Clause 17 - Financial powers

Health and Social Care (Community Health and Standards) Bill – in a Public Bill Committee at 12:45 pm on 3rd June 2003.

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Photo of Mr Win Griffiths Mr Win Griffiths Labour, Bridgend 12:45 pm, 3rd June 2003

We now come to amendment No. 263, but the hon. Member for Ealing, North (Mr. Pound) is not here to move it. Is someone prepared to move the amendment formally?

Photo of Simon Burns Simon Burns Shadow Spokesperson (Health)

On a point of order, Mr. Griffiths. The hon. Member for Ealing, North is the nearest that we have to a rebel in this Committee. Has he forgotten to be in his place, or has the Whip nobbled him because the Government do not like the amendments?

Photo of Mr Win Griffiths Mr Win Griffiths Labour, Bridgend

That was not a point of order.

Amendment proposed: No. 263, in

clause 17, page 7, line 34, after 'money', insert 'only'.—[Mr. McCabe.]

Photo of Mr Win Griffiths Mr Win Griffiths Labour, Bridgend

With this it will be convenient to discuss the following:

Amendment No. 264, in

clause 17, page 7, line 34, at end insert 'direct'.

Amendment No. 18, in

clause 17, page 7, line 36, leave out subsection (2) and insert—

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

Amendment No. 161, in

clause 17, page 7, line 36, leave out subsections (2) and (3) and insert—

'(2) The trust will have certain limits on its rights to borrow, as outlined in subsection (3).

(3) The trust's borrowings shall not endanger, or incur the loss of protected property, as outlined in section 16.'.

Amendment No. 19, in

clause 17, page 7, line 38, leave out subsection (3) and insert—

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

Amendment No. 146, in

clause 17, page 7, line 38, at end insert—

'(3A) In calculating these limits, no regard shall be had to any borrowing incurred under the Private Finance Initiative.'.

Amendment No. 21, in

clause 17, page 8, line 6, at end add—

'(7) A foundation trust shall show the total value of all its liabilities on its balance sheet.'.

Photo of Chris Grayling Chris Grayling Shadow Minister (Education)

You will not be surprised to learn, Mr. Griffiths, that I do not wish to speak to the first two amendments in that group, but to amendments Nos. 18, 161, 19, 146 and 21.

Amendments Nos. 18 and 19 need to be read together. They attempt to introduce a ceiling on borrowing limits to NHS foundation trusts, at a level that is generally accepted as prudent in the commercial world. A gearing level of debt to income of 100 per

cent. is a fairly standard measure of affordability for a private corporation. It establishes a much more prudent and sensible limit on borrowing than the restrictions that the Bill puts forward otherwise.

Frankly, we are concerned that the level of restriction on foundation trusts' ability to borrow cuts away and undermines many of the benefits that foundation hospitals experience in other countries, where they have much greater control over their own financial affairs and are not subject to centralised prescription over what they can and cannot do financially. It is our view that the Government's approach—that hospitals can have freedom, but freedom in a straitjacket—which is applied to many sections of the Bill, is wrong and flawed. That is ironic, because the Government have had a difficult time with the Bill. There has been a Back-Bench rebellion, although not, sadly, in the Committee. However, we know that those Labour Members who sought to express themselves in the Chamber about the principles of the Bill were not given the opportunity to bring those arguments to the Committee.

Photo of Mike Hall Mike Hall Labour, Weaver Vale

On a point of order, Mr. Griffiths. Some of those who did not vote for the Bill in the Chamber refused to serve on the Standing Committee.

Photo of Mr Win Griffiths Mr Win Griffiths Labour, Bridgend

We have all heard that comment.

Chris Grayling rose—

Photo of Mike Hall Mike Hall Labour, Weaver Vale

The hon. Gentleman should withdraw what he just said.

Photo of Chris Grayling Chris Grayling Shadow Minister (Education)

I suspect, Mr Griffiths, that I would be trespassing beyond your strictures if I were to be diverted down that route.

We must not restrain foundation trusts from delivering a high-quality service. The Government are getting the worst of both worlds; they have all the difficulties of convincing those who are doubtful about the rights and wrongs of foundation hospitals, and all the political difficulties that that brings with it. However, they are also failing to implement effectively the principles of foundation hospitals. They are not giving foundation hospitals the freedom to truly deliver improved services. They are placing them in a position in which they will be able to make improvements only at the margins. That will ultimately be a lost opportunity.

We want to put our view on record that the constraints in the Bill are far too great. Borrowing should be an area in which there are much greater powers—within the control of the governing bodies and boards of directors of foundation hospitals—and where the limits placed on borrowing should be prudent rather than prescriptive. The measures that would implement the prudential code, which will place limits on authorisation, are almost certainly going to be highly prescriptive, and will not give hospitals the real freedom to innovate, to expand and to develop

their services. There is a powerful opportunity, but the Government are failing to offer hospital trusts the chance to take advantage of it.

