(1) The regulator is not to be regarded as the servant or agent of the Crown or as enjoying any status, immunity or privilege of the Crown.

(2) The regulator's property is not to be regarded as property of, or property held on behalf of, the Crown.

(3) The regulator must exercise its functions effectively, efficiently and economically." Page 116, line 38, leave out "office of the"

Page 117, line 2, at beginning insert "Chairman or other member of the"

Page 117, line 6, at beginning insert "Chairman or other member of the"

On Question, amendments agreed to.

[Amendment No. 138 not moved.]

Clause 3 [General duty of regulator]:

moved Amendment No. 139:

Page 2, line 4, leave out "his" and insert "its".

On Question, amendment agreed to.

moved Amendment No. 140:

Page 2, line 5, leave out "performance by the Secretary of State of the"

My Lords, in moving Amendment No. 140, I shall speak also to Amendment No. 141. In Committee, I questioned why the independent regulator needs to be constrained under the terms of Clause 3 to behave in a way consistent with the performance by the Secretary of State of the duties laid down in the National Health Service Act 1977. I do not doubt that it is necessary for the regulator to behave in a way that is consistent with the duties laid down in that Act. However, I regret that he will apparently have to mimic the Secretary of State in the way in which those duties are performed. That seems to be the nearest that one could possibly get to a back-door power of direction.

The Minister disputed that interpretation and said that the duty was necessary to ensure that the regulator kept up to date with the changing times. I paraphrase his words but I do so, I hope, accurately. But, as my noble friend Lord Blackwell acutely pointed out, the duty might be taken to embrace any short-term targets set by the Secretary of State for the rest of the health service and, indeed, any kind of politically based shift of policy. To say that this clause is not to be interpreted as reflecting the political process, which is what the Minister said, is carrying credulity a little far. It is open to just that interpretation.

I hope the Minister will be able to reassure me better than he did last time that the way in which this clause is expressed could not be used as a means of reining in the operational freedoms of foundation trusts. The Minister may well protest that that is the opposite of what the Government are seeking to achieve in the Bill, but micro-management, albeit at one remove, will always be a temptation for Ministers at some point or another. I would like to see it ruled out absolutely. I beg to move.

My Lords, as the noble Earl said, we discussed this issue in Committee. We went over the ground of the need for the general duties on the independent regulator to strike the right balance between ensuring consistency with the requirements of the NHS as a whole and retaining the independence of the regulator. That is what Clause 3, as drafted, achieves.

The independent regulator will be required to take account of the wider interests of the NHS by ensuring that he acts consistently with how the Secretary of State will achieve his duties under the NHS. But it is for the regulator to determine how to achieve this. There may be some areas where the regulator needs a steer on what he should use his powers to achieve. The duty in Clause 3 gives him that steer. For example, in deciding what services an NHS foundation trust must provide, the independent regulator must consider the need for comprehensive provision of services. The independent regulator might also include a requirement on NHS foundation trusts to take part in NHS-wide initiatives such as the integrity of information systems and clinical networks. We went over the ground of the integrity of information systems at an earlier stage.

To remove the reference to performance of the Secretary of State's duties, which these amendments would do, is, in our view, not acceptable. It would allow the independent regulator in effect to second-guess how the Secretary of State's policy on ensuring a comprehensive health service across the NHS as a whole was delivered. That is an important consideration, and we believe that this amendment is not appropriate.

I do not know whether I have reassured noble Lords. I should add that the regulator will be supported by a board structure, which was not the case before. Therefore, the idea that the Secretary of State can, so to speak, intimidate five people as well as the regulator is a little far-fetched.

My Lords, I am grateful to the Minister. I was not thinking in terms of intimidation; I was thinking of the regulator looking at his duties and construing them in the way that I indicated. I am afraid that although the Minister has clarified the position very helpfully, he has not reassured me. He seemed to be describing the possibility of day-to-day interference by the regulator, which I was hoping he would say would not happen.

I know that the Government do not intend the regulator to intervene regularly in the affairs of foundation trusts. However, the way in which the clause could pan out does not give one cause for confidence that the Government's expectation will be realised.

I do not propose to take this further. However, I remain very concerned about these provisions and the way in which they are expressed. I beg leave to withdraw the amendment.

Amendment, by leave, withdrawn.

[Amendment No. 141 not moved.]

moved Amendment No. 142:

Page 2, line 7, at end insert—

"( ) In performing his duties under this Act, the regulator must have regard to such of the following as appear to him to be relevant in the circumstances—

(a) the principles under which regulatory activities should be transparent, accountable, proportionate, consistent and targeted only at cases where action is needed;

(b) the different needs and interests of persons using NHS services and in particular of the different interests of children, and of those living in rural and urban areas; and

(c) the principles set out in the compact between the Government and the voluntary sector and the codes of practice set out under it."

My Lords, I was very grateful for the support I received in Committee from my noble friends Lord Peyton, Lady Cumberlege and Lord Blackwell on this amendment. The primary issue that it covers is set out in proposed paragraph (a). Despite the reassurance that the Minister sought to give, there is nothing in the Bill which says that the regulator has to abide by good deregulatory principles. My question was: if there is nothing in the Bill, what is to stop the regulator ignoring those principles when it suits him?

If Clause 3 can be interpreted as giving a licence to the regulator not just to intervene by exception but to intervene in a quasi-management role in the shoes of the Secretary of State, I believe that a duty of this kind on the face of the Bill is essential. It is not enough to say that the regulator has a duty to act reasonably as a public office holder. Regulators, as I think my noble friend Lady Cumberlege remarked, like to win their spurs by being tough. They frequently do just that. In this Bill, there is no remedy if the regulator does not behave as he should.

Clause 23, which the Minister cited in his defence and which covers interventions by the regulator, is a matter for interpretation in itself. I believe that everyone needs to know that the regulator is legally bound to behave in a proportionate and consistent way. It is not something that should be open to argument. The way in which the regulator sets about his duties will have a direct effect on the operational freedoms and flexibilities of foundation trusts. I beg to move.

My Lords, I shall speak to Amendment No. 143. I have considerable sympathy with the noble Earl's amendment and what he has said about the duties of the regulator. But we on these Benches wish to go rather further in terms of the general duty of the regulator. Again, we are very much informed by what the Minister said in Committee.

The Minister will notice that the amendment retains the wording that the regulator must exercise his functions in a manner that,

"is consistent with the performance by the Secretary of State".

The noble Lord put a rather heavy spin on the fact that the way in which we had worded our original Committee stage amendment might be detrimental to the way in which the regulator exercises his powers.

In addition to retaining that wording, therefore, we have proposed putting a duty on the regulator essentially to exercise his functions in accordance with a number of principles. They are: the principle of equality of access to NHS healthcare; the principle of universality of access to NHS healthcare; and having regard to the impact of an NHS foundation trust on the local health economy.

The Bill is remarkably deficient in respect of how the regulator is expected to exercise his duties and how that will then impact on the way in which foundation trusts operate. The Minister heard the great concerns that were expressed about the possible impact of foundation trusts on new bodies such as cancer networks and collaboratives in the way in which the foundation trusts might choose to operate. He laid great emphasis in his reply on the duty of co-operation between NHS bodies which now applies to foundation trusts and brings them within the 1999 Act. But that is fairly thin gruel given how foundation trusts could act. We believe that an explicit duty on the regulator to have regard to these principles and to the impact on the local health economy is desirable.

The Minister asserted a number of points in Committee. He said that the creation of trusts will support the development of NHS services in local health economies, and that foundation trusts will exist to provide and develop healthcare services for NHS patients in a way that is consistent with NHS values. I have no doubt that the Minister confidently believes that the foundation trusts will operate in that way. However, there is a lack of levers to ensure that that happens, as the regulator does not have the power to have reference to that. We believe that we would have a far more secure system in which people would have far greater confidence in the way that foundation trusts operate if the regulator had explicit powers to act in that way.

My Lords, I shall deal with Amendments Nos. 142 and 143 separately.

I turn first to Amendment No. 142. The duty on the regulator to exercise his functions consistently with the Secretary of State's own duties ensures that NHS foundation trusts are as fully integrated as is possible. The inclusion of these objectives would create ambiguity about what the duty under Clause 3 really means, and could result in conflict between the regulator and the NHS.

I shall discuss the proposed objectives in turn. The objective in paragraph (a) is unnecessary since, as a public office holder, the regulator is under a common law duty to act proportionately and reasonably. The objective in paragraph (b) adds nothing to the regulator's duty to ensure that there is comprehensive provision of healthcare—in line with the Secretary of State's duties under the 1977 Act. As regards paragraph (c), the compact between the Government and the voluntary sector is not and should not be legally binding. It gets its authority from being jointly endorsed by the Government and the community and voluntary sector. This week is Compact Week. I should like to take this opportunity to re-iterate the department's continuing support of the compact. The Department of Health is determined to see all NHS organisations in England signed up to a geographically relevant local compact by 31st March 2004 so that applicants are likely to have local compacts in place when they become NHS foundation trusts.

I shall not go over the ground again but I informed noble Lords in Committee of the progress that had been made in this area at the beginning of this year. We think that we are well on course to deliver the measure. Therefore, paragraph (c) of the amendment seems to us superfluous.

I turn to Amendment No. 143. We believe that this will produce ambiguity in terms of the regulator's duties vis-a-vis the Secretary of State's duties. In addition, the requirements on equity and universality of access in this amendment are superfluous because of the Secretary of State's duties under Sections 1, 3 and 51 of the National Health Service Act 1977. These require the Secretary of State to provide a comprehensive health service which is free of charge and to make provision for clinical training and research. The principles of fairness and universality are, therefore, fully established and the amendment is unnecessary.

Turning to the requirement regarding impact on the local health economy, the creation of NHS foundation trusts will support the development of NHS services in local health economies. Foundation trusts will exist to provide and develop healthcare services for NHS patients in a way that is consistent with NHS values. Over 95 per cent of their income will continue to come from NHS commissioning. They will be under a statutory duty to work in partnership with other local NHS organisations and social services to deliver integrated packages of care centred around the needs of patients. They will be expected to use their new freedoms in ways that fit with key NHS principles and do not undermine the ability of other providers in the local health economy to meet their NHS obligations. We have said that many times and we think that the Bill provides that and that the amendment is absolutely unnecessary.

My Lords, the Minister repeated almost word for word what he said in Committee about the way that foundation trusts will support the development of NHS services and local health economies. Will he also repeat—this only strengthens our desire to give the regulator explicit duties—what he said in Committee; namely, that,

"it is also our strong belief that employment contracts are a matter for staff, their unions and the employers. They are not issues which should be arbitrated upon by a third party, such as the regulator".—[Official Report, 13/10/03; col. 628.]?

The reason I seek a duty to have regard to the impact of the measure on the local health economy is precisely that the Minister on the previous occasion that we discussed the matter was so adamant that that was not within the powers of the regulator.

My Lords, I repeated the arguments because they are very good arguments and we have consistency of purpose on this issue. I confirm what I said earlier: it is not the job of the regulator to interfere in individual wage negotiations and terms and conditions negotiations between employer and employee. I do not resile from what I said at an earlier stage of the Bill in any way at all.

My Lords, I listened carefully to the Minister. I share the perception of the noble Lord, Lord Clement-Jones, that the Minister's answer was very similar, if not identical, to the one he gave in Committee. It is clear that I shall not get any further with this point and I see little alternative but gracefully to beg leave to withdraw the amendment.

Amendment, by leave, withdrawn.

[Amendments Nos. 143 and 144 not moved.]

moved Amendment No. 145:

After Clause 3, insert the following new clause—

"APPEALS

The Secretary of State may provide in regulations that decisions of the regulator are to be subject to specified appeal or review mechanisms."

My Lords, I rise to move Amendment No. 145 which allows the Government to specify in regulations appeal or review mechanisms against decisions by the regulator.

In Committee I tabled various amendments on the ability of foundation trusts to make representations to the regulator. The Government argued that the common law principles provided a robust framework but we know that that robust framework is the rather inadequate process of judicial review.

Since Committee the Better Regulation Task Force has reported and stated that appeal mechanisms should be introduced for regulators so as to avoid recourse to judicial review which the task force described as time consuming, costly and capable of looking only at process rather than substance. According to the task force, the Government have until next year to issue guidance on best practice for independent regulators but it is not often that a legislative opportunity arises regarding appeal mechanisms. Indeed, we on these Benches hope that there is not another legislative opportunity next year in which to fill the gap on appeal mechanisms. We believe that there is a hole in the Bill related to appeal and review mechanisms. We suggest that it is filled by a regulation-making power so that the Government can implement their own views on best practice with the minimum delay once that decision has been reached. I hope that the Government will seize the opportunity. I beg to move.

My Lords, I support the arguments put forward by the noble Baroness, Lady Noakes. She put them admirably. It seems to me that a permissive clause such as this which allows an appeal mechanism to be inserted in a way that has been approved by the Better Regulation Task Force would fit very well within this legislation.

