. The foundation trust would simply be unable to borrow any more until it had fulfilled its previous commitment.
On Amendment No. 179, the prudential borrowing code will provide a clear and transparent framework governing borrowing by foundation trusts based on their ability to repay. The annual review, I suggest, should provide ample opportunity to take account of changes in foundation trust's circumstances. In exceptional circumstances—for example, in response to a breach or serious failure—the regulator can still exercise his powers of intervention under Clause 23 to place restrictions on a foundation trust's borrowing beyond the borrowing limits determined by the prudential borrowing code. Alternatively, he could set extra conditions to an authorisation about borrowing over and above those in the code. So we do not agree with this amendment for the reasons I have indicated.