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Clause 11 - Power of Secretary of State to give

Part of Health and Social Care (Community Health and Standards) Bill – in a Public Bill Committee at 10:45 am on 22nd May 2003.

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Photo of John Hutton John Hutton Minister of State, Department of Health, Minister of State (Department of Health) (Health) 10:45 am, 22nd May 2003

I am, as always, in your hands on such matters, Mr. Atkinson.

Clause 11 is about the Secretary of State's ability to make loans, grants and other sources of finance available to NHS foundation trusts. Other parts of the Bill relate to public dividend capital, for example. With great respect to the hon. Member for South-West Devon, I must tell him that it is probably best to discuss public dividend capital when we reach those parts of the Bill—he can, of course, translate that to mean that that will be when I have better and further notes. I spent most of the night going through the material on public dividend capital, but I am none the wiser for it. Therefore I look forward to the debate on clause 13.

May I correct one point? There will be a different regime for NHS foundation trusts' access to capital; the right hon. Member for North-West Hampshire was right about that. However, he was not right to say that NHS foundation trusts would have no access to public sector capital. I think that the hon. Member for South Cambridgeshire was developing those points, and I will say more about that subject shortly.

We should be clear that clause 11 simply replicates the existing provisions for NHS trusts regarding the Secretary of State's powers to make financial support available to NHS foundation trusts. I will explain in a moment why flexibility and parallel sets of powers are needed.

The right hon. Member for North-West Hampshire was right, in a general sense, to say that what we are doing with NHS foundation trusts is a break with the

past. For example, they will have access to wider sources of funding to support their capital programmes, including funding from the private sector. That freedom is not exercisable by NHS trusts, as I will explain in a moment.

In general, an NHS foundation trust's future access to capital will depend on its ability to service debt, not on centrally controlled capital allocations. As is clear from the Bill, the amount that trusts can borrow will be determined by a formula based on each NHS foundation trust's ability to repay associated principal and interest. That will be dealt with by the prudential borrowing code. The regulator will set up a formula on which those decisions will be made, which in turn will depend on the strength of projected cash flows.

Each NHS foundation trust will calculate its borrowing limit, which will be confirmed by the independent regulator and will appear in the trust's terms of authorisation. Against that borrowing limit, foundation trusts will be able to raise finance from Government and private lenders to build new facilities and improve existing ones. However, they will not be able to use protected assets—which we will come to later in the Bill—as security for that borrowing, because those assets are necessary to preserve the continuity of NHS services for the public.

The failure regime later in the Bill is designed specifically to ensure that if there is corporate failure on the part of a foundation trust, NHS patients will not be the losers. We need a regime to protect and preserve those assets. Foundation trusts will, however, be able to use non-protected assets as security for that borrowing. Most importantly, the most likely source of security will be the associated revenue streams that will go with the commissioning arrangements that are made with primary care trusts.

The right hon. Gentleman asked from whom trusts would be able to borrow and how much it would cost. I am not sure that in the immediate short-term future—the next three, four or five years, for example—the private sector will lend a huge amount directly to NHS foundation trusts. Initially we expect that most, if not all, new borrowing will be sourced from a new financing facility that the Department of Health is establishing. Therefore we must ensure that the Secretary of State has the power to make loans available to NHS foundation trusts. That is another reason why clause 11 is in the Bill.

We intend independent credit specialists acting on behalf of the Department to operate this financing facility on an arm's-length basis.

Loan applications from foundation trusts will be assessed using generally accepted credit analysis principles. The specialists will not be subject to direction by the Secretary of State in determining loan applications. The analysis will be based on credit worthiness—for example, whether the loan is likely to be repaid—and not on policy-based assessments of the loan purpose, which is current practice.

All new loans will be based on the repayment of principal and interest. It is envisaged that the financing facility will set interest rates for NHS foundation trusts. For protected businesses—that is, core NHS

services—the interest rates will be set at the prevailing national loans fund rate, which is very favourable. I think that it is 3.5 per cent, but someone will be able to confirm the figure shortly. The interest rates for non-protected businesses such as subsidiary interests of foundation trusts, or joint ventures, will be set at a level consistent with private sector borrowing rates. Foundation trusts will pay the prevailing private sector interest rates for borrowing that they draw from the private sector.

I hope that access to public capital has been dealt with in those remarks. I should also let the right hon. Gentleman know that, as announced in the House before Christmas, we have already made three-year allocations of the operational capital that the Department makes available to the NHS. That includes the 29 applicants that are proceeding to the second stage of foundation trust status. Allocations of operational capital have already been fed into the system from public sector routes.