Clause 17 - Financial powers

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

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Amendment proposed [this day]: No. 263, in

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

Question again proposed, That the amendment be made.

Photo of Peter Atkinson Peter Atkinson Conservative, Hexham 4:30 pm, 3rd June 2003

I remind the Committee that with this we are discussing the following amendments:

No. 264, in

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

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)'.

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.'.

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.'.

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.'.

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.'.

For the assistance of Members, the selection list for tomorrow's sitting is now available in the Room. I remind the Committee that all questions necessary to dispose of proceedings on part 1 will be put at 7 o'clock this evening. If we have a Division in the House during this sitting, which we no doubt will, I will suspend the sitting for a quarter of an hour. If there is a second Division, I will suspend for 30 minutes, and so on.

Photo of Steve Pound Steve Pound Labour, Ealing North

On a point of order, may I apologise unreservedly to you, Mr. Atkinson, for not being present just before 1 o'clock to move the amendment that I tabled, which my hon. Friend the Member for Birmingham, Hall Green (Mr.

McCabe) generously moved? Unfortunately I was being made up for Sky News at the time. It takes a long time to make me passably human, so I could not leave in the middle.

Photo of Simon Burns Simon Burns Shadow Spokesperson (Health)

Further to that point of order, may I seek your advice, Mr. Atkinson, on whether it is more important to be in a television studio or to attend to one's parliamentary duties in a Committee?

Photo of Peter Atkinson Peter Atkinson Conservative, Hexham

Fortunately, it is not for the Chair to rule on that question. The Committee has heard the apologies of the hon. Member for Ealing, North (Mr. Pound), although the Chair of course deprecates occasions on which hon. Members are not present to move amendments in their name.

Photo of Chris Grayling Chris Grayling Shadow Minister (Education)

Welcome back to the Chair after recess, Mr. Atkinson. Those two points of order have given me the opportunity to pick up where I left off this morning, because a moment ago the Room was lacking Liberal Democrats, but now the hon. Member for Oxford, West and Abingdon (Dr. Harris) has arrived, so I can finish answering the point that he raised in an intervention just before we broke for lunch.

To recap briefly, the amendments to which I was speaking concern the powers and abilities of trusts to borrow and how they report such borrowings. Amendments Nos. 18 and 19 are designed to change the basis on which borrowing limits are applied to foundation trusts. Amendment No. 146, which the hon. Gentleman questioned me about, is designed to ensure that foundation trusts that have in recent years been part of major PFI schemes, perhaps to build a new hospital or new wing or to develop a new dimension of their services, are not disadvantaged when the new arrangements are put in place.

If current PFI financing is set against a trust's total liabilities when its right to borrow further is assessed, a significant number of our leading hospitals may be unable to take advantage of the extra borrowing rights. The odd situation might arise whereby hospitals with new buildings would be able to borrow no more for extending services, and those without new buildings would not be able to take on the substantial financing that they would need to build them, so there are some contradictions in the provisions. The amendment's purpose is to ensure that if a hospital had just opened a brand new PFI wing that took it over the borrowing limit that I expect to be set out in the prudential code, it would not then automatically be subject to a total moratorium on buying new scanners, for example.

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

I do not claim to be an expert on the matter, but is the hon. Gentleman concerned that those hospitals would be treated relatively badly because they would have to finance the pay-off, whereas trusts in a different position would have capital charges to pay back? Is there a way of ensuring that the capital charges in a public scheme are treated in the same way as the costs in a private finance scheme? That might get round the

problem that simply because something was privately financed, the hospital might not qualify for prudential borrowing if those liabilities were counted.

Photo of Chris Grayling Chris Grayling Shadow Minister (Education)

That will depend very much on the trust's level of capitalisation and the final public capital totals that the Government will set for trusts that do not have private sector liabilities. I look forward to hearing the Minister's explanation of how this will be handled. Let me explain my concern. If a brand new hospital has just spent £300 million, it will have to repay that money, but is it the case that, because that total liability is vastly in excess of the prudential borrowing codes level, it will have no further powers to borrow, even for a small specific purpose?

