Question (this day) again proposed, That the clause stand part of the Bill.

I remind the Committee that with this we are considering the following:

Schedule 4.

Clauses 32 to 34 stand part.

I will start where I left off. Clause 34 addresses the gap by making it clear where responsibility sits, so that there is no doubt about who must produce the final accounts and ensure that they are completed properly, and about how those accounts should be audited. We think this is a proportionate provision to ensure continuity and clarity on how NHS money has been managed during organisational transition. I commend the clauses to the Committee.

Clause 31 introduces schedule 4, which essentially makes series of amendments to other Acts. It amends the Public Finance and Accountability (Scotland) Act 2000 to remove a cross-reference to other categories, and it amends the Audit and Accountability (Northern Ireland) Order 2003 and the Public Audit (Wales) Act 2004 for similar purposes. It also amends the National Health Service Act 2006 by deleting section 62 and schedule 10, relating to the audit of accounts of NHS foundation trusts, to end the old audit scheme.

Schedule 4 amends section 3 of the Local Audit and Accountability Act 2014 so that foundation trusts are now included in the list of bodies that must keep accounts in the standard way, it amends section 4 to specify which documents count as accounts of foundation trusts for the purpose of auditing, and it amends sections 8 and 10 so that the auditor appointment procedure and the auditor panel’s role now cover foundation trusts.

In addition, schedule 4 rewrites section 13 of the 2014 Act so that if a trust fails to appoint a local auditor, it is the Secretary of State’s job to step in. Previously, that was NHS England’s job; clearly, that needs to change, because NHS England is being abolished. The schedule also amends section 21 so that the auditors’ general duties now apply to foundation trusts too, and it amends section 30, relating to unlawful expenditure and activity, and section 32B, relating to the independence requirement, to remove a now-redundant item from the list.

Schedule 4 also amends schedule 2 to the 2014 Act to formally add foundation trusts to the official list of audited bodies; schedule 5 so that the rules on who can be a local auditor now cover foundation trusts too; schedule 6 to remove an outdated segment from the audit practice code rules; schedule 7 to tidy the reporting rules and extend them to foundation trusts; schedule 9 to realign data matching rules that apply to foundation trusts in the new system; and schedule 11, relating to the disclosure of information, to remove a reference to NHS England, which is no longer necessary because NHS England is being abolished. In general, clause 31 aligns the audit process for accounts of foundation trusts with those of standard trusts and integrated care boards.

Clause 32 removes the need for NHS England to maintain a register of foundation trusts and the fees associated with maintaining it. Section 39 of the NHS Act 2006 requires NHS England to maintain a current register of NHS foundation trusts and specifies what must be in that register. Section 50 states that an NHS foundation trust must pay NHS England a fee that NHS England may determine in respect of exercising its functions under section 39, which relates to keeping the register, and section 39A, relating to a panel for advising governors. Clause 32 deletes sections 39 and 50. The explanatory notes say that the requirement to maintain a register does not need to be transferred to the Secretary of State when NHS England is abolished because, the Government argue, the information will already be available centrally, and there is no need for a fee to keep that in place. That seems sensible to me.

Clause 33 enables the Secretary of State to impose limits on a foundation trust’s annual capital or revenue expenditure. Section 42B of the 2006 Act allows NHS England to make an order imposing a limit on the capital expenditure of a foundation trust in a single year. Section 42C sets out that NHS England must publish guidance about the exercise of its power under section 42B, including about the circumstances in which it is likely to make an order and the method it will use to determine the capital expenditure limit. Clause 33 entirely replaces sections 42B and 42C with rewritten sections, with some notable changes. The wording is changed from “capital expenditure” to “expenditure”. The power is therefore widened from capital expenditure limits to limits on any expenditure—capital and revenue. The Secretary of State replaces NHS England as the entity with the power to impose limits, which makes sense, and the subsection requiring an order to specify the trust, the financial year and so on has been removed in full.