My Lords, I see a great deal of virtue in this amendment. It has now become evident for instance that there was no appeal mechanism against decisions of CHI relating to whether or not hospitals should be awarded three stars or two stars et cetera. Now the Government and others are making it quite clear that they hope to introduce an appeal mechanism against decisions of CHAI in that situation. Hence it seems to me entirely appropriate to introduce such a mechanism in this Bill.

My Lords, as the noble Baroness said, the Better Regulation Task Force included in its recent reports on regulators a recommendation that all independent regulators have an appeals mechanism. The Government will be responding to the whole of the Better Regulation Task Force report on independent regulators around the end of the year. If the Government accept in full the recommendation that all independent regulators have an appeals mechanism, we will of course ensure that provisions are made for such a mechanism for the NHS foundation trust regulator.

However, that report goes much wider than this particular regulator's role, or indeed the NHS, and we do not want to prejudge the outcome of the Government's response to the Better Regulation Task Force report by jumping the gun and putting a provision in this legislation as it is. If the Government decide to accept that mechanism, we will of course have to create a legislative opportunity to implement it. That will cover all the regulators and not just this particular regulator. I hope that the noble Baroness will withdraw her amendment on that basis.

My Lords, I thank the noble Lords, Lord Walton and Lord Clement-Jones, for their support. We think that the existence of an appeal mechanism for foundation trusts is important in its own right. We thought that before the Better Regulation Task Force, which is why we tabled alternative amendments in Committee. We continue to believe that that is important. We think that it would be unwise to go forward with this new scheme of regulation for foundation trusts without something quite explicit there waiting to be actioned. I should like to test the opinion of the House on this.

On Question, Whether the said amendment (No. 145) shall be agreed to?

Their Lordships divided: Contents, 111; Not-Contents, 94.

Resolved in the affirmative, and amendment agreed to accordingly.

Clause 4 [Applications by NHS trusts]:

[Amendment No. 146 had been withdrawn from the Marshalled List.]

moved Amendment No. 147:

Page 2, line 11, leave out from "trust" to end of line 12.

My Lords, in moving the amendment I shall speak also to the other amendments in the group. In Committee I questioned why, when an application is made by a hospital to become a foundation trust, it is necessary for two approvals to be given, one by the Secretary of State and the other by the regulator. I am afraid that I was left dissatisfied with the Minister's explanation. The principle espoused here amounts to a duplication, or what my noble friend Lord Peyton memorably referred to as double banking. It is also yet another way of ensuring that the regulator is not as independent as his billing makes him appear. In fact, he is little more than a proxy for the Secretary of State.

Either the Government should be honest and say that the decision is for the Secretary of State acting alone, or they should give the decision to the regulator. Why give it to both? The Minister said that the Secretary of State was in a position to judge whether each trust was ready to go forward based on merit. However, I am pleased to see that, in a later group of amendments, the Government have conceded the point that I made in Committee that the regulator should have regard to quality benchmarks in arriving at his decision. If the regulator will be tasked with taking the decision as well, he is in just as good a position to make such judgments as the Secretary of State.

The Minister also said that the Secretary of State had a role as gamekeeper in overseeing how the policy for foundation trusts was rolled out, and how affordable the rollout was. That is not a good reason, if I may respectfully say so, because it relates not to individual applications but the rate at which applications come forward for approval. The Secretary of State need only be given a veto on the issue. That is what lies behind my amendments. They put the regulator fully in the driving seat, but give the last word to the Secretary of State in case any overriding policy reason prevents the approval being given at that moment. To pretend that the regulator has a free hand once the Secretary of State has given his verdict in the first instance would otherwise be a charade.

I also want to revisit the questions raised by Clause 5. If an application for foundation status is made by a non-NHS body and the Secretary of State is required to approve it first, for what will he be looking? What considerations will he exercise? I do not fully understand what his role is in the first place as regards such applicants or, once again, why the process cannot be left to the regulator. How will the non-NHS bodies fit into the foundation trust structure? I did not get a clear sense of how the Government envisaged the provisions being used, and was left wondering whether it was premature for them to be included in the Bill at all. I beg to move.

My Lords, we had a very lively debate in Committee on the respective roles of the Secretary of State and the regulator. I am very sorry that the noble Earl has abandoned his stick of rock metaphor; I quite enjoyed it. I am glad that the metaphor has settled down around gothic, rather than gothic/Byzantine and so on. I shall address the question that he has raised and see whether I can use some different, and I hope more persuasive, words.

The noble Earl asked in Committee who would do the work and what sort of work needed to be done. Essentially, the process that we envisage has two stages, each with different sorts of work. The Secretary of State is vital, because he ensures that the trust is ready to apply. The independent regulator sets the terms of authorisation and authorises the final application. As trusts come forward and the programme rolls out, the function of determining who can go forward and make an application—which trusts are appropriate, fully prepared and ready—is a vital and objective task. The Secretary of State is more concerned with the quality of the application having met the criteria than the rate of application, so I take slight issue with the noble Earl on that. Crucially, no matter what the Secretary of State says, the regulator will make the assessment of whether the authorisation should be issued and under what terms.

Very unusually, Hansard misheard what I said in Committee. I referred to the Secretary of State not as a gamekeeper, but as a gatekeeper. It was as though I had drifted into the debate on hunting, with which I was extremely glad not to be involved. There are enough descriptions of that benighted individual flying around for him not to be a gamekeeper as well.

Members of the Committee queried why the two processes could not be undertaken by either the regulator or the Secretary of State. There was no consensus from the Opposition in Committee about the relative merits of either. Some noble Lords wanted the Secretary of State out of the picture, while others felt that he should do everything. What we have proposed meets the real world of what trusts have to do to prepare the application as well as providing a fully independent process. Having put a board around the regulator, that process is even more robust.

Let me reiterate very quickly that the Secretary of State needs to be involved. He is the person responsible for ensuring provision of NHS care across England. He is responsible for funding the NHS, and will be able to advise on the development of the number of trusts. However, he also knows the landscape of the NHS. The existing management framework means that the Secretary of State and SHAs are uniquely placed to consider the performance and potential of NHS trusts. His basis of responsibility and knowledge, backed up by the guidance and support earlier referred to as necessary by the noble Baroness, Lady Cumberlege, means that he has a transparently legitimate and proper role in deciding which applications will be passed to the regulator.

The role of the regulator is very different. There is no pretence of independence; the process will indeed be independent. The regulator alone will determine what terms to set to the authorisation. Under Clause 14, the regulator will determine which health, education and training services the trust must provide, any additional activities that the trust might want to carry out, and what assets are to be protected. He will set the prudential borrowing code, apply the private patient cap, determine the information that the NHS foundation trust must provide, and impose any additional requirement that he sees fit. That is a different process from that of being a gatekeeper. It is indeed a process of determination; of authorisation. I hope that the noble Earl will accept that.

The question relating to what the regulator does has become confused. Is he independent enough? I hope that I have shown that he has a major task to do; a task which is different from that of the Secretary of State at a different stage. As regards independence, there are too many arguments and, frankly, too much evidence to the contrary. Independent regulators have to justify their reputations and roles. We certainly do not expect that he will not reject applications and that he will not want more information. We expect him to be extremely robust and very rigorous.

Amendment No. 154 would allow the Secretary of State to prevent an applicant from being authorised as an NHS foundation trust by objecting to the application. But that is not a satisfactory alternative to his gatekeeper role. That role, as I have explained, is an important part of the process. The amendment brings the Secretary of State into the process at the wrong end—after applications have been prepared and submitted following discussion between the applicant and the regulator.

Our concern, as I said in Committee, is that the impact on applicants could be extremely deleterious. They will have to prepare for applications, and we know that that is a serious process requiring a great deal of time and effort. They will have to submit those applications to the scrutiny of the regulator before their authorisation is granted. However, the amendment proposes that, at the last stage, the Secretary of State can object. It is not clear on what ground.

I suggest that, given the distance the Secretary of State will be from the application process at this point, it would be more likely to be politically inspired judgment than at any other part of the process. The amendment would effectively give the Secretary of State a power to contradict the decisions of the independent regulator and I see that as a recipe for conflict. It would certainly cause confusion over the roles and it would also mean a major waste of resources.

Finally, the noble Earl asked about Clause 5, which allows the non-NHS trusts to come forward. The provision we have made is for the future. It is to ensure that if there are any bodies which are not NHS trusts at the moment but may wish to become so in the future, we will have the capacity to do that. The noble Earl asked about the certification process. I shall be happy to write to him about that because we did not pin it down in Committee.

I hope that on the basis of what I said about the earlier amendment, the noble Earl will withdraw his amendment.

My Lords, the noble Baroness is always most persuasive, and she gets more so as her time in this House proceeds. I was swept along by her answer. I dare not say that I was persuaded by her words, but I am almost at that point. I shall go away and carefully read what she has said. I am grateful to her for taking the trouble to respond so fully.

I am also grateful to her for picking up the point which was not resolved in Committee. I did not mention it, but it still troubles me that there may be an inconsistency that needs examining. However, for now I beg leave to withdraw the amendment.

Amendment, by leave, withdrawn.

[Amendments Nos. 148 and 149 not moved.]

moved Amendment No. 150:

Page 3, line 10, leave out "he" and insert "the regulator".

On Question, amendment agreed to.

[Amendment No. 151 not moved.]

moved Amendment No. 152:

After Clause 5, insert the following new clause—

"PUBLIC CONSULTATION

(1) The Secretary of State shall—

(a) by regulations require that an NHS trust proposing to make an application under section 4(1) or any person proposing to apply under section 5(1), shall first consult prescribed persons;

(b) by regulations prescribe persons to be consulted which shall include—

(i) the NHS trusts and Primary Care Trusts in the area in which are resident all or any of the persons to whom the applicant NHS trust has provided goods and services for the purposes of healthcare, or to whom the applicant person (as the case may be) intends to provide such services if its application is successful,

(ii) the Patients' Forums for those NHS trusts and Primary Care Trusts, and

(iii) local staff side trade unions and such other persons as the Secretary of State considers may be affected by the application.

(2) Section 7 of the Health and Social Care Act 2001 (c. 15) (functions of overview and scrutiny committee) is amended as follows.

(3) In subsection (3) for "may" insert "shall".

(4) In subsection (3)(b) at end insert "which shall include all matters prescribed under subsection (3)(c) below,".

(5) In subsection (3)(c) at end insert "which shall include any application or proposed application under section 4 of the Health and Social Care (Community Health and Standards) Act 2003"."

My Lords, I shall be brief. Your Lordships, and in particular the Minister, will remember that we and many organisations outside the House were most concerned by the lack of specifics about the consultation needed by a body when applying for foundation trust status. A number of statements were made by Ministers about the fact that regulations would be made.

In the mean time, the Government have tabled an amendment. I have always believed that government amendments are like rare stamps: you need a set of tweezers to hold them up to a lamp in order to ensure that they are the genuine article. I have held the amendment up to the lamp and it looks like the genuine article. It provides a minimum basis for consultation, which is right and proper. Indeed, it seems to cover most of the categories listed in our original amendment.

I shall give the benefit of the doubt to the Minister until I have heard her response. I beg to move.

My Lords, I intended to make comments similar to those of the noble Lord, Lord Clement-Jones. I express appreciation to the Government for listening to the arguments presented in Committee. I hope and believe that their preferred solution will meet the concerns that were expressed.

My Lords, I am delighted to have that welcome. Cynicism sits most uncomfortably with liberalism, I feel. I apologise for the fact that the amendment was late in being tabled. Given the Bill process in general, arriving at the necessary amendments took slightly longer than we had anticipated, and I am grateful that noble Lords feel that they meet the issues raised. We intended that they should.

We propose to place minimum consultation requirements in the Bill and the details will be left to regulations. Under the minimum requirement, applicants will be required to consult local people, patients and staff. If the applicant is an NHS trust, it should consult its patients' forum—and I know that noble Lords were most concerned about that—key local authorities and any other persons specified by regulations.

Those requirements will apply to the first wave of applicants for NHS foundation trust status and to subsequent waves. The first wave of applicants has already fulfilled the requirement to seek the views of parties, but they have not and cannot seek the views of patients' forums because they will not be in place until 1st December. Once they are in place, the applicants will need to seek the views of patients' forums. Even if the consultation is completed, we envisage that there will be a separate consultation with the patients' forums.

I am pleased that noble Lords have responded so positively, and I am grateful to them.

My Lords, I thank the Minister for that reply. It was simply the fact that we have not had a great deal of time to analyse the amendment that gave rise to what she says is not compatible with liberalism. I do not know—I find many cynical liberals knocking around the place.

We on these Benches welcome the amendment tabled by the Government. It is right that it should be in primary legislation and not in regulations. In particular, we welcome the reference to patients' forums, which we shall discuss in more detail later on Report. In the mean time, I beg leave to withdraw the amendment.

