Health and Social Care (Community Health and Standards) Bill

HL Deb 09 October 2003 vol 653 cc458-523

3.26 p.m.

House again in Committee on Schedule 1.

Baroness Noakes moved Amendment No. 41:

Page 110, line 8, leave out "corporation" and insert "board of governors"

The noble Baroness said: I rise to move Amendment No. 41 and also speak to Amendments Nos. 42 and 49. These amendments touch upon the position of the chairman of the board of governors and the overlap between the two boards. There are some complex issues here and I fear that 1 shall need several minutes of the Committee's time to explain them.

I start with the meatiest of the amendments, Amendment No. 41, which seeks to amend paragraph 11 of Schedule 1. Paragraph 11 currently refers to a person being a chairman of the public benefit corporation. My amendment would refer to the person being a chairman of the board of governors. I say in passing how refreshing it is to see that the word "chairman", rather than the politically correct nonsense of "chair", is used in this Bill.

Amendment No. 49 is in part a probing amendment. I do not understand how a corporation can have a chairman. Surely a person chairs a board or a committee or something like that. There seems to be a presumption in Schedule 1 that the chairman of the corporation automatically chairs the board of governors but I cannot see that that is actually specified. The powers of the corporation are exercisable by the board of directors— that is what paragraph 14 tells us—so I can see that if there is a chairman of the corporation he would expect to be chairman of the place where the powers are exercised: that is, the board of directors. However, I cannot see any natural presumption about the board of governors—which we discussed this morning—which has no defined powers, other than that of appointment, in this Bill.

The plot thickens when we look at the Government's guide to developing governance arrangements which was issued last month. It came as a complete surprise to me that section 2.1 stated that, the board of governors and the board of directors will share the same Chair".

That has also come as a surprise to a number of people from the NHS to whom I have spoken. I do not understand how that can be read from the Bill. Furthermore, I believe that it is wrong in principle if the same person chairs the body that has the powers of the corporation and chairs the body that is supposed to advise the first body or, in some senses, sit in judgment on it. Their functions are supposed to be different, although we did not get to the bottom of that issue in our debate earlier. A single appointment would make the chairman both judge and jury or, worse, both prosecuting counsel and defence counsel.

That brings me to Amendment No. 49, which provides that a non-executive member of the board of directors may not be a member or the chairman of the board of governors. In our view, not only is it wrong to have a joint chairman, but there should be no overlap between the two. Paragraph 5.2 of the guide to developing governance arrangements states:

"The Department of Health does not expect non-executive directors also to be governors".

However, as the guide notes, the legislation does not preclude that. Why on earth is that the case? Can the Minister give any circumstances in which it might be appropriate? Does he not agree that the independence of a non-executive director could be fatally flawed by his acting also as a governor?

The amendment is probing, as I do not believe that the Bill adequately reflects a proper and balanced approach to governance. Amendments Nos. 41 and 49 would go part of the way to dealing with the issues, but the Bill almost certainly needs much more extensive changes if it is to make sense.

Amendment No. 42 is not probing but designed to fill a lacuna in the Bill. Paragraph 13 of Schedule 1 lists all the factors for which the constitution must make provision. The glaring omission is that it says nothing about the election of the chairman of the board of governors. Paragraph 16 states: It is for the board of governors at a general meeting to appoint or remove the chairman", but that clearly refers to the chairman of the board of directors, not of the board of governors. The Minister may well say that they are the same person, but it is nonsense to say that a board of governors chaired by Mr X can appoint him to be chairman of the board of directors, and that that automatically makes him chairman of the board of governors. It is not merely nonsense, but circular nonsense.

Amendment No. 42 will ensure that a foundation trust has proper procedures for the election of the chairman of the board of governors. That will ensure that a properly constituted board of governors exists with its own chairman.

I hope that the Minister will also shed some light on how the processes will ensure that an appropriate, skilled and experienced chairman of the board of governors will be chosen. The Minister in another place said on 15th May in Committee that: Applications for NHS foundation trust status must include constitutions that contain a process to ensure that appointees are suitable, appropriately qualified and vetted".—[Official Report, Commons Standing Committee E, 15/5/03; col. 176.] Will the Minister show me where in Schedule 1 or the rest of the Bill we can find a requirement for those processes? In particular, what power does the regulator have after the first board has been appointed? What will the processes contain? If we do not have clear processes, how can the regulator ensure that chairmen are appointed in an appropriate way? I have also searched the much-vaunted governance guide and found absolutely no guidance on that vital topic.

As we discussed this morning, the Government have not thought through the governance arrangements. They are illogical, confusing and incomplete. I shall listen carefully to what the Minister has to say, but I shall take a lot of convincing that the schedule does not need significant alteration. I beg to move.

3.30 p.m.

Lord Hunt of Kings Heath

I am glad that the noble Baroness has allowed us, once again, to debate governance and the relationship between the board of directors and the board of governors. However, I am concerned that if we were to accept the amendments, either now or if she returned to the matter on Report, we would have a totally different membership in terms of the non-execs on the board of directors from that on the board of governors, including the chair.

The noble Baroness does not share my view but she will know that I am concerned that there is potential for conflict in the construction that we now have, in which the board of governors is essentially an advisory council privileged to make comments on the running of the organisation but with no involvement whatever in its running. Anyone who has put themselves forward for election and been elected will believe themselves to have the legitimacy to make decisions— greater legitimacy, I would suggest, than appointed non-executives. That is what elections do to people— they make them feel legitimate.

If under the amendments one completely separates the board of directors, who are appointed, from the governors, a majority of whom are elected, instead of making the governance arrangements more straightforward one is setting up a conflict between the two. I would be grateful if the noble Baroness would comment on my worry.

Lord Warner

I listened with great interest to the points made by the noble Baroness. She has a tendency to say that we have not thought matters through because she has in mind a totally different model for the public organisations under discussion. I shall not go over the ground that I rehearsed this morning, when I tried to help the Committee by setting out the Government's views on the board of governors and how it related to the board of directors.

The noble Baroness slightly let the cat out of the bag when she started using the analogy of the legal system, which is essentially adversarial. She talked about judges, juries, prosecuting counsels and so on. That is fundamentally not the model that we propose in the Bill for the running of National Health Service foundation trusts. We propose a model that is essentially co-operative, but with separate roles between the more advisory functions and the day-to-day executive functions. I do not want to go over that ground again, but that is clearly the model set out in the Bill, with certain checks and balances between those performing the different roles. That is fundamentally a different model from one in which there is a prosecuting counsel, a judge, a jury and an adversarial way of doing business.

I have no problem with the adversarial nature of the criminal justice system, but it is not what we are running in the Bill. We are trying to get people to work in partnership, and the Bill provides for that. We need to clear that out of the way, because a different world view is coming to me from the Opposition about what we are trying to achieve. That is leading to some of the confusion about how we approach the issues.

Before dealing with the amendments, I should tell the noble Baroness that I have far more sympathy with my noble friend's position than with hers. Amendment No. 41 goes for the idea of a separate chair for the board of governors. We have that tripartite structure in the foundation trusts. As I said, they are constituted deliberately with a membership base, a board of governors and a management board, with each having a distinct and complementary role. I agree that it is important that there are clear lines of management, accountability and responsibility for those three parts, but good communication links between them are equally important.

In the Government's view, it is important that the chair of the NHS foundation trust presides over both boards, because that will provide a key link between the governors and directors, who will need to work closely in the stewardship and governance of the trust. We discussed the point fully earlier and I do not want to go over the ground again.

The Government have also recognised that many people out there have the skills to provide the linkage between the board of governors and the board of directors. We pay a great deal of regard to the experience of the noble Baroness, Lady Hanham, in that area. She is an excellent example of why one believes that there are people who can bring together these two parts of the foundation trust co-operatively and sensibly. We do not therefore accept the arguments in Amendment No. 41 for a separate chair for the board of governors.

Amendment No. 42 makes provision for the appointment of the board of governors. The intention of the Bill is to give freedom to NHS foundation trusts. I am sorry to repeat the mantra of freedom and flexibility, but that is what the Bill is all about. It is about getting away from Whitehall and Westminster over-control of local arrangements. The Bill gives the foundation trusts the ability to determine how they organise themselves best to meet local circumstances and needs. The principle is not "Whitehall and Westminster know best", but that arrangements should be agreed locally with patients, public and staff involvement. For that reason, Schedule 1 sets out only minimum requirements relating to the boards of governors.

Amendment No. 42 would require the constitution to include provision about the election of the chair and in our view that is unnecessary. The Bill already includes provision for the appointment of a person to chair both the board of governors and the board of directors under paragraph 16(1) of Schedule 1. It states: It is for the board of governors at a general meeting to appoint or remove the chair". In conjunction with that, Clause 6 requires every NHS foundation trust to have a constitution that sets out how the board of directors and the board of governors should be elected. We clearly stated in paragraph 2(3)(1) of the guide to NHS foundation trusts that we expect the board of governors will be responsible for appointing the chair of the NHS foundation trust. This is not a muddle. We have been clear about it for a considerable time.

The noble Baroness, Lady Noakes, asked about some of the processes and their adequacy. Appointment of the chair, as with non-executive director appointments, will normally follow open advertisement among the members of the NHS foundation trusts. Eligibility will be based on assessment against specified criteria, which will be for each NHS foundation trust to determine. As opposed to the current one-size-fits-all model, foundation trust governors will have flexibility in the appointments system to take account of local needs and circumstances; for example, in specifying certain skills of expertise.

Applications for NHS foundation trust status will need to include proposed constitutions, including processes and procedures, to ensure that the appointees are suitable and appropriately qualified and vetted. We are not just leaving this to chance. There is a process for ensuring that these things have been thought through. The independent regulator is expected to issue guidance on this and other issues related to the role of the chair and non-executive directors, similar to that issued by the Office of the Commissioner for Public Appointments. We believe that there is a thought-through process and we do not believe it is necessary to prescribe all this in primary legislation.

On Amendment No. 49, which proposes that governors cannot be non-executive directors, I have already explained the importance of having the chair presiding over both boards. The amendment would mean that the chair of the board of governors could not be the chair of the NHS foundation trust and it is unacceptable to the Government on that basis.

I have sympathy with the noble Baroness's point of view, but, other than the chair, we would not normally expect a governor also to be a non-executive director. Individual foundation trusts could make a provision for this if necessary; for example, if they felt a stronger link between the board of governors and the management board, provided that they have the appropriate skills. The key is whether the person has the skills for the job, and not being arbitrary about ruling people in and out in the way the amendment suggests. Their appointment, as for all appointments of non-executives, should follow best practice in terms of open and fair competition.

I have tried to explain the Government's position. We do not believe that these amendments are well-framed, appropriate or necessary.

3.45 p.m.

Baroness Greengross

I have a problem with this. If a group heavily represented on a board of governors is, for example, anxious that mental health should be a priority for the trust—the strategic direction of the trust—and if the executive board does not agree to that, how is that sorted out in terms of accountability? Which side will win? I am sorry if that is an obvious question, but I remain uncertain about where day-to-day management and strategic direction ends and where the boundaries lie.

Lord Warner

That example has overtones—not as bad as those expressed by the noble Baroness, Lady Noakes, which were adversarial—of competition and dispute. We are trying to produce a model which brings together partnership and co-operation.

We hope that the chair—who is the chair of the board of governors and the board of directors—will bring those bodies to a degree of harmony and dialogue to ensure that on the example the noble Baroness, Lady Greengross, gave there is a full and frank discussion; positions are explained and discussed; and there is an agreeable outcome to all sides. That is the kind of co-operative National Health Service we are trying to achieve through these changes.

I will not repeat the speech I made this morning about the roles of boards of governors and boards of directors, but it is clear from the Bill that the day-to-day administration of the foundation trusts will be in the hands of the boards of directors. Clearly, the boards of governors have an important role in shaping the future direction of the trust.

Baroness Noakes

I thank the Minister for his response. The noble Lord, Lord Hunt of Kings Heath, said that people elected governors would then have a belief in their legitimacy. He added that if we did not deal with that in the constitutional arrangements, there would be conflict. It is a great shame that such people may be elected with a misguided belief in what they are there to do. There is a danger that people will believe that being elected a governor of an NHS trust will give them powers. That is a fundamental problem with Schedule 1, and many more amendments than those we have before us today are required to correct that.

Secondly, I see no conflict between a supervisory or advisory body and an operational body. One should see it more in terms of there being constructive tension between the two because they have different roles. If the board of governors is there to advise, it should concentrate on doing so and leave the board of directors to do its job of running the trust. The more we try to mix the two, the more there will be a recipe for misunderstanding and confusion. Having individuals represented on both bodies will only make that worse.

It is all very well to have idealistic views of the co-operation that will be achieved by having cross membership, but experience in all kinds of organisations is that it is not necessarily achieved. I continue to believe that the arrangements for appointments are ill-thought-out. We have the circularity that the chairman of the board of directors will, hey presto, be the chairman of the board of governors without a requirement for any specific process.

I welcome the Minister's comment that there will be the kind of open processes to which we are accustomed in public-sector appointments generally, although I am not sure that local amendment to them sounded as robust as I had hoped.

I will not pursue these issues today but I will read carefully what the Minister has said. I continue to believe that this area of the Bill will not serve the interests of creating foundation trusts which are in any sense a successful part of the NHS. I beg leave to withdraw the amendment.

Amendment, by leave, withdrawn.

[Amendment No. 42 not moved.]

Lord Clement-Jones moved Amendment No. 43: Page 110, line 18, at end insert "including failure to subscribe to the core values of the trust

The noble Lord said: This debate will in a sense be a continuation of the debate that we started this morning. It relates to the potential discontinuance of membership, and the circumstances in which that may take place, of a public benefit corporation, under paragraphs 5(2) and 7(2). There are and will be circumstances in which mental health trusts will no doubt qualify to apply for foundation trust status, if these provisions are passed.

There is some concern among mental health service providers that the board of governors is vulnerable to entry by hostile forces. I know that the Minister does not like to think of these matters as being in any sense confrontational, but Nimbyism is particularly rife in planning for mental health services. Mental health service providers, such as the Sainsbury Centre for Mental Health, are concerned that campaigns could be mounted to prevent mental health services from being extended or provided, or whatever may be the local case. They could take a hold over local boards in significant numbers.

As we discussed this morning, there is no failsafe to prevent that from happening. Provisions can be made, under the constitution, but there is no failsafe. The amendment is a proposed safeguard that may assist foundation trusts to remove from the board of governors individuals or groups of people whose activities frustrate the development of improved services of the kind that I mentioned. There may be other services that arouse Nimby-type reactions, for all the wrong reasons, which may be covered in that way.

There is a difficulty, in that boards of governors are meant to be representative of the community. If the majority will of the community wants to frustrate developments in a foundation trust, the foundation trust will need to reflect that. On the other hand, if a vocal minority, which does not really represent the community, is frustrating a perfectly sensible strategy of the foundation trust, the formulation referring to "core values" hits the right balance. This is about values and wanting to do the best for patients and, in this context, mental health service users. I beg to move.

Lord Warner

I do not think that we can do other than to have sympathy with some of the arguments that the noble Lord, Lord Clement-Jones, put forward. However, I remind the Chamber that we have had a debate about the flexibility provided by paragraph 7(2), which allows foundation trusts to make conditions for removal of governors. That might include the removal of governors who fail to turn up to meetings or to engage with their membership, or otherwise act in a way that is totally inconsistent with the aims and values of the organisation.

We have not tried to specify all those circumstances, other than the normal provisions that are made for public bodies, because we do not believe that any of us is clever enough to specify a form of words that will cover the whole range of circumstances that could occur locally. None of us is trying to thwart genuine protest about a particular form of development where there are strong local or individual feelings about a particular direction. Those issues have to be thrashed out locally; there has to be debate and discussion; there has to be full dialogue, and the decision has to take into account what is appropriate in the local circumstances.

The difficulty with the amendment is that, in legal terms, a power to remove a governor for failure to adhere to "core values" would be highly ambiguous. I suggest to the noble Lord that it might be open to considerable abuse. If I dare suggest so, his core values may not be exactly the same as my core values. Similarly, around the Chamber there may be a lot of different core values by which we all live happily and contentedly.

The proposal could be open to the kind of abuse that I am sure he would not want to see. Such a power could be used to remove a person for a very large number of pretty dubious reasons, although I am sure that that is not his intention. While we understand the spirit in which the amendment is moved, and are sympathetic, we do not believe that the amendment helps Our view is that we should stick with the kind of flexibility that is in the Bill as currently drafted.

Lord Clement-Jones

I thank the Minister for his reply As a lawyer, I am aware of the possibility of dubious interpretations of legislation, and perish the thought that that should ever occur.

The Minister fairly put the case. His arguments are reasonably plausible in respect of this particular amendment, but I am not wholly convinced that the complete absence from the Bill of the circumstances in which removal can take place is definitive. There is room for general wording and more guidance in the primary legislation for the constitution of foundation trusts. The point is a difficult one, I agree, but company law legislation provides for many circumstances in which removal can take place. Even though these are new organisations, I do not believe that it is beyond the wit to introduce a broad measure, which would be similar but would not be open to abuse. We shall keep trying. However, in the meantime, I beg leave to withdraw the amendment.

Amendment, by leave, withdrawn.

Baroness Noakes moved Amendment No. 44: Page 110, line 19, leave out sub-paragraph (2).