Photo of Peter Atkinson Peter Atkinson Conservative, Hexham

Order. I remind the hon. Gentleman and other members of the Committee that they should address the Chair. I say that not for my benefit, but because Hansard staff have difficulty hearing them if they address the other end of the Committee.

Photo of Chris Grayling Chris Grayling Shadow Minister (Education)

I apologise for that, Mr. Atkinson. I hope that I have answered the question asked by the hon. Member for Oxford, West and Abingdon.

The last amendment in the group has a simple purpose with regard to however liabilities are handled in accounting terms. This is the important distinction between the amendments. We want to understand how PFI will be applied to the prudential code, and to ensure that a hospital with a PFI legacy is not disadvantaged by the code. Whatever the situation and however the finances are accounted, we believe that all liabilities—conventional on-balance-sheet liabilities and what might have been set up as off-balance-sheet liabilities—should none the less be reported back, so that the full, true financial picture of the trust is reflected in the report that it makes to its members and the public as a whole.

Photo of Andrew Lansley Andrew Lansley Conservative, South Cambridgeshire

In the next group is amendment No. 124, on which I should like to make a few remarks, if I may—[Interruption.] I shall wait for the next group if that is more convenient.

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

I risk to speak to amendment No. 161, which is in my name and those of my hon. Friends. I expected to contribute to an ongoing debate on amendments Nos. 263, 264 and, to a certain extent, 265. [Interruption.] I expected to speak about amendments Nos. 263 and 264, but if the hon. Member for Ealing, North (Mr. Pound) is going to make a contribution on those, I shall wait to hear him speak.

The clause is interesting, because it defines how free, in borrowing terms, foundation trusts will be. We have generally taken the view that, if trusts are to have proper decentralisation and financial freedom, it seems wrong unnecessarily to limit their scope to borrow, because the freedom then becomes a phantom, and the idea of the experiment with providers is to ensure that there is a reasonable approach.

We thought that the simplest way and the minimum required would be for the regulator to set as a limit the borrowing that, in his opinion, would not threaten the asset that he considers it necessary to protect, under clause 16. That is a prudential borrowing code. It does not have upper limits or what are, by necessity, artificial limits. It is much clearer, because in the end—[Interruption.] The Minister thinks that it is not clearer. Perhaps because our code is less defined—I accept that—it may not be as clear, but it would certainly provide more latitude. If one is to encourage the use of the freedom to borrow and to identify ways of levering into the health service alternative means of finance as well as of management, the Secretary of State or the Prime Minister, rather than the Chancellor of the Exchequer, should set out the approach to the limits on borrowing.

Our amendment offers the logical minimum restriction. It states:

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

That would be for the regulator to decide. That is the sort of requirement that operates in organisations outside the public sector. True voluntary organisations and mutuals have a duty to ensure that they do not put at risk that which is essential to their asset base. I should be interested to hear why the Minister adopted his approach. Even though we have concerns about the Government's model, the imposition of foundation hospital status and some of the issues relating to the winners and the losers, we do not oppose the greater freedom to borrow for this sort of model. We have tried to show that with this probing amendment.

We had an interesting interchange with the hon. Member for Epsom and Ewell (Chris Grayling) about the consistency of his amendments and the nature of the probing amendment on private finance, which is a big issue. A number of hospitals are now saddled, some would say blessed, with the need to pay back at much higher rates than could be obtained from public capital the costs of a private finance scheme. Many have insufficient beds to provide the capital that they need. Many hospitals with big PFI projects will be keen to get foundation status. It would be interesting to hear how the Government plan to treat that because it could put a brake on the ability to borrow. It is best if I leave it there.

Photo of Steve Pound Steve Pound Labour, Ealing North

I rise to speak briefly to amendments Nos. 263 and 264. I am almost alone, as I do not have a cohort of supporters behind me. I am trying to define precisely the core role and function of the financial regime that will apply in a foundation hospital. The Committee's blood could be curdled many times over by tales of the financial adventures of some of our formerly state-owned organisations. I do not imply that foundation hospitals will go the way of many bodies that I could list, but it is worth putting down a marker in the form of these amendments.