Amendment, by leave, withdrawn.

Clause 6 [Authorisation of NHS foundation trusts]:

moved Amendment No. 153:

Page 3, line 27, leave out "he" and insert "the regulator".

On Question, amendment agreed to.

[Amendment No. 154 not moved.]

moved Amendment No. 155:

Page 3, line 31, leave out paragraph (b).

My Lords, I welcome the fact that the Minister has responded to a particular concern that I raised in Committee about the requirement for foundation trust applicants to demonstrate to the regulator's satisfaction that the membership of their public constituency will be representative of those eligible for membership. It has always seemed to be an impossible requirement to ask of a trust at that stage of the proceedings. I thank the Minister for taking on board that point in the amendments to which he will speak.

However, I remain unhappy about the notion of representative membership. While as an ideal it is incontestably a good thing, it does not seem to me to be something that should appear on the face of the Bill. Bearing in mind that the Government have recognised reality as regards the impossibility of demonstrating that the membership is or will be representative, and that it is now necessary only for a trust to demonstrate that it is taking steps in that direction, I wonder whether we need such an explicit requirement in the clause at all.

I do not suppose that the Government will be inclined to think again about this matter, so perhaps I could follow through the practical implications of what is proposed here. How is a hospital supposed to ensure that its membership is not only representative at the beginning, but continues to be representative year in, year out? What is it supposed to do? What action can it possibly take if it is simply unable to attract sufficient interest within a segment of the population, such as an ethnic minority? At what point will the regulator say that the list of members is unacceptable? The problem with lifting the concept of membership from mutuals is not only who the list contains, but also who the list does not contain. Members have no responsibility to represent anyone but themselves, so the vulnerable people who do not have a voice will remain without a voice.

The other side of that coin relates to single-issue pressure groups. I do not know whether a trust would be within its rights to try to keep out such people, but how is it supposed to know whether such a group exists until its effects begin to be felt at board of governors level? How does one detect secret activists? What does one do when one has detected them? I genuinely do not see how the problem of entryism is to be overcome and I do not believe that the Government really have an answer to that. As I said in Committee, it is likely that trusts and the regulator will need to fudge the whole issue. I am inherently uncomfortable with that notion because it means that a legal requirement on the face of an Act of Parliament is being consciously side-stepped. I return to what I said earlier which is that it would be better not to have it in the Act at all. I beg to move.

My Lords, the amendment made in another place that produced this clause that the noble Earl does not like was well intended. Clearly, to make such matters work, it is important that the board membership represents the people who are being served by the trust. I have a question for my noble friend. The wording is quite precise as it appears in the Bill at the moment. It states:

"The regulator may give an authorisation . . . if he is satisfied as to the following matters . . . that . . . taken as a whole the actual membership . . . will be representative of those eligible for such membership".

If the regulator were satisfied that the trust had done all that it could to ensure that there was a representative membership, that would be much easier to work with. My problem is that this matter will be open to many judicial review issues because any pressure group that was dissatisfied could simply look at the membership and say, "We do not understand how the regulator could possibly have been satisfied", and the whole matter would be put in jeopardy. Will my noble friend have a look at this as I suspect that the wording is too tight?

My Lords, I believe we are getting tired. Some of the comments made make me believe that we are getting to the point where we want to take on the job of parliamentary counsel. We remain fully committed to ensuring that NHS foundation trusts do all that they can to achieve a representative membership, and to avoid capture of the governance arrangements of NHS foundation trusts by particular interest groups or sections of the community. I reiterate that.

However, we accept, as the noble Earl has recognised, that there was a potential difficulty with the drafting of Clause 6(2)(b) which is the condition of authorisation that required the regulator to be satisfied that the foundation trust's,

"public constituency will be representative of those eligible for such membership".

That is why we propose to change that to "taking steps". Therefore, we propose to amend that provision—as well as in Clause 27(5)(b), which is the corresponding provision relating to NHS foundation trust mergers—so that the regulator is required to be satisfied that the foundation trust applicant has taken steps to secure that the membership is representative. That mirrors the wording used in Clause 36 and should deliver our intention without placing an impossible duty on applicants for NHS foundation trust status.

I know that some noble Lords have concerns about foundation trusts' abilities to achieve a representative membership. I would argue that most hospitals have a pretty good idea about the make-up of the communities that they serve. If certain groups seem to be under-represented, a foundation trust would need to consider what steps it could take to reach out to those particular groups and encourage them to get involved. We have had much experience in that area in terms of user-group involvement in both health and social care so it is not totally untrammelled territory. The Governance Sourcebook, about which I spoke in Committee and which is available in the Library, includes some ideas for tackling those issues.

Some noble Lords believe that this is a fine aspirational goal and now my noble friend is worried about judicial review. We believe that the wording is right. It represents the reality of the world that probably the build-up of the membership would take time before there was full representative membership and the wording in the new government amendments reflects that. But provided the applicants and the foundation trust can show that they are taking steps and providing the regulator satisfies himself that those steps are being taken, there are no reasonable grounds for thinking that judicial review will be brought into the proceedings.

My Lords, I have no objection to the government amendments, which we will doubtless reach shortly. I am grateful to the Minister for his reply. I agree with the noble Lord, Lord Hunt, that the amendment inserted in another place was well intentioned; I certainly cannot think of any objection to its purpose. My only worry is whether it is achievable. It is dangerous to make something that may not be achievable a legal requirement.

Nevertheless, I have listened carefully to what the Minister said. I am glad that he is confident that the process is unlikely to be open to judicial review under the current wording; I acknowledge that the wording will be much better when we have agreed to the government amendments. I certainly hope that foundation trusts will be guided by good advice when the time comes, so that they genuinely have an inclusive and representative membership. I beg leave to withdraw the amendment.

Amendment, by leave, withdrawn.

moved Amendment No. 156:

Page 3, line 31, leave out from beginning to "will" in line 32 and insert "the applicant has taken steps to secure that (taken as a whole) the actual membership of any public constituency, and (if there is one) of the patients' constituency".

On Question, amendment agreed to.

moved Amendment No. 157:

Page 3, line 39, after "provide" insert—

"( ) the applicant has met quality thresholds set by the regulator and reported on by the Commission for Healthcare Audit and Inspection,"

My Lords, I move the amendment only as a means to tell the Minister that I am grateful for listening to the points I raised in Committee and responding to them as constructively he has. I beg to move.

My Lords, I am grateful to the noble Earl for receiving our amendments in such a gracious spirit. In Committee, I emphasised that financial ability and quality were matters that could be considered by the regulator, but we wanted to be clear that we had listened. To ensure that the regulator takes account of those matters, we propose to amend the Bill to require the regulator to consider an applicant's financial position and any CHAI report or recommendation on the applicant in making the assessment under Clause 6(2)(e). I am extremely grateful for that welcome for the amendments.

My Lords, I beg leave to withdraw the amendment.

Amendment, by leave, withrawn.

[Amendment No. 158 moved.]

[Amendment No. 159 unallocated.]

moved Amendments Nos. 160 to 161A:

Page 3, line 40, leave out "he" and insert "the regulator"

Page 3, line 40, at end insert—

"( ) In deciding whether it is satisfied as to the matters referred to in subsection (2)(e), the regulator is to consider (among other things)—

(a) any report or recommendation in respect of the applicant made by the Commission for Healthcare Audit and Inspection,

(b) the financial position of the applicant." Page 3, line 42, at end insert—

"( ) The regulator must not give an authorisation unless it is satisfied that the applicant has sought the views about the application of the following—

(a) if the applicant is an NHS trust, the Patients' Forum for the trust and the staff employed by the trust,

(b) individuals who live in any area specified in the proposed constitution as the area for a public constituency,

(c) any local authority that would be authorised by the proposed constitution to appoint a member of the board of governors,

(d) if the proposed constitution provides for a patients' constituency, individuals who would be able apply to become members of that constituency,

(e) any persons prescribed by regulations."

On Question, amendments agreed to.

[Amendment No. 162 not moved.]

moved Amendments Nos. 162A to 164:

Page 3, line 43, leave out from "regulations" to "the" in line 44 and insert "make provision about consultation"

Page 3, line 44, leave out "he" and insert "it".

Page 4, line 1, leave out subsection (5).

On Question, amendments agreed to.

[Amendment No. 165 not moved.]

Clause 7 [Effect of authorisation]:

moved Amendment No. 166:

Page 4, line 16, at end insert—

"( ) The validity of any act of an NHS foundation trust is not affected by any vacancy among the directors or by any defect in the appointment of any director."

My Lords, this amendment introduces a provision to ensure that NHS foundation trusts can function effectively by ensuring that their actions are not invalidated as a result of any vacancies or defects in appointments of directors. Such provision is standard for a number of bodies with board structures in both public sector bodies such as the HFEA and FSA and companies. I reassure noble Lords that it is a purely technical amendment proposed by the parliamentary draftsman to ensure that the Bill's provisions will work effectively. I beg to move.

On Question, amendment agreed to.

[Amendment No. 167 not moved.]

Clause 8 [Amendments of constitution]:

moved Amendment No. 168:

Page 4, line 24, leave out subsection (2).

On Question, amendment agreed to.

[Amendment No. 169 not moved.]

Clause 9 [Variation of authorisation]:

moved Amendments Nos. 170 to 172:

Page 4, line 30, leave out "him" and insert "it".

Page 4, line 33, leave out "him" and insert "it".

Page 4, line 37, leave out subsection (3).

On Question, amendments agreed to.

[Amendment No. 173 not moved.]

Clause 10 [Register of NHS foundation trusts]:

moved Amendments Nos. 174 to 177:

Page 5, line 2, leave out "registrar of companies" and insert "regulator".

Page 5, line 9, at end insert—

"( ) a copy of the latest document sent to the regulator under paragraph 26 of Schedule 1(forward planning)" Page 5, line 16, at end insert—

"( ) Members of the public may inspect the register at any reasonable time.

( ) Any person who requests it is to be provided with a copy of or extract from any document contained in the register on payment of a reasonable charge." Page 5, line 17, leave out subsections (4) and (5).

On Question, amendments agreed to.

[Amendment No. 178 not moved.]

Clause 11 [Power of Secretary of State to give financial assistance]:

moved Amendment No. 179:

Page 5, line 25, at end insert "including the guarantee of any obligations of an NHS foundation trust"

My Lords, in moving the amendment, I shall speak also to Amendments Nos. 180 and 181. The amendments relate to borrowing by foundation trusts.

Amendment No. 179 permits the Secretary of State to guarantee foundation trusts' borrowing. When we debated the matter in Committee, the Minister said that, despite the Treasury saying earlier this year that the Crown will be responsible for the overall liability of foundation trusts, the Government would not back foundation trusts' liabilities. The Minister used the rather coy language of not bailing out poor management, but it is not management who are on the receiving end of financial failure; it is lenders and other creditors. We shall return to their plight in a later group of amendments.

The amendment would give a power, not an obligation, to guarantee liabilities. We are mystified by the Government's earnest desire to carry on guaranteeing PFI liabilities but their flat refusal to take even a power to guarantee other foundation trusts' liabilities. There can be only one reason for that: the Government have no real desire to let foundation trusts have access to private sources of money other than through PFI. We know that that is what the Chancellor of the Exchequer wants, so that is what is in the Bill. That will distort financing decisions, so we do not support that aspect of the financial regime.

Amendment No. 180 simply asks for an annual report of all the moneys that the Government will pass on to foundation trusts. In Committee, the Minister somewhat disingenuously argued that, because foundation trusts would individually lay their accounts before Parliament, that provided enough scrutiny. That missed the point. The issue is the Secretary of State's accountability to Parliament. The amendment calls for a report on what he has done during the year. NHS bodies outside the magic circle of foundation trusts will want to know whether the chosen few get special treatment; so, too, will Parliament. That is what lies behind the amendment. I hope that the Minister will reconsider his response.

Amendment No. 181 proposes the deletion of Clause 11. As part of a financial regime that we think is in a mess, it is an amendment with considerable merit. But I shall not move it on this occasion. I beg to move.

My Lords, I recognise that the noble Baroness raised concerns in Committee that NHS foundation trusts might find it difficult to borrow from the private sector if no guarantee is available. But I repeat that it is an essential aspect of the new disciplines under which NHS foundation trusts will operate, as the quid pro quo for their additional freedoms, that the Secretary of State will not guarantee debt. I was not being coy in Committee; I stated our exact position.

If the Secretary of State had the power to guarantee debt, it is certain that lenders would expect it to be exercised. That would create the precise problem that the noble Baroness has warned of. It would lead to renewed calls for intervention by the Secretary of State in NHS foundation trusts' affairs and so undermine their freedoms.

Such a power is also unnecessary. Foundation trusts will have access to a wide range of financing options. The clause confers powers for the Secretary of State to make loans to NHS foundation trusts, which they will be expected to pay off as both interest and principal. If it takes some time before the private sector is ready to lend to NHS foundation trusts, they will not be precluded in the mean time from funding capital development plans.

