Question proposed, That the clause stand part of the Bill.

With this it will be convenient to discuss the following:

Schedule 5.

Clauses 36 to 38 stand part.

Schedule 6.

During the process of producing our 10-year plan, we were clear that, as much as we will reward the best performing providers with new freedoms to innovate, we will not hesitate to act on poor performance, and this group of measures deal with just that: action in the event of a failing provider.

Clause 35 and schedule 5 insert new provisions into the NHS Act 2006 to enable the Secretary of State to, by order, convert a failing foundation trust to an NHS trust. This is intended to take place only in the most critical circumstances, and where it is in the public’s best interest for the Secretary of State to be able to direct the trust about how it should exercise its functions, to address safety or other issues at the trust. Foundation trust status should be a mark of good performance, and there must be a mechanism to remove it when performance is seriously deficient. This deauthorisation power will help to maintain the integrity of the reinvigorated foundation trust status and provide an additional incentive for challenged foundation trusts to improve.

The power to make a conversion order can be used where the foundation trust has failed to comply with a condition of its provider licence or with another legislative requirement. In deciding whether to make a conversion order, the Secretary of State must consider various factors, including the seriousness of the failure, the health and safety of patients, the quality of the provision by the trust of goods and services, the financial position of the trust, and the way the trust is being run.

The conversion power is also subject to two additional requirements. First, the Secretary of State must publish guidance about the matters they will consider in deciding whether to exercise the conversion power, including the factors I just outlined. They must consult on any such guidance before its publication. Secondly, where the Secretary of State proposes to use the power, they must first consult the foundation trust in question, any integrated care boards in the areas in which the trust operates, and any other person to whom the trust provides goods and services, and whom the Secretary of State considers it appropriate to consult.

Clause 35, together with schedule 5, also inserts new schedule 9A into the NHS Act 2006, which sets out the immediate consequences of a conversion order. Deauthorising a foundation trust has no impact on the property it holds, the contracts it has with commissioners and other groups, or the terms of employment of employees. These powers set clear organisational consequences for significant underperformance and allow the Secretary of State the freedom to take action to protect patients in extreme circumstances.

Clause 36 contains another critical power to allow action in the case of a failing foundation trust. It allows the Secretary of State to add conditions to an NHS foundation trust’s provider licence where they consider that the trust will breach its licence conditions due to issues with its governance. The clause is a consequence of abolishing NHS England and makes changes to the powers currently held by NHS England under section 111 of the Health and Social Care Act 2012, to confer them on the Secretary of State, with additional consequential changes reflecting the abolition of councils of governors.

The clause sets clear expectations for a foundation trust through the licence conditions and provides the Secretary of State with a transparent mechanism to take more urgent, targeted enforcement action to address failures of governance. Should the foundation trust breach any conditions imposed via section 111, the Secretary of State may require it to make changes to the executive directors of its board as necessary, including removing or suspending executive directors, replacing executive directors with interims, and preventing the trust from appointing specific individuals. If the foundation trust fails to take those actions, the Secretary of State may implement the changes.

To reassure the Committee, there are clear safeguards underpinning the clause, which can be used only where there is evidence that failures of governance in the foundation trust will cause it to breach the conditions of its licence. Further, acting under section 111 does not preclude the Secretary of State from using their other regulatory powers, including to require the foundation trust to take steps to address a breach of any condition of the licence, or to accept undertakings from the trust to address the breach.

Finally, the section 111 power was originally granted to Monitor in 2012 under transitional arrangements, as it was anticipated that the power could be withdrawn once governors had transitioned into their roles and could hold boards to account without outside Intervention. Over 13 years on, that has proven not to be the case. With the abolition of the foundation trust councils of governors, it makes sense to repeal the provisions under sections 112 to 114 of the same Act that made it transitional.

Clause 37 makes changes to the special administration framework to ensure that it continues to function coherently after the abolition of NHS England. The clause makes focused, technical amendments to the Health and Social Care Act 2012 to amend the framework for establishing a mechanism for financial assistance in cases where a provider is subject to a health special administration order under chapter 5 of that Act. It also amends the Act to remove the duty to establish a mechanism for financial assistance to foundation trusts to which a trust special administrator has been appointed. The duty no longer needs to apply to foundation trusts, because the Secretary of State already has the power under provisions in the NHS Act 2006 to provide financial assistance to NHS foundation trusts if needed.