The key one is amendment No. 264, which would inserts the word ''direct''. Hon. Members will be aware that subsection (1) reads:

''for the purposes of or in connection with its functions.''

That is too loose. There is an element of elasticity that slightly worries me. I would be slightly happier were the word ''direct'' used to qualify that.

Chris Grayling: Can the hon. Gentleman envisage a situation in which to meet a shortage of radiographers a trust might invest in a local college to expand the number of places available to radiographers and ensure an eventual flow of trained people? Would that not constitute an indirect, rather than a direct, investment in its services and therefore be effectively outlawed by his amendment?

Photo of Steve Pound Steve Pound Labour, Ealing North

That is an important point. I would hope that any reasonable human being, even a member of the Conservative party, would recognise the direct link there. I did not want to spell it out, but I am talking about many hospitals, particularly in the south-east of England, that have capitalised on their land bank and the asset value of their property holdings in a way that has quite demonstrably not been directly in connection with their core function of providing clinical services. I hope that that is in the past. I am reassured by some of the comments that the Minister made earlier. Were it a question of nourishing a future crop of radiographers I would see it as a sophisticated, flexible, mature and responsible action rather than anything that can be denigrated by association with asset stripping.

Photo of Jim Dowd Jim Dowd Labour, Lewisham West

I am deeply grateful to my hon. Friend, who was in the Radio Five Live studio when the amendment was being moved, for giving way. Into whose custody would he entrust interpretation of the word ''direct''? Would it be a job for the regulator or, as is more likely in such matters, a job for my learned friends?

Photo of Steve Pound Steve Pound Labour, Ealing North 4:45 pm, 3rd June 2003

Whatever else I achieve in my short tenure in the House, let it never be said that I provided succour for my learned friends. They do perfectly well for themselves, and many of them have part-time jobs here. I hope that the word ''direct'' is sufficiently unambiguous that even a cunning counsel would resist the opportunity to reinterpret it. I am talking about something specific, and I shall be happy to hear the Minister's response. I hope that we all agree that the core function of the NHS should be the health of the nation.

Photo of John Hutton John Hutton Minister of State, Department of Health, Minister of State (Department of Health) (Health)

I understand where my hon. Friend is coming from on amendments Nos. 263 and 264, but we would end up in the wrong place is we accepted them, because they would clearly prevent NHS foundations trusts from borrowing money to support their income generation schemes. Generally, that would not be a good thing, but it is the only way that I can interpret his reference to the word ''direct''. He clearly wants to confine the opportunity to use investments to the provision of clinical services. As we all know, however, a range of other things done by NHS foundation trusts and NHS trusts form an important part of their overall level of provision and service for patients.

Dr. Harris: Like what?

Photo of John Hutton John Hutton Minister of State, Department of Health, Minister of State (Department of Health) (Health)

What about child care facilities for NHS staff? My hon. Friend the Member for Lewisham, West (Jim Dowd) may be right: the amendment might look like three cherries on a fruit machine for lawyers, and being one myself I am not usually averse to such measures, but on this occasion it would clearly not be right. In other words, the unnecessary introduction of an element of ambiguity into the Bill would be unhelpful, because it would make it much harder for NHS foundation trusts to invest in a range of initiatives and actions that would generally benefit the provision of services that did not fall within any reasonable interpretation of the word ''direct''.

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

I asked, ''Like what?'' to provoke the Minister into giving a good example of what he means. Can he give other examples?

Photo of John Hutton John Hutton Minister of State, Department of Health, Minister of State (Department of Health) (Health)

There is a long list of examples. The hon. Gentleman needs to acquaint himself with the range of income generation schemes in which NHS foundation trusts take part. Another, which I have seen it at first hand—perhaps the hon. Gentleman and others have seen it—is investing in sheltered housing and key housing support schemes to help to ease recruitment and retention problems.

One could play with words, arguing that such schemes are related to clinical service and are therefore direct. I would rather not play with words, because it could unfairly and unnecessarily restrict the freedom to borrow and invest. I share the hon. Gentleman's concern, but I believe that he would end up in the wrong place. Such an unwelcome restriction would militate against some of the innovation and enterprise that we would like to be facilitated in the public sector.