On Amendment No. 180, the noble Baroness makes a reasonable point about accessibility of information on how the Secretary of State uses powers in the Bill to provide financial assistance to NHS foundation trusts. I repeat that we expect that within five years or so all trusts will be eligible to apply for foundation trust status. But introducing a requirement to prepare additional financial accounts for presentation to Parliament is an unnecessary burden.

I can confirm that information about financial support provided to NHS foundation trusts will be included in the Department of Health resource accounts. We will discuss with the National Audit Office the best way of presenting that under the current accounting arrangements.

I hope that that will give some reassurance to the noble Baroness in respect of Amendment No. 180. Given what the noble Baroness said about not moving Amendment No. 181, I will not repeat the arguments that we made in support of this clause at earlier stages.

My Lords, I thank the Minister for that response and especially for his amplification of the information that may be found in the Department of Health resource accounts. As the House knows, I am one of the few people who actually reads the reports that come from the Department of Health and I look forward to reading that one in due course.

The Minister disappoints me on the earlier amendment, but does not surprise me, because there are issues about the way in which trusts will be financed—whether they are forced into government financing and not given genuine freedom to borrow outside, and whether there is a level playing field between PFI and any other kind of borrowing. We will return to those issues one way or another as we see the Bill on its way to another place. In the mean time, I beg leave to withdraw the amendment.

Amendment, by leave, withdrawn.

[Amendments Nos. 180 and 181 not moved.]

Clause 12 [Prudential borrowing code]:

moved Amendment No. 182:

Page 5, line 37, at end insert—

"( ) For the purposes of this Act, "borrowing" includes committments to make payments over periods exceeding one year whether or not they are shown on the balance sheet of an NHS foundation trust."

My Lords, in moving Amendment No. 182, I will also speak to Amendments Nos. 197 and 209 in this group. The amendments deal with the interaction between the PFI and the foundation trust borrowing regime and are the same as those that I debated in Committee. I regret that that debate did not shed quite enough light on this area, which is why I have returned to it on Report. As I explained in Committee, the provisions in Amendments Nos. 182 and 209 are, in a sense, alternatives. Amendment No. 182 would provide for PFI liabilities to be included as borrowing for the purposes of the borrowing code. Amendment No. 209 says that for the purposes of the borrowing limit, commitments to make periodic payments, which include PFI, should not be counted.

We think that the Government are in a complete muddle over PFI, because the Chancellor, in the name of keeping the apparent government borrowing levels down, has forced the Department of Health to pursue PFI to an unhealthy degree. The Minister has told me in correspondence that, when PFI deals are scored on the balance sheet, they will be scored as borrowing for foundation trust regimes and not otherwise. What a muddle. The Government are allowing rules set by accountants and derived in the private sector—which the Minister tends to disparage—to drive what is borrowing under this regime. We do not think that the marginal differences that so absorb accountants should be allowed to conceal the truth. All PFI borrowing—for that is what it is—should be openly scored as such. Amendment No. 182 is the correct one.

The Minister told us that the department will be borrowing financial ratios and metrics from the private sector to settle borrowing matters. Very late last night, an e-mail arrived from the Minister's officials setting out the ratios proposed. Having seen those ratios, we can now quite understand the comment of one of the foundation trust applicants as reported in the Health Service Journal on 11th September that,

"you can virtually generate any figure that you one want".

The magic metrics are all about revenue ratios. I will not get into debating the finer points of the ratios themselves, but the most startling thing is that they take no account of balance sheet issues and accumulated liabilities. That is nonsense. Bankers look at balance sheets as well as the revenue accounts and look at the liabilities behind balance sheets. The quality of the free cash flow of trust X with massive overhanging PFI liabilities is much lower than a trust that has managed to avoid PFI. The borrowing capacity will be correspondingly reduced, which is why we believe that PFI borrowing should be explicitly counted as borrowing. What we have seen of the ratios makes us seriously concerned about this part of the Bill.

Lastly, I have retabled Amendment No. 197, which deals with the impact of PFI deals on the regulator. I asked in Committee—but have not received an answer—what stages of PFI the regulator would be involved and how that might impact on the overall time scales for PFI, which have been far from impressive in many respects. I hope that the Minister will be able to answer that question today. I beg to move.

My Lords, I support the noble Baroness, Lady Noakes, on Amendment No. 182. I have reviewed what the Minister said in Committee, when he claimed that the failure to include PFI liabilities specifically did not drive a coach and horses through the clause. I used the phrase "coach and horses" at the time. The Minister makes that assertion, but I cannot see how that is sustainable. He said that the servicing of PFI arrangements would be taken into account in setting the prudential borrowing limit for each individual NHS foundation trust. I do not see the chapter and verse for that. The noble Baroness, Lady Noakes, is right to persist in the matter, since a huge amount of the liabilities relating to the capital expenditure of the NHS is now by way of PFI, rightly or wrongly. In my view and that of these Benches, in many cases it is wrongly. But those are the facts of life, and we should be providing for it.

My Lords, before dealing with the amendments to Clause 12, it might be helpful if I were to mention to noble Lords, who may have a burning desire to have more details about the proposed borrowing code, that the Department of Health is placing on its website a note about the prudential borrowing code. That will include information which has been given to applicant trusts for planning purposes in order to allow them to prepare for NHS foundation trusts. If noble Lords were to find it useful, I can make copies available in the Library.

Amendment No. 182 would require commitments to make payments over periods exceeding one year to count as borrowing. As we discussed when the issue was raised in Committee, it is the Government's view that the amendment is inappropriate and unnecessary. The prudential borrowing limit, which determines the ability of an NHS foundation trust to repay debt, already takes into account payment commitments that affect the free cash flow of an NHS foundation trust. So the prudential borrowing limit already takes account of any such payments. The borrowing limit will be reduced as the commitments are increased.

If, as may be the case, the amendment is intended to ensure that any PFI commitments are included in the NHS foundation trust borrowing limit, it is inappropriate. PFI contracts are not borrowing by the foundation trust and therefore will not be treated as borrowing for the purposes of the borrowing limits to be set for NHS foundation trusts.

Under existing off-balance sheet PFI arrangements, NHS trusts—not foundation trusts—contract with a PFI project company for a service and as such that does not constitute borrowing for trust. That position will be unchanged with NHS foundation trusts.

Amendment No. 197 is designed to allow NHS foundation trusts to dispose of NHS property as part of a PFI deal. The regulator will designate property as protected, if it is needed for the provision of essential NHS services. It is right, therefore, that NHS foundation trusts should not be able to dispose of property needed for NHS services without the regulator's consent. There is no reason why it should be any different for property disposals as part of a PFI agreement.

Amendment No. 209 is also unnecessary. Off-balance-sheet PFI agreements and other agreements involving periodic payments for the use of assets are not a form of borrowing. It is clear that the prudential borrowing limit will not affect a NHS foundation trust's ability to enter into such agreement. There is, therefore, absolutely no need to state this on the face of the Bill.

Noble Lords may find those arguments remarkably similar to the ones I used in earlier stages of the Bill. That is because the position has not changed, our position has not changed, and we do not believe that these amendments are necessary.

My Lords, I thank the noble Lord for that response and the noble Lord, Lord Clement-Jones, for his support. We think this is a very important area. It was not a big surprise that the Minister gave similar answers to those he gave previously. The Minister says that PFI agreements are not borrowing. I have to tell him that in the private sector they are generally regarded as such. Those on the other side of the transactions regard them as financing deals. It is something of a myth—encouraged doubtless by the Treasury—that in the public sector they are not.

In fact accounting will catch up with this because international accounting developments tend more and more to treat this as borrowing. So, perhaps the concerns reflected in my amendments will in the not too distant future be dealt with by accounting, which appears at the moment to be driving the result.

I shall make again the simple point that it is wholly illogical to say that payment commitments affecting free cashflow are the beginning and the end of the story. I made the point earlier that the overhang of liabilities affects the quality of cashflow hugely. That would certainly be the case if a private sector lender were looking at the matter. We are of course in the slightly make-believe world of the Department of Health, so the answers I received have not surprised me. I do not think that I will progress any further with the issue today and I beg leave to withdraw the amendment.

Amendment, by leave, withdrawn.

moved Amendment No. 183:

Page 5, line 40, at end insert "and have regard to the impact of private borrowing by foundation trusts on NHS trusts' access to capital"

My Lords, in moving Amendment No. 183, I shall speak also to Amendments Nos. 184 and 185. The amendments concern borrowing principles. We had a very interesting debate in Committee on the borrowing code. I do not think that it is an exaggeration to say that there was little meeting of minds between the Government Benches and the combination of these and the Liberal Democrat Benches. The Minister promised me an extensive and informative text which would convince me that things were not quite as I would have the House believe. That turned out to be one page of A4 within a rather longer letter. I am sorry to say that it did not convince me.

We have no details of the code. We are told that it is important that the code should have regard to borrowing principles for non-profit, but no one has yet explained what this means. What kind of non-profit? Is it Standard Life or is it the village hall? What exactly is the comparator? We do not know who will be consulted. As I said when speaking on the previous amendment, the PFI will largely be ignored and some slightly strange metrics and ratios will be at work.

Foundation trusts will be able to borrow within this mystical world of prudential codes and borrowing limits. But—and this is the important point—we have the zero-sum game. For every pound that a trust borrows, the department's expenditure limit will be used up. I shall not go through the arguments again today. The Minister has tried to convince us that there is so much money sloshing around that that is not a real issue. We remain unconvinced.

On the whole, the provisions in Clause 12 are financial gobbledegook. We have seen relatively little hard information about the code. The answers that we have received have hardly moved the issue on since first being discussed in another place more than five months ago. It is hard to escape the conclusion that the prudential borrowing code is a figment of the imaginations of young people in the Treasury and the Department of Health.

We think that we have received precious little information because precious little of substance exists. It may be just dressing up political decisions with some kind of plausibility. We do not support that. We do not support the zero-sum game, which is why we have serious concerns about whether Clause 12 should remain in the Bill. I beg to move.

My Lords, in speaking to Amendments Nos. 183 and 184, I support the noble Baroness, Lady Noakes. The prudential borrowing code is rather like a universal panacea. I refer back to an interesting exchange in Committee between the noble Lord, Lord Hunt, and the Minister. The noble Lord, Lord Hunt, said:

"Given that the prudential borrowing code has to fit the external expenditure limit of the department, there has to be a basis on which the borrowing code must relate to the overall expenditure of the department. Therefore, there must be a fair share basis between foundation trusts with a borrowing code and non-foundation trusts with a traditional approach to access to capital".—[Official Report, 13/10/03; col. 727.]

What is interesting is that the Minister agreed. Later, when replying to me, the Minister said:

"I am saying that the regulator has a requirement to take account of the wider interests of the NHS across a range of his duties".—[Official Report, 13/10/03; col. 728.]

There seems to be a feeling that the prudential borrowing code settles everything. But one of the fundamental objections to the current structure of foundation trusts is to be found precisely in the whole area of borrowing by foundation trusts, which is unsatisfactory in all kinds of ways. In one sense, it is far too restrictive and too little information is available. As the noble Baroness, Lady Noakes, pointed out, the prudential borrowing code should include PFI. If the borrowing powers of foundation trusts are to be truly free, they should be much broader. They should be free of the trammels of the Treasury. On the other hand, in exercising their borrowing powers, they should take regard of the local health economy and regional priorities. That is not squaring a circle or an unusual way of proceeding; that seems to be a sensible way of proceeding.

I think that the department has got it entirely the wrong way around. It is bound into the zero-sum game, described by the noble Baroness, Lady Noakes, yet it still does not have to take account of local health priorities and the local health economy, thus getting the worst of both worlds. It seems to be a topsy-turvy situation. No wonder that so many of us and so many outside organisations have such doubts about this part of the Bill.

My Lords, I think that Benches opposite believe that if they repeat zero-sum game in a rather mantra-like way, it will necessarily be true. I do not resile from what I said earlier. There is no more zero-sum game under foundation trusts than there is under the present set of arrangements. We are operating within a context where, as I said earlier, we have £8 billion more in the capital budget spend over a four-year period. We are not operating as in the past. I think that some noble Lords opposite forget that the world has moved on since they were in government.

There is more money going into the NHS, but there are still the same requirements. People must have priorities. They must borrow and use capital in a way that reflects particular needs in particular localities. Nothing has changed. But we have a more generous funding environment in which the NHS operates.

I am a little confused, but I think that we are speaking to Amendments Nos. 183, 184 and 185. I shall therefore deal with those amendments together. There is a simple reason why the prudential borrowing code is not available: as the Bill makes clear, it is to be set by the independent regulator, who has not yet been appointed. We are wonderful people in Richmond House, but we cannot actually produce the prudential borrowing code—a matter that is clearly causing much frustration—because it is not our job to do so, it is a task for the independent regulator.