With the abolition of NHS England, the duty to establish a mechanism for financial assistance for independent providers will be retained and conferred on the Secretary of State. It is worth noting that the provisions related to financial assistance in special administration cases, and chapter 5 of the Health and Social Care Act 2012, which sets out the powers and processes for the making of health special administration orders, have not yet been commenced. However, the amendments made by the clause ensure that the special administration regime can operate smoothly if it is ever needed.

The clause does not create new financial support mechanisms, but ensures that existing ones can be used appropriately in the reformed system. In short, clause 37 ensures that the legal framework reflects the new institutional landscape while retaining the ability to act swiftly to safeguard continuity of services during special administration.

Clause 38 makes changes to the trust special administration framework to ensure that it continues to function coherently after the abolition of NHS England. This clause, together with schedule 6, make targeted changes to the trust special administration process set out in the NHS Act 2006 for NHS trusts and NHS foundation trusts as a consequence of the abolition of NHS England. It also aligns more closely the processes between NHS trusts and foundation trusts.

Trust special administration is, and will remain, a last resort mechanism used only in cases of serious failure. It is used to protect patients, stabilise services and put the organisation back on a sustainable footing. Where deemed necessary, a trust special administrator would be appointed to manage the trust and work with relevant key stakeholders to develop recommendations regarding the organisation and its services.

The amendments made by schedule 6 remove functions that currently sit with NHS England and confer the key decision-making functions on the Secretary of State, who will provide clearer lines of accountability and faster decision making when rapid intervention is required. The amendments also simplify the steps involved in the TSA process, with the aim of improving the speed of intervention and providing transparency. They align more closely the processes for trusts and foundation trusts, and set out a simpler process in relation to the administrator’s draft report, consultation and final report. They also require, as is the case now, that key documents and decisions are published and laid before Parliament. That will help ensure proper and meaningful scrutiny of the TSA process and outcomes. It also helps ensure that affected patients, staff and local partners have the opportunity to engage during the process, while maintaining the balance with the need to deliver timely intervention and secure continuity of safe services.

In addition, the amendments in schedule 6 make changes to the role of the Care Quality Commission in trust special administration. The CQC will be able to recommend that a trust special administrator should be appointed. The Secretary of State is also required to consult the CQC before making an order, ensuring that independent expertise on quality and safety informs decisions and that intelligence on service performance is co-ordinated.

The provisions in the Bill ensure that the process remains fit for purpose, proportionate, and aligned across NHS trusts and foundation trusts. They support faster, more coherent decision making in the most serious cases, with the aim of protecting patients and securing sustainable, high-quality services for the future. Taken together, the clauses provide the necessary tools for the Secretary of State to take proportionate, swift and decisive action in the event of provider failure. I therefore commend these clauses to the Committee.

Clause 35 essentially establishes the right of the Secretary of State to convert a foundation trust into an NHS trust in certain circumstances. Currently, section 25 of the NHS Act 2006 establishes trusts and introduces schedule 4 of the same Act, which makes provision about NHS trusts. Section 56AA sets out how additional requirements concerning acquisitions of a trust or foundation trust are to work. Clause 35 deletes section 25(2), which specifies that an order in this context is referred to as “an NHS trust order”, and amends subsection (3), so that no order under section 25—previously no “NHS trust order”—can be made until any consultation that has been prescribed is complete.

Clause 35 introduces proposed new section 57B into the 2006 Act, “Conversion of failing NHS foundation trust into NHS trust”, which provides the Secretary of State with the power to convert if the foundation trust breaches its licence or other legal duties. The trigger is broad and includes non-compliance with any statutory requirement. The proposed new section requires an order to specify when it takes effect and also requires the Secretary of State, when deciding to issue an order, to consider among other things

“the seriousness of the failure…the health and safety of patients…the quality of the provision by the trust of goods and services…the financial position of the trust, and…the way that the trust is being run.”

Before making an order, the Secretary of State will be required to consult the trust, any ICB where the trust has facilities and

“any other person to whom the trust provides goods or services…whom the Secretary of State considers it appropriate to consult.”

The proposed new section also provides the Secretary of State with the power, when the conversion order is made, to

“terminate the appointment of the chair or any executive or non-executive director”,

and to

“appoint a person to be the chair or an executive or non-executive director”.