Amendment No. 146 is a probing amendment; it is none the less extremely important. Many of the hospitals that seek foundation status will have been involved with PFI projects on either a small or large scale during the past few years. Many of them have built up substantial liabilities that must be repaid across a 20 or 30-year period. Some will be entirely new hospitals, which have been PFI-funded to the tune of hundreds of millions of pounds. The typical bill for a new hospital is anything between £200 million and £400 million. The recent building of new hospitals—or substantial additions or modernisations to existing hospital buildings—has been carried through the PFI scheme. The PFI scheme brings with it substantial long-term liabilities with regard to debt repayment and the provision of services by third-party providers. By any stretch of the imagination, these liabilities are as substantial as a conventional bank loan or debt payment.

What is the position for those trusts? How will the overall borrowing framework that the Government intend to set up through the regulator reflect the long-term liabilities that have been built up through PFI? Will the prudential borrowing limits imposed on a hospital trust reflect those liabilities? It is conceivable that a brand new hospital, with a huge liability to repay debts for its buildings, would have the ability to carry on borrowing if the PFI element was not reflected in the prudential code. That hospital could then increase its liability and increase the challenge in finding the funds to repay its liabilities.

On the other hand, an older hospital without the new buildings would find itself less able to develop, modernise and improve for the future. We touched upon that in an earlier debate, but we still do not truly understand the status of PFI and PFI liabilities as part of the borrowing framework. This amendment is designed to extract from the Minister some clearer indications as to how those liabilities will be handled.

Amendment No. 21 states:

''A foundation trust shall show the total value of all its liabilities on its balance sheet.''

In recent years, the Government's favourite way of spending money without admitting it has been to shift it off-balance sheet. Across the public sector, substantial liabilities have been built up that do not appear on the national books. The public sector borrowing requirement figures each year—the total national debt—do not reflect the tens of billions of pounds of liabilities that the Government have built up through PFI and through other off-balance sheet schemes.

My party does not want to see the future of the national health service being built on the back of off-balance sheet accounting. This amendment is designed to write into the Bill a simple and straightforward provision; that the balance sheets of an NHS trust should reflect all of its liabilities, whatever those may be. That is not something that is practised in the

Exchequer today, but it should exist on the balance sheet of these books. I hope that the Minister will accept that principle.

Photo of Steve McCabe Steve McCabe Labour, Birmingham, Hall Green

I should be grateful if the hon. Gentleman clarified something for me, because I may have misunderstood. Am I correct in thinking that he is saying that total liabilities should be shown but that, for the purposes of additional borrowing, they should be discounted? Is that a logical position to adopt?

Photo of Chris Grayling Chris Grayling Shadow Minister (Education)

No, I am not suggesting that they should be discounted. Amendment No. 146 is a probing amendment; it is there to clarify the Government's position and to seek an explanation from them regarding the status of the PFI debt within the borrowing framework. Amendment No. 21 is a direct request to the Government to have the books of an NHS foundation trust show all of its liabilities. If the trust owes £300 million for its new hospital, it is not unreasonable that we should be aware of that.

In accounting terms, there are many forms of off-balance sheet debt that do not need to be shown formally in the structures of a balance sheet. That does not mean that good governance should not require the trust to say, ''And, by the way, we have these liabilities as well''. That is what we are seeking to achieve. That does not happen at national level; it is not reflected in

the PSBR figures. There should at least be a line underneath the figures that says, ''We also owe all this extra money to our PFI provider for the new wing that we built last year''.

Photo of Evan Harris Evan Harris Liberal Democrat, Oxford West and Abingdon

I understand the point that the hon. Gentleman is making about amendment No. 21, and I agree with it. I am confused, however, about his position on amendment No. 146, although I understand the nature of probing amendments. Does he believe that regard should be had to liabilities incurred under the PFI that would show on the balance sheet if amendment No. 21 went through?

Photo of Chris Grayling Chris Grayling Shadow Minister (Education)

I am simply seeking clarification from the Government about what will happen to the liabilities. My own view, as set out in amendment No. 21, is that a foundation trust should show the total value of all its liabilities. The real question, which underlies amendment No. 146 and the previous two amendments, is whether we are going to tell a trust that has a new wing or a new hospital, and has already gone beyond the total liability amount permitted by the regulator under the prudential code, that it cannot borrow anything again, because it has already built a new wing.

It being One o'clock, The Chairman adjourned the Committee without Question put, pursuant to the Standing Order.

Adjourned till this day at half-past Four o'clock.

Griffiths, Mr. Win

(Chairman)

Anderson, Janet

Bailey, Mr.

Burnham, Andy

Burns, Mr.

Burstow, Mr.

Calton, Mrs.

Casale, Roger

Dowd, Jim

Fitzpatrick, Jim

Gillan, Mrs.

Grayling, Chris

Hall, Mr. Mike

Harris, Dr. Evan

Hepburn, Mr.

Hutton, Mr.

Jones, Mr. Jon Owen

Lammy, Mr.

Lansley, Mr.

McCabe, Mr.

Murrison, Dr.

Pound, Mr.

Russell, Ms Christine

Thomas, Mr. Gareth

Ward, Claire

Young, Sir George