In doing that, the independent regulator must take into account commercial best practice for issuing loans to the not-for-profit sector and must consult interested parties, including NHS foundation trusts themselves. It is not for the Department of Health to determine how much borrowing individual NHS foundation trusts will undertake, but their capital expenditure will score on the Department of Health balance sheet, as we have said already.

Amendment No. 183 would require the regulator to take account of generally accepted principles that apply to loans in setting the prudential borrowing code. We think that that is inappropriate. The code places a limit on overall borrowing, but it does not set the terms and conditions under which loans are issued. Those are matters for lenders, not the regulator. However, loan repayments affect the free cash flow of NHS foundation trusts and therefore will be reflected in the calculation of a trust's individual prudential limit.

If, as I thought was the case, Amendment No. 183 is aimed at elucidating how the prudential borrowing code will be calculated, I shall give the noble Baroness some further information. The independent regulator is required to take account of generally accepted principles used by financial institutions to determine the amounts of loans to non-profit-making bodies. The independent regulator can also take account of whatever principles he thinks appropriate in determining the prudential borrowing code; the inclusion of the words "amongst other things" in Clause 12(2) makes that clear. The reason for requiring that, at a minimum, he takes account of principles relating to non-profit-making bodies is that the assessment of the creditworthiness of not-for-profit bodies is somewhat different from that in the for-profit sector, and necessarily more restrictive because there is no equity holder to fall back on in times of financial turbulence.

On the nature of the principles and whether they differ between the range of bodies across the non-profit-making sector, I can tell the noble Baroness that financial analysts employ a range of hard and soft analytical techniques in assessing creditworthiness. Overall, the techniques aim to ensure that debt is kept to prudent levels commensurate with the institution's revenue-generating capacity. I am sure that the independent regulator will wish to look at all types of not-for-profit bodies when assessing the creditworthiness of NHS foundation trusts.

As regards Amendment No. 184, the independent regulator must, by virtue of Clause 3, exercise his functions in a manner consistent with the performance by the Secretary of State of the duties under Sections 1, 3 and 51 of the National Health Service Act 1977. That includes a duty to provide a comprehensive health service free at the point of use. In drawing up the prudential code, the independent regulator will have to take account of the impact of any borrowing on the wider NHS as part of his Clause 3 duty. NHS foundation trusts will not rob Peter to pay Paul, and we believe therefore that Amendment No. 184 is unnecessary.

I do not doubt that I have not satisfied the noble Baroness, but at least I have the virtue of consistency in my argument.

My Lords, the Minister is absolutely right. It appears that we all have mantras. He remarked that our mantra was the "zero sum game", which I must tell him that we sincerely and absolutely believe to be the case. However, he too has one: "more money in the NHS", which seeks to suggest that all the problems of the health service have somehow been solved.

Some of this comes down to not being able to share with the House the prudential borrowing code because of the fiction—I believe that it is a fiction—that the regulator needs to issue it. Our intelligence suggests that work is going on with someone who ultimately may be appointed as the regulator and that this is not completely virgin territory. However, if the Minister does not wish to share that with the House, he can expect the scepticism to remain on this side as regards whether the provisions are soundly based.

I shall not pursue the issue today. I shall consider again what the Minister has said, but I believe that we shall return to it at a later stage. I beg leave to withdraw the amendment.

Amendment, by leave, withdrawn.

[Amendments Nos. 184 and 185 not moved.]

Clause 13 [Public dividend capital]:

[Amendments Nos. 186 to 188 not moved.]

Clause 14 [Authorised services]:

My Lords, Amendment No. 189 has been lost in the mysteries of what transpired earlier in the day.

[Amendment No. 189 not moved.]

moved Amendment No. 190:

Page 6, line 38, leave out ", subject to any restrictions in the authorisation"

My Lords, in moving Amendment No. 190, I shall speak also to Amendments Nos. 192 to 194 inclusive. I would have added my name to the amendment in the name of the noble Lord, Lord Turnberg, had there been room to do so. I very much support the case that he so eloquently put in Committee to safeguard teaching and research in our medical schools and universities.

The hospitals on whom those medical schools and universities depend cannot, and must not, be allowed to sidestep or wind down their role or their research ethos. I am sure that I am not the only Member of the House who noted with concern the report by the Academy of Medical Sciences, published recently in the BMJ, which identified several factors impairing experimental medicine and clinical trials and research generally.

The factors that came out of that report were, in some cases, familiar: the lack of research funding for clinical trials; inadequate facilities to undertake patient-orientated clinical research; and limited numbers of clinical academics. Those are familiar issues. They are, none the less, worrying but they are at least familiar. However, one contributory factor adduced in that report was the pressure on NHS beds and facilities in teaching hospitals. That is pushing out clinical research so that the NHS has less capacity to evaluate the new tools that are emerging from academia and industry. I consider that to be very worrying.

However, I revert to my own amendments. My feeling is that this clause, and the way that it is worded, needs to strike the right balance. Surely it cannot be the job of the regulator to stipulate that particular programmes of research should be pursued in a foundation trust. Maintaining research activity and promoting a research ethos is one thing, and I very much support that, but prescriptively insisting on specific programmes is surely another. Still less, it seems to me, is it acceptable for the regulator to prescribe in that way without reference to the available resources and manpower within the trust. If a programme of research is simply unaffordable and there is good reason for a hospital to feel that it cannot continue with it, the regulator needs to take that into account in the way that he acts.

I am troubled, too, by the words in Clause 14 which enable the regulator to stipulate restrictions in the activities in which a foundation trust may engage. In Committee, the Minister gave some examples of such restrictions. I did not find his explanation at all convincing. The restriction on private patient income is dealt with in Clause 15. Here, we are apparently dealing with non-healthcare income-generating activities.

Given that Clause 14(2) provides that the principal purpose of the trust must be the provision of healthcare, goods and services, I do not understand why the Government feel that the regulator needs to concern himself with clipping the wings of foundation trusts in ways which prevent them supplementing their income. Engaging in commercial R&D projects, providing non-clinical amenities and leasing space to hairdressers—some of the things mentioned by the Minister on the previous occasion—seem to me perfectly legitimate activities for a foundation hospital within the context of its overall healthcare functions. Why, and in what circumstances, should the regulator intervene to prevent those activities? I beg to move.

My Lords, I rise to speak to Amendment No. 191. I am grateful to have the support of the noble Earl, Lord Howe. To have accumulated the support of so many noble Lords on this amendment pleases me enormously.

Amendment No. 191 emphasises rather better what I tried to do in a previous amendment in Committee. It draws attention to our major teaching hospitals—those with medical and dental schools have a specific role to teach and undertake research. Because of that, they have considerable numbers of university and other academic staff working in them, carrying out research, teaching and looking after patients. It is vital for these hospitals to have systems in place to ensure that these activities can continue.

They have some difficulties, even now, and many of those were described very well in the report referred to by the noble Earl from the Academy of Medical Sciences, which is improving or enhancing clinical research. However, I fear that foundation hospitals, with their new-found freedoms, will—if they survive—tend to neglect this responsibility in the face of more economically attractive activities. I will not go on because I talked about this subject at some length in Committee, but I hope that my noble friend will give us some comfort on this.

My Lords, I strongly support the amendment of the noble Lord, Lord Turnberg. I confess to being somewhat baffled by the Government's approach. I read very carefully what the Minister wrote to the noble Lord, Lord Turnberg. To pray in aid Clauses 14(5), (5) and (6) in the face of a very explicit amendment such as this seems extraordinary.

The Minister said in Committee that,

"we think there is already adequate provision in the Bill to ensure that the regulator protects the needs of research in giving a particular authorisation".—[Official Report, 13/10/03. col. 738.]

However, the legislation is hedged about with the word "may".

I think it is worth quoting from a letter which the Minister has had from the Association of UK University Hospitals. It is extremely eloquent and asks many noble Lords to go into the lists again on this issue. I am very glad that the noble Lord, Lord Turnberg, put down the amendment again. The letter says:

"High quality teaching in research and hospitals are vitally important, not only to patients and to improving standards of care but also to the science base of this country and to the economy now and for the future. University hospital trusts are keen to ensure that they can continue to foster medical research in teaching. But they humbly urge you"— this is directed at the Minister; I would not have been quite so humble in the circumstances—

"to ensure that a way forward is found which will protect the future health of the nation".

All at the meeting, representing almost all the UK medical schools in university hospitals, the deans and the chief executives, were unanimous in their wish to express support for this amendment. That is highly significant; they do not feel that the Bill adequately represents their interests. I agree with them and I very much hope that the Minister will reconsider his response to the noble Lord, Lord Turnberg.

My Lords, I will speak briefly to this amendment, to which I have added my name. I am most grateful to the noble Lord, Lord Turnberg, for having tabled this crucial amendment.

The noble Earl, Lord Howe, has already mentioned the report from the Academy of Medical Sciences. The one item he did not mention in his list of reasons was that companies have expressed concern that in the past decade, the United Kingdom has declined as an attractive location for clinical trials. One of the issues cited is a less welcoming culture. This important amendment would reverse this culture, allowing the hospitals to carry out the vital research which they recognise enhances their patient care.

The lack of capacity for research will stop the translation of discoveries in basic science into clinical practice. The NHS, however, is highly dependent on critical evaluation of new diagnostic and therapeutic interventions, as the Government acknowledged when they set up the National Institute for Clinical Excellence. But the National Institute for Clinical Excellence is dependent on the results of really high quality research which is evaluated on the population it is designed to serve.

I wish to quote a warning from the primary care sector. I refer to all the changes that have occurred in primary care. I have been sent a raft of correspondence. The Professor of Primary Health Care at Bristol University writes that,

"hardly a week goes by without some correspondence with a practice which usually revolves around them saying they cannot teach on a particular course in that academic year. Anything you can do to help us, I am sure would be extremely gratefully received by the Society for Academic Primary Care".

There is a teaching and research crisis already and it is getting bigger. All the deans and all the chief executives from the university hospitals, many of whom are in the first wave of applications for foundation trust status, realise that this matter has to be recognised by the regulator as constituting a terribly important role if they are to advance into the future and take forward in the NHS the care that we deliver to our patients.

My Lords, in supporting this group of amendments very warmly, and in echoing what has been said by several other noble Lords, I remind the Minister that, as he well knows, from the inception of the National Health Service in 1948 the pursuit of clinical research has been one of its clearly expressed objectives. Indeed, the existence of a publicly funded health service has been greatly envied by people in other countries who recognise that such a service provides outstanding opportunities for the pursuit of clinical research. It is important to repeat what my noble friend has just said; namely, that basic research in disease mechanisms and clinical research, including the pursuit of clinical trials, nurture future developments in patient care. That cannot be expressed strongly enough. It is therefore extremely important that these amendments are accepted.

From time to time within recent years, particularly during a period of financial constraints on the health service, there has been expressed in certain quarters a feeling by members of the public and others that research is a rather exotic activity that ought not to be funded—if it is being funded—at the expense of funding for patient care. One understands that view but I believe that the point I have just made about the nurturing of clinical care through research outweighs that particular argument.

Amendment No. 190 is important because if the phrase,

"subject to any restrictions in the authorisation" is left in the Bill, it would give the directors and the boards of governors of foundation trusts the opportunity to divert funds away from research activity to other objectives that they regard as being of higher priority.

I turn finally to the wording of Amendment No. 191. I have been in correspondence with the Minister about the wording. I am uncomfortable with it but I understand the reasons he gave for it. Unlike the old days when a teaching hospital was closely associated with a medical school or a dental school, nowadays teaching is often widely dispersed throughout regions. For example, in the region that I know best, the northern and Yorkshire region, there is the University Hospital of North Durham and the James Cook University Hospital in Middlesbrough. These trusts—if they become so—do not include medical and dental schools but are closely associated with them.

Nevertheless I appreciate what the Minister told me in his very courteous correspondence—that this wording has been used in previous NHS Bills. Hence I suppose we must accept it. The only very minor modification I would suggest to Amendment No. 191 is that it should apply particularly to trusts which include a medical and/or dental school because there are quite a number of universities that have both a medical school and a dental school. These amendments are very important and I hope that the Minister will give them a fair wind.

My Lords, I shall, if I may, deal first with Amendments Nos. 190, 192 and 193 before turning to Amendment No. 191. Amendment No. 190 removes the regulator's power to restrict NHS foundation trusts' non-healthcare activities. The principal purpose of a National Health Service foundation trust, if I may remind the House, is to provide NHS services to NHS patients. However, the Bill provides for National Health Service foundation trusts to carry out other activities with the objective of generating surplus income to support the NHS principal purpose. These provisions parallel the income generation powers already available to NHS trusts. So they are carrying on a tradition.