The noble Baroness said: This is a probing amendment, which would delete paragraph 13(2), which says that the constitution of foundation trusts, "may make further provision about the board".

I have a simple question for the Minister. Will he explain what extra matters relating to the board might need to be dealt with in the constitution? Why cannot they be dealt with in Schedule 1? I am sure that he will tell us again about the need for flexibility, but will he please say what kind of flexibility might be needed? I beg to move.

Lord Warner

I can never resist the opportunity to tell the House that the Bill is about flexibility and freedoms, as the noble Baroness said. The amendment would prevent foundation trusts from including further provision in their constitution about boards of governors. We are aiming for flexibility to develop arrangements to suit local circumstances. NHS foundation trusts clearly need to be able to determine the details of their particular governance arrangements.

I shall try to help the noble Baroness by giving her some examples. Foundation trusts may wish to assign specific functions to the board, such as patient and public involvement activities. They may wish to allow for co-optees with expert knowledge to sit on the board or to provide for committees of governors to advise the management board on particular matters. A good example might be the kind of issue that we discussed under the previous amendment. There may be a very contentious issue whose resolution can be helped by a group of the boards of governors going out, talking to the public, talking to users and bringing together a formulation helpful to the board of directors. We do not want to be too prescriptive to prevent those matters from being arranged under local constitutions. I hope that helps the noble Baroness.

Baroness Noakes

I thank the Minister for that reply. It helps me greatly because it enables me to see that he does not really know what this is all about. What he just described was the use of the constitution to solve an ad hoc issue relating to the emergence of special interest groups and directors dealing with a particular matter. That is not what a constitutional issue is.

It is clear that we shall not make much progress on matters that are supposed to be left to flexibility, although doubtless we shall try to do so again this afternoon. We shall consider this matter further before we reach the Report stage. I beg leave to withdraw the amendment.

Amendment, by leave, withdrawn.

4 p.m.

Lord Clement-Jones moved Amendment No. 45: Page 110, line 27, after "directors," insert "along with healthcare professionals which should include the director of nursing,

The noble Lord said: We now come to the particulars of the composition of the board of directors, which is dealt with in paragraphs 14 to 16 of Schedule 1. As we heard today in some detail, the board of directors will be the governing body of the foundation trust and will also be responsible for its day-to-day management. Effectively, all the powers of the trust will be exercised through the board of directors.

From what we can see in the schedule, the board will comprise executive directors, including a chief executive and finance director, as well as non-executive directors appointed by the board of governors. However, the rubric in the schedule does not provide for the inclusion of clinical representatives. No reference is made to the medical director, the director of nursing or, indeed, other professionals involved. Particularly in view of the fact that clinical governance is such an important aspect of any foundation trust, it is absolutely vital that the clinical staff are very closely linked to the board and, indeed, in many cases, that they sit on it if they are of sufficient seniority.

I believe that both Amendment No. 45 and the amendment of the noble Baroness, Lady Finlay, are inspired by the Royal College of Nursing, which is concerned to ensure not only that its own people—the director of nursing and so on—are members of the board, but that other health professionals are included as well.

At present, wide discretionary powers exist to determine the remainder of the composition of the board. No doubt the Minister will repeat the word "flexibility" several times in his response. However, I believe it is very important—particularly since, in a sense, if this is the managing board then it is the board responsible for risk management, and that includes clinical governance—that clinicians should be on that board. I believe that a very good case can be made for that, and I look forward to hearing what the Minister has to say. I beg to move.

Baroness Emerton

In the absence of my noble friend Lady Finlay, I rise to speak on her and my own behalf on Amendment No. 46, which relates to the inclusion on the board of a clinician, a nurse and professions allied to medicine.

I am very aware of the comments made during the first day of Committee and, indeed, this morning about minimum requirements and maximum flexibility. That raises considerable concerns in certain directions. Flexibility is good in many instances, but I believe that there are many examples where flexibility can be detrimental and have a negative effect. I want to give an illustration of that which concerns nursing but it also has a medical aspect as well.

In January 2002, the Department of Health published a report entitled, Shifting the Balance of Power: The Next Steps. It sought to put patients and staff at the centre of the NHS by giving greater authority and decision-making powers to patients and front-line staff. The report recognised that the commitment and engagement of nurses were essential to the delivery of the NHS Plan in improving health and healthcare.

A visible senior nurse with the credible strategic experience and skills required of a modern leader would provide that experience at every level of the NHS to ensure that the contribution of front-line nurses was optimised and a high quality of service delivered. It was envisaged that the strategic health authority would have a senior lead nurse in the team linking to the chief nursing officer at the Department of Health. That was in line with the statement of the World Health Organisation's ministerial conference of 2000, which endorsed nursing and midwifery contributions to decision-making at all levels of policy development and implementation. Therefore, it followed that nurses would be essential in ensuring that strategic health authorities performed their functions successfully.

However, where it has been left to the discretion of individual strategic health authorities to determine whether or not to establish an executive nurse director, my noble friend Lady Finlay has met with a mixed response. To begin with, very few nurses have been appointed to strategic health authorities. I believe that that illustrates the difficulty of flexibility when it is left, in this case, to the foundation hospital to decide whether it is necessary to include a nurse. The same applies to clinicians.

I remind the Committee that 80 per cent of patient care is delivered by nurses. They play a very important part within the healthcare team, both in facilitating patient recovery and, in so doing, in improving the efficiency of the service by reducing the length of stay and subsequent bed-blocking.

The professional development of nursing has led rapidly to an increase in specialist nurses in departments which carry out various procedures. However, alongside the delivery of specialist treatments, the basic care of patients still needs to be met. That includes nutrition, fluid balance, hygiene and comfort. When one considers that the average length of stay in hospital is increased by 11 days due to hospital-acquired infections, it can be seen that nurses play an important part in the policies and procedures that cover the control of infections. Because of their close inter-reaction with patients and families, as well as with the local community, nurses are highly skilled in interpreting people's needs and expectations of care.

For many years, the United Kingdom has been the envy of many other countries in that an executive nurse has been included in the management team at government level—the chief nursing officer—and every level of management. It seems incredible that an executive nurse could not be included in the list of directors, as well as a doctor and a representative of the professions allied to medicine. As the noble Lord, Lord Clement-Jones, said, clinical governance plays a very important role, and we are talking about a health service.

I hope that the Minister will be able to take on board the amendment. The Royal College of Nursing, which has 360,000 members, is committed to the NHS and its founding principles, and is a major contributor to the development of nursing practice and standards, thoroughly supports the amendment. I ask the Minister to give it his consideration.

Baroness Cumberlege

I too support the amendment. As the noble Baroness, Lady Emerton, has said, the phrase that has echoed through this Committee stage is "minimum requirements and maximum flexibility". I understand why the Minister and the Department of Health want to keep it that way.

In some ways I feel that the Bill is being presented to us like an impressionist painting: we are being invited to admire it at a distance and, without peering too closely, agree its power and beauty. That is not good enough. In Committee we have to examine the techniques; we have to look at the brush strokes; we have to see the composition; and we need to know the detail. The NHS is not an art form; it is very practical. It employs practical people who do practical things. They give injections; they administer drugs; they peer inside people; they cut them open and sew them up again, hopefully successfully. The care that they take in doing those things is enormous and they always seek to do things better. As the noble Lord, Lord Clement-Jones, and the noble Baroness, Lady Emerton, have said, they embrace clinical governance in a way that would surprise some of us. The leaders in clinical governance at all levels are doctors, nurses and practitioners in the health service.

Recently my brother was a medical director of a first wave trust. I visited him and we talked a lot. I admired the way in which he worked with his colleagues. Not only was he a consultant radiologist, but he was also a manager. The way in which he called his colleagues to account was courageous and very necessary. My point is that he could say things that managers could not say because he knew the business inside out as well as knowing his patients inside out.

As the noble Baroness, Lady Emerton, has said, 80 per cent of the care is given by nurses. They are in an equally good, or perhaps strong, position. Increasingly nurses are on the ascendancy, which is terrific. Their knowledge of the organisation is often wider than that of surgeons and physicians because they tend to move around the hospital and do not always stick to the same specialties. As the noble Baroness has said, they take on matters such as infection control which embrace the whole organisation. They have a different view of how a hospital is working, and allied health professionals are equally important.

The Government were very prescriptive in the arrangements that they drew up for primary care trusts, saying that there had to be a GP and a community nurse on primary care trust boards—that was very clearly defined—and on professional executive committees. So the Government went down to the detail of saying who was to sit on a committee of the board of a primary care trust.

I hope that the Minister will consider some of the arguments that have been made by Members of the Committee today and not be shy in acceding to what I believe is a very reasonable request. This may hurt, but we know that the public believe professionals more than they believe politicians. With the proposals that are put forward for governance in the Bill, we are likely to have party-political appointees serving on boards of directors in a way that will be disruptive. One way to try to mitigate that would be to put on the boards the health professionals who understand the business.

Baroness Noakes

It is a pleasure to welcome the noble Baroness, Lady Emerton, to the Committee. She has considerable experience of the NHS and of nursing and was a chairman of an NHS trust for a considerable period of time. If the Minister will not listen to these Benches perhaps he will listen to her words of wisdom.

Our Amendment No. 47 is in this group. It is similar to the other two amendments, but less prescriptive. It does not require a director of nursing, as Amendment No. 45 does, nor does it require representatives of the three clinical groups, as does Amendment No. 46. It requires that one of the executive directors should be, a person practising as a clinician in the corporation". That person could be a doctor, a nurse or a member of one of the allied health professions.

I believe that it is right not to be over-prescriptive about the composition of the executive component of the boards. The boards should comprise a blend of skills and experience and they will want to ensure that the best executive talent within the organisation is able to sit on the boards without having too many restrictive titles. That is certainly the experience of the private sector and I believe that it has also been the experience of NHS trusts since they were first set up.

Like the Minister, I value flexibility, but I cannot comprehend a circumstance in which a foundation trust would have no practising clinician on the board, which is why our amendment talks about one such member. Often a board will have two, but we have plumped for a minimum of one. Perhaps I can explain this to the Minister. In days gone by I had to argue the case, quite forcefully, for the finance director to be an essential NHS trust board member. I am exceptionally glad to see that that has survived today. The reason was that 13 years ago not all chief executives valued the role of finance. I would not accuse any current chief executive of not valuing the role of clinicians, but I do not believe that that should be left to chance. It should be clear in the legislation that there are roles for clinicians at the top table, which is why we have tabled our amendment.

4.15 p.m.

Lord Turnberg

I too support these amendments. I express an interest as a clinician who worked in the NHS for many years. We have heard much about morale in the health service. "Morale has never been lower" is a constant refrain. I suspect that the major reason why morale is often low is that clinicians feel that they are not heard; they are not part of the system; they are ignored; and they are not involved in the way in which the service is provided. They are at the end, at the cutting edge, and deliver the care, but they have the sense that they have no control or influence.

It is important to try to improve the morale of clinicians. We need to improve the morale of our staff, but that alone will not be enough because there is an enormous amount of expertise, knowledge and ability among the clinical staff—the nurses, doctors and other healthcare workers. They are in day-to-day contact with the patients so they must have some idea of what the patients want and need. Of course, they should not be in the majority; they should not have the final say— many people should have a say—but they cannot be excluded. However, nurses, doctors and other healthcare workers should be there, so I strongly support the amendment.

Lord Blackwell

I support the spirit of these amendments for practical reasons concerned with the efficiency of governance of these institutions. As set out currently in the Bill, there are two explicit layers of governance—the board of governors and the board of directors. In reality there will be a third level of governance which is the continuing close involvement that the central executive, the Treasury and the various regulators will have.

If a board of directors does not include the key medical directors, the reality is that there would be a fourth layer of governance because there would then have to be an executive group—executive board—that would discuss matters and take the real decisions. A potentially disastrous situation could exist in which a paper being prepared and discussed in an executive committee one week is discussed by the board of directors the next week, by the board of governors the following week and then by the regulators. The poor chief executive would spend all his time redrafting, editing and discussing the same paper up and down the chain.

If the board of directors is where real decisions are taken, it is essential, as far as possible, that it includes enough of the real medical practitioners effectively to be the executive group that does not have to be duplicated within the hospital. Often a board of directors in a company will be accompanied by an executive group, but there will not be a board of governors over the top of that—only those two layers. For efficiency we need to avoid having yet another layer of governance within the management processes.

Lord Hunt of Chesterton

Although I am not a medical doctor, I intervene to say that there are many organisations which find that a professional representative on their board is very important. The Met Office has a chief scientist, the GCHQ has a chief mathematician, Rolls-Royce has a chief technical director and British Airways I understand has a pilot—thank goodness. So I think that these thoughts are very important. Managers and finance directors are very important. Great strength and comfort is given to everyone using an organisation to see the professional abilities reflected. Therefore, I support the amendment.

Lord Warner

I cannot tell the Committee how much pleasure it gave me to hear the noble Baroness, Lady Cumberlege, compare our scheme of governance and this legislation to an impressionist painting, when one thinks of the pleasure and value of such paintings. So I take great comfort from that analogy as a result of today's debate.

I have a good deal of sympathy with the arguments made by the noble Baroness, my noble friend Lord Turnberg and others about the role of doctors and, indeed, nurses. Over many years I have listened to the wisdom of the noble Baroness, Lady Emerton, and I listened very carefully to what she had to say today. There is certainly no intention on the part of the Government to diminish in any way whatever the contribution that, in particular, nurses make to the NHS. Indeed, perhaps I may confess that as a very young civil servant I was heavily involved in the Salmon committee and in the writing of its report on the senior structure of nurses. That is where nurses came of age as managers and were recognised as managers in the NHS. So we are not in any way trying to diminish their contribution.

Having expressed my sympathy, I must express some doubts about whether these amendments quite do the trick intended. The amendments are not the same. They cannot all be accepted because they would produce different outcomes. So I shall try and suggest a possible way forward which may help deal with the fact that they do not achieve the same objectives.

We have specified that there should be appointed a chairman, a chief executive, and a director of finance. I am grateful for the recognition of the noble Baroness, Lady Noakes, on the finance issue. However, this does not mean that a foundation trust will be established without input on the board. The primary purpose of these organisations is the provision of healthcare. It would be extraordinary if that were not reflected in the constitutions of the board when NHS foundation trust applications are put forward.

The process is that constitutions will be drawn up in response to consultation. The Secretary of State will then examine proposals put forward by applicants, which should include information on the size and composition of the board of directors. I can categorically assure the Committee that no application will be supported by the Secretary of State without clear proposals for robust, clinical leadership at board level, covering medical, nursing and other professionals.

I hope that kind of reassurance will enable noble Lords to reflect further on the issue and not to pursue the amendments today. I also hope that by putting this issue clearly on the record, it will reassure the various professional interests outside this Chamber who have expressed their concerns, which I understand and with which I have a good deal of sympathy. However, I think we may end up with constitutions, which produce a more favourable outcome than some of these amendments might actually produce, if we let that process take place and leave the Secretary of State to reject or accept matters on the basis of their ability to convince him that there are robust, clinical leadership arrangements in the constitution at board level covering healthcare professionals.

Baroness Carnegy of Lour

Before the Minister sits down, perhaps I could ask him whether he agrees with me about something. It has been gradually dawning on me that this board of directors—and since I listened to my noble friend Lady Cumberlege I realise it more clearly—will have politically motivated people upon it. It is very likely that some governors will put on people who they hope will govern for some particular group or other. It may be politics with a big "P" or with a little "p"—often with a little "p". That kind of body is very far from the committee of the Met Office, which wants to have a professional this or that upon it. The nursing profession, and indeed the doctors, have to think about how in a specific situation they are going to be in the strongest position with the board of directors.

Quite often in the education service professionals prefer always to be present, always advising and putting in their input, but not having actually to engage with what may turn into a somewhat political discussion over some aspects of what the directors have to do when managing the hospital trust. So there is another model. If I was organising this, I should want to ask a trust whether they would prefer not necessarily to ask for particular people as members, but to have people present who could have an input without engaging in political discussion. Very often people who have come from the outside world into a trust pay more attention to it than do the professionals. So there is another model. Does the Minister agree that that might be how it could be done, or does he not want to enter into that discussion? I think that it is a very important point, but perhaps he does not wish to discuss it.

Lord Warner

I am not sure that I want to trade models with the noble Baroness at this particular point in the Committee. All I would say again is that we want to ensure that there is robust, clinical leadership represented on the board. I do not quite accept her view that it is a foregone conclusion that there will be many politically motivated people on boards of governors. We all have different views and those boards of governors will reflect a wide spectrum of views. That is what one gets in a healthy democracy.

Lord Clement-Jones

Once again, I think that the noble Baroness, Lady Cumberlege, may have put her finger on the issue. In the last NHS reform Bill, I think we had the character of Mrs Arbuthnot as a running theme in the same way as the former Minister had his own mantra. I think that we now have this strong picture of the Minister standing before his canvas, slapping on the paint and wearing his smock. I do not know whether he is Degas or Renoir or what his favourite subject is, but we shall see.

We have had a wealth of experience in this short debate which has been extremely valuable and interesting. I was very interested in the actual experiences put forward by the noble Baroness, Lady Emerton, by the noble Lord, Lord Turnberg, and, in particular, by the noble Baroness, Lady Cumberlege. I thought that what the noble Lord, Lord Blackwell, had to say about four tiers was extremely interesting because there will be a management board unless the clinical side is on the board of directors. So we will have this nightmare of tiered layers of management and governance rising up to departmental level.