It also time-limits the powers to intervene with management to one year after the order is made.

Clause 35 also introduces proposed new section 57C into the 2006 Act, “Guidance about conversion”, which requires the Secretary of State to publish guidance about matters to be considered when deciding to make an order and requires them to consult persons considered appropriate before publishing or revising guidance. The clause removes “NHS trust order” from section 276 of the 2006 Act, “Index of defined expressions”, and updates schedule 4, so that an NHS trust may be established by an ordinary order under section 25 or a conversion order under proposed new section 57B.

Schedule 5 to the Bill inserts proposed new schedule 9A to the 2006 Act, “Conversion of failing NHS foundation trusts”, which provides that, on conversion, the foundation trust’s chair and directors become the initial chair and directors of the new NHS trust, unless they are removed by the Secretary of State under the procedures we have just talked about. The proposed new schedule initially keeps the board the same size, until new arrangements are made. It provides that the foundation trust’s public dividend capital carries over to the NHS trust and that the conversion does not affect continuity of the body —it will remain the same organisation, just with NHS trust status.

The proposed new schedule provides that the trust’s property and liabilities, including criminal liabilities, continue unaffected. It also provides that existing contracts continue and that the trust remains party to them. It clarifies that those contracts do not automatically become NHS contracts under section 9(1) of the 2006 Act, provides that the trust keeps any corporate memberships that it held before the conversion, and clarifies that the continuity provisions do not affect the Secretary of State’s wider powers to make directions.

The Secretary of State will have a direct power to act where the foundation trust has failed—for instance, where there have been patient safety lapses—and there are clear benefits to that. There are also transparency requirements built in: the Secretary of State must publish guidance and consult before issuing guidance or undertaking conversion, and the power to change the management is limited to a year.

However, the last Labour Government said that independence was central to the success of foundation trusts. In 2005, the then Secretary of State, Patricia Hewitt, said:

“We know that independence from central Government control and greater freedoms are giving NHS foundation trusts the opportunity to innovate new approaches to healthcare and healthcare services, for the benefit of NHS patients.”—[Official Report, 7 November 2005; Vol. 439, c. 5WS.]

The challenge with innovations is that, even with the very best intentions and the very best advice, some will work and some will not. If any failure at all is a reason for trusts to be taken over, will that cause them to be shy about innovating, for fear of their independence being undermined as a result? There is a balance to strike, so I wonder whether the Minister will comment on that.

The change also makes it easy for the Secretary of State to convert a foundation trust for political reasons—for instance, because of pressure from local Members of Parliament. That is a positive in some ways and a negative in others. Again, it could have a chilling effect on the very autonomy and innovation that Ministers want to see, so the question is how they think they will balance that.

My next question is about the continuity of care for patients. The CQC looked into the Cliff Villages medical practice—a practice, rather than a trust, in my Constituency—and the surgery was found to be wanting in a number of ways. The CQC removed the licence, which meant that medical services could no longer be provided by the surgery with immediate effect, so patients were immediately left without services at that surgery. The ICB managed, by working very hard, to get the surgery reopened on the Monday morning, but when someone is coming into a trust or a foundation trust—into A&E services and such like—their need may be significantly more acute.

In the event of a failing trust, can the Minister describe how services to patients will be maintained and made safe while that process is ongoing? If something is so unsafe that the trust is considered to have failed, meaning that the service needs to be improved, how does the Minister intend to manage that interim period? A surgery might be able to close for three or four days, but that cannot happen with a hospital, particularly if it is in a more remote location with no immediate alternatives.

I also have a question about how we will manage part of the trust failing. If there is a department within a trust, or if a trust runs several different hospitals—I should declare that I work for a trust that does that—and one hospital or department is thought to be delivering a poor service while the others are delivering a good service, how does this process work? I presume that they would all be taken over, but it is not 100% clear.

Clause 36 gives the Secretary of State powers over failing trust governance. Currently, section 111 in the Health and Social Care Act 2012, “Imposition of licence conditions on NHS foundation trusts”, enables NHS England to impose additional licence conditions on a foundation trust if NHS England

“is satisfied that the governance of an NHS foundation trust is such that the trust will fail to comply with the conditions of its licence”.

For NHS England to intervene, the council of governors, the board of directors or both must be failing

“to secure compliance with conditions in the trust’s licence, or…to take steps to reduce the risk of a breach of a condition in the trust’s licence.”