I gave examples earlier of income generation activities but I shall repeat them. Such activities might include running occupational health services on behalf of non-NHS employers; engaging in commercial R&D projects; providing non-clinical amenities for patients, staff and visitors such as internet facilities; leasing space to service providers such as newsagents or hairdressers; and providing private health services. In normal circumstances, the regulator would not intervene in these activities. However, it is right that he should have the power to place restrictions on income generation activities where there is a danger that they could interfere or conflict with or detract from the principal purpose of providing NHS services. That is why we have the provisions as they are in the Bill and why we think that Amendment No. 190 is inappropriate.

I turn to Amendment No. 192. The regulator must act reasonably, and as such must take into account the resources available to a National Health Service foundation trust when authorising its services. The regulator can only require the foundation trust to do what it can reasonably be expected to do. We therefore think that this amendment is also unnecessary.

Amendment No. 193 requires the regulator to take account of the views of the NHS foundation trust and its members when authorising services. We think that this amendment also is unnecessary. The regulator is a public body that must act reasonably. That would include taking the views of the trust into account when deciding its authorised services. The regulator may also wish to seek the views of NHS commissioners and/or the strategic health authority when doing so, to ensure that it has all the information necessary about the local health economy to allow it to make an informed judgment. So, again, we think that this amendment is superfluous.

I have to confess that I have a great deal of sympathy with the thinking behind Amendment No. 191 which was tabled by my noble friend and other noble Lords. In my day job—that is, when I can spare a bit of time from appearing in your Lordships' House—I have responsibility for research and development. We recognise that the NHS has great scope for translating basic scientific discoveries more quickly into benefits for patients. It is worth mentioning that the cancer translational network has shown some of the promise in this area.

I acknowledge noble Lords' point about the quality of the recent report by the Academy of Medical Sciences. It is a very well argued report which the Government will take very seriously indeed. Another report, on biosciences and innovation, is soon to be published by a group chaired by Sir David Cooksey. The Government want to look at these two reports together and then state publicly how we can take some of these issues forward. I do not diminish in any way the seriousness of some of the points that noble Lords have made. We have to make both progress and improvements in this area.

However, I do not think that the way forward is to accept Amendment No. 191. Although I understand the sentiments behind it, I gently say to my noble friend that accepting his amendment will not bring about the necessary changes. As I said earlier, and at the risk of repeating myself, the regulator, under Clause 14(4), (5) and (6), must authorise an NHS foundation trust and may require it to provide education and training and carry out health-related research. The regulator therefore is empowered to require the provision of education, training and research.

There is provision there for the regulator to ensure that the needs are properly attended to. In setting terms for the authorisation, the independent regulator will need to act in line with his general duty in Clause 3, which is still too often overlooked. Noble Lords will no doubt remember that under the clause, as I have said before, the regulator is required to exercise his functions in a manner consistent with the Secretary of State's duties under the National Health Service Act 1977. That includes the duty in relation to university clinical teaching and research.

With the greatest respect to my noble friend and other noble Lords who spoke in support of the amendment, I say that we accept very much the need for action and improvement in the area, but that the amendment is not the way forward. We need something a good deal more practical on the ground, and we hope to turn our attention to the issues very shortly when we receive Sir David Cooksey's report.

My Lords, I clearly cannot speak for the noble Lord, Lord Turnberg, but I am a little disappointed that the Minister was not able to issue anything more than warm words for his amendment. I am sure that the Minister will acknowledge that it has received very strong support from all quarters of the House. Nevertheless, he was helpful in pointing out the provisions in the Bill that could comfort the noble Lord as regards the duties of the regulator on this important matter. We must note for the time being what the Minister said and reflect on it.

I will not dwell too long on my amendments. I am clearly disappointed that the Minister has, once again, rejected them. I am not sure what power exists at present to restrict the activities of NHS trusts, apart from the ministerial power of direction. Restricting the activities of foundation trusts seems inherently against the spirit of what the Government are trying to do in the Bill. I am still not sure that I understood why it was necessary to have the power and in what circumstances it was likely to be used.

I have a feeling that I have had before, which is that I shall not get very much further with this particular point. I shall have to go away and see whether I wish to return to it at Third Reading. For now, I beg leave to withdraw the amendment.

Amendment, by leave, withdrawn.

had given notice of his intention to move Amendment No. 191:

Page 7, line 7, at end insert—

"( ) The requirement referred to in subsection (6) will apply particularly to trusts which include a medical or dental school provided by a university."

My Lords, I shall express an interest that I apologise to the House for failing to express before. I was a member of the panel that produced the report of the Academy of Medical Sciences.

I am grateful to my noble friend for his response. I cannot say that I am not disappointed, but I shall have to go away and hide my tears. He has a strong interest in the matter and I know of his work in other areas, so I take some comfort from his words and from what I know that he is trying to do. I do not intend to move the amendment.

[Amendment No. 191 not moved.]

[Amendments Nos. 192 to 194 not moved.]

Clause 15 [Private health care]:

moved Amendment No. 195:

Page 7, line 43, at end insert—

"( ) Every NHS foundation trust shall publish a statement of its total income and expenditure relating to the goods and services referred to in subsection (4) in each financial year."

My Lords, it is very important to establish from the outset that the motives of those who wish to see the private patient capacity of foundation hospitals properly used, and if possible maintained at its current level, do not derive from some atavistic desire not to have private patients in NHS trusts, or some disapproval of NHS trusts or foundation hospitals having private patients. Largely, it is simply about the proper use of the capacity of foundation hospitals and ordinary NHS trusts, and to ensure that we—the taxpayers, the public—get proper value for money in terms of how hospitals use that capacity.

When we last debated the issue, there was scepticism on the Minister's part as to whether NHS trusts could properly be accused of loss making on their private beds. But in stunning Technicolor, effectively, since Committee the NAO, largely thanks to the former Secretary of State for Health, Frank Dobson, has set up an inquiry. It is in response to the evidence he has unearthed from University College London Hospital showing that all is not particularly well. Mr Dobson has discovered that the hospital has unrecovered debt worth more than £4 million on a private turnover worth £13.4 million. He is highly sceptical as to whether UCLH is able to make a profit on private work in those circumstances.

All that goes to show that utter transparency as to the costs and income deriving from private patients is required. This is an opportunity to have that transparency in foundation hospitals, which will be freer than ordinary NHS trusts in the way in which they operate.

Ministers may believe that we slavishly recycle amendments from Committee to Report stages, but I have not reintroduced the cap amendment that we tabled in Committee. This amendment is a more effective mechanism. It is designed to elicit from foundation trusts their exact operating costs and income relating to private patients. It would open up that area of their operations to public scrutiny and that is right. We should not expect the NAO periodically to conduct inquiries into whether foundation trusts are genuinely making a profit from their private patient activities. We should expect that as a matter of course from the new foundation hospitals. I beg to move.

My Lords, I shall speak briefly to Amendment No. 196. The Minister will be well aware that we disagree completely on Clause 15 not simply as to the philosophy underlying it but also as to its unnecessary prescriptiveness. It is unnecessary, even in the Government's own terms taken in the context of Clause 14(2), which obliges a foundation trust to have as its principal purpose the provision of goods and services for the purposes of the health service.

I referred charitably to the philosophy underlying the clause but I am not so sure that there is one beyond the purely political antipathy to private medicine. But the clause will bite deeply on hospitals such as the Nuffield Orthopaedic, which depend on a certain amount of private patient income but which for sound, strategic reasons saw a marked drop in that income during the base year 2002–03. If the base year level of private patient income is to be an absolutely fixed and immutable bottom line for the purposes of the clause, hospitals which find themselves in this position will be in great difficulty. Is there room for the regulator to show flexibility in this regard where there are exceptional circumstances to justify it?

My second question relates to an issue I raised in Committee but which the Minister did not address. It is the situation of a trust which perfectly reasonably wishes to invest in an expensive item of equipment, such as a scanner. Let us suppose that the hospital can construct a business case for doing so, but only on the basis that the scanner is let out to the private sector in the evenings and at weekends. If Clause 15 is interpreted rigidly, the likelihood is that the hospital will be unable to buy the scanner because it would breach the ceiling on private income. That cannot be a sensible position. It will force hospitals to adopt solutions that are much less advantageous, but for what purpose? No one gains. Therefore I ask the Minister whether in this type of instance the regulator will have discretion to raise the ceiling of private-patient income that a foundation trust is allowed to generate.

My Lords, I support both amendments in this group, although I realise that procedurally that is difficult. On Amendment No. 196, I believe that the Government is becoming caught by the mantra of zero-sum game in believing that there is only a fixed amount of resource to share out. I would certainly welcome an NHS in which money followed the patient and in which every patient effectively had the money in his or her hands to buy the health service that he or she wanted and in which there was no distinction between private and NHS patients. Patients would have equal choice, not just those who could afford it.

However, we do not have that health service at the moment and the Government are not proposing that. Therefore, we are faced with the reality of a health service in which those who rely on NHS funding are, in effect, rationed by the amount of funding that the Government are prepared to supply. In that situation many people are not able to get the care and attention that they want to receive within the timescale that they feel is appropriate. Therefore, many people find from their own pockets or their own insurance schemes the resources to pay for private operations and private care.

I believe that that is a good thing. Such people bring more money and resources into the health service. They end up providing the funding to pay for more consultants, more nurses and more operations and often help to fund equipment that may be used for those treated in that hospital under the NHS. It is an unfortunate circumstance that people feel that they need to pay to receive faster or better quality treatment than they can receive under the NHS, but while we have an NHS that drives people to do so, we should encourage that for the benefit of patients in the NHS as the resources that are applied to the NHS will be shared among fewer people. One person who pays for treatment privately is one fewer person competing for the resources allocated to the NHS. Therefore, I believe that the clause is misguided and that we should have no such limit.

However, I accept, as the noble Lord, Lord Clement-Jones, has said, that if hospitals are to provide services to the private sector, it would be helpful for them to provide an income statement that shows that they are covering their costs. It would certainly be unfair and improper to have a competitive market in which NHS hospitals used their cost position to under-cut private providers in a free market. Therefore, my ideal outcome would be for the Government to withdraw Clause 15 as it currently stands and to substitute in its stead solely Amendment No. 195. I await the Minister's reply without too much expectation.

My Lords, a secret of political success is to lower expectations. I am glad that the noble Lord, Lord Clement-Jones, has moved away from his ideas on a cap. I gently say to him that the fact that the NAO is setting up an inquiry does not prove his point in any way on loss-making. I am sure that he takes comfort from it, but I do not believe that the point is valid. The NAO looks at all kinds of things and we look forward to seeing what it has to say in that area when it produces its report.

On Amendment No. 195, we support the principle that information about income and expenditure from private healthcare must be available and publicly accessible. However, the amendment is unnecessary and could require NHS foundation trusts to produce the same information in different statements. The annual accounts, which must cover income and expenditure from private healthcare and income and expenditure from NHS healthcare, will already be made public. The annual accounts must be presented at a public meeting of the board of governors. Under the provisions of the slightly mauled Schedule 1—to which I am sure that we shall return later—the annual accounts must be made publicly available. To require the information to be published separately would place additional burdens on NHS foundation trusts, without delivering any additional benefit to patients or the public. Information on private healthcare expenditure will already be available, so I suggest that we do not pursue the amendment.

Turning to Amendment No. 196, it will come as no surprise to noble Lords opposite that we are rather attached to Clause 15. It gives the independent regulator power to place restrictions on non-NHS activity and requires the regulator to place a cap on the total level of income derived by an NHS foundation trust from the provision of services to private patients. That is what we seek to do; we do not want arrangements under which private healthcare is expanded at the expense of NHS patients. I understand where many Opposition Peers are coming from. Arithmetically, it must be true that if trusts perform more private healthcare they will bring in more money, but the point is that they may do so at the expense of services to NHS patients. That is why Clause 15 is in the Bill.

Income derived from provision of services to private patients will be capped as a percentage of total income from clinical activities. The percentage will be fixed at that which applied for each foundation trust in the financial year ending in April 2003. In essence, that will prevent NHS foundation trusts from doing a higher proportion of private work than they do today. Of course, because it is a percentage, if the volume of clinical activity increases, naturally—arithmetically—the amount of private healthcare can increase.

However, there is deliberately no flexibility to vary the cap because, as I said, the purpose of defining the cap is to avoid gaming in any way whatever. So we reject Amendments Nos. 195 and 196.

My Lords, I fear that the rules of Report make response interesting in such circumstances. I have sympathy with the Minister's response to Amendment No. 196, because we would not want Clause 15 deleted. We should be vigilant about the proper use of NHS capacity. On the other hand, the Minister is a little blithe in saying that transparency will be present in the accounts that foundation hospitals will be obliged to produce.

How particular areas of cost or income are categorised is very much at the discretion of those who perform the accounting for the foundation trust. If the Minister can point me to something in Schedule 1—as eliminated earlier this afternoon; that rather spectral Schedule 1—that absolutely specifies that private income and the costs and income attributable to that activity will be contained in the accounts and will be transparent for all to see, I will agree with him that the amendment is unnecessary. But I do not believe that that provision is there.