I have a much greater problem with amendments Nos. 18, 19 and 146. They are designed to give NHS foundation trusts almost absolute freedom to borrow up to 100 per cent. of their total income, with no reference to the regulator, no prudential borrowing code by which to abide and no regard to their ability to service any debt repayments arising in the formulation. That would be daft. It would present an unacceptable risk of financial failure, given the services that NHS foundation trusts provide, particularly the core, protected services.

The hon. Member for Epsom and Ewell spoke of his concern about the formulation of the code. From our consultation with the private sector, we know that lenders generally find comfort in the prudential code and do not advocate the course of action that he proposes. He also raised several concerns about PFI. To use the expression of the right hon. Member for North-West Hampshire (Sir George Young), there is an element of groundhog day to this debate, as we have covered the matter before. The hon. Member for Epsom and Ewell has banged on about PFI borrowing counting against the prudential borrowing code, but I made it perfectly clear two weeks ago that that would not happen. There is no question of total PFI

borrowing scoring against the foundation trust's prudential borrowing code, and I am happy to repeat that for the third or fourth time.

As the hon. Gentleman will know, the structure of the PFI deals means that it is likely that the acute trust will take on contractual liability to make payments for the lifetime of the PFI contract. That will clearly affect its cash flow and, in that sense, its prudential borrowing limit, as it will be determined by reference to its ability to service debt repayments. That is a sensible and prudent way to proceed. It is euphemistically called the prudential borrowing code, but the name is right. Individual borrowing rates will ensure that all external borrowing and other long-term liabilities are kept within prudent and sustainable levels, capital expenditure plans are affordable and management decisions are taken in accordance with professional good practice. Those are all positive reasons to leave the Bill as drafted.

Amendment No. 161, which was tabled by the hon. Member for Oxford, West and Abingdon, would allow NHS foundation trusts to borrow without limit provided that protected assets were not put at risk. I do not regard that as a proper safeguard against financial failure. Even without being able to secure borrowing against protected property, an NHS foundation trust could run up unaffordable debt, and that level of risk is simply not acceptable for organisations that provide an essential public service.

The hon. Member for Epsom and Ewell spoke to amendment No. 21, which, again, is unnecessary. I do not know how many times I have referred to paragraphs 20 and 21 of schedule 1, but I shall happily do so again. They provide for the independent regulator, with approval from Her Majesty's Treasury, to determine the form of NHS foundation trust accounts. The accounts will contain information that the regulator requires to monitor compliance with the terms of authorisation and statute, including information on borrowing so that the independent regulator can monitor compliance with the prudential borrowing limit. I am sure that the points raised by the hon. Gentleman will be dealt with when it comes to determining the format for NHS foundation accounts; otherwise the regulator's ability to do his job properly would be impeded.

This has been an interesting discussion, but for the reasons that I have outlined, I do not think that anything of substance has been raised in the amendments proposed by either my hon. Friend the Member for Birmingham, Hall Green or Opposition Members that would convince me to accept them.

Photo of Chris Grayling Chris Grayling Shadow Minister (Education)

I have two points to make on the back of the Minister's comments.

The first point is that as we progress through the Bill, the Minister says time and again that we need to provide both the freedom to act and a check and balance. If he genuinely believes that foundation hospitals are the right way to generate improved service through local autonomy and control, why will he not give the management of those trusts the same

freedoms that other organisations enjoy? The borrowing limits mean that they are constrained not by the case that they can make to potential borrowers or by a demonstration of their ability to pay, but by a code established at the centre.

In establishing the financial principles, it would not be unrealistic to give foundation trusts the freedom to borrow within the parameters of an independent judgment of their ability to repay made by financiers in the same way that they assess other organisations every day of the week. We will not agree; I simply wanted to put that point on the record.

My second point is that one weakness in accounting in recent years has been that off-balance-sheet debt does not appear in the accounts. If the Minister can give a clear assurance that in setting up the parameters, the regulator will be instructed effectively to enact the direction set out in amendment No. 21, that will be fine. However, many corporate failures have taken place simply because ingenious management, constrained by what it can do through conventional channels, has sought alternative ways of working.