If they are failing to take steps to reduce the risk of a breach of the licence, NHS England can modify the membership of the council of governors. This section clearly needs amending because of the many references to NHS England.

The clause replaces that section entirely. The key elements include enabling the Secretary of State to introduce governance-related licence conditions where they are satisfied that the trust’s governance means it will fail to comply with its licence conditions. The Secretary of State has the power to alter the conditions after they have been imposed. Can the Minister comment on that?

The clause defines poor governance in the same terms as section 111 of the 2012 Act. It enables the imposition of additional conditions where the CQC has issued a warning notice. It allows that, where the trust breaches conditions, the Secretary of State can require the trust to remove executive directors, appoint interim executive directors and suspend or prevent reappointment for a specified period. The Secretary of State can take these actions directly if the trust fails to comply with the notice. The clause also removes sections 112 to 114, which currently ensure that section 111 is time limited. That makes the power a permanent part of the new regime.

NHS England had the power to introduce additional licence conditions and even intervene in the membership of the councils of governors. The direct link to the CQC allows for action when patient safety is at risk. For the health service to be democratically accountable, Governments need the power to act when hospitals fail. Foundation trusts, although more independent, are not immune from failure.

The power also allows the Secretary of State to act if the board were to block action. We heard earlier this week about members of senior leadership teams not engaging in inquiries. I understand that the Government will change the law on that issue, but the clause gives the Government the power to intervene if that were to happen. The Government need to consider the balance in how they define failure and how they ensure that their decisions are not political, but material to the care that is being provided. Can the Minister comment on how that balance will be struck?

Clause 37 removes the special financial assistance provisions for foundation trusts in special administration cases. The provisions are specific to NHS England under section 134 of the Health and Social Care Act 2012, “Duty to establish mechanisms for providing financial assistance”, which sets out that NHS England has a duty to establish mechanisms to provide financial assistance in instances where a health special administration order has been issued.

Clause 37 amends section 134 to remove the requirement for NHSE to maintain financial assistance mechanisms for foundation trusts in special administration. It amends section 134(2)(a) of the 2012 Act to remove a reference to financial assistance provided under section 65D(12) of the NHS Act 2006, and amends section 136(10) of the 2012 Act to change the definition of “special administrator” so that it no longer includes a trust special administrator appointed for a foundation trust. It also amends section 144(3) of the 2012 Act to remove the requirement to review the operation of the foundation trust special administration finance assistance regime. Clause 37 is essentially a consequence of clause 1, which abolishes NHS England, because the Secretary of State is taking over and already has power to provide financial assistance to the foundation trusts in such instances, so NHS England does not need that power as well.

Clause 38 introduces schedule 6, which relates to special administration for trusts and foundation trusts. Essentially, schedule 6 replaces NHS England with the Secretary of State in the trust special administration regime, which seems necessary because of the abolition of NHS England. It gives the Secretary of State responsibility for appointing a trust special administrator for NHS trusts and foundation trusts where serious failure or insolvency-related concerns arise. It requires consultation with relevant ICBs, relevant service recipients and the CQC before the appointment of the trust special administrator. It also requires the Secretary of State to lay a report before Parliament that explains the reasons for appointing a trust special administrator.

Schedule 6 provides that once such a trust special administrator is appointed, the trust’s chair and directors are suspended, although that does not affect the executive directors’ employment status. It requires the administrator to produce a draft report, consult relevant parties and then produce a final report with recommendations. It requires the Secretary of State to decide what action to take after receiving the final report, to publish a decision and to give reasons. It clarifies powers relating to the dissolution of trusts, the ending of administrator appointments, and the transfer of property, liabilities or functions where needed. It also removes a separate statutory objective for trust special administration in relation to foundation trusts.

In many ways, these changes align with the new operational structure after the abolition of NHS England. Unlike many things that the Government are doing, there are clear timeframes guaranteeing a clear public record of why Intervention was needed: the TSA appointment must be made within five working days of the order being made; the draft report must be produced within 65 days; the final report is due within 15 days after the consultation period; and the Secretary of State must make a decision on what to do within 20 days.

I have a question: the Secretary of State would consult with the CQC but the CQC would no longer be able to initiate the appointment of the TSA and approve the final report. That weakens the role of the regulator, yet in so many other ways the Government wish to strengthen the role of the CQC and give it more and more to do, so why have the Government made that decision? Will the Minister talk about that in her summing-up?