However—and perhaps this is unusual for these debates—I was very heartened by the Minister's response. He was robust in the way he responded to this issue, even though he does not accept the case for inclusion in the primary legislation. I think that the insistence that no application can be accepted unless— and I think I am quoting him—"robust, clinical leadership is represented on the board" is a very good step. Of course I should like to see that in the schedule in some shape or form. But the response to the concerns expressed is very good. I think we can build on it. So I beg leave to withdraw Amendment No. 45.

Amendment, by leave, withdrawn.

[Amendments Nos. 46 and 47 not moved.]

Baroness Noakes moved Amendment No. 48: Page 110, line 29, at end insert— ( ) A majority of the board is to comprise the directors referred to in sub-paragraph (1)(b).

The noble Baroness said: The amendment adds a new sub-paragraph to Paragraph 15. That would ensure that the board of directors would contain a majority of non-executive directors. At present, Paragraph 15 merely states that there are to be executive and non-executive directors—there is no reference to numbers or proportions.

At paragraph 2.39 of the Government's A Guide to Foundation Trusts issued last year, it was stated that non-executives, including the chairman, would amount to at least one third of the positions on the management board, now termed the board of directors. The Bill is silent on the matter, as is A Guide to Developing Governance Arrangements. That is a little odd, because the Government are ignoring their own views on governance elsewhere.

Governance in the private sector has been placed under the magnifying glass during the past year at the Government's behest. They asked Mr Derek Higgs to carry out a review of corporate governance and have subsequently backed his findings. In respect of companies, Mr Higgs's review has now been reflected in The Combined Code on Corporate Governance issued by the Financial Reporting Council this summer. Indeed, A Guide to Developing Governance Arrangements praised the Higgs report and said that it represented useful guidance.

The NHS Confederation, which probably knows more about NHS boards than any other organisation, endorses the amendment. It believes that there should be a majority of non-executive directors on the board.

At least half the boards of listed companies in the private sector will have to comprise independent non-executive directors. Mr Higgs said in his report:

"I agree that a board is significantly strengthened by having a strong group of non-executive directors with no other connection with the company. These individuals bring objectivity".

The Government's ideas about governance within foundation trusts may be based not on objectivity but instead on some rather shakier notions.

The Minister has today supported conflicts of interest arising through boards of governors and boards of directors. Ms Blears, the Minister who handled the issue in another place, said in another place that non-executives were,

"partners in the enterprise".—[Official Report, Commons Standing Committee E; 15/5/03; col. 182.],

whatever that means. She saw them as workhorses, handling complaints or doing other tasks in the trust. She had no concept of independence, objectivity, dispassionate judgment or the contribution of external perspective. Is that what the Government really want in NHS foundation trusts? If so, they are flying in the face of received wisdom and have embarked on a dangerous path that we do not support. I beg to move.

4.30 p.m.

Lord Lipsey

In most cases, I can support the general case that the noble Baroness makes for a majority of non-executives. However, she and I have been battling on the same side to say what a poor means we have in the Bill of choosing non-executive directors. They will be elected by the board of governors by a system which, as she demonstrated this morning, could have been specifically designed to ensure the maximum chance that quite a few of them are fascists, extremists or represent single-issue pressure groups. In those circumstances, we should be much better off if they did not constitute a majority than if they did.

Lord Blaekwell

The amendment exposes a confusion in the currently proposed role for the board of directors answering to the board of governors, which I hope the Minister will explain. If the board of directors were truly supposed to be the managing board of the hospital and the board of governors were in effect the place where non-executives should sit, I could have sympathy with the view that we would want a majority of executives on it, with a few non-executives to bring outside influence, but that it remained essentially an executive role. But in that case, our previous discussion would have been pertinent: one would have expected it to include the primary medical heads.

On the other hand, if it is supposed to be largely a governance rather than a management board, the argument made by my noble friend Lady Noakes must surely apply: it must surely contain a majority of non-executives if it is to play an analogous role to the board of a company. However, I am then left wondering what the board of governors is doing as another layer above it. It is either one or the other and I should be grateful to the Minister if he would explain that, so that we can take a proper view on whether the majority of the board should comprise executives or non-executives.

Lord Warner

I shall resist the temptation again to go over the ground of the role of the boards of governors and directors. In response to some of the points made, and given that the word "flexibility" did not pass my lips when discussing the previous amendment, we are providing flexibility here so that we do not try to lay down one size to fit all.

Perhaps I may remind the Committee of our debate on the previous amendment. We are not being prescriptive about the number of people from clinical backgrounds who will be on the board of directors. It will be for local people who are applying for foundation trust status to make a proposition that fits their needs; it will be for the Secretary of State to agree or disagree with that proposition, taking account of the categorical assurances that I gave on the previous amendment.

If non-executive directors are always to outnumber the board of directors, we will have always to provide for that. It is worth bearing in mind that the Higgs proposals arose from concern about management in private sector companies, not public sector organisations. Some commentators have commented unkindly about the processes by which non-executives get selected in some private companies. So I am not sure that we want to push the analogy with Higgs quite so far as did the noble Baroness. I make no slanderous remarks about any particular companies, but I merely echo some points made by some commentators in that debate.

The Bill does not exclude any specific requirements about the balance between executives and non-executives on the board of directors. That is entirely deliberate. We consider it important that foundation trusts should be able to implement the most appropriate balance within the new model of governance being set up. That means that nothing in the provisions prevents them having a majority of non-executives on the board of management, if that fits their needs.

We have touched several times during our debates on the question of a review. I am sure that the regulator will want to issue guidance on that in due course. We accept the need to review the governance arrangements in the light of the experience of the first wave of trusts. We are not in a position to say categorically that in all circumstances, we want non-executive directors to outnumber executive directors on the boards of directors for foundation trusts. I suggest that we leave things as they are rather than pursue the amendment.

Baroness Noakes

I thank the Minister for that reply and thank other Members of the Committee for speaking. I was not surprised to hear the return of our friend "flexibility" on the amendment. The noble Lord, Lord Lipsey, made the extremely important point that if we were to have political non-executive members, we would not want them to be in a majority. I fully subscribe to that. Under the next amendment, we shall consider how non-executives are chosen—to deal with the points that I think that he had in mind.

My noble friend Lord Blackwell again raised the confusion that is at the heart of Schedule 1. There is so much flexibility that we do not know what kind of organisation is intended. Doubtless those out in the field do not know either. The point about having guidance, which we want included in the schedule, is that people know with which norms they should be complying. That is what happens in the commercial sector and it is generally regarded as valuable.

That is why the NHS Confederation supports the amendment. It understands that it is helpful to the NHS to have clear guidelines. What we find accumulating in the Bill gives absolutely no help. I cannot think of anything more retrograde than this whole series of flexibilities. We could end up with organisations that bore almost no relation to each other.

Today is not the day to pursue that. I shall read carefully what the Minister has said, but I suspect that we shall return to the issue. I beg leave to withdraw the amendment.

Amendment, by leave, withdrawn.

[Amendment No. 49 not moved.]

Baroness Noakes moved Amendment No. 50: Page 110, line 37, at end insert—

1. "(1) The board of directors shall establish a nominations committee with the function of recommending the appointment or removal of the chairman and non-executive directors.
2. (2) The nominations committee shall ensure that selection procedures used to arrive at recommendations for the appointment of the chairman and non-executive directors are in accordance with best practice for such appointments.
3. (3) The nominations committee shall make its recommendations to the board of governors."

The noble Baroness said: I shall speak also to Amendments Nos. 52 and 59, which concern governance arrangements in foundation trusts. They pick up a point raised by the noble Lord, Lord Lipsey, in our previous debate.

Amendment No. 50 would insert a new paragraph after paragraph 15 of Schedule 1 to set up a nominations committee for the appointment of non-executive directors and the chairman of the board of directors.

The scheme under the Bill is that the board of governors will appoint or remove the chairman and non-executive directors. That is fine up to a point, but it does not deal with how those individuals will be chosen. In the commercial world it is now accepted practice for a nominations committee of the board to make recommendations for new non-executive appointments and for the appointment of the chairman. That practice is also followed in several parts of the public and not-for-profit sectors. It is now set out in the combined code that I referred to following Mr Higgs's review.

In the private sector the nominations committee makes its recommendations to the board, which then recommends appointments to the shareholders. But, mindful of the Government's experiment with two-tier governance, we have drafted Amendment No. 52 to have the recommendations made directly to the governors rather than the board, as they make the formal decisions.

I am quite clear that the best place to carry out the process is at the level of the board of directors. Under Higgs, for example, the nominations committee must evaluate what kind of person is needed. The combined code states:

"the nominations committee should evaluate the balance of skills, knowledge and experience on the board and in the light of this evaluation prepare a description of the role and capabilities required for a particular appointment".

That exercise needs to be carried out on the basis of an intimate knowledge of the trust, the directors and the detailed workings of the board of directors. It cannot sensibly be carried out at one remove; for example, by the board of governors.

Sub-paragraph (2) of the amendment would require best practice to be followed in the selection procedures. They certainly change over time, but the important point is that objective processes are in place to select the right people for the foundation trust. Those are the sorts of processes that NHS trusts use at present for the selection of their non-executives. There is a danger in the Government's proposals that non-executives will be selected by boards of governors, not for their contribution to the corporate agenda of the foundation trust, but because of their acceptability to whatever factions are developing within the board of governors.

In another place, Ms Blears, the Minister then responsible for this part of the Bill, told Standing Committee E that the governors,

"exercise influence in the day to day management through their powers to appoint the chair and non-executive directors of the NHS foundation trust".

She added:

"The structure is representative and democratic, with the members electing the governors, who in turn elect the directors".—[Official Report, Commons Standing Committee E, 15/5/03; col. 183.]

That is a very dangerous approach to the management of the complex organisations seeking foundation trust status. Directors, especially non-executive directors, should be selected for what they bring to the party and not for their political acceptability in these micro-political communities that the Bill will create.

I shall deal briefly with Amendment No. 59. It builds on the welcome requirement in paragraph 17 to have a remuneration committee. In the corporate sector it has been a requirement for some time for that committee to make a report each year in the annual report. Indeed, the DTI has recently significantly increased the information requirements of the items to be included in that report. Our amendment does not go anything like as far as that. But reporting publicly is an essential component of contemporary corporate governance. I hope that the Government will embrace it for foundation trusts. I beg to move.

4.45 p.m.

Lord Warner

I have followed the noble Baroness's arguments. I wish to put on record that we are not setting up NHS foundation trusts by reference to Higgs. Higgs is a set of propositions that relate to private companies as a result of problems that arose in a number of private companies. Their proposals have not even been accepted by large numbers of chairmen and chief executives in private companies.

We are not trying to design the arrangements appropriate for NHS foundation trusts simply by reference to the Higgs proposals. We may want to take account of good thinking in those proposals, as we take account of good thinking in other organisations. I do not think that we are trying to see that as the benchmark by which we judge whether the governance arrangements in NHS foundation trusts are the most appropriate.

The principle behind the amendments is to set up effectively two committees to advise on the appointment of chairs and non-executive directors, and to appoint a remuneration committee to report to the board of governors. I shall not cover all the ground again. We do not believe that it is necessary to specify that. We have set out what would be the processes for making those appointments. It will be an open and transparent process. We expect the independent regulator to issue guidance on that and other issues related to the role of the chair and non-executive directors and their appointment, similar to that issued by the Office of the Commissioner for Public Appointments.

I have already explained that the governance arrangements for foundation trusts are designed as a minimum framework within which those trusts have flexibility to tailor their own arrangements. If they want to have a nominations committee, there is nothing to stop them having one, but we do not think that that kind of thing should be prescribed in the primary legislation.

We agree with the principle of Amendment No. 59 that the committee responsible for determining the remuneration and terms and conditions of executive directors must keep the board of governors informed about its activities. But the committee should do that as a matter of course. We do not believe that it is necessary to put the amendment in primary legislation.

Baroness Noakes

I thank the Minister for his reply. I am extremely surprised at his denigration of what has been happening in the corporate sector, trying to blame it on problems in corporate boardrooms. He described the Higgs report as not accepted by chairmen. It is now part of the combined code issued by the Financial Reporting Council and is therefore obligatory for companies. In my many years' experience of working across the public and private sector divide, ideas were transferred between the sectors regularly. In areas such as the appointment of executives, the difference between the two sectors has never been particularly great. Ideas have been transferred across the sectors.

The Minister seems to be saying that we are developing a new silo called NHS foundation trusts. In the world that will exist within the NHS foundation trust silo, all the developments that go on outside will be completely irrelevant, as the rules are being designed solely for foundation trusts.

Lord Warner

That is the exact opposite of what I have been saying consistently throughout the Committee stage. I have been saying that we are using references and experience from a variety of organisations, and we are allowing people who are setting up new NHS foundation trusts to do just that. Without in any way denigrating the appropriateness of the Higgs proposals for the private sector, I was trying to make clear that they are not the be-all and end-all as a benchmark for judging the appropriateness of the governance arrangements in NHS foundation trusts.

Baroness Noakes

The Minister protests too much about the Higgs report. The NHS Confederation, which does know a lot about NHS organisation, thinks that the Higgs report is rather a good starting point for considering the Government's arrangements for NHS trusts. The Minister is virtually ignoring it because he is developing rules that are just for NHS foundation trusts in this silo where flexibility reigns over thinking anything through. There is no point in pursuing this matter further today, but we will return to it later. I beg leave to withdraw the amendment.

Amendment, by leave, withdrawn.

Baroness Noakes moved Amendment No. 51: Page 110, line 38, leave out "at a general meeting

The noble Baroness said: I shall also speak to Amendments Nos. 56 and 57 in this group. These are probing amendments largely designed to find out what general meetings are in the context of the public benefit corporations in Schedule 1. There is only one reference to a general meeting other than in the context of the appointment provisions in paragraph 26, to which these amendments relate. Nowhere does the schedule explain what a general meeting is and how it is different from ordinary and presumably non-general meetings of the board of governors. Will the Minister explain those differences? What business will be conducted at general meetings? Who will attend both the non-general and the general meetings? Will the Minister explain the significance of the meeting being a general meeting?

We know what a general meeting of a company is in the private sector—the meeting of the company's members. However, it is clear that members are not part of a general meeting of a board of governors, although they will of course be entitled to attend. Will the Minister also explain how often these general meetings will take place? That is particularly important in the context of the appointment of directors because the general meeting has to appoint or remove both executive and non-executive directors, including the chief executive. What happens if the chief executive resigns or dies—or, more likely, if one of the executive members of the board moves on to pastures new? How long does the board of directors have to wait for the general meeting to take place for the vacancy to be filled?

Under company law in the private sector—the framework rejected by the Minister—the board of directors can fill casual vacancies with the following annual general meeting confirming the appointments. I can see no process in Schedule 1 that would give that flexibility. Indeed, as drafted, the appointment provisions are the very antithesis of flexibility.

Finally, will the Minister explain why the provisions of paragraph 16(1), 16(4), and 17(1) are constructed differently? Paragraph 16(1) refers to the approval of three-quarters of the members of the board. Paragraph 16 (4) refers to the majority of the board voting, and paragraph 17(1) refers to the board of governors deciding. Will voting take place in paragraph 16(1) and 17(1) decisions? How will it be known what the board has decided under paragraph 17(1)? No percentage is specified, so does it require all the governors to agree?

Those may seem technical questions, but we will need certainty to go forward, especially in the delicate area of the appointment of directors. These are probing amendments and I look forward to the Minister's explanations. I beg to move.

Lord Hunt of Kings Heath

I have considerable sympathy with the amendment and I hope that my noble friend will consider it between Committee and Report. There will be a real problem for the chairs of the foundation trusts who have to organise approvals or removals of the chief executive or executive directors under paragraph 16 (4), as specified. As I understand it, it can be done only with the approval of the majority of the board of governors voting at a general meeting. I fully accept, as noble Lords would expect me to do, that the board of governors has a role in this area, but it should have the flexibility to decide how it is to be discharged—if it is able to delegate the matter to two or three members of the board of governors or whether there has to be a full meeting, for example.

Imagine that there is a meeting cycle. We know that some chairs attend a board of governors meeting once a quarter. Even if the board met once every two months it would not fit in to the kind of decisions that must be made in relation to executive and non-executive directors. Removing the words "at a general meeting" would give much more flexibility to the board of governors to decide how to make decisions successfully. I do not think that the provision is very practical as it is currently constructed.

Lord Warner

In view of the opinions expressed, I would like to read and carefully consider the points that have been made. I will be in touch with the noble Baroness, Lady Noakes, and noble Lords before the next stage.

Baroness Noakes

What joy. I beg leave to withdraw the amendment.

Amendment, by leave, withdrawn.

[Amendment No. 52 not moved.]

Lord Clement-Jones moved Amendment No. 53: Page 110, line 42, leave out "non-executive directors" and insert "board of governors

The noble Lord said: In view of what the Minister said about the last amendment, it may be that this amendment, which was designed to simplify the process similarly, is not worthy of consideration for too long. However, the motives behind it are very similar to the motives in the last set of amendments. This is really the other side of the coin. It is strange that the non-executives have the right to remove the chief executive under the schedule as presently drafted, but must have the approval of the board of governors at a general meeting—or not at a general meeting. Why does one not go straight to the original electoral college—the board of governors? Why are they not the people to take the decision?