Given the likely constraints on borrowing as a result of the establishment of the prudential code, some management teams will consider other ways of financing the things that they want to do. Given that liability is not easily established, as we know, it is not unreasonable for the members of a trust and the public looking at the accounts to expect a simple statement of the trust's total off and on-balance-sheet liabilities. It is simply prudent to ensure that a trust provides such a statement. I hope that the Minister will ensure that that is part of the guidance from the regulator. I am happy to accept his word that that is the case, but I stress to him the importance of that point. That said, I shall not press the amendments to a vote.

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

The Minister has got us on this one. Astonishing though it is, my hon. Friend the Member for Ealing, North would like me to withdraw the amendment. I beg to ask leave to withdraw the amendment.

Amendment, by leave, withdrawn.

Photo of Chris Grayling Chris Grayling Shadow Minister (Education)

I beg to move amendment No. 20, in

clause 17, page 8, line 3, at end insert—

'(5A) A trust may use the assets acquired as a result of an investment in a body corporate as security to secure funding to make further such investments.'.

Photo of Peter Atkinson Peter Atkinson Conservative, Hexham

With this it will be convenient to discuss the following amendments: No. 124, in

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

'(7) An NHS foundation trust shall have the power to direct surpluses generated from any of its activities towards the provision of goods and services under the NHS, but it will not have the power to distribute surpluses generated from the provision of NHS goods and services towards any other activities or by way of a distribution to its members.'.

No. 265, in

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

'(7) Each NHS foundation trust must publish annually a complete list of every company and body in which investments are held.

(8) No employee or director of an NHS foundation trust shall obtain any direct or indirect personal pecuniary advantage from any investment by the trust concerned.'.

Chris Grayling: The purpose of amendment No. 20 is to strengthen the ability of the foundation trust management to expand and develop its services. Subsection (5) says that trusts have the power to invest in

''forming, or participating in forming, bodies corporate''

''otherwise acquiring membership of bodies corporate.''

In the past two or three months the Government have, with the astute purchase of an American company, Life Resources Inc., given us a snapshot of how that might happen. A deal was struck shortly before last Christmas that was designed to secure the long-term supplies of non-UK blood plasma for NHS patients. There was a problem with supply, and the NHS decided to step in and buy the company to guarantee the supply of its products to the NHS.

That was a sound decision, and it was generally welcomed at the time. It highlights the steps that an NHS organisation might want to take to secure access to a particular service or product. It is perfectly conceivable—indeed, it is my belief, but the Minister will correct me if I am wrong—that subsection (5) is designed to offer foundation trusts the ability to take similar steps when they want to secure access to a particular product or service, or to expand their horizons to strengthen the range of products and services that they can offer people.

It seems logical that if foundation trusts are to follow that path, we should give them the right to use the assets acquired as a result of investment in a body corporate as secure funding to make further such investments subject to the prudent approach that lenders would always take in such situations. It is common practice in the commercial world when buying a couple of businesses to reduce one's finance costs or to secure additional finance by securing the assets of one part of the acquisition against another. There are all sorts of bits of financial engineering that enable companies to take on additional capacity, to make acquisitions and to do what subsection (5) describes to acquire membership of a body corporate.

The amendment is designed simply to give NHS management greater freedom to do that. Although we may not want them to use their core assets as security for acquisitions, we should accept that if they are investing in a body corporate there is no possible reason why they should not be able subsequently to use the asset value of that investment, especially if it proves to be successful and generates additional wealth for the hospital. Why on earth should we not allow them to secure additional funding for a further investment on the back of the gains and assets base within the acquisition that they have already made?

I hope that the amendment is not controversial. It is certainly not designed to create endless liabilities on behalf of trusts; it is intended to give management greater flexibility in developing and enhancing the

services that the trust can offer. I hope that the Government can accept the proposal in this or a similar form.

Photo of Steve Pound Steve Pound Labour, Ealing North

I speak to amendment No. 265 in my name. The amendment stands as a monument to honesty, transparency and best practice, and it is not intended to be probing or wrecking. [Interruption.] Am I at the right page? I beg your pardon, Mr. Atkinson. It is just that a look of pain crossed the face of the hon. Member for the hon. Member for West Chelmsford (Mr. Burns).