I will endeavour to be relatively brief in my reflections, and I will address, particularly, clauses 35 and 38. I can see a logic to what the Minister proposes in them. On Clause 35, we know that foundation trusts face challenges. We saw that writ large with the scandal at Mid Staffs, and in my time as a Minister, several foundation trusts required Intervention—maybe not on that scale—or required improvement. I pick on them just because they are in my head—I do not know the situation today. I am looking across at the hon. Member for Ashford, because going back some years to when I was a Minister, East Kent hospitals NHS foundation trust faced some considerable challenges. I am not necessarily saying that that meets the bar for intervention, but foundation trusts have challenges from time to time.

I should also declare an interest: I was born in the forerunner of the William Harvey hospital—the old Willesborough hospital—in the hon. Member’s Constituency. I recognise that on occasions foundation trusts get into serious, or less serious but still challenging, circumstances. So I can see where the Minister is coming from, but I have a few questions for her.

First, we recognise that although foundation trusts can get into bother, so too can NHS trusts. NHS trusts can underperform, have safety issues or have financial or other performance issues. I am interested to hear the Minister’s reflections on why she believes that removing foundation status and the organisation becoming an NHS trust will necessarily solve those problems, when many NHS trusts can have equally significant challenges. I would welcome the Minister’s reflections on that.

In terms of whether a conversion was to take place—if the Secretary of State determined that that was expedient and it met the criteria—what would the timescales and process be if, further down the line, a foundation trust wished to reapply for its old status, having previously converted to an NHS trust? Would that be possible, and how would it work? I suspect that there would be a significant number of hurdles to get over to prove that it had achieved that status. I would welcome the Minister’s reflections on that point.

Finally, on clause 38, what the Shadow Minister, my hon. Friend the Member for Sleaford and North Hykeham, touched on gives me a little cause for concern. Essentially, this appears to be a further centralisation of powers in the Secretary of State’s hands, particularly with the changes to the role of the CQC. It effectively downgrades the CQC’s power as the independent regulator in these matters. Instead of the CQC being able to initiate the appointment of a TSA where, on safety grounds, they consider it to be necessary and the criteria met, that power will sit with the Secretary of State, who will be required to consult the CQC, but it will seemingly lose its ability to take that initiating step irrespective of what they have seen in any inspections. I would be grateful if the Minister addressed and potentially reassured me on those points.

As people who have been listening will know, this is a chunky set of clauses on some technical details. Let me broadly pick up some of the key points.

I want to be very clear about deauthorisation and our seeking to establish, essentially, a more dynamic model. As I said, the coalition Government repealed the legislation on deauthorisation in the 2012 Act. Although other regulatory levers exist to manage poor performance, we are using two core arguments. First, converting foundation trusts into NHS trusts will enable the Secretary of State, if needed, to intervene further through their power of direction over NHS trusts. The Secretary of State will therefore be able to focus on the patient and public interest over preservation of providers’ statutory freedoms in cases of serious failure. I hope that that addresses some of the points that have been raised. Secondly, having a more dynamic environment with the potential for deauthorisation in such cases, and the consequent loss of statutory autonomy, may act as an incentive for challenged foundation trusts to improve, and it would show that there are consequences.

As I think the hon. Member for Sleaford and North Hykeham knows, the usual processes exist for managing performance across various aspects of the provider. They will continue. This is for exceptional circumstances. As I said, this is about maintaining a more dynamic model than the one we have. The purpose behind her questions about continuous service—the purpose of having a range of failure powers—is to ensure continuity of care for patients and the public. The analogy with general practice does not hold; this is a very different set of circumstances. But, obviously, she raises an important point about public concern relating to the service’s provision, and I assure her on that. We need to make sure that we diagnose the situation, provide the trust with support and assess which toolbox is most applicable.

The CQC can recommend that a trust special administrator should be appointed where it is satisfied that there is a serious failure to provide services of a sufficient quality, and it must provide a report on the safety and quality of services following the appointment of an administrator. The Secretary of State must also consult the CQC before making an order to appoint a trust special administrator.

Question put and agreed to.

Clause 35 accordingly ordered to stand part of the Bill.

Schedule 5 agreed to.

Clauses 36 to 38 ordered to stand part of the Bill.

Schedule 6 agreed to.