For instance, capital building development may take place that affects both an NHS wing and a private wing. The capital costs, the cost of repayment of loans, and so on, will be stated in the accounts but will all be mixed together. Income may be lumped together for both NHS and private patient activity. The Bill does not specify that that must be separate. It may be specified in a code of practice or code of accounting that exists in shadowy form in the Department of Health, but I do not see it. It is important that, when there is a public presentation of the accounts, as the Minister mentioned, the public can see clearly how NHS capacity is used in those circumstances.

I agree with much of what the noble Lord, Lord Blackwell, said. Sometimes the proper use of beds for private patients is right. It can be wholly beneficial if it creates a super profit that enables hospitals to buy equipment and testing facilities for the benefit of NHS patients. But it would not be right if a UCLH situation were established by the NAO, as Mr Dobson seems to believe to be the case. In those circumstances, we should be extremely vigilant. I hope that the Minister will consider the issue. We must continue to tease out the matter during the next stage of the Bill. In the mean time, I beg leave to withdraw the amendment.

Amendment, by leave, withdrawn.

[Amendment No. 196 not moved.]

Clause 16 [Protection of property]:

[Amendment No. 197 not moved.]

moved Amendment No. 198:

Page 8, line 7, at end insert "but does not include property acquired subsequent to the date of its establishment as an NHS foundation trust"

My Lords, I shall speak also to Amendments Nos. 201, 202 and 204. The amendments concern protected property in Clause 16. I should say at the outset that I shall not move Amendment No. 204 to leave out Clause 16.

The protected property regime was designed initially to give effect to what used to be called a lock on NHS assets. We have no fundamental problem with that and can see the necessity for the state to be able to control the NHS assets that endow foundation trusts. But we have real problems with later-acquired property, especially if it is acquired for non-regulated activities. We want foundation hospitals to be entrepreneurial in their actions and we believed that the Government shared that aspiration.

Amendment No. 198 would allow the trust to keep its later-acquired property away from the regulator's clutches. The Minister said nothing in Committee to provide us with any real comfort that entrepreneurialism would be valued in foundation trusts. That is why we have returned to the question on Report. My simple question to the Minister is: where is the incentive for NHS foundation trusts to be entrepreneurial?

Amendments Nos. 201 and 202 deal with flexibility from a foundation trust perspective. They would allow the trust to challenge the designation of property as protected and to apply for property to be de-designated. The Minister said in Committee that the administrative law is a great protector of foundation trusts. But he knows full well that the only remedy available to foundation trusts will be judicial review. That is not adequate protection, which is why explicit provisions to allow flexibility are needed in the Bill. I beg to move.

My Lords, I shall speak first to Amendment No. 200, tabled by the Government, before considering Amendments Nos. 198, 201 and 202. Amendment No. 200 is a straightforward technical measure to ensure that assets associated with protected research and training carried out by NHS foundation trusts—that is, research and training services that they are required to provide under their terms of authorisation—can be protected against disposal under Clause 16 in the same way as property required for the provision of essential NHS healthcare services.

That means that NHS foundation trusts will not be able to sell or grant security against any asset required for the provision of essential training and research services. That may reassure my noble friend Lord Turnberg, given his earlier concerns.

On Amendment No. 198, we believe that NHS foundation trusts reflect a form of social entrepreneurialism. That entrepreneurialism should not take place without any restraint. Amendment No. 198 would exclude any property acquired after establishment as an NHS foundation trust, whether or not it was needed for the provision of NHS services. It is essential that new property, when it is used to provide NHS services, is covered by the regulator's powers to protect NHS assets to safeguard the continuity of essential NHS services for patients. The amendment would jeopardise the continuity of provision of essential services.

Amendments Nos. 201 and 202 seem to be designed to place the regulator under a statutory duty to take account of representations from NHS foundation trusts when considering the initial protection of property and declassifying once-protected property and to give the regulator the power to declassify protected property. However, the regulator already has powers to declassify protected property under the powers to vary an authorisation in Clause 9. The amendment to allow that is therefore unnecessary. As I explained in Committee, the regulator is under a common law duty to act reasonably, and discussions with NHS foundation trusts would naturally form part of the process of determining and revising the list of protected assets. The amendments are therefore unnecessary because the regulator already has the power and the obligations proposed by the amendments.

My Lords, I thank the Minister for his reply. He is clearly setting a pattern of wanting to disappoint these Benches with his responses, and I reassure him that he has achieved that yet again. I doubt that we will have a meeting of minds on this matter, because we want freedoms for foundation trusts. That is one of the most important elements that should be part of any foundation trust regime. The Government think of controlling and limiting. That will remain a fundamental difference between us. I shall obviously consider carefully what the Minister has said. In the mean time I beg leave to withdraw the amendment.

Amendment, by leave, withdrawn.

moved Amendments Nos. 199 and 200:

Page 8, line 8, leave out "he" and insert "it".

Page 8, line 11, at end insert "or

"( ) for the purpose of doing anything which the trust is required to do under section 14(6)"

On Question, amendments agreed to.

[Amendments Nos. 201 and 202 not moved.]

moved Amendment No. 203:

Page 8, line 12, leave out "he" and insert "it".

On Question, amendment agreed to.

[Amendment No. 204 not moved.]

moved Amendment No. 205:

Page 8, line 18, leave out subsections (2) and (3) and insert—

"(2) The trust shall have no constraints on its right to borrow except as outlined in subsection (3).

(3) A trust's total borrowing shall not exceed 100 per cent of its total revenues without the approval of the regulator."

My Lords, in moving this amendment, I shall also speak to Amendments Nos. 207 and 210 and, in doing so, will start the final chapter for today of the issue of borrowing provisions in the Bill.

Amendment No. 205 would do away with the narrow, controlling, annual borrowing limit envisaged in Clause 17. It sets what is in effect a high borrowing ceiling and does not require the regulator to involve himself in further detail. Lying behind this is the presumption that the best people to determine whether to lend money to a foundation trust are the lenders. Of course, a major part of the financial needs of a foundation trust will be advanced by the Department of Health. I cannot see that an annual borrowing limit set by the regulator will help the Department of Health one iota in its decisions about whether to advance money to NHS trusts as loans or public dividend capital. Even in the Department of Health, lending is more complicated than that. It will certainly be no help whatsoever to private sector lenders—if there are any. They will make their own assessment of borrowing capacity and will be quite unmoved by anything that the regulator sets.

What is the borrowing limit in the Bill? It is a mechanism devised by the Treasury to control foundation trusts. That is why we believe that it should be eliminated from the Bill, which is what Amendment No. 201 would achieve. If it remains Amendment No. 207 would allow that straitjacket to operate in the real world by giving the foundation trust the opportunity to ask for a review. That ability needs to be explicitly allowed for in the Bill. I beg to move.

My Lords, I speak to Amendment No. 206. I apologise for being absent for most of today's proceedings. I have been an NHS user, and I am pleased to give that particular trust three stars for its work this afternoon.

There is a horrible perception that we on these Benches are in cahoots with the noble Earl, Lord Howe, and the noble Baroness, Lady Noakes. I seek to dispel that straightaway in the remarks that I am about to make. Amendment No. 206 takes a completely contrary view to that outlined by the noble Baroness, Lady Noakes. We believe there should be a limit. She might agree that that is sound, and a lender might consider it prudent.

The difference in our amendment is that we believe that the duty should lie with the trust itself. We do not see any point in the responsibility lying with the regulator. In the Bill, it is possible still to limit the amount of regulation and to make sure that the services are right. Where a foundation trust has assets, it is simply good management that it does not place them in jeopardy. Therefore, we believe that it is a fairly unexceptional and wise move. We do not see why the freedom to be wise should not be held at a local level and we can dispense with the regulator's services.

My Lords, I speak to Amendment No. 208. I hope that the Minister will be able to provide me with some reassurance. On reading the Bill, I note that,

"An NHS foundation trust may give financial assistance . . . to any person for the purposes of or in connection with its functions".

On reading those words, I became concerned that foundation trusts might be able to act as bankers. I am concerned that perhaps the scrutiny associated with the application for financial assistance from a person who wanted money to carry out work for the foundation trust might entail a degree of hoodwinking of the trust. The checks and balances as regards the accounts and the way in which the person operated might not be in place.

I was concerned that there was no limit put on that procedure by the regulator. I can understand that a foundation trust with good financial planning might foresee that, at some stage, it might need to make an advance or a loan with a specific contractor in an area involving high expertise associated with research development. I am concerned that the matter is left completely open to the trust board. I seek reassurance from the Minister. It was because of that concern that I tabled the amendment with the wording to the effect that the function of being able to lend should be stipulated in an authorisation.

My Lords, I am pleased that the noble Baroness, Lady Barker, has returned from her experiences with the NHS so satisfied and able on this occasion to distance herself from noble Lords opposite.

Turning to Amendments Nos. 205 and 206, as I explained in Committee and in debate on Clause 12, the prudential borrowing code will give NHS foundation trusts the freedom to borrow to invest in services within a limit that ensures that NHS services are not put at risk. Amendments Nos. 205 and 206 would take away that balance. Both amendments would allow NHS foundation trusts to borrow without regard to their cash flow. That would be irresponsible and could endanger patient access to essential NHS services.

I turn to Amendment No. 207. Clause 17(3) provides that the prudential borrowing limit must be reviewed annually by the regulator. That will provide ample opportunity to take account of changes in an NHS foundation trust's circumstances. The amendment should therefore be rejected.

I turn to Amendment No. 208. An NHS foundation trust's functions are set out in its authorisation; for example, under Clause 14(1), the regulator must,

"authorise the NHS foundation trust to provide goods and services for purposes related to the provision of health care".

I have to say to the noble Baroness, Lady Finlay, that I think that that fairly safely will ensure that NHS foundation trusts do not join Barclays in the marketplace. An NHS foundation trust cannot have functions outside its terms of authorisation. That is a clear part of the Bill. Therefore, any action by an NHS foundation trust, including the giving of financial assistance which is consistent with its functions, is also by definition consistent with its terms of authorisation. That does not mean that people can simply become—willy-nilly—bankers in the sense normally meant by that term. Because of the controls of authorisation by the regulator, Amendment No. 208 is unnecessary and would, in fact, have no legal effect.

My Lords, while the Minister is still on his feet, perhaps I could press him a little further. The service certainly would be stipulated in the terms of authorisation, but, suppose, for example, that an NHS trust wanted to rebuild a renal unit and was looking to a contractor to do that. The contractor might say that it was the only one and that it would require an advance. It might require an inappropriately large advance. It would be difficult to see how the foundation trust would necessarily have the safeguards in place. That would be public money being loaned to someone making inappropriate demands.

I have a concern regarding the safeguard to the public purse with regard to the details around which money might be requested. That goes down further to the micro-management level than to the explicit functions that would be stipulated in the authorisation. I cannot see an authorisation being able to stipulate everything down to the minutiae. In fact, it would be inappropriate to do so with devolved responsibility to the trust. My concern is about the potential safeguard of loans from the public purse of NHS money.

My Lords, an authorisation may include any terms, including terms about financial powers. That will be down to the regulator when considering particular sets of proposals from trusts. On the example cited by the noble Baroness, I would say that none of that changes a public body's responsibility to secure value for money in the way it spends its money. None of it would enable particular payments to escape the eagle eye of the auditor. So, if a trust engaged in practices that were inappropriate, leaving aside the authorisation, one would expect those to come to the notice of the auditor and to be the subject of comment. The combination of the auditor and the market authorisation should give the noble Baroness the assurances she seeks.

My Lords, the noble Baroness, Lady Barker, seemed to want to distance herself from these Benches. I have to say that the noble Baroness was not very far away in what she said. The Minister might have thought that some satisfaction would be derived from seeing us disagree, but in fact we do not disagree much. I agreed with much of what the noble Baroness said. She could see no role for the regulator and would have things left, in effect, to the good sense and responsible attitude of the foundation trusts. That is not a million miles from the position in which we find ourselves. We just sometimes use slightly different language to express our views. Therefore, the Minister will not be surprised that I did not take much comfort from what he said. Again, there is a difference of opinion between a controlling attitude and one based on freedoms and responsibility.

Our vote will always be for freedoms and responsibility and not for central control, which is what we thought the policy was designed to achieve. I shall not pursue that theme today, but I believe that it will arise in one way or another when we continue deliberations on Report or at Third Reading. In the mean time, I beg leave to withdraw the amendment.

Amendment, by leave, withdrawn.

[Amendments Nos. 206 to 210 not moved.]

Clause 18 [General powers]:

[Amendments Nos. 211 to 213 not moved.]

Clause 19 [Information]:

moved Amendments Nos. 214 and 215:

Page 9, line 8, leave out "to him which he" and insert "which the regulator".

Page 9, line 8, leave out "his" and insert "its".

On Question, amendments agreed to.

[Amendment No. 216 not moved.]

Clause 20 [Entry and inspection of premises]:

[Amendment No. 217 not moved.]