Photo of Peter Atkinson Peter Atkinson Conservative, Hexham 5:00 pm, 3rd June 2003

Order. I thought that the hon. Gentleman was speaking in support of amendment No. 265.

Photo of Steve Pound Steve Pound Labour, Ealing North

I was. I am far too solicitous of the young puppies on the Opposition Benches. As I said, I hope that this is an uncontroversial amendment. It is not supposed to be a wrecking or probing amendment; it is more of a pecking amendment. It is trying to penetrate the carapace of actuarial obfuscation that occasionally occurs in large corporations and possibly in foundation hospitals. It would simply require that the foundation trust annually publish a complete list of all the organisations, bodies and companies in which investments were held. I am making it a basic requirement that no one gains any pecuniary advantage from investing in those trusts or companies.

I am not implying that there are people motivated by avarice working in the national health service. I worked in it for many years and can vouch for the honesty and probity of all those who still do so. However, it would be helpful for us to put down a marker to say that we would not encourage the practice of not publishing investments or even of individuals in the foundation trust having advantages from specific investments, for the obvious reason of conflict of interest. I move the amendment in the interest of avoidance of that end and in the interests of transparency and honesty.

Photo of Andrew Lansley Andrew Lansley Conservative, South Cambridgeshire

I was so excited about addressing amendment No. 124 that I jumped the gun slightly. Now that we have reached it I shall attempt to excite the Committee about it. It serves two purposes. I confess that the Government might not want to adopt it, because it is designed to elicit an understanding on my part of how the Government intend to achieve two purposes. I looked for them and anticipated that they would be there, but they were not.

The first purpose is the maintenance of effective competition in the independent sector. The Minister will acknowledge that there are places where there will be competition, and that in the independent sector there should be competition where the NHS is not engaging in subsidised competition. There should be an accounting separation between the publicly subsidised activity of NHS foundation trusts and other activities of a commercial nature that are not directed towards the provision of services to NHS patients.

Linked to that purpose is ensuring that surpluses generated from NHS activities—through taxpayer resources—are retained and directed towards the provision of additional capacity and additional service to NHS patients. In previous debates we have learned that surpluses can be generated from such activity. That may be a basis on which new capacity is offered in many trusts. I do not doubt that it is the intention of NHS foundation trusts to use surpluses generated from their NHS activity for NHS purposes, but, given that we expect that to be the case not only for the generality of trusts but for all trusts in all circumstances, why is there no provision to add that safeguard?

I deal now with the second purpose. The Minister has been reminding us of the necessity of certain safeguards and this seems a logical one. I have linked it, in amendment No. 124, to another safeguard. When we were discussing public benefit corporations—which NHS foundation trusts will be—it was implicit in the discussion that they are like companies limited by guarantee in that they are not profit distributing. It may be implicit, but I cannot find it stated explicitly. I cannot see the place in schedule 1, for example, that makes it clear that NHS foundation trusts or public benefit corporations under schedule 1 will not be able to make a distribution to their members. The Minister may tell me I have missed it, but as far as I can see I have not. However, as we are working on that assumption, it should be expressed in the Bill. As it is not, amendment No. 124 provides a fair basis for expressing it.

Photo of John Hutton John Hutton Minister of State, Department of Health, Minister of State (Department of Health) (Health)

Amendment No. 20, tabled by the hon. Member for Epsom and Ewell, would mean that NHS foundation trusts could use any assets acquired through investments as security to make a further investment. If the hon. Gentleman's intention is to allow money to be so reinvested, I can tell him that the Bill already allows that to happen. Therefore, the amendment is unnecessary, provided, of course, that such borrowing is within the prudential borrowing limit.

However, if the hon. Gentleman's intention is to allow fiscal assets to be used as security for borrowing, it would be acceptable under the Bill as drafted—it is clearly within the terms of the Bill—provided that those assets were not classified as protected under clause 16. I shall not rehearse the argument about the need to protect assets under that clause as we have been over that territory extensively and I have expressed my views on the matter. It is important that NHS foundation trusts are not able to dispose of, or use as security for borrowing, assets that are required for the provision of essential NHS services, as it would jeopardise the continuity of the provision of such services.