I know that the Minister is resolutely refusing to trade models, but I think that this is within the model that he proposes. It is not really putting an alternative. It would be better to go straight to the board of governors. They should have the power of appointment and dismissal of the chief executive in the circumstances. After all, the board of governors has a broader range of interests and representation than the board of non-executives who are, after all, potentially smaller in number and have been drawn from members appointed by the board of governors. It would seem entirely logical for the board of governors to have that power. I beg to move.

Baroness Cumberlege

I find it hard to support this amendment. We have heard this afternoon and in the course of this Committee that the board of governors could number 50 or more people. To give 50 or more people the power of decision to appoint or fire a chief executive is extremely difficult and I am not quite sure that that process would work. Taking a decision to ease somebody out of a job, as I know to my cost, is extremely difficult. Getting the mechanics to work is difficult. Therefore, to put the board of governors in that position is not very practical.

Lord Hunt of Kings Heath

I speak to my Amendment No. 54. In the light of my noble friend's comments, I hesitate to mention the Higgs report yet again. I fully accept what he says, but we should remember why Higgs was set up in the first place and the problems in certain private companies that led to it. However, on the other hand, it does contain some good. I also acknowledge that not all chairs of private sector companies have particularly welcomed Higgs, but it has elements of good practice.

Paragraph 16(4) of Schedule 1 specifies how hard it is for the chief executive to appoint or remove executive directors. That is not good practice. I do not think that the power to appoint the executive directors should reside solely in the chief executive. That is not, as I understand it, current practice in the NHS. It has always been a corporate decision, involving, probably, the chair and the non-executive directors. From my discussions with applicant foundation trusts, particularly the chairs of those trusts, I sense that there is a general view that the responsibility should be discharged collectively by the chief executive, the chair and the non-executive directors. That is good corporate governance.

Amendment No. 54 would establish the fact that the responsibility should rest with a committee consisting of the chair, the chief executive and the other non-executive directors. Of course, the chief executive will have a critical role to play in that appointment, but it should be a corporate responsibility.

5 p.m.

Baroness Noakes

I shall speak to Amendment No. 55, but, before I do, I shall echo the words of my noble friend Lady Cumberlege, who did not agree with Amendment No. 53, moved by the noble Lord, Lord Clement-Jones. I can see no direct role for the board in the appointment of the chief executive. The appointment should properly be put formally to it for approval but should originate with the trust. That is one of the few bits of the Bill that the Government have got right.

The suggestion made by the noble Lord, Lord Hunt of Kings Heath, is attractive, but it may be onerous. It would require all the non-executives to be a part of the committee. It may be more practical to require only some or to have a provision that not all the non-executives need to be involved in the selection process.

With the noble Lord, Lord Hunt of Kings Heath, we believe that the chief executive should never have an unfettered hand to appoint any member of the management board. He can appoint his management team below board level, but he should not be able to foist members on the rest of the board. The scheme in the Bill is a bit odd: it has non-executives parachuted in by the governors and executives parachuted in by the chief executive. If there was ever a recipe for a dysfunctional board, that is it.

Lord Warner

Amendment No. 53 is not appropriate. It is not for the board of governors to make the appointment in the way proposed.

Amendment No. 55 is also unacceptable. It would provide for the board of directors to appoint the executive directors on the recommendation of the chief executive. That would not be appropriate and would mean that the executive directors would be involved in their own appointment. Earlier in the day, the Government were accused of circularity; the amendment seems to have a certain circularity itself.

Amendment No. 54, tabled by the noble Lord, Lord Hunt of Kings Heath, provides a better answer to some of the concerns that have been expressed. It is not as impractical as was suggested by the noble Baroness, Lady Noakes. In this day and age, we have the fax and the telephone, and it is possible for people to communicate with each other without necessarily always having to assemble, even if they are part of a committee.

We have listened to the concerns that the noble Lord, Lord Hunt of Kings Heath, has tried to address with his amendment. As we said, we are always willing to listen to reasonable arguments. The noble Lord's argument that the appointment of the executive directors would benefit, if the chair and non-executive directors were also involved is a good one. That arrangement provides greater independent involvement in the process but does so in a way that is consistent with the structure devised for NHS foundation trusts. We therefore propose to accept Amendment No. 54.

Lord Clement-Jones

I was hoping that the noble Lord, Lord Hunt of Kings Heath, would again stand up and thank the Minister. Clearly, there is no gratitude in politics.

The ability of the noble Lord, Lord Hunt of Kings Heath, to read the mind of the Department of Health continues to astonish me. The Minister has been magnanimous in his flexibility. I am sorry that my model did not find favour with the assembled company, but the Minister has, at least, shown that he understands that there are problems with parts of the schedule, so we continue to make some progress. I beg leave to withdraw the amendment.

Amendment, by leave, withdrawn.

Lord Hunt of Kings Heath moved Amendment No. 54: Page 110. line 43. leave out sub-paragraph (3) and insert— "(3) It is for a committee consisting of the chairman, the chief executive and the other non-executive directors to appoint or remove the executive directors.

On Question, amendment agreed to.

The Deputy Chairman of Committees (Baroness Pitkeathley)

As Amendment No. 54 has been agreed to, I cannot call Amendment No. 55, for reasons of pre-emption.

[Amendments Nos. 56 and 57 not moved.]

Lord Hunt of Kings Heath moved Amendment No. 58:

Page 111, line 8, at end insert "but the constitution may make provision for those matters to be decided pending the establishment of such a committee"

The noble Lord said: I am on a roll, so I hope that I will have equal luck with this set of amendments.

I am concerned about the transitional arrangements relating to the board of directors when a trust moves from NHS trust status to NHS foundation trust status. I know that some noble Lords do not necessarily share my view of the role of the board of governors, but, whatever one's view of the role of the board, we would, I think, agree that, when an NHS organisation changes its status, it is vital that there be stability in its leadership.

My reading of the Bill is that, in essence, the arrangements for the appointment of the executive directors and the non-exeeutive directors, including the chair and the chief executive, kick in during the transition between the current status and foundation trust status. In theory, therefore, there could, with a new board of governors, be a complete change in the non-executive directors on the board of directors, who, in turn, might decide to appoint a whole new team of executive directors, including the chief executive. That would be risky.

The reason why the first-wave foundation trusts are in the first wave is that they are the best led NHS organisations. I know that the noble Lord, Lord Clement-Jones, for one, has some concerns about the way in which one qualifies to be at the forefront of the movement. He is not particularly keen on performance ratings and the like. However, anyone considering the characters who lead the first-wave foundation trust applicants would surely conclude that some of our best people lead those organisations. It would be foolish to ask them to subject themselves to a process in which they had to be reappointed subject to the consideration of the new board of governors.

I propose that there should be transitional arrangements in which, essentially, the non-executive directors on the current NHS trust will, if they so wish, go forward to serve as the first non-executive directors on the foundation trust. They should serve out their term of office. For example, if their term of office was due to end less than 12 months after the foundation trust came into being, they would be able to serve that period.

The beauty of the arrangement is that, first, it ensures stability. It also means that the non-execulive directors will retire over time, rather than in one fell swoop. That will allow the board of governors to get to grips with the appointments process and will mean that it would not be an "all in, all out" situation.

The same thing must apply with regard to the chief executive. Again, we are talking about some of our best chief executives, so it must make sense for them to go forward again, if they so wish, to lead the new organisations. The amendments would ensure that that happened.

In the fullness of time, the governing bodies will be able to take up the responsibilities. However, given all the work involved in transferring from an NHS trust to an NHS foundation trust, stability in the leadership of the organisations is essential. I beg to move.

Baroness Noakes

The purpose of Amendment No. 137 is much the same as that of the amendment proposed by the noble Lord, Lord Hunt, but it takes a slightly different route involving the regulator before he authorises a foundation trust. Like the noble Lord, Lord Hunt, we have been made aware of significant concerns among potential applicants for NHS foundation trust status. If my noble friend Lady Hanham were able to be here she would express that point extremely forcefully. We have no problems with the amendments tabled by the noble Lord, Lord Hunt, and support them. It is called backing a favourite. The important point is that the issue is properly addressed in the Bill.

Lord Clement-Jones

I agree with the sentiments expressed, which have also been expressed to me and my colleagues by applicants. It is a crazy situation which, privately, is admitted by many members of the Government party. In theory, potentially it would be possible for there to be a complete clean-out from some of the most successful hospital trusts in the country. Potentially, chief executives and non-executives could be vulnerable immediately after achieving the aim of becoming foundation trust hospitals. This is a matter that needs to be addressed. The amendments tabled by the noble Lord, Lord Hunt, are elegant and should be carefully considered.

Lord Warner

We recognise the importance of ensuring operational continuity during the transition to NHS foundation trust status. The senior management teams of trusts that are eligible to apply for foundation status have delivered high-performing organisations by definition. We have listened to the concerns expressed about the need to ensure organisational stability among those applying for foundation trust status during the transition to the new governance arrangements. That is why we propose to accept Amendments Nos. 58, 61, 120 and 121, tabled by my noble friend Lord Hunt.

I share the description made the noble Lord, Lord Clement-Jones. The amendments are elegant and they will facilitate the transition from NHS trust to NHS foundation trust status by allowing time for the board of governors to properly get to grips with its role before being required to make or approve appointments to the management board. They will also provide for the continuity of the executive component of the board. That is the best way forward to ensure organisational stability and to ensure that NHS foundation trusts benefit from the proven ability of the current board of these high-performing organisations.

Lord Hunt of Kings Heath

I thank my noble friend and other noble Lords for their backing. This will bring a great deal of support to first-wave applicants, which I hope will give them confidence to take forward their applications with a great deal of enthusiasm.

On Question, amendment agreed to.

[Amendment No. 59 not moved.]

Baroness Noakes moved Amendment No. 60: Page 111, line 8, at end insert—

"The chief executive shall be the Accounting Officer of the corporation."

The noble Baroness said: Amendment No. 60, which inserts a new paragraph after paragraph 17 of Schedule 1, is a probing amendment designed to ascertain the accountability arrangements for NHS foundation trusts. As I understand the current position, chief executives of NHS trusts are accountable officers for their trusts, reporting to the permanent secretary of the Department of Health, who is the department's accounting officer. That means that trust chief executives are accountable, alongside the department's accounting officer, directly to Parliament for their use of public money.

I hope that the Minister will explain the accountability arrangements for foundation trusts and, in particular, explain how they will be accountable to Parliament. My amendment to make them an accounting officer is to probe that accountability. If the Minister believes that our amendment is not necessary, I hope that he will explain what underpins the accountability arrangements for foundation trusts. I beg to move.

Lord Warner

We agree that the chief executive of an NHS foundation trust is its accounting officer. This amendment is not necessary. Advice to this effect has been included in the guide to governance arrangements that is being distributed to all applicant trusts. The regulator would expect this to happen, as would the Secretary of State, in considering applications. This amendment is not necessary because it is well established that these will be the arrangements.

Baroness Noakes

I thank the Minister for that reply. Could he confirm that all that is required is for the department to write this in the guide to governance arrangements, thus making someone an accounting officer for parliamentary accountability purposes? I am a little confused. Perhaps he could clarify that.

5.15 p.m.

Lord Warner

The point is that we have given that guidance to applicants. We would expect it to be reflected in their application. Indeed, the regulator would be looking out for that, as would the Secretary of State. This would have to be provided for in their application.

Baroness Carnegy of Lour

I have always understood an accounting officer to be a legal appointment. Should not the Bill say so? Need the Government be so resistant to this rather good idea?

Lord Warner

We do not think that this is necessary. We have made arrangements to ensure that the arrangements are put into effect.

Baroness Noakes

Perhaps the Minister will take this issue away and look at it again. It is my understanding that this cannot be done by the simple publication of a guide by the department or, by the inclusion in an application to be a foundation trust, that a person can nominate himself to be an accounting officer. The creation of the accountability link between an individual and Parliament is established by other more formal means. I hope that the Minister will take this issue away and look at it again because I am not convinced that the answer has the ring of truth to it. In the mean time, I beg leave to withdraw the amendment.

Amendment, by leave, withdrawn.

Lord Hunt of Kings Heath moved Amendment No. 61: Page 111, line 8, at end insert— "Initial directors of former NHS trusts

1. 17A (1) This paragraph applies, where the application for authorisation is made under section 4, to the exercise of the powers mentioned in paragraph 16 to appoint the initial non-executive directors and the initial chief executive.
2. (2) The power to appoint the initial chairman of the corporation is to be exercised by appointing the chairman of the NHS trust, if he wishes to be appointed.
3. (3) The power to appoint the other initial non-executive directors of the corporation is to be exercised, so far as possible, by appointing any of the non-executive directors of the NHS trust (other than the chairman) who wish to be appointed.
4. (4) A person appointed in accordance with sub-paragraph (2) or (3) is to be appointed for the unexpired period of his term of office as chairman or (as the case may be) non-executive director of the NHS trust; but if, on any such appointment, that period is less than 12 months, he is to be appointed for 12 months.
5. (5) The power to appoint the initial chief executive of the corporation is to be exercised by appointing the chief officer of the NHS trust, if he wishes to be appointed.
6. (6) Paragraph 16(4) does not apply to the appointment of any executive director of the NHS trust as an initial executive director of the corporation."

On Question, amendment agreed to.

Lord Clement-Jones moved Amendment No. 62: Page 111, line 13, at end insert "and their interests

The noble Lord said: This is very straightforward. I beg to move Amendment No. 62 and I shall not move Amendment No. 63, which is already covered by the schedule. On looking at the provisions in paragraph 18, I do not understand why there is no register of interests of members of the board of governors. It speaks about the constituency to which each belongs, but there is no provision for a register of interests of the members of the board of governors. That seems illogical as they are in positions of considerable importance in the trust. It is clear that the directors have a register of interests, under paragraph 18(l)(d). I shall be interested to hear the justification for not having a register of interests when these members make up another tier of governance for the trust concerned.

Baroness Noakes

I shall speak to Amendments Nos. 64 and 65 in the group. The effect of Amendment No. 64 is the same as that proposed in the amendments just spoken to by the noble Lord, Lord Clement-Jones; that is, that a register of interests would be required additionally for boards of governors. In another place, the Government conceded that registers of interests would be required for boards of directors. Personally, I do not understand why they did not concede at that stage that they would be required for boards of governors. That seems to be a well accepted part of the Government's arrangements for all public sector bodies.

Amendment No. 65 takes this point further and specifies what should be included in the register of interests. It requires that the registers include financial interests, which is commonplace, and political affiliations within the previous five years. I hope that the Minister will agree that this disclosure of interests is essential in the interests of accountability, probity and openness, particularly in the context of foundation trusts which might be open to entryism, which we have discussed previously. Can the Minister ever envisage a register that would not include those items? If not, the amendment is a useful addition to the Bill.

Lord Warner

Discussions occurred in another place about the provision of a register of interests of members of boards of governors. We considered the arguments carefully. We do not agree that similar legislative provision is required for the board of governors as for the board of directors.

We have had an exhaustive debate about the role of boards of governors and the boards of directors. As the Bill makes clear, it is the board of directors which exercises the executive powers of an NHS foundation trust because the directors are responsible for the day-to-day management of the trust. There is much greater scope for conflicts of interest to arise for the directors than is the case for the governors, in particular in relation to pecuniary matters.

However, we would expect governors to declare their interests where relevant when speaking at meetings and, indeed, there is nothing to debar individual NHS foundation trusts including provisions in their constitution relating to this. But we do not think it necessary to specify in legislation declarations of interest for boards of governors.

Turning to Amendment No. 65, I have explained already that the Bill now includes a requirement for foundation trusts to have a register of directors' interests and to include provisions on conflicts of interest in their constitution. We do not think it necessary to specify in primary legislation what constitutes an interest and thus what should be held on the register. Any relevant financial or political interest would necessarily have to be included on the part of the board of directors but, as I have said, we do not think it necessary to prescribe in primary legislation a register of governors' interests in the way proposed.

Lord Clement-Jones

That is a disappointing reply. Throughout our discussions on this part of the Bill the Minister has sought to minimise the role of the board of governors. Indeed, it appears that its role is shrinking by the minute even as we discuss the issue in Committee. That is in itself extremely disappointing when one considers the livelier and much better governance model that would be available if the role of the board of governors was expanded.

The Minister has said more or less that, because the board is not very important, governors do not have to declare their interests, but if they feel like doing so when they come along to a public meeting, that is all well and good. If the trust wishes to include such a requirement in its constitution, that too is fine. I do not believe that that is good enough.

From a practical view—and there may be some movement on this as time goes on—because boards of governors will represent public opinion in the area, they have the potential to play a powerful role, even if they are not specified formally in the schedule. Like it or not, they will have a considerable influence on the direction of foundation trusts. In those circumstances, it is very important for governors' interests to be transparent. After all, it is the public who will have elected them and thus should know what are those interests.

It is only common sense to adopt such a provision and it is disappointing to see such a laissez-faire approach to interests at a time when declarations of interest are treated as a matter of considerable importance by public bodies. I think that this is a retrograde step and we shall certainly reserve our position.

Lord Hunt of Kings Heath

Would the noble Lord give way briefly? Perhaps it is churlish of me to return to the whole issue of boards of governors, given that my noble friend has just accepted my amendments and that we have discussed their role a number of times today, but I think that the noble Lord, Lord Clement-Jones, is right. If it is not considered important for declarations of interest to be made by governors, that is yet one more visible sign that the board is not a board of governors; it is much less than that.