Clause 21 [Fees]:

[Amendment No. 218 not moved.]

Clause 22 [Trust funds and trustees]:

[Amendment No. 219 not moved.]

Clause 23 [Failing NHS foundation trusts]:

moved Amendments Nos. 220 to 222:

Page 10, line 8, leave out "he" and insert "the regulator".

Page 10, line 10, leave out "He" and insert "The regulator".

Page 10, line 11, leave out "he" and insert "the regulator".

On Question, amendments agreed to.

[Amendment No. 223 not moved.]

Clause 24 [Voluntary arrangements]:

moved Amendment No. 224:

Page 10, line 23, leave out "he" and insert "it".

On Question, amendment agreed to.

moved Amendment No. 225:

Page 10, line 23, leave out "may" and insert "must"

My Lords, in moving Amendment No. 225, I shall speak also to Amendments Nos. 226 and 227, which are identical to those that I tabled in Committee. I want to come back to one point in particular; namely, the issue raised in Amendment No. 226, which was not resolved last time. Nor was it clarified in the Minister's letter to me, for which I thank him.

If a trust found itself in financial difficulties, it could, itself, invoke the processes referred to in Clause 24(2) under the provisions of the Insolvency Act 1986. In those circumstances, it would make sense for the board to trigger a moratorium or to make a proposal for a voluntary arrangement. A decision of that kind would be momentous for a trust. But it would be right to allow such a decision to be left to the responsible, good sense of the board. After all, the board will be the first to have inklings that all is not as it should be.

I hope that the Minister can reassure me that this idea will not be discarded, but that it will be considered when the regulations are drawn up. I beg to move.

My Lords, as regards Amendment No. 225, although the regulator's powers to impose voluntary arrangements are discretionary, the situations in which he would exercise his power are clearly set out; that is, when it is necessary or desirable. The regulator is under a duty to act reasonably, including exercising his powers under Clause 24 if it was in the public interest and he was satisfied that it was appropriate to do so. That covers the kind of situation about which the noble Earl is concerned and we believe therefore that Amendment No. 225 is unnecessary.

I turn now to Amendment No. 226, which seems to be designed to ensure that the regulator must take action if he is approached by the board of governors requesting that steps be taken under Clause 24 to obtain a voluntary arrangement. I presume that this is prompted by concerns that the regulator is the only body that can initiate voluntary arrangements procedures, and that the NHS foundation trust has no role set out in legislation.

The regulator is a public body and, as such, must behave reasonably and responsibly. This means that he must consider any approach made to him and respond appropriately. Should the board of governors or, for that matter, the board of directors or any creditor of an NHS foundation trust approach the regulator requesting that voluntary arrangements be started, the regulator must consider that request. Having been approached, the regulator would need to consider if it was "necessary or desirable" to bring procedures and, if so, would issue a notice starting the process.

While I understand and am sympathetic to the intention behind the amendment, I am satisfied that the provisions as drafted achieve the necessary position. I hope that this response will reassure the noble Earl.

My Lords, I am grateful to the Minister for those remarks. I beg leave to withdraw the amendment.

Amendment, by leave, withdrawn.

[Amendments Nos. 226 and 227 not moved.]

Clause 25 [Dissolution etc]:

moved Amendment No. 228:

Page 11, line 6, at end insert—

"( ) An order under subsection (3) may not transfer assets or liabilities to any person without his consent."

My Lords, in moving Amendment No. 228, I shall speak also to Amendments Nos. 229 to 231. We now move on to consider what happens to the liabilities of a foundation trust when it fails.

We were somewhat thwarted in our discussions in Committee because the Minister's officials failed to deliver in time a document outlining the Government's intentions for the insolvency regime. Our discussions were therefore inconclusive. That document has subsequently surfaced and, while it answered some of the points that were raised in Committee amendments, it posed further worries about the financial failure regime.

The Government have already confirmed that they have no intention of taking a power to guarantee the liabilities of a foundation trust. Indeed, we debated the point again earlier this afternoon and the Minister made the position perfectly clear. Let me be clear in return: if the Government do not have a power to guarantee the external liabilities of an NHS foundation trust, the effect of the insolvency provisions set out in Clauses 24 to 26 makes it likely that any financial pain caused by the financial failure of a foundation trust will fall wholly on external lenders and other creditors.

Unless the Government accept the amendments in this grouping, or propose something similar, there is one message that should go out from this House: no creditor or lender in his right mind should lend a penny piece or advance credit to a foundation trust. NHS trusts are a much better bet because the Secretary of State will pick up their liabilities. Foundation trusts put creditors in a worse position than the creditors of Enron.

The combined effect of Clauses 24 to 26, as helpfully explained in the Government's memorandum to which I referred earlier, is that the Secretary of State can take whatever assets he likes from a failed foundation trust; he can decide whether any of the liabilities should be paid off in full and transfer them to another part of the NHS, and he can leave whatever assets and liabilities he does not like to the ordinary course of insolvency law. We should be clear that this is worse than Enron. At least the creditors of that company know that the assets will be realised and the creditors paid off in accordance with a non-discretionary legal framework. That is not the case for foundation trusts. The Secretary of State can choose what assets are left over and what liabilities remain. This is not an insolvency regime, it is a daylight robbery regime.

Amendments Nos. 229 and 230 seek to reverse the position. Amendment No. 229 would ensure that the insolvent trust will receive value for the assets that the Secretary of State takes out. Let me make it clear: we have no problem with the Secretary of State ensuring that essential NHS services are continued. It is quite right that the Secretary of State should be allowed to keep assets needed to deliver services. However, it is not right that he should be able to asset strip if the effect of that is to leave ordinary creditors high and dry. If there is a residual financial loss, that should be shared. It is absolutely not right to leave the loss in one place only: the private sector.

Amendment No. 230 stops liabilities being transferred if there is likely to be insufficient money for all the creditors. At present, the Bill allows the Secretary of State to cherry-pick liabilities. If he likes the creditors, he can transfer their debts to a new part of the NHS where they will be paid in full. If he does not like them, he will leave them behind to take whatever pickings are left at the end of the day. Again, that is a way in which the private sector can, and probably will, be victimised by the failure regime. We do not consider that to be appropriate.

Amendment No. 228, which heads this group, merely asks that the NHS body which receives assets or liabilities has an opportunity to consent or, in effect, to refuse. We know, for example, that the Secretary of State has guaranteed PFI liabilities. If a foundation trust were involved in a PFI deal and then failed, the Secretary of State would be keen to pass on that liability. But if a PFI deal turned out to be a bad one—and the jury is definitely still out on the long-term value for money of PFI deals—a recipient trust should have the opportunity to decline the Secretary of State's apparent generosity.

The insolvency provisions are very seriously wrong. We must not allow the Government to create a regime which can be so heavily dependent on discretion and so heavily weighted against the private sector. Amendment No. 231, which would delete Clause 25, is not the right approach because there needs to be a rational regime for financial failure. Clause 25 does not provide that but, as amended, it would come closer to an equitable solution. I beg to move.

My Lords, we did not have much time to discuss insolvency provisions during the Committee deliberations. Therefore, I hope that noble Lords, even at this hour, will forgive me if I spend a few moments setting out the procedure for winding up—in all senses of the word perhaps.

I reject the bold statement by the noble Baroness, Lady Noakes, that we are engaged in daylight robbery. As I said previously, in the event of failure, the Government will stand behind NHS patients and NHS essential services. The failure regime for NHS foundation trusts gives priority to providing continuity of essential services. Clause 25(3) allows the Secretary of State to transfer assets used in the provision of essential services and the associated liabilities from a failed NHS foundation trust to another NHS organisation. Schedule 3 provides for the transfer of employees involved in providing those services. The expectation is that suppliers and contractors will want to continue to supply to the new provider as they will want to keep the business. Therefore, so far as concerns the patients, essential NHS services will simply continue in the normal way.

Assets of a failed NHS foundation trust which are not transferred by the Secretary of State under Clause 25(3) will then be dealt with under a bespoke winding-up regime. Clause 25(6) of the Bill contains the power for secondary legislation to prescribe that regime. It will be created by applying, with appropriate modifications, the provisions in Part 4 of the Insolvency Act, which deals with winding-up procedures.

Here, we are proposing to apply Part 4 with as few modifications as possible to ensure that the regime is as fair as possible to creditors. An NHS foundation trust can be wound up only if the independent regulator makes an application to the High Court and the court orders that it be wound up. However, if directors, governors or creditors of an NHS foundation trust considered it to be necessary, they could approach the regulator and ask him to start the process. The winding up would then proceed more or less as if it were an ordinary creditors' voluntary winding up.

The liquidator will aim to realise the remaining assets of the NHS foundation trust and distribute the proceeds, after costs to creditors, under the hierarchy of distribution established by the Insolvency Act. That means that certain employees' claims are paid first as they are preferential creditors and, after the preferential creditors are paid, the remaining creditors are treated on an equal basis.

The pool of assets available in the liquidation at this stage of the process will, of course, be limited, as assets used to provide essential NHS services would have been transferred to another NHS organisation. Therefore, we need to ensure that those granting credit to NHS foundation trusts understand the basis on which they are dealing with them. It is clearly very important that the insolvency regime applied to NHS foundation trusts is completely transparent so that those who are thinking of doing business with them can properly assess the risks, particularly should one fail.

In that context, let me turn briefly to Amendment No. 228. It is unnecessary because both the Secretary of State and the regulator are under a common law duty to act reasonably. Discussions with bodies which were to receive assets and liabilities of a dissolved NHS foundation trust would in any case form a part of the transfer process because the regulator would be required to consult these bodies before the powers in Clause 25 of the Bill, including the transfer of property and liabilities, could be exercised.

Furthermore, Clause 25 includes a requirement for prior consultation by the independent regulator before any actions can be taken under Clause 25 leading to the dissolution of an NHS foundation trust. This means that the consultation must occur in advance of any transfer. This consultation will concentrate on the transfer of property and liabilities and is likely to cover a range of interests, including bodies with responsibilities for NHS services such as the strategic health authority, PCT commissioners and other neighbouring NHS trusts or NHS foundation trusts. These are the bodies which may receive property or liabilities by virtue of the transfer order. The bodies would have had opportunity to see the proposed transfer and would have the opportunity to respond to the regulator if they had concerns about the proposals. Seeking their consent is not, therefore, needed, as through the consultation process they will have the opportunity to make any objection known.

Again, Amendment No. 229 is unnecessary. Where a transfer takes place under subsection (3), the fair value of the property, less any associated liabilities, will be matched by the issue of public dividend capital to the receiving organisation. Public dividend capital is, in itself, a liability so the effect on the organisation's balance sheet will be neutral. The issue of payment would not therefore arise.

On Amendment No. 230, I have already set out how we expect the failure regime for NHS trusts to work. Transfer of property and liabilities associated with the provision of essential services is an integral part of that process. It ensures that NHS services can continue to be provided to NHS patients, even if a foundation trust is going through winding-up procedures.

If a foundation trust has failed, despite intervention from the independent regulator, it will, regrettably, generally be unable to meet all of its liabilities before being wound up. So the effect of the amendment would be to block the transfer of assets required for the provision of essential services, making them subject to winding-up procedures. This would put the continuing provision of NHS services seriously in doubt. It would completely undermine the objective of the failure regime and mean that the regulator would not be meeting his Clause 3 duty.

Against that background, I hope the noble Baroness will reconsider her position on these amendments.

My Lords, I thank the Minister for that reply and will of course want to read it carefully. However, let me give him an overview of my initial reaction to his comments. I am appalled. He seems to think that ordinary creditors dealing with trusts would try to research whether they were creditworthy for what they were being supplied with. That is quite unprecedented in the NHS, which is why I said earlier that the message should go out from this House to all people who trade with NHS trusts and think about lending to NHS trusts that these are not the kind of bodies they should touch with a bargepole. They should simply avoid it.

The regime that the Minister has very carefully explained is designed, in the name of continuity of services—to which we do not object—to isolate the weakest creditors who would be supplying foundation trusts. The Minister said that they will want to carry on trading with any successor body. However, these are weak people who can be pushed around by this heavy-handed regime. This is quite unlike any insolvency regime that exists anywhere in the public sector and certainly has no real equivalent in the private sector. I can assure the Minister that before speaking today I took the advice of a very eminent individual who has been associated with the Society for Insolvency Professionals. The analysis that I produced was confirmed by him.

I simply did not understand some of the points that the Minister made. That may be because of the approaching "curfew" for this House. I shall, of course, need to read those remarks. However, I leave the Minister in no doubt whatever that this is a subject to which we shall return. I beg leave to withdraw the amendment.

Amendment, by leave, withdrawn.

[Amendments Nos. 229 to 231 not moved.]

My Lords, I beg to move that further consideration on Report be now adjourned.

Moved accordingly, and, on Question, Motion agreed to.

House adjourned at twenty-four minutes before eight o'clock.