The change gives the Government financial control to stop overspending by NHS foundation trusts. I note that in financial year 2023-24, NHS trusts overspent by £1.2 billion, so presumably this is the Secretary of State getting a tighter grip on spending. In some respects that is sensible, but overspending is often due to staffing costs and day-to-day pressures, not capital expenditure, so there is an argument that the capital limits themselves are not sufficient to deal with the problem. Under the new governance model, the Secretary of State has oversight and responsibility for the health service, and financial control aligns with those changes. The new power could prevent one organisation’s failures from undermining the health service’s wider financial position or impacting other providers.

However, the purpose of foundation trusts is supposed to be that they have greater independence over spending, and the Government have stated that their aim is to create a more devolved and autonomous health system. How does broadening the Secretary of State’s ability to interfere in expenditure devolve power or make foundation trusts more independent? Imposing expenditure limits may control overspending on paper, but it does not address the reasons why it is happening, so limits could lead to a deterioration in the health services delivered by some trusts. What plans does the Minister have to deal with that?

Because the power moves from an arm’s length body to the Secretary of State, interventions could be politically motivated, rather than in the best interests of the NHS. How does the Minister consider that that will be managed?

The power for the Secretary of State to impose expenditure limits at any time during or before the financial year could create uncertainty among trust leadership and undermine long-term planning. If a trust is given a budget for the year, it knows what it has to work with, but if somebody says halfway through the year, “Actually, you are going to have to work with less money than that,” it is very difficult for the board to plan its expenditure, because it is always looking the other way. Why does the Secretary of State need that power? Can the Minister clarify that, if there is a change in the expenditure limit during the year, it will always be revised upwards, and never downwards?

My hon. Friend is making a prescient point. Has she thought about the word “limits”? To me, it is not clear from the Clause as drafted—perhaps it is clearer to her—whether that is an overall limit on capital and revenue expenditure, or whether the clause is saying that the Secretary of State could impose limits on individual line items or departments. The word “limits”—plural—suggests that he or she may be able to do that.

I do not think the Bill is very clear on that. It says that the Secretary of State

“may by order impose limits on the expenditure that may be incurred by an NHS foundation trust in respect of a single financial year.”

However, it does not say whether that is an overall limit, whether it is for capital or revenue or whether it is a limit on a specific item, so the degree to which the Secretary of State has control is not clear. I presume it is an overall limit and that it is for dealing with budgets, but perhaps the Minister can provide some clarity for my hon. Friend.

Clause 34 requires foundation trusts that have been newly authorised, or that have recently acquired another trust or another foundation trust, to prepare the final accounts for their predecessor trust or foundation trust. It does that by modifying section 36 of the NHS Act 2006 to add new provisions that require foundation trusts to prepare accounts for the final period for which they were an NHS trust, establish that part of schedule 7 and part of the Local Audit and Accountability Act 2014 apply in relation to those accounts, and define the final accounting period. It does the same for section 56AA of the 2006 Act.

I thank the Shadow Minister for in general, I think, agreeing that the alignment of many of these processes is quite sensible.

The shadow Minister talked in general terms about financial controls. The Government take financial controls and our responsibility for taxpayers’ money very seriously. As I said last week, from very early on, we were very keen to ensure that there is a grip on NHS finances in order to properly deliver the sort of healthcare that all our constituents deserve. We take that very seriously. There has not been that sort of grip at board level and through the system in recent years. As a result of the measures that we have taken, I think this is the first year in six or more years that the NHS has not gone back to the Department for additional funds to get through the year. The Committee can be assured that financial control is important.

The shadow Minister referred to limits. Of course they are overall limits; the Secretary of State does not go line by line through what a trust spends. I understand the point that people are trying to make to conflate some situations, but of course it is an overall limit.

The safeguards in these provisions are designed to protect foundation trusts’ freedoms and not constrain them, but a foundation trust can enjoy such freedoms only if it is in a well-overseen and stable NHS financial system. By including a backstop for use in exceptional circumstances, Clause 33 helps to safeguard public funds and will help the Department to meet its financial obligations, which I think hon. Members understand. It is a usual process for the Department to go through, as anyone who has sat on the Public Accounts Committee will know. Adherence to the departmental expenditure limit creates and maintains the necessary environment for the foundation trust to exist.

Question put and agreed to.

Clause 31 accordingly ordered to stand part of the Bill.

Schedule 4 agreed to.

Clauses 32 to 34 ordered to stand part of the Bill.