I wonder in all seriousness whether we ought to consider changing the name. I say that because it is quite clear that the governors are not there to govern. They are there to give a view. I am very concerned that people will be elected to that body with a false perspective. Before it is too late, ought we not to reconsider in the interval between the Committee and Report stages, how to set out a more realistic assessment of what this body is there to do?

We are in danger of storing up trouble for the future. I know that noble Lords disagree with me about what the role of the board of governors should be, but I think that we are all agreed that it should be made abundantly clear to everyone taking part exactly what the board is there to do. If we are not careful, we are at real risk of ending up with an extremely uncomfortable and unworkable governance structure.

Lord Warner

While I stand by what I said in my original response, I can see the force of the arguments put by my noble friend Lord Hunt and the noble Lord, Lord Clement-Jones, about perceptions. It is certainly not our purpose to diminish the role of the board of governors.

In the light of those particular arguments, I should like to take this issue away and reflect a little further on it. I shall see whether we can respond appropriately before the Bill is considered on Report.

Lord Clement-Jones

That is most helpful, as was the intervention of the noble Lord, Lord Hunt. The noble Lord and I tend to have a similar vision of the way in which the board of governors and the board of directors are to interact, but one does not have to share that vision in order to be absolutely certain about the need to know exactly where each individual member of the board of governors is coming from in terms of their interests.

I am very pleased with the Minister's response and I beg leave to withdraw the amendment.

Amendment, by leave, withdrawn.

[Amendments Nos. 63, 64 and 65 not moved.]

The Deputy Chairman of Committees

If Amendment No. 66 is agreed to, I shall not be able to call Amendments Nos. 67 to 70 inclusive by reason of pre-emption.

Lord Clement-Jones moved Amendment No. 66: Page 111, line 36, leave out paragraph 21 and insert— A public benefit organisation shall be audited by an auditor appointed by the Audit Commission.

The noble Lord said: Given that the noble Baroness, Lady Noakes, is sitting so close by, it is with some trepidation that I enter into the realms of public finance. Although my amendment may appear minor, it is highly significant and certainly one that accords strongly with a number of different reports on public finance which have recently been produced.

I start at the Statistics Commission, whose reports I am sure the Minister reads with great regularity. In July of this year that office announced that foundation trusts would be provisionally classified in the public sector as central government bodies. A provisional classification is good enough for our purposes. That is a significant statement from the audit point of view.

That classification will bring in its train the fact that the principles of public audit should apply to the auditing of foundation trusts. Those principles are clearly set out in a number of documents and are interpreted in different ways, but the first principle is that public sector auditors should be independent of the organisations being audited. The second principle refers to the scope of public audit, covering the audit of financial statements, regularity, propriety and value for money. The third principle concerns the ability of public auditors to make their audits available to the public and to democratically elected representatives. Those principles are clear. Further, an extremely comprehensive report has been produced by my noble friend Lord Sharman on the whole area of the review board and accountability to central government.

This suggested addition for a requirement to have auditors approved by the Audit Commission is intended to bring foundation hospitals four-square within the principles of public audit. Under the terms of the Bill as drafted, it seems that currently foundation trusts will fall outside those principles. I do not know whether the Department of Health gave much thought to the way in which foundation hospital accounting structures were to be established, but Members on these Benches feel that there is a flaw here which could easily be corrected by ensuring that the auditors of foundation hospitals are approved by the Audit Commission. That body is extremely used to dealing with this area. If it did not undertake the audit itself, it would certainly be in the right position to recommend the appropriate auditors for the foundation hospitals. I beg to move.

5.30 p.m.

Baroness Noakes

I shall speak to Amendments Nos. 67, 68 and 69, which are in this group. It may be easier for the Committee if I first speak to Amendment No. 68, because it follows on naturally from the amendment just moved by the noble Lord, Lord Clement-Jones.

That amendment would place the appointment of the auditor in the hands of the Audit Commission. I can see that it is a logical amendment which, in effect, preserves the current audit arrangements for NHS trusts. However, we prefer the Government's basic approach to place the decision in the hands of the foundation trusts, thereby making them much more like the university sector. The appointment will of course be made by the board of governors rather than the board of directors, thereby achieving independence of appointment, which is one of the principles of public audit to which the noble Lord, Lord Clement-Jones, referred.

While we like flexibility and freedom of appointment, we do not like the drafting of paragraph 21(3) at all. First, it does not confine the appointment to people who are properly qualified to carry out audits. It refers to persons with specified qualifications from various accounting bodies listed in the Audit Commission Act 1998. This means that I could be appointed an auditor of a foundation trust. I am a member of the Institute of Chartered Accountants in England and Wales and would thus qualify as a foundation trust auditor even though I am not approved by the Institute of Chartered Accountants to act as an auditor under the Companies Act. Our formulation, which refers to persons eligible for appointment under Section 25 of the Companies Act 1989, gets around this problem by ensuring that only properly qualified accountants can qualify. Therefore I did not need to declare an interest when I started to speak to the amendment because I am trying to do myself out of a job.

We agree with the Liberal Democrats to the extent that the Audit Commission is a possible appointee, but we also see a possibility for appointing the National Audit Office, the skills of which are highly regarded the world over. The NAO will, in any event, have access to foundation trusts, so it could be logical and efficient for a foundation trust to have the possibility of selecting the NAO as its auditor.

Amendment No. 67 would expand paragraph 21(2) so that it is clear that an auditor should be appointed every year. This is in line with the position under the Companies Act, although I know that that will not impress the Minister. At present, it would appear that the auditor is appointed sine die, which cannot be right. There should be some kind of formal process to evaluate the auditor's appointment, and we suggest that annually is the correct interval. The amendment also makes provision for a vacancy arising so that a new auditor can be appointed if an auditor resigns. This does happen, whether through disagreements or through mergers of accounting firms.

Amendment No. 69 would delete paragraph 21(3)(b), which allows the regulator to approve other bodies of accountants to provide auditors. This is nonsensical. How is the regulator to have the competence to determine whether a new body of accountants can provide adequate auditors? The Department of Trade and Industry currently holds this role for auditors appointed under the Companies Act. I am sure that, if asked, it would tell the Department of Health that this is a highly complex area. For example, it usually takes several years to approve foreign qualifications, even from countries such as the US, as being capable of meeting the standards required under UK legislation. Our formulation in Amendment No. 69, combined with Amendment No. 68, would in effect leave the task to the DTI. Sub-paragraph (b) is not only unnecessary, but a minefield for the department.

Lord Warner

I am sure that the House would be saddened if the considerable financial skills of the noble Baroness, Lady Noakes, were unavailable to NHS foundation trusts. Certainly I would not wish to say or do anything to prevent those skills becoming available.

Amendment No. 66 overlaps to some extent with some of the other amendments. In line with the devolution of responsibility and accountability, and with the greater freedoms for NHS foundation trusts that we have discussed, the Bill provides for those trusts —like universities and further education bodies—to appoint their own auditors. I am grateful for the support given to that position by the noble Baroness, Lady Noakes.

The Government are absolutely clear that this principle should be adhered to and they do not consider that it is incompatible with robust audit regimes. Paragraph 21(3) provides for reputable sources of auditors for NHS foundation trusts, and I shall come back to that issue later. However, I understand that the amendments are, to some extent, motivated by a concern that audit regimes should be robust. I am certainly willing to consider further whether there are additional requirements we might specify to ensure that an NHS foundation trust appoints an appropriate person or body as auditor, and to come back on Report with any appropriate amendment.

At this stage, I would not rule out more involvement of the Audit Commission, but I would not rule it in either. I certainly have doubts about any suggestion that NAO involvement is appropriate given its responsibilities, in effect, to stand above this. There is a potential conflict of interest in that area.

I emphasise again—I want to be very clear about this—that it is for the NHS foundation trusts to make the decisions on which specific auditors they choose, however the boundaries may be set for the source from which they make that choice. We are absolutely clear about that.

On Amendment No. 67, if auditors fail to exercise their function satisfactorily, there must be a mechanism for removing them from post. From experience in public bodies I know this to be essential. The board of governors is responsible for the appointment of the auditor and should therefore be responsible for the removal of the auditor. The amendment to paragraph 21(2) is unacceptable as it would take away the power to remove an auditor who is not up to the job.

The suggested new sub-paragraph (3) appears to be aimed at ensuring that a trust does not operate without an auditor. As such, we believe that it is unnecessary. Sub-paragraph (1) makes it clear that an NHS foundation trust must have an auditor, and foundation trusts will therefore need to have arrangements to ensure that a new auditor is appointed on removal of the existing auditor. This can be achieved by requiring the auditor to give notice at an interval long enough for a new appointment to be arranged.

The audit provisions which are of concern to the noble Baroness, Lady Noakes, and are the subject of Amendments Nos. 68 and 69, have been modelled in part on the provision of the Audit Commission Act 1998, reflecting the fact that they are public sector bodies. Auditors from the private sector appointed to audit public bodies under the Audit Commission Act must be members of the bodies listed in that Act or another body approved by the Secretary of State.

Similarly, auditors appointed by an NHS foundation trust must be members of the bodies listed in that Act, or another body approved by the independent regulator. The independent regulator can take advice on audit-approved bodies, taking account of who the DTI, for the Companies Act, and the Audit Commission, for public bodies, have advice on.

Our advice is that applying the Companies Act provisions on auditor qualifications might weaken the safeguards we have put in place for audit of NHS foundation trusts. I am advised that the Companies Act provisions require auditors to be members of a "recognised supervisory body", but the independent regulator can ensure that any recognised supervisory body is appropriate before allowing its members to audit NHS foundation trusts, using the sources of advice that I have described.

That is our current position, so we would not favour Amendments Nos. 68 and 69. But, as I said, we will be looking again at the provisions, and I will check this area again before I come back on Report.

Baroness Noakes

Before the noble Lord, Lord Clement-Jones, decides what to do with his amendment, I should like to raise two points with the Minister. I should say first that I am grateful to him for taking these issues away.

The Minister said that if the NAO were appointed, there would be a conflict of interest. I cannot see how the NAO could have a conflict of interest if it were auditing an NHS trust. I think the Comptroller and Auditor-General might find that a rather strange statement.

Secondly, the Minister talked about the advice he had received that the regulator could approve recognised supervisory bodies. Recognised supervisory bodies are set up and approved by the Department of Trade and Industry. There is a long and complex process around that, with lots of checks and balances and oversight. I suggest that the noble Lord might get his officials to research that in a little more detail when he comes back unless he has further information now.

Lord Warner

I am certainly not going to engage in a debate on the latter point with the noble Baroness, as she knows much more about it than I do, but I will take the point away and seek further advice.

If the NAO were to audit NHS foundation trusts, we believe that there would be the possibility of a potential conflict of interest. Under paragraph 22(3) of Schedule 1, the Comptroller and Auditor-General will have rights of access to NHS foundation trust accounts after audit and can report to Parliament on these accounts in the auditor's report. It would seem pretty odd if the NAO audited a trust and then had a right to report on its accounts to Parliament.

Baroness Noakes

I suggest to the Minister that that is not a conflict of interest. If the Comptroller and Auditor-General or NAO were appointed, the latter section to which he referred might need modification, but I do not believe that there would be a conflict of interest.

Lord Clement-Jones

In contrast to the noble Baroness, Lady Noakes, I will not get any more technical. The Minister has replied in terms that I understood. The crucial factor is the way that foundation trusts are classified as central government bodies. We must find a way of making sure that the audit process is robust. I thank the Minister for his assurance that he will take that away and think about it, although he is giving no undertakings that the Audit Commission will have further involvement. It is a view well shared in the House that there is considerable confidence in the Audit Commission, and that would be a sensible way forward. In the mean time, I beg leave to withdraw the amendment.

Amendment, by leave, withdrawn.

[Amendments Nos. 67 to 69 not moved.]

Baroness Noakes moved Amendment No. 70:

Page 112, leave out line 5 and insert "act as an audit committee with the following functions—

1. (a)to monitor the integrity of the accounts of the corporation, including reviewing significant financial reporting judgements;
2. (b)to review the corporation's internal control system and risk management systems;
3. (c)to monitor and review the effectiveness of the corporation's internal audit functions; and
4. (d)to monitor the exercise of the auditor's functions, including monitoring and reviewing the auditor's independence, objectivity and effectiveness."

The noble Baroness said: Amendment No. 70 would amend paragraph 22(4) of Schedule 1, which sets up a committee of the board of directors to monitor the exercise of the auditor's functions. That sounds like an audit committee, a requirement for which has existed in the private sector for well over a decade and also in the public sector, particularly for NHS bodies.

The Minister will not be interested in this, but in recent times the combined code on corporate governance has reflected amendments from a review not by Mr Higgs but by Sir Robert Smith on the work and tasks undertaken by audit committees.

I said a moment ago that paragraph 22(4) had included something that sounded like an audit committee, and that is what paragraph 27 of the Explanatory Notes refers to. But I regret to say that whoever has drafted this sub-paragraph has no idea what an audit committee is.

The wording of Amendment No. 70 follows fairly closely the main requirements of the latest combined code—although I have shortened it a bit and it is not very different from what existed before. However, the whole point about audit committees is that they do not simply sit on top of the external auditors; they consider all the issues related to financial reporting, internal control and risk and they oversee the internal audit function. Internal control, for example, is not a function of the external auditors, who will look only at key aspects of internal financial controls related to the financial statements.

Audit committees in the private sector have very heavy workloads. As the chairman or a member of several, I bear the scars. Paragraph 22(4) does not begin to cover the ground that a foundation trust audit committee should encompass. I hope that the Government will look again at this. I beg to move.

5.45 p.m.

Lord Blackwell

I support my noble friend's amendment. Clearly audit committees in the private sector are governed by the combined code. If we are told that the combined code is not relevant to these NHS trusts, there needs to be an equivalent code setting out what the audit committee should encompass.

My noble friend has covered the major points but I believe that the Minister should consider one other— the particular function in public organisations of the chief accounting officer. Although this point has puzzled me in regard to all public sector organisations, I make it in this context with regard to these specific organisations. Ultimately, it is the chief accounting officer who submits the report on the appropriateness and integrity of the accounts. As far as I can see, in most public sector organisations, the audit committee, however it is constituted, has no formal role in approving the report of the chief accounting officer. So it can do lots of monitoring and reviewing, but it has no formal locus on the report that is submitted. I therefore wonder whether in considering this amendment, the Minister will also consider that there needs to be a paragraph (e), to review and approve the report of the chief accounting officer".

Lord Warner

NHS foundation trusts will be expected to apply best practice in corporate governance, taking account of recommendations and best practice in both the public and private sector. For example, the Audit Commission has examined the role of non-executives and the Financial Reporting Council has, as the noble Baroness said, revised the combined code of corporate governance in the light of the Higgs report. We accept that good practice has to be appropriately used by foundation trusts. The Secretary of State in approving applications, and the independent regulator in authorising applications, will be able to ensure that each applicant has developed appropriate governance proposals as set out in the constitution. So that is our position. I do not want there to be any misunderstanding about that or to give any suggestion that we do not approve of extremely good audit practice by foundation trusts.

I accept that the proposals set out in Amendment No. 70 reflect the combined code and the recommendations by Sir Robert Smith on audit committees. We have no quarrel with that at all. As such, we expect that NHS foundation trusts will provide for their audit committee to have similar functions. However, we have doubts about whether it is appropriate to specify those in legislation. As I understand it, they are not specified in legislation for companies. There needs to be flexibility to take account of the fact that, as we have seen in recent years, best practice advice will change with time and with different types of organisation and should not be enshrined in primary legislation. We do not think that that is much different from the present arrangements in current NHS bodies. In the light of those assurance, I hope that the noble Baroness will be willing to withdraw the amendment.

Baroness Noakes

I thank the Minister. However, I think that he has missed the point that I was trying to make. Paragraph 21(4) states: The corporation is to establish a committee of non-executive directors to monitor the exercise of the auditor's functions". That is very narrow. If that said something like, "to monitor the internal financial controls and audit related thereto", there might not be so much of a difference between us. However, that is the narrowest description of an audit committee that I have seen. The description does not seem to lead either applicant trusts, the regulator or the Secretary of State to examine the right issues. If it should not be so prescriptive as to follow current guidance, perhaps we should say something like, "to establish an audit committee in line with best practice". However, this formulation is wrong. I hope that the Minister will re-examine the issue. I am sure that we will return to it. I beg leave to withdraw the amendment.

Amendment, by leave, withdrawn.

Earl Howe moved Amendment No. 71: Page 112, line 8, leave out "with the approval of the Treasury

The noble Earl said: In moving Amendment No. 71, I wish to speak also to Amendments Nos. 73 and 74. It is important that we touch at least briefly on the provisions in Schedule 1 which deal with the content and format of a foundation trust's annual accounts.

We see here in the clearest possible terms one of the fault lines in the oft repeated claim that the regulator will be independent of government. One might think that the way in which a foundation trust prepares its annual accounts should be up to it, subject to appropriate directions from the regulator, but not a bit of it. The regulator cannot specify anything to do with the methods and principles according to which the accounts are prepared or the information that appears in the accounts or the form in which they are kept and presented without the prior approval of the Treasury.

I am sure the Minister will say that that is all part and parcel of ensuring proper accountability for public money in public sector bodies. I have no problem with the concept of proper accountability but if the rhetoric were really true that the regulator is to be truly independent there is an easy way to preserve proper financial accountability, and that is to give him a general duty to ensure that the accounts of each foundation trust reflect the principles required by the Treasury for the purposes of financial transparency.