Amendment No. 124, tabled by the hon. Member for South Cambridgeshire (Mr. Lansley), is interesting. It has two elements: the first would prevent NHS foundation trusts from using surpluses gained from the provision of NHS services in any other

activities, apart from NHS activities. In view of everything that the hon. Gentleman said, I would be surprised if that were his intention, given that the amendments are largely designed to free NHS foundation trusts. The amendment would have the opposite effect. As there was with the amendment tabled by my hon. Friend the Member for Ealing, there is also a problem about how this amendment would affect the wider income-generation opportunities available to the trust, for example. I imagine that it was therefore a probing amendment, as it would restrict the opportunities for the foundation trust to invest assets more widely in support of its activities.

The second element of amendment No. 124 is more substantive: it is about distributing surpluses to members. I can reassure the hon. Gentleman that he is right; there is no express provision to that effect in the Bill, but that is because it is not needed. The financial regime already prevents NHS foundation trusts from distributing surpluses to members. As statutory corporations, NHS foundation trusts have only the powers granted to them by statute. Clause 17 does not give them the power to distribute or invest money other than in connection with its statutory functions. The hon. Gentleman has made a good fist of it but in legal terms his amendment is not needed.

Amendment No. 265, tabled by my hon. Friend the Member for Ealing, North, would require every foundation trust to publish annually a list of all the companies and bodies in which it holds investments. In addition, it would prevent any employee or director of an NHS foundation trust from gaining any personal advantage from any investment made by that trust. For example, NHS foundation trust employees could not hold any stock or be employed in a company in which an NHS foundation trust had invested.

It is important that foundation trusts should be accountable for their investment policies and there is no doubt that the regulator will need that information in order to perform his functions, especially those under clauses 15(2) and 14(2). The trusty support mechanism in schedule 1(20) and clause 10(2) already means that NHS foundation trust accounts will be in a form prescribed by the regulator and open to public scrutiny, as they should be. Thus the first part of the amendment is unnecessary.

I have a more fundamental anxiety about the second part of the amendment. It is right that the policy for NHS foundation trusts should not become a vehicle for people on the governing boards, directors or employees, to derive significant pecuniary advantage. I agree absolutely with the hon. Gentleman on that point. However, it would not be in line with our aims of encouraging enterprise and innovation to require NHS foundation trusts to impose a total ban on the involvement of employees or directors in the ventures that such a trust may properly set up or invest in in pursuit of its functions. Imposing a ban would cut directly across our line and practice in other not-for-profit organisations such as charities and higher education institutions. It is seen as perfectly proper that academic staff in universities should have an interest in promoting research that has financial

benefits for the individual, and for the university as the investor. That is an obvious parallel, given the educational and research activity that occurs in many NHS trusts, and in those that want to become NHS foundation trusts.

I agree with the hon. Gentleman insofar as we are talking about transparency and openness. The regulator will certainly want to address those in his guidance to NHS foundation trusts on governance and corporate probity. I am sure that he will want also to draw on existing material published by bodies such as the Higher Education Funding Council and the charity commissioners. Again, I have a pleasant sense of deja vu about the amendments, but for the reasons that I have outlined, I would urge the Committee not to accept them.

Photo of Chris Grayling Chris Grayling Shadow Minister (Education)

I seek one point of clarification. If a trust generates surpluses and reinvests them in the acquisition of a body corporate, and in doing so further increases its revenues, will it be able to secure from the regulator a change to the code against which it is allowed to borrow; and will that change be something that can happen at any stage, or can it happen only once in every one, two or three years?

Photo of John Hutton John Hutton Minister of State, Department of Health, Minister of State (Department of Health) (Health)

Clause 17(3) includes a provision for an annual review of the prudential borrowing limit, but if the revenue available to the NHS foundation trust were to increase as a result of a successful investment or income-generation scheme, it would affect its overall borrowing limit because the resources available to service debts would have increased. It would clearly have an impact—I think that I am right in saying that, but I shall get confirmation later.