Clause 3 defines the regulator's general duties. It is a short step from those general duties to the kind of duties that I have just described. But that is not the approach that we have here. The Treasury has to have, apparently, a direct role written on the face of the Bill relating to the minutiae of the accounting process. That is one example—a small one perhaps—of the way in which Ministers will continue to exert control over foundation trusts. In my humble view it is wholly avoidable. I beg to move.

Lord Clement-Jones

I speak to Amendment No. 75. This has two key elements. Like the amendment of the noble Earl, Lord Howe, it relates to the way in which foundation trust accounts are drawn up and presented. First, the intention is to ensure that the annual accounts of an NHS foundation trust state explicitly the amount of income arising in the relevant year from private charges and, more importantly, the percentage that that represents of the trust's total income.

A second requirement in that context is that there should be a specific audited statement confirming that that is not higher than the relevant percentage in the base year. That enshrines in the annual accounts easily referenced information relating to the NHS foundation trusts' compliance with the provisions of Clause 15(2) of the Bill. We shall no doubt debate the precise terms of Clause 15(2). Changes were made in Committee but the power under Clause 15 restricting, the provision, for purposes other than those of the health service in England, of goods and services by an NHS foundation trust"— effectively the provision of private health services—is the subject matter of the proposed new paragraph (3A) in Amendment No. 75.

The measure seeks to ensure that within six months of the relevant financial year end the annual accounts are published by a foundation trust with a copy posted to each member of its public constituency without charge and that copies are available to members of the public on payment of a reasonable fee. Further, it contains a proposal that foundation trusts should open up their accounts before they are finalised. That would provide a proper mechanism for local scrutiny and financial accountability. That requirement reflects an obligation of local authorities. They are required to open up their accounts before they are finalised; that is, publish a draft statement, make supporting papers available and have the auditor available for questioning. However, as local authorities are obliged to meet transparency requirements under the Audit Commission Act and related regulations, there seems no reason in principle why foundation trusts should not be subject to a similar regime. If the desire is that the public should have oversight of a locally devolved NHS structure, they should be given the mechanism that they will need to exercise that effectively. I very much hope that the Minister will look favourably on that provision.

Baroness Finlay of Llandaff

I speak with some trepidation because I am not an accountant, but I am concerned with issues about audit. What provision is there for ensuring that the risk assessment has been adequate in relation to indemnity? How will indemnity issues for the foundation trusts be handled? It may not be the relevant point to ask such a question—if the Minister felt that that were the case I would accept it— but the issue has concerned me throughout some of the debates.

Lord Warner

I am happy to write to the noble Baroness, Lady Finlay, about those issues.

There may be some misunderstanding on Amendments Nos. 71,73 and 74. It is certainly not our intention to re-establish excessive controls. The reason for the present wording is slightly more mundane than the noble Baroness may think. Each year from 2004–05, the Treasury will prepare whole of government accounts, which include information on public bodies and bodies wholly or substantially funded from public money. Those accounts will form an important source of information on how public funds are used. As NHS foundation trusts have a principal purpose of providing NHS services, the great majority of their funding will be from the public purse, and it is right that the Treasury intends to include their expenditure in the whole of government accounts.

It follows from that that it is important that the form and content of NHS foundation trust accounts, as directed by the independent regulator, are consistent with the Treasury's requirements. That facilitates parliamentary and public scrutiny of how public funds are used. The Treasury accounting requirements reflect UK generally accepted accounting practice— the rules followed by private sector companies—to the extent that is meaningful and appropriate in the public sector context. We are not simply trying to go back to controlling any dropping of bedpans, but ensuring that the accounts are in the right format for the Treasury to deliver its commitment on publishing whole of government accounts.

Our views on Amendment No. 75 are not quite the same as those of the noble Lord, Lord Clement-Jones, as he may or may not be surprised to learn. We believe that the amendment is unnecessary and would place NHS foundation trusts and their auditors under a complex and burdensome set of requirements without delivering any additional benefit. The Bill already provides for information to be made available to the public, including on private patient activity. It provides for independent scrutiny of the accounts and the auditor's reports, and for monitoring compliance with the private patient cap. I shall say a little more about each of those in more detail.

Lord Clement-Jones

The Minister has moved on, but I assume that he will direct us specifically to the place in the Bill where the obligation to report on private income arises.

Lord Warner

I am about to go through some more detailed exposition.

I shall deal first with information to be made public. I can well understand the desire to ensure that information on accounts is made public, but that is already covered under a number of different provisions in the Bill. The annual accounts of the NHS foundation trust must be tabled at a general meeting of the board of governors, which must be open to the public. In addition, paragraph 20(1)(d) of Schedule 1 and Clause 10(2)(c) jointly provide that the annual accounts are to be publicly available for inspection and copying. Under paragraph 20(3) of Schedule 1, members cannot be charged for copies of the accounts, although others may be charged a reasonable fee. So we believe that there is adequate provision for making the accounts widely available to the public.

It will be for the independent regulator to monitor compliance with the private patient cap. Paragraphs 22 and 21 of Schedule 1 provide for the independent regulator, with HM Treasury approval, to determine the form of accounts. I have discussed that. The accounts will therefore include information that the regulator requires to monitor compliance with the private patient healthcare cap in Clause 15. As accounts are publicly available, the public will also have access to that information.

There is already provision for independent scrutiny of the accounts and the auditor's report. The independent regulator will be responsible for defining and ensuring compliance with the private patient healthcare cap in Clause 15. Under Schedule 1, paragraph 22(3), the National Audit Office can examine the accounts and the auditor's report. They are also sent to Parliament and to the independent regulator under Schedule 1, paragraph 23(4). An additional requirement for the public to examine draft accounts and auditor's reports, and to interrogate the auditor, adds nothing but bureaucracy.

We agree that accounts should be prepared and audited as soon as possible. However, the Bill already includes powers for the independent regulator to prescribe timetables for the preparation and audit of the accounts in setting terms to the authorisation or accounting and audit requirements. In our view, it would be inappropriate to prescribe any arbitrary timescale within which the accounts must be prepared and audited and we would leave this to the regulator.

6 p.m.

Lord Clement-Jones

I shall read carefully what the Minister had to say. Paragraphs 22 and 23 are magical—they encompass a massive amount of detail which I cannot see enshrined in their wording. We shall read as much between the lines of those paragraphs as we can and perhaps return to the matter at a future date.

Earl Howe

1 am grateful to the Minister for his explanation. We have heard a great deal about flexibility in the Bill, but this appears to be a case of extreme inflexibility. I would have thought that there the Bill could be less prescriptive. If all the Treasury requires is certain information, the regulator could specify that that information should be provided. An appropriate duty could then be written in to ensure that he does so. It is not necessary to have multiple provisions on the face of the Bill, allowing the Treasury to dictate the form and content of the accounts in detail.

Nevertheless, there are ways and means of arriving at the same objective. This is not a make or break issue. I am pleased that I raised it and I am grateful to the Minister. I beg leave to withdraw the amendment.

Amendment, by leave, withdrawn.

Baroness Noakes moved Amendment No. 72: Page 112, line 14, leave out sub-paragraph (4).

The noble Baroness said: Sub-paragraph (4), paragraph 22 of Schedule 1 provides that the regulator can tell the auditor what standards, procedures and techniques he should use. That is undesirable because it would duplicate standards that already exist for use in both the public and private sectors. Furthermore, I do not believe that the regulator would have the competence to execute the task.

There already exists an Auditing Practices Board currently owned by the Independent Accountancy Foundation and soon to be taken under the wing of the Financial Reporting Council. It sets auditing standards for auditors and is made up of a chairman and 12 highly experienced accountants. It includes non-voting membership from the Department of Trade and Industry. It covers all auditing, including that of public-sector entities. Will the Minister explain why the Department of Health feels it is necessary for its regulator to specify auditing standards? Will he explain how the regulator will acquire sufficient competence to carry out the task? I beg to move.

Lord Warner

The Bill specifies that it is for the regulator to determine what standards, techniques and procedures should be specified for audit. We expect that the independent regulator will follow best practice in setting the audit requirements, and that he will consult widely before doing so. Nothing in this legislation prevents the regulator from getting to the end point that the noble Baroness would like him to get to. We are placing an obligation on the regulator as the person who agrees the authorisations for NHS foundation trusts to determine the standards, techniques and procedures required for audit. Again, the regulator will have access to all the kinds of bodies that the noble Baroness mentioned. We are absolutely confident that he will have regard to that in specifying his requirements.

Baroness Noakes

I thank the Minister for that reply, which was not a surprising one. I am detecting that, alongside flexibility, which is one of the themes of the Bill, we have another theme—wheel reinvention in the Department of Health. The department seems to want to do everything itself or through its own appointed agents, including those things that no other body in this country, in any circumstance, would dream of trying to do on its own. I find that extraordinary, and we may return to the matter. I beg leave to withdraw.

Amendment, by leave, withdrawn.

[Amendments Nos. 73 to 75 not moved.]

Baroness Noakes moved Amendment No. 76: Page 112, line 28. leave out "any" and insert "the

The noble Baroness said: In speaking to the amendment, I shall also speak to the similar amendment, Amendment No. 82.

Under paragraph 23(4)(a), there is a requirement for foundation trusts to lay copies of their annual accounts before Parliament each year. That is accompanied by any audit report thereon, which implies that there might not be an audit report on the accounts. Our amendment is very simple, as it replaces "any" with "the", so that when the body submits an annual report, which it must, the report must be accompanied by the annual audited accounts. I hope that the Minister regards the amendment as simply technical, and that there would not be any circumstances in which the Government would allow foundation trusts to lay unaudited financial statements before Parliament. That is an unthinkable proposition in terms of annual accounts in the private sector and, I believe, in the public sector.

In the private sector, there are strict timetables that require things to be done within certain times, with the effect of concentrating the minds of those preparing and auditing accounts on getting to the end of the process, even if it is proving troublesome. It may be that the Bill would be improved by the addition of time-scales. However, in the mean time, I hope that the Government agree that audited accounts must be laid under paragraph 23 and presented to the board of governors under Clause 26.1 beg to move.

Lord Warner

There may be a misunderstanding here. Auditors will be assessing whether NHS foundation trusts are complying with the Clause 38 "value for money duty"', as well as auditing the annual accounts. They will also be required to consider reporting on any concerns that may arise as they audit the accounts, because it is generally in the public interest to do so. Such a report can be made immediately and can therefore be made separately from the report on the annual accounts.

It is appropriate that the public interest reports are also made available to Parliament and the boards of governors That is why we believe that Amendments Nos. 76 and 82 are misplaced, as they will not take account of the fact that there are other reports

Baroness Noakes

I thank the Minister for that explanation. I now partly understand where he is coming from—that is, if there is more than one audit report, it should be included. However, I do not believe that it deals with the point that I raised, which was whether there could be a possibility of including unaudited financial statements—that is, the basic audit report on the accounts. As drafted, it appears that the annual report could be submitted without audited accounts. In order to achieve the effect of those being submitted with any other audit reports that happen to exist when the audit report is submitted, I suggest to the Minister that his officials may wish to reconsider the drafting before he comes back on Report. I beg leave to withdraw the amendment.

Amendment, by leave, withdrawn.

Earl Howemoved Amendment No. 77: Page 112, line 38, at end insert—

"( ) The report shall contain a breakdown of the costs incurred by the public benefit corporation running elections and managing the membership. "

The noble Earl: said In moving Amendment No. 77, I shall speak simultaneously to Amendments Nos. 79, 80 and 81. One problem that I have with NHS hospitals running elections and membership lists is that, as I believe I said before, it is a distraction from their core task of looking after sick and injured patients. It is also likely to be an expensive distraction. The Minister will no doubt say to me that one cannot have democracy without paying for it. That is true, but the question which that statement begs is whether in this instance, the game is worth the candle.

Let us set aside for the moment the larger question of whether enfranchisement of the public and staff will really offer empowerment and let us consider the cost to the hospital. The Government have gone to great pains not to lay down a precise blueprint for each hospital's constitution. They are helpfully offering suggestions, but the fact remains that each trust will be responsible for deciding its own constitution and then instructing lawyers accordingly. There will be no escape from very sizeable legal fees, replicated many times over.

Hospitals have no experience of running elections or of maintaining and servicing a constantly changing list of members. Not only will this system require a whole new set of skills; it will require management time. The business of elections can no doubt be sub-contracted out. However, there is no getting away from it—the hospital management will retain the ultimate responsibility for ensuring that the Government's system is being properly run, that members are notified of meetings and that regular bulletins are sent out to members, and so on.

The research commissioned by my party suggests that that activity will cost each and every foundation trust at least £250,000 a year. That is probably a conservative figure in more senses than one. A few days ago, I was speaking to a chief executive of a major teaching hospital—a foundation trust applicant, I hasten to say. He told me that his hospital was working on a figure of £400,000 a year. That sum does not include the cost of his own time, nor, I emphasise, the intangible opportunity cost of taking him away from his main responsibilities of running the hospital. It is all money that is taken away from the care of patients.

The Government are likely to get their way in introducing this electoral system for foundation trusts. But, if that is so, the very least that is needed is for people to know how much money is being devoted to that system. Without that kind of transparency, we shall find the costs of elections mushrooming disproportionately. The figures should feature as standard in every foundation trust's annual report. That is what my Amendment No. 77 proposes.

I move on to Amendment No. 79, which deals with a rather different, and more straightforward, issue. Paragraph 23 of Schedule 1 states that foundation trusts must prepare annual accounts in respect of each financial year; in other words, the year to 31st March. Paragraph 6 of Schedule 2 tells us that the regulator must prepare a report for the Secretary of State on how he has exercised his functions during the previous financial year. The financial year is the basis for both the annual accounts of each foundation trust and the regulator's annual report. Then we read in paragraph 24(3)(c) of Schedule 1 that the reports to be produced by each foundation trust must cover whatever period the regulator decides they should cover. It is not clear to me why provision is made for the annual report to cover a different period from that of the accounts. That is not normal practice. Nor is it clear to me why, for his own purposes, the regulator needs that kind of discretion. The period that his report to Parliament has to cover is, as I have pointed out, the financial year and no other period.

In another place the Minister said that the provision in Schedule 1 paragraph 24(3) was, an attempt to give some discretion to the regulator to consider circumstances".—[Official Report, Commons; Standing Cttee E, 20/5/03; col. 201.]

I genuinely do not understand what such circumstances could be nor why leeway of that kind might be helpful to the trust or to the regulator. I should be glad if the Minister could tell me whether I have missed something.

On the basis that the Minister is not minded to meet the point that I have just made for whatever reason, Amendment No. 80 is designed to tighten up what appears to be rather woolly wording in paragraph 25(1) which states that, A public benefit corporation is to give information as to its forward planning in respect of each financial year to the regulator".

To be consistent with what has gone immediately before, it seems to me that mention of "each financial year" should be deleted and "a period of time to be determined by the regulator's discretion" should be inserted. Without that we could have a situation in which the annual report covers a period that is different from that of the financial year, but forward planning information covers the financial year. That would make little sense. There is also no indication of what information is covered by the provision. It is for the regulator to specify it rather than for foundation trusts to intuit it in some magical way and the Bill should say so. I beg to move.

6.15 p.m.

Lord Clement-Jones

This group contains a rich mix of amendments. They do not appear to have a strong relationship with each other. I want to speak to Amendments Nos. 78, 83 and 107. There has been no hint about the piloting of foundation hospitals— no prior consultation took place—and that is an underlying reason for the strong opposition, not only on Opposition Benches but also on Government Benches, to the effect on local health economies of NHS foundation trusts.

This provision is designed to establish the areas of evaluation that should be built into the review and reporting cycle of foundation trusts and, through the wider status of these documents, promote discussion by members of the foundation trusts and the wider community that support the trusts. That would enable far wider scrutiny at local level across a range of organisations and services. Of course, it would provide material for local authority oversight and scrutiny of healthcare provision and, in fulfilling his duties, it would enable the regulator to have access to information about the effect on the local healthcare economy, which would enable him or her to question and to comment on the effects of the NHS foundation trusts on healthcare and the healthcare economy in his or her area. Generally I believe that the provision of that information would increase the accountability of the role of the regulator through the parliamentary system.

These documents would have considerable benefits. This matter goes to the heart of the concerns that many people have expressed about the impact of foundation hospitals. It is a straightforward way of enabling much greater transparency of the impact of foundation trusts and I hope that this approach commends itself to the Minister.

Baroness Finlay of Llandaff

I support this group of amendments, particularly the amendments outlined by the noble Lord, Lord Clement-Jones. The functioning of a health economy in an area always demands a relatively delicate balance.

The networks for provision of services are reliant on partnership agreements between current trusts. One hopes that foundation trusts would continue to sign up to such partnership agreements; to work with other providers of healthcare to ensure that there was stability of provision; and to provide this seamlessness which people fear may be threatened by the advent of foundation trusts.

The difficulty with healthcare is that new technologies and techniques emerge, some of which can be extremely expensive. Changes in delivery of healthcare can dramatically alter the way that facilities are used. We have seen that rapid changes, such as keyhole surgery, have altered the face of surgery and increased short-stay surgery. There is also the example of day surgery. So changes that a foundation trust undertakes will have an impact on other providers in the area.

My concern, and the reason that I have added my name to the amendments, is to ensure that such developments occur for the benefit of patient care. Furthermore, in the process of a development, or a planned decrease in services by a foundation trust, consideration must be given to the impact on the whole. My other concern is that this involves public money. If a large amount of money is being used, for example on the electoral processes, that inevitably will divert finance away from clinical care and may in itself destabilise the delivery of services. Therefore, there must be complete openness and transparency about how health economies are being handled.

Baroness Greengross

I also support the amendment. I am worried about balance in a local area of the work of the foundation trust and the work of other perhaps badly funded local hospitals. Somewhere, and I am not sure that this is the right place, the word "equitable"— or "equitability", 1 think it has been called—needs to be inserted, so that groups of people who are perhaps quite expensive and difficult to care for are not left out. That is particularly relevant to mental health patients, elderly patients and others with chronic illnesses, who may, if the word does not appear anywhere, be neglected in this exercise.

There is the balance of groups of patients and there is the balance of funding, which will come up again later. The capping arrangements mean that more money will go to the foundation trust because it is doing its job very well and will take money away from the poor hospital down the road. If we could get that word inserted here so that the whole annual evaluation looks at the local community and at whether everyone who needs access to healthcare is getting it, then we could measure whether the foundation trust is of benefit to the whole community. I feel it is very important that that is part of this arrangement.

The Lord Bishop of Worcester

Amendment No. 78, like the later Amendment No. 143, would allow the concept of the foundation trust to be regarded as the experiment which it undoubtedly is. Being fairly agnostic about the value of the Government's new policy on this matter, it seems to me that it would be much better to create a culture in our society where massive structural change is evaluated and undertaken gradually. Therefore, those points in the Bill and the amendments about those points seem to be very much worth taking seriously.

After all, the alternative is to suppose—as I am sure that the Minister would not want to—that the whole process of foundation trusts comes to be regarded as a great mistake. Obviously, the Minister's and the Government's hope is that that will not happen, but were it to happen, a massive lurch of unscrambling would be required for which there is no provision; whereas, if we had built in a culture of examination and reflection, that would surely be to everyone's benefit. Would not the Government find that their proposals had far greater support if they were undertaken in that spirit? So I hope that the Government will consider those amendments, which seem to lay the foundation of a careful evaluation.

I speak in the context of a diocese that has been through the massive controversy surrounding change in medical provision in the form of Kidderminster Hospital, which will be well known to Members of the Committee. I was never persuaded that the policy carried out was a mistake; but I was certainly persuaded that the culture of enactment that allowed for so little public scrutiny, examination and reflection had a major effect on making the project unacceptable—even to the electoral embarrassment of the Government. So the amendments are well worth serious consideration.

Baroness Cumberlege

I, too, support this group of amendments. They refer to issues raised earlier, when we discussed the balance of the health economy. I do not want to go into all that again, because time is getting on, but I support what the noble Baroness, Lady Finlay, and the right reverend Prelate said.

The health service is very complicated; moving one piece of it greatly affects other parts in the local economy. The primary care trusts are now getting under way and there are the new government proposals—which I support—for patient choice, under which patients will be offered up to five providers of healthcare when the GP decides to refer them. All those things will change the face of the health service considerably and may introduce a degree of instability that we have not yet experienced.

I am all for excitement and change—it is good to be pioneering new things—but the right reverend Prelate is absolutely right that we must be absolutely certain what their impact will be. Reporting mechanisms are a modest way to try to assess that.

Lord Hunt of Kings Heath

I fear that I am not in sympathy with the amendment tabled by the noble Lord, Lord Clement-Jones. It would be a drag on each foundation trust to have to go through the motions of writing up a report on that basis, especially as it is ill conceived. From some comments made by Members of the Committee, there appears to be an assumption that foundation trusts will somehow enjoy more favourable financial benefits than non-foundation trusts.

I can see no way in which that will happen. The financial benefits that will accrue through the choice mechanism will apply to all trusts that can offer more services to the public. I do not see how foundation trusts will gain financially over non-foundation trusts. The key advantage has nothing to do with finance— for me, it never has; it has to do with governance. That is why I am so concerned about how the policy has started to develop. The whole point of foundation trusts was to get out of micro-management, because those organisations were to be rooted in the local community rather than being agents of the Secretary of State.

I know that there have been arguments about finance and access to capital but that was never an issue that I found especially attractive. We should not think that foundation trusts are about access to more finance, because that is unsustainable and is clearly not going to happen. I worry that if we accepted the amendment tabled by the noble Lord, Lord Clement-Jones, a report would have to be made to the regulator. Surely we are looking for light-touch regulation. We are not looking for a regulator to replace the Secretary of State. The noble Lord wants each foundation trust to report to the regulator annually. That is an open invitation for the regulator to get involved in the minutiae of a foundation trust's activities. We have safeguards. The Bill provides a duty of co-operation, a commissioning process and CHAI. For goodness sake, let us not weigh down the new foundation trusts by having to engage in the bureaucracy of writing a completely unnecessary report.

I have more sympathy with the noble Earl's amendment. I am sure that the breakdown of the costs will be open to public scrutiny. But the noble Earl draws attention to the issue of the costs of the election and membership management. I have always believed that it will cost money. The noble Earl's estimates seem about right. They are certainly the sort of figures that I have heard from prospective trusts. Some foundation trusts have talked about thousands of members, which we would encourage, but there will be a cost for each member. That is inevitable because members will want to engage in communication and meetings, and the elections themselves will cost a great deal.

The noble Earl asked whether it was worth the candle. It was always the intention to create strong community-based organisations. That, for me, would be worth the candle. If, however, the boards of governors are simply to be souped-up patients forums to advise, one must ask about the cost-benefit analysis. The answer to that question must come on Report. The Government need to listen to the debate and come forward with a much more definitive view on what the organisations are about. It is to be hoped that they will confirm that the organisations are to be community-based with a governance structure that allows the community not to advise, but to be part of the decision-making process.

6.30 p.m.

Lord Warner

Before responding to the amendments in detail, I shall comment on costs and support for applicants for NHS foundation trust status. I have already tried to bring out, particularly in our debate on Amendment No. 35, the extent to which support such as the government sourcebook was being developed to help people as they trod the path towards foundation trust status.

It is worth bearing in mind that applicants have already received £100,000 in direct financial support and an additional £75,000 will be made available shortly for the next stage of work. We have given categorical assurances that NHS clinical services are not to be adversely affected by the resources for this trust application. It is often forgotten that, as people move towards foundation trust status, they will adapt their own mechanisms for relating to the public. There will be some scope for adapting current processes, and therefore current costs, as the new arrangements come on stream.

In response to the right reverend Prelate, we are doing nothing to suggest that we do not wish to operate on the basis of reflection and thoughtful learning from experience. I am sure that the regulator will take account of the experience of first-wave trusts in the guidance that he gives for future waves of applications. I indicated a willingness to review the governance arrangements in respect of the experience of this first wave. It is not necessarily to this Government's advantage to dwell too long on the Kidderminster election, but if there had been a board of governors in place in Kidderminster we may not have got into that situation and there may have been a happier outcome for all concerned. It is not that such situations do not arise, but a question of whether the new governance arrangements make the handling of those situations easier for local communities.

On Amendment No. 77 moved by the noble Earl, Lord Howe, we agree in principle that the costs of the elections and managing membership should be clear, but the annual reports of each NHS foundation trust, which will be laid before Parliament, will clearly set out those costs. We do not, therefore, believe that the amendment is necessary.

We believe that Amendment No. 79, which would require annual reports to relate to a financial year, is also unnecessary. Of course it is sensible for the annual reports to be prepared over the period of the financial year. However, the regulator has the discretion to ensure that that is the case under paragraph 24(3)(c) of Schedule 1. It is conceivable in the future that a new wave trust has a part year set of arrangements. That is not impossible, so we want to give the regulator some discretion to behave sensibly.

On Amendments Nos. 80 and 81, which would provide for the regulator specifying the content and time period of forward business plans, I have sympathy with the principle that the regulator should he able to specify what information he requires in NHS foundation trusts' forward business plans, but do not think that needs to be set out in legislation. The regulator could already specify his information requirements either by issuing guidance on the content of plans or through requirements in terms of authorisation.

On the time period that forward business plans are to cover, the current legislation ensures that each foundation trust prepares a plan for each financial year which must be drawn up in consultation with the board of governors and which must be made publicly available. That is a minimum requirement to ensure that governors are involved in the annual planning process and that there is accountability to the public. It does not preclude the preparation of plans covering a longer time period for strategic purposes. Indeed, as part of the application process, applicants for foundation trust status will be required to prepare and consult on a "service development strategy" setting out their vision and plans for the next five years. We intend that regulations on consultation made under Clause 6(4) will require consultation on an applicant's forward plans. In the mean time, guidance on what should be included in the service development strategy was set out in the guide to the preparatory phase that was distributed to all foundation trust applicants.

We believe that foundation trusts are likely to continue preparing strategic plans to cover mid to long-term strategy development. It would be reasonable for these plans to be drawn up in consultation with the board of governors. Therefore, we do not believe that those particular amendments are necessary.

On Amendments Nos. 78, 83 and 107, which relate to the local health economy and about which several noble Lords have expressed concern, I will briefly take noble Lords through the arguments, which have been touched on in previous discussions. The creation of trusts will support the development of NHS services in the local health economies. My noble friend Lord Hunt brought out some of those points. Foundation trusts will exist to provide and develop healthcare services for NHS patients in a way that is consistent with NHS values. More than 95 per cent of their income will continue to come from NHS commissioning. They are not an island, but are part of that local economy. As my noble friend said, they will be under a statutory duty to work in partnership with other local NHS organisations and social services to deliver integrated packages of care, centred on the needs of patients.

Foundation trusts will be expected to use new freedoms in a way that fits with key NHS principles and does not undermine the ability of other providers in the local health economy to meet their NHS obligations.

Under Clause 3, the regulator will be required to exercise his functions in a manner that is consistent with the Secretary of State's general duties, including the duty to promote and provide a comprehensive health service and to provide clinical facilities to universities with medical or dental schools. CHAI will be able to carry out reviews and inspections of all NHS organisations, including foundation trusts. It will be an independent source of information on healthcare provision across the NHS, including information on the quality and effectiveness of healthcare, availability and access to healthcare and economy and efficiency. CHAI will build up a rich volume of knowledge that will be available to everybody.

Moreover, any review that a trust carried out on another organisation, something that is touched on in one of the amendments, would be unlikely to be welcomed by that organisation. Nor is the NHS foundation trust well placed to carry out such a review. Its reports would not be seen as independent, and their efforts would be better expended in furthering co-operation. The review idea does not seem to be well conceived.

Strategic health authorities have been touched on. I have described them as the local headquarters of the NHS. They will continue to have a significant role in shaping the overall development of services in their area, backed by the commissioning decisions of primary care trusts.

Against that background, Amendments Nos. 78, 83 and 87 are disproportionate. Creating NHS foundation trusts will not destabilise the local health economy. The amendments are ill conceived: foundation trusts would not be best placed to carry out a review of other NHS organisations. Finally, the amendments are unnecessary because CHAI will carry out reviews of healthcare for all NHS organisations.

Baroness Cumberlege

I want to raise a point with the Minister. I was interested in what he said about Kidderminster. One of the things that we are trying to do in Committee is anticipate how people will react to a different system. Does the Minister agree that the board of governors will actually be a board of supporters? They will be people who act as advocate for their particular foundation trust hospital. That is their purpose; they will focus on that hospital. If it makes sense for the local economy that part of that hospital—a maternity department, say—should be closed or should be merged with another hospital well outside the district, the governors will not be true advocates of the move. They will say, "We want our maternity department in our foundation hospital".

I cannot see how the Minister can think that, in such a case—it runs parallel to the Kidderminster situation—in the new world that we are entering, such conflicts will be better managed, given the new shape of the NHS local economy. They will not be. The changes will introduce further conflict by creating supporters with a narrow focus. In the past, we have tried to think of a health economy in wider terms. That has been the role of the strategic health authorities. The Minister says that the strategic health authorities will still be there, but, under the Bill, those authorities will not manage the performance of foundation hospitals. They are being cut out of the situation.

It is important that we think about the new world and about how people will react and behave. Everyone on the Committee cares deeply about the National Health Service, and we are anxious that it should retain its credibility, that people should trust it and that it should offer the services that are needed.

I think that the noble Baroness, Lady Finlay of Llandaff, made the point that medicine is changing so fast. There are tremendously different practices, and research is coming out that will totally change the face of healthcare in the future. We need a mechanism to make changes quickly in order to meet changing scientific developments. The system that we have now will do the reverse. It will try to maintain the status quo because the board of governors will want to see its hospital as it is now and will not want to see anything taken away from it.

6.45 p.m.

Lord Hunt of Kings Heath

That is the point I have been trying to make. If the boards of governors are not given real responsibility, as the noble Baroness suggested, they will become supporters for the status quo. That is the problem of not giving them corporate responsibility. The more responsibility given to boards of governors, the more responsible they will be. The problem of not giving them any responsibility is that they will be tempted to indulge in the very practices suggested by the noble Baroness. I suspect that we do not agree on the solution to the problem, but that there is a problem I have no doubt.

Baroness Cumberlege

The noble Lord, Lord Hunt, is right. We do not agree; we disagree.

Lord Warner

I do not want to prolong the debate other than to say that I agree with many of the aspirations of the noble Baroness. On the point that she raised as regards a Kidderminster situation, I do not think that a membership organisation producing boards of governors of the kind envisaged in the Bill will handle those situations in quite the same way. They will produce better early warning systems for executive directors of such a trust and will enable a dialogue to take place with the public in a more facilitated way.

The Lord Bishop of Worcester

I begin to have some regrets about introducing Kidderminster into the discussion. But having committed the error—if error it was—it would be a good idea, not necessarily in this debate, for someone to carry out a case study looking at what might have been if such a structure had been imposed. When the Minister made his very positive remarks about how it might have been, I could only shudder with rather vivid memories of what it was actually like.

I am happy to be shown to be wrong. The noble Lord, Lord Hunt, would probably be well equipped to show me that I was wrong. But I wish that I could feel we were in a realm that was less hypothetical and that someone had looked at the steps and had determined what would have occurred. If we are getting to a situation whereby people will be empowered to defend their particular institution, which can be very laudable, it makes me wonder what will happen to the organisation of the health provision of a whole county.

Lord Clement-Jones

It is interesting that this group of amendments has elicited such eloquent speeches from the right reverend Prelate, the noble Lord, Lord Hunt, and the noble Baroness, Lady Cumberlege. In their own ways, each has demonstrated the frailty of the provisions in the Bill and provided the fuel to show why these amendments are needed. The Minister's response is not unexpected. It was extremely helpful that he explained in some detail which other bodies had responsibilities.

As regards strategic health authorities, the noble Baroness, Lady Cumberlege, put her finger on it. They will be disconnected from foundation trusts. They will not have performance management responsibilities. We have an amendment coming up which tries to solve the CHAI/regulator relationship. It is interesting that the Minister made great play of the fact that strategic health authorities will have the role. But they will need information and will need to know what impact the foundation trusts will have on local health economies. By one means or another, whether the foundation trusts do the work themselves or whether CHAI does the work, it will need to know whether the foundation trusts are generally operating according to the objectives of the NHS.

In principle, where to put the duty to produce the information and the report is not the vital aspect here. What is most important is that the report should be made. This is a straightforward way for the Government to settle a great many of the concerns about the impact of foundation trusts. As the right reverend Prelate pointed out—I am sorry, I have lost the thread of my argument.

It is also interesting to note that the Government clearly perceive foundation trusts as providing a cure for the Kidderminster hospital fiasco. The Minister has revealed a little more than perhaps he might have done, but now we know why the Government are so passionate about foundation hospitals.

I recognise the mantra of light-touch regulation, spoken by the noble Lord, Lord Hunt, from days gone by. Of course we should have light-touch regulation and fewer regulators, but all regulators will need access to information of this kind. It will allay many of the fears people have expressed about the impact of foundation trusts and I hope very much that the Minister will reconsider his view. Of course foundation trusts are not islands. We do not believe they should be and we agree with the Minister in that respect. However, these reports are not the great bureaucratic mountain that the Minister has alleged.

Earl Howe

I am glad that we have had a meeting of minds on Amendment No. 77 relating to the costs of elections and I am grateful to the Minister for what he had to say.

I am not quite so reassured on Amendment No. 79. I queried why there is a need for the discretion of the regulator on the question of what period the report should cover. The Minister sought to explain that by saying that there could be a part year involved and that that was why the provision has been included in the schedule. However, in paragraph 23(5) part years in the definition of a financial year are already allowed for. The paragraph states: In this paragraph and paragraph 25 'financial year' means—

1. (a)the period beginning with the date on which the corporation is authorised under section 6 and ending with the next 31st March, and
2. (b)each successive period of twelve months beginning with 1st April".

To me that suggests that discretion is not needed on the period covered by the report because it is already provided for. If the accounts cover less than a year, then the report should cover that same period. I am still in the dark. It is a small point, but I am not completely satisfied.

I do not know whether it is significant that paragraph 24 refers to "annual reports" rather than reports covering each financial year. However, if I have barked up the wrong tree, no doubt the Minister will correct me in writing. I beg leave to withdraw the amendment.

Amendment, by leave, withdrawn.

[Amendments Nos. 78 to 83 not moved.]

Schedule 1, as amended, agreed to.