The borrowing limit is set out in the authorisation for the NHS foundation trust. Under clause 9, it is possible for that to be varied on an application by the NHS foundation trust. It would be possible to review the prudential borrowing limit ahead of the annual review provided for in clause 17, if the NHS foundation trust felt it necessary to do so.

Photo of Chris Grayling Chris Grayling Shadow Minister (Education)

I am grateful for that clarification. I am happy to withdraw the amendment.

Photo of Andrew Lansley Andrew Lansley Conservative, South Cambridgeshire

I accept what the Minister had to say; I understand that, as there is no power to distribute to members, there is no need for a prohibition. I understand also the need for NHS foundation trusts to use resources generated from NHS activities to provide what might be regarded as services ancillary to its NHS activities, and that child care facilities may be a good example. However, it is important to recognise one of the long-term protections that will be needed: NHS foundation trusts should not become vehicles through which surpluses generated by publicly funded activities inside the NHS can be directed towards commercial activities outside the NHS on terms that are anti-competitive in relation to commercial providers.

As far as I am aware, we can probably be reasonably comfortable about that, because if NHS foundation trusts were to engage in that sort of behaviour, competition legislation would bite upon it. Such

behaviour would be protected only insofar as the NHS foundation trusts were undertaking their public duties, which is the provision of goods and services for the health service under the NHS; otherwise they would expose themselves to anti-competitive legislation under the competition rules.

Photo of John Hutton John Hutton Minister of State, Department of Health, Minister of State (Department of Health) (Health)

I am grateful to the hon. Gentleman for allowing me to give the clarification and confidence that he seeks. He should remember that clauses 6, 14 and 15 already provide for the terms of authorisation to restrict activities that fall outside the NHS foundation trust's primary purpose. Under clause 14, it is the provision of NHS services that is the principal purpose that the foundation trust has been set up to secure.

Photo of Andrew Lansley Andrew Lansley Conservative, South Cambridgeshire 5:15 pm, 3rd June 2003

I am suggesting that an additional protection may be needed if an NHS foundation trust is engaged in its primary purpose but has a small adjunctive service. For instance, it might provide a local engineering service, perhaps for medical equipment, and begin to commercialise it. If that were subsidised out of NHS activity, it would expose itself to scrutiny by the competition authorities for doing so on an anti-competitive basis. I think that we are protected on that and so I will not pursue the matter any further. If I am mistaken, I am sure that the Minister will write to us.

Photo of Steve Pound Steve Pound Labour, Ealing North

My right hon. Friend the Minister has spoken with great skill about my amendment No. 265. He has answered my concerns about subsection (7) completely. I still have problems with the Government's reluctance to accept subsection (8) as set out in the second part of the amendment. I cannot understand how we can countenance a situation in which a foundation trust can invest money in a company and an employee of that trust can gain pecuniary advantage. We are told that were the amendment accepted it would create an unfortunate precedent for other national bodies, but that is an argument for cleaning them up rather than amending this. I am normally the most biddable of people. My right hon. Friend usually needs little effort to convince me but I have grave doubts about this.

Photo of John Hutton John Hutton Minister of State, Department of Health, Minister of State (Department of Health) (Health)

I am sorry that I have not persuaded my hon. Friend on this occasion.

Photo of Steve Pound Steve Pound Labour, Ealing North

I have not finished yet.

Photo of John Hutton John Hutton Minister of State, Department of Health, Minister of State (Department of Health) (Health)

We are not giving to NHS foundation trusts or their employees any financial advantage that is not currently exercisable by employees of NHS trusts. These freedoms are already available—rightly so—to encourage innovation and public sector enterprise. It would be a sad day if we lost them.

Photo of Steve Pound Steve Pound Labour, Ealing North

My response would be that I hope we are starting down a different road. NHS foundation trusts are a different beast from those we have known before. We should use this opportunity to breed a better beast. The fact that it exists at present is not a persuasive argument. However, I recognise that it

would probably be inappropriate for me to seek to divide the Committee on this occasion as several hon. Members want the matter to be discussed in another place and in the Chamber.

Amendment, by leave, withdrawn.

Clause 17 ordered to stand part of the Bill.