Clause 2 [Independent Regulator of NHS Foundation Trusts]:

Earl Howe moved Amendment No. 84:

Page 1, line 11, leave out "officer" and insert "office"

The noble Earl said: I shall speak also to Amendment No. 88. The amendments are simple in appearance but quite profound in their significance. I am suggesting that the word "officer" in Clause 2 should be changed to "office" and that, instead of the regulator being a person, the office of regulator should constitute up to five persons, including a chairman, all of them appointed by the NHS Appointments Commission.

I should make clear that this is not some idle flight of fancy. I have taken my cue directly from the Better Regulation Task Force chaired by the noble Lord, Lord Haskins, whose work was most ably highlighted by my honourable friend in another place, Andrew Lansley, when the Bill was debated there. When the report of the task force was published in the summer of 2001 it contained a number of important conclusions, one of which was on the issue of statutory regulators. It stated:

"Our final question proved the easiest: there was widespread agreement that regulators should be run by properly appointed boards".

It also concluded:

"Regulatory regimes should be consistent and predictable. There is a trend away from individual regulators to a board structure—we support this development".

The Government's response, published last year, accepted the recommendations in broad terms. Indeed, both Ofwat and Ofgem have moved to having a board structure, a change which Ministers have welcomed. Ofcom is to be the same.

The change implies, of course, that there are disadvantages in having an individual as a regulator. The reason is that with an individual, if one is not careful, regulation can start to revolve around a personality and the subjective judgment of the individual rather than around a consistent and logical pattern of decision making. When a regulator is a board, it is inherently more likely to avoid inconsistency and arbitrary judgment, and what it does will be more transparent because all decisions are arrived at by open discussion.

These matters are important because, when we create a regulator, there is surely one aim that we should maintain consistently—that is, that the regulator should at all times command public confidence as well as the confidence of the bodies and persons being regulated. I do not say that this cannot happen with an individual regulator, but it is more difficult. I am sure that we can cite a number of examples in the privatised utilities where tension between the regulator and those who are regulated has been exacerbated by personalities.

The presence of non-executive directors on the boards of regulators strengthens those bodies on the basis that they are appointed for their expertise. This, too, was the view of the task force. We can see that, as membership of the board changes—as it will—the corporate knowledge and corporate memory of the board among the board members who remain will be important for ensuring consistency of decision making.

I hope that those points will resonate with the Minister. I beg to move.

Lord Clement-Jones

I strongly support the amendment of the noble Earl, Lord Howe, and shall speak to our Amendment No. 89.

The noble Earl has put the matter extremely cogently, drawing on the Haskins report and the Government's response. He also referred to the current changing practice among regulators in fields outside of health. As the noble Earl said, Ofcom is a classic example—and there was no controversy about that when the Communications Bill passed through the House. The Competition Commission is another model, as are Ofgem and Ofwat, to which the noble Earl also referred.

I have had dealings with a large number of different regulators over a period of time. The new system recommended by the Haskins report—and accepted in principle by the Government—of having boards comprising the regulator is vastly preferable. As the noble Earl said, there is the danger of the cult of personality. When the water regulator changed as an individual, it had a major impact on investment decisions and whether the water companies could change their pricing. Single individuals can have a huge impact on the bodies, businesses and organisations they regulate. There is a very strong case for the Department of Health to consider best practice outside the health field.

Even among the existing regulators there is something of a cult of the personality. When a new chairman of a regulatory body is appointed, interviews take place with him and he sets his own stamp on the body. I am thinking of the recent changeover of the chair of CHAI. The two chairs were very different in style; there were interviews galore in the Health Service Journal about the different approaches. For the bodies being regulated or audited in those circumstances, that is not particularly helpful, much as one may value both the previous and the current chair of the body concerned. That is a classic example in the health field.

I hope that the Minister will consider this and will agree that adopting best practice in the field is the way forward.

Baroness Finlay of Llandaff

I support this amendment and the spirit behind it. I should like to speak from the perspective of the professions which are to deliver the changes. The professions are screaming out for continuity in the backdrop against which they provide services.

The danger of the cult of the personality has been very well explained. I urge the Government, in the name of continuity and consistency over decision-making, to look very carefully at the proposal in this amendment.

Lord Warner

It is hard to deny the force in some of the arguments put by the noble Earl and other noble Lords. We have been listening carefully to the arguments in another place and elsewhere supporting the establishment of the office of the independent regulator with a board structure rather than a single office-holder. We are awaiting the publication of a report by the Better Regulation Task Force examining the role of regulators who have a wide hybrid role, with economic and other functions. That is due to be published shortly.

If the task force recommends that a board structure might be appropriate for this group of regulators, we are minded to accept this and would bring forward suitable amendments to the Bill on Report to take account of those recommendations. I am happy to give the assurance that we would also consider the proposals in these amendments in parallel with any recommendations of the task force in determining which amendments to bring forward on Report. But I do not want to pre-empt the Better Regulation Task Force report by giving any indication today of what the Government might or might not include in any amendments that we bring forward on Report.

Lord Clement-Jones

Could the Minister give an idea of when the Better Regulation Task Force report might be forthcoming? After all, we are galloping through the Bill, and it would be extremely helpful if the report were available at least after the Committee stage and before Report.

Lord Warner

The noble Lord might have been riding on some rather slow horses if he describes this as galloping. That may explain why he may not have won much money on the Grand National.

As for when the report will be available, the best answer I can give is sooner rather than later. It is not for me to give a date. Let me put it this way: I will be quite surprised if we finish the Committee stage before the report is published.

Earl Howe

I take more than a crumb of comfort from what the Minister has said, even though he has not been able to commit himself. I am grateful to other noble Lords who have weighed in behind my amendments. I suppose that, in the time-honoured words, we shall just have to wait and see. If, for any reason, the Government need nudging on this issue, we shall not hesitate to do so on Report. I beg leave to withdraw the amendment.

Amendment, by leave, withdrawn.

Lord Clement-Jones moved Amendment No. 85: Page 1, line 11, leave out "officer" and insert "office within the Commission for Healthcare Audit and Inspection,

The noble Lord said: The motive for wanting the regulator to be under the umbrella of CHAI derives almost entirely from the desire to simplify our current health regulatory system. I was recently at a fringe meeting at my party's conference and made what I thought was the fairly moderate statement that more than 20 bodies are entitled to inspect NHS hospitals. The particular regulator involved said, "No, more than 40 can do that". A phenomenal number of bodies are entitled to inspect NHS hospitals. It is quite interesting to note that a new body seems to be set up whenever there is a problem. Only in very recent times, we have had the National Patient Safety Agency, the National Clinical Assessment Authority and so on.

The Bill sets up a potentially very powerful regulatory body. However, there are many ways in which the role of this regulator conflicts with that of CHAI. If the roles do not conflict, there will certainly be considerable overlap. The noble Lord. Lord Hunt, pointed out earlier that we have all these regulators. He is right. We have too many regulators. The Minister referred to CHAI's duties in terms of the performance and impact of foundation trusts. That was designed to reassure us that all was going to be well and we did not need any further provisions in the Bill. However, that is going to cut across the new independent regulator as set out in the Bill.

I believe that there is a very strong case for simplifying the system. I wish that we could go much further than simply this amendment. There are many reasons for telescoping quite a number of the new bodies, putting them under CHAI and some of the other bodies and consolidating the whole system. At the moment it is vastly over-egged. Consequently, hospital managers spend an awful lot of their time looking at the nature of inspection and audit in a very unhelpful way rather than at how best to deliver the best outcomes for patients. I believe that the burden of regulation is far too great, not because of individual trusts' duties but because of the sheer number of regulators. I beg to move.

Lord Hunt of Kings Heath

I wonder whether the noble Lord, Lord Clement-Jones, could perhaps answer one or two questions about his amendment. He says that he will put the regulator under CHAI, but surely he sees the tremendous risk that the regulator will then engage and indulge himself or herself in all the activities with which CHAI is concerned. There is a real risk here that we will replace micro-management by government department and Minister with micro-management by regulator unless we ensure—and I know that the noble Lord mocks me for saying there should be light-touch regulation—that the regulator limits his intervention to those issues where the public interest clearly suggests that a foundation trust is seriously going off the rails. The last thing we want is for the regulator to intervene in all the minutiae with which a foundation trust is concerned.

As we know, CHAI's reports already cover a huge amount of activity. The risk must be that that will influence the regulator to intervene rather more than I suspect he would if he were truly independent and outwith the CHAI mechanism. I just wonder whether the noble Lord could perhaps reflect on that.

Lord Clement-Jones

I can certainly reflect on that. There may well be a risk, but the issue is a practical one. The regulator will need quite a lot of the information that CHAI will produce in order to assess what he needs to do in performance of his duties under Clause 3. He will need that information from CHAI. Therefore, duplicating the gathering of that information seems to me entirely unnecessary if the regulator is part of CHAI, as is envisaged.

The question of light touch is a cultural issue. I hope that CHAI, and the regulator as part of CHAI, will adopt a light touch. I do not think that one can legislate for that. Earlier I mentioned the way in which different chairmen of what was CHI adopted a different approach to inspection and audit. I do not envisage the dangers occurring to which the noble Lord, Lord Hunt, referred; the practical arguments still remain.

Baroness Noakes

I hope that the noble Lord, Lord Hunt, will help the Committee by indicating where in the Bill there is reference to light-touch regulation. Where is there any kind of guarantee on that? I am aware that that is what the noble Lord, Lord Hunt, desires but, as I read the Bill, there is nothing in it to stop the regulator acting in a heavy-handed manner. If that is important, perhaps it is another issue that we should consider in more detail.

Lord Hunt of Kings Heath

There is no doubt that within the construct of the Bill the person or board who is appointed will have enormous discretion on how they carry out their task. The noble Lord, Lord Clement-Jones, suggests that Clause 3 means that the regulator will require an enormous amount of information to determine whether each foundation trust is operating in accordance with the general principles that the Secretary of State is charged with under the Health Act. I believe that the person who is appointed as regulator will decide whether he wishes to be inundated with information or whether he will operate under a reporting by exception basis. I hope that the regulator will choose the latter option and that he will intervene where he must but will exercise caution on responding to every minor issue, complaint or representation that is made to him. Unless the regulator operates in that way, it will be very difficult for foundation trusts to take advantage of the new governance arrangements.

Lord Warner

The remarks of my noble friend Lord Hunt are very much to the point. The role of independent regulator is distinct from that of CHAI. They are required to co-operate with one another under Clause 54. That does not in any way prevent them sharing information. Indeed, the requirement to co-operate should avoid a situation in which they duplicate information collection. However, they have quite separate functions that must be exercised in an independent and separate way.

CHAI's functions relate primarily to the inspection and review of healthcare. It has wide powers—we shall debate some of those—to develop and implement policy for carrying out reviews and providing advice to healthcare bodies on healthcare improvement. But CHAI's executive powers of intervention are very much limited to decisions about registration of private providers.

On the other hand, the NHS foundation trust regulator's remit is to set and apply the statutory regime for foundation trusts. He has extensive powers but can use them only in defined circumstances—setting terms of authorisation and intervening on failure—with wide powers of discretion in how he applies those powers. He has a limited role in setting and determining policy as the aims he is to achieve are set out in the Bill.

The NHS foundation trust regulator is like a referee whereas CHAI seems to me to be very clearly a reviewer and investigator. Amalgamating those two roles does not seem to make much sense. We believe that they need to remain separate.

I should correct something that I said this morning. I am told that at around 11.30, in discussions on the governance arrangements, I said that in one case well over 1,000 people came forward just to be governors. Clearly, either I was not awake or I got carried away. I intended to say that well over 1,000 people came forward expressing an interest in being members. I apologise, and I wish to put the correction on record.

7.15 p.m.

Lord Clement-Jones

I thank the Minister for that reply. The Department of Health has given birth to a new baby, and I understand that it is very keen to keep it alive and bouncing with its role as set out in the Bill. However, I shall make a prediction. We have had great debates on a number of NHS reform Bills when the Government either did not include certain services to be regulated by CHI, or considered that there should be another regulator, the NCSC, for independent acute healthcare. We on these Benches argued strenuously for the logic of having a single regulator. Finally, after four years, we find ourselves with that single regulator coming about for acute healthcare.

The department will find itself extremely frustrated in having the role of regulator on one hand and CHAI on the other eventually. The Minister makes some case for the separation of the two in terms of their functions but, in terms of the data that they will need, the contact that they will have, and how they will operate, it will be increasingly obvious that there needs to be one body. If foundation hospitals come about, I shall look forward with great interest to the development of regulation on the subject. In the meantime, I beg leave to withdraw the amendment.

Amendment, by leave, withdrawn.

Earl Howe moved Amendment No. 86: Page 1, line 13, leave out "Secretary of State" and insert "Special Health Authority designated under section (Appointment of the independent regulator and appointments to the CHAI and the CSCI)

The noble Earl said: I shall speak also to Amendments Nos. 90, 92, 94, 98, 100, 101, 102 and 467. One main feature of the regulator is independence, as the Bill trumpets, yet the Bill also vests the power of appointing the regulator with the Secretary of State. If the regulator were to remain an individual, at some indeterminate time in future—not now—it would be possible to imagine a political placeman being appointed rather than someone with unbiased expertise for the role. We need to avoid that possibility at all costs.

To the extent that the responsibilities of the regulator are shared around a broad table, that risk diminishes. However, the risk would be dramatically reduced if the board or individual were to be appointed by an independent body—the NHS Appointments Commission. My suggestion is that the commission's role should be written into the Bill and, incidentally, that the commission should also be responsible for appointing the chairman and members of CHAI and CSCI respectively. That is a debate for another occasion, however. I beg to move.

Lord Clement-Jones

I shall speak to Amendment No. 87. Very similar provisions apply. The regulator should be appointed by the NHS Appointments Commission. I am sure that in practice that is the case, but it should be enshrined in primary legislation. It makes sense and is a reassurance if we are to have a single regulator, and indeed if we were to have an office of regulators the same would apply. I very much hope the Minister will consider adding the provision to the Bill.

Lord Warner

Putting the matter in context, Clause 183 will enable the Secretary of State to delegate responsibility to the NHS Appointments Commission for all or part of his duties to appoint members to public bodies that have functions relating to health, social care or the regulation of professions associated with health or social care, including CHAI and CSCI. We will debate that provision at some later stage. In addition, Clause 183 and Schedule 12 permit the appointment of lay members of health professional regulatory bodies. That clause and schedule indicate the way, broadly speaking, the Government are moving in such appointments.

Under Section 16D of the 1977 Act, the Secretary of State currently has the power to direct a special health authority to undertake any of his functions relating to the health service that he specifies in directions. Under the terms of this power, the NHS Appointments Commission has already been directed to make public appointments to a number of national bodies which have functions relating to the health service. However, the current power does not extend to appointments to bodies whose functions extend beyond the health service. That is why we are making the change.

Against that background, we do not believe that public appointments are automatically delegated to the NHS Appointments Commission. The Government believe it is sensible to delegate specific appointment-making powers on a case-by-case basis. It is possible that in some cases Ministers, not only in this Government but in future governments—if one can even contemplate that prospect—may wish to delegate the initial selection and sifting processes, but not the final appointment. Or Ministers may wish to retain direct responsibility for certain appointments, or in some cases take back responsibility for appointments that have previously been delegated.

Notwithstanding those arguments, the Government believe that the vast majority of national appoiniments for which the department is responsible will be delegated to the NHS Appointments Commission, with only a small proportion of appointments being made directly by the Secretary of State.

The Government intend that the Secretary of State will appoint the independent regulator for NHS foundation trusts on first establishment. It is of course possible in the context I have outlined that he may in future consider delegating appointments of the regulator to the NHS Appointments Commission.

The position regarding CHAI and CSCI has already been made clear and no doubt we shall return to those issues at another time. We do not believe that at this time the Secretary of State wishes to delegate the appointment of the regulator to the NHS Appointments Commission. He still has the responsibility for determining the terms of the office of that regulator, including remuneration and other allowances and pension. We believe that for the moment these functions should belong to the Secretary of State, as the regulator will be paid for using public funds for which the Secretary of State is ultimately accountable. In those circumstances, we do not believe that it would be appropriate to transfer the appointment process to the NHS Appointments Commission.

Furthermore, we do not believe that a fixed term of appointment should be specified in primary legislation. The Secretary of State over time will need to take account of the background and demands of the post at the time when an appointment needs to be made and consider an appropriate period of appointment based on an anticipated work programme. That applies in particular in the years after first establishment of NHS foundation trusts when the demands on the independent regulator may change as a number of these trusts increase. We would prefer not to specify a particular time in legislation now.

Lord Clement-Jones

I know that we are anxious to move the business on, but I must express my disappointment in the fact that the Secretary of State will keep his hands on the appointment of the regulator, despite the fact that the NHS Appointments Commission will make quite a lot of other appointments. No doubt that will help us determine our approach to the clause stand part debate, which we all look forward to.

Earl Howe

I share the noble Lord's disappointment. A power to delegate is not sufficient safeguard against the sort of situation to which I referred earlier. It could have very damaging consequences. A power to delegate is not a requirement to delegate—the two are very different. I feel sure that we will return to this issue. I beg leave to withdraw the amendment.

Amendment, by leave, withdrawn.

[Amendments Nos. 87 to 89 not moved.]

Baroness Andrews

I beg to move that the House do now resume.

Moved accordingly, and, on Question, Motion agreed to.

House resumed.