HL Deb 13 October 2003 vol 653 cc609-81

3.7 p.m.

The Parliamentary Under-Secretary of State, Department of Health (Lord Warner)

My Lords, I beg to move that the House do now again resolve itself into Committee on this Bill.

Moved, That the House do now again resolve itself into Committee.—(Lord Warner.)

On Question, Motion agreed to.

House in Committee accordingly.


Clause 2 [Independent Regulator of NHS Foundation Trusts]:

On Question, Whether Clause 2 shall stand part of the Bill?

Earl Howe

I hope that the Committee will allow me to dwell for a few moments on this clause. It contains only three sentences, yet carries huge implications for the working of this part of the Bill. Perhaps the most bandied-about epithet relating to the regulator is that he will be independent. I am reminded a little of Lewis Carroll's Through the Looking Glass, where Alice remonstrates with Humpty Dumpty that the word "glory" does not mean the same as "a nice knock-down argument". The reply she receives is, When I use a word, it means just what I choose it to mean— neither more nor less". It is a strange reading of the Bill that allows one to believe that the regulator is truly independent of political control. We shall be seeing in later amendments how many aspects of the regulator's existence and remit are subject to the prior approval of the Secretary of State. I shall not anticipate those debates now.

No one can argue with the need for some regulation of foundation trusts. I would not seek to wish away the regulator. Nevertheless, the degree of control that he will be able to exercise over foundation trusts is unnecessarily large. What concerns me at least as much as that is the regulator's lack of accountability. As I read the Bill, the regulator is not accountable to Parliament or to anyone else. In theory, the Secretary of State, as the employer of the regulator, may have some residual accountability to Parliament for the regulator's actions. But, as I understood it, the whole aim of Shifting the Balance of Power is to remove the Secretary of State from responsibility for the front line of the NHS. Therefore, it is a tenuous line of accountability at best.

Clause 3 confers on the regulator the same duties as those borne by the Secretary of State, yet nowhere in the Bill are we told what happens if the regulator fails to fulfil those duties. If the Secretary of State or the Government do things that the electorate do not like, they can be questioned in Parliament. If that does not work, there is an easy remedy—they can be voted out through the ballot box. If the regulator does things that the public do not like, they can only complain. Foundation trusts will be in exactly the same position. The regulator has no obligation to make a response.

The relationship between the regulator and a foundation trust will be dependent on the content of the licence that he issues. But there is no requirement on the regulator to consult local people on the content of that licence, on the property which the trust may not sell off or on the services that it must provide. The regulator does not have to consult any of the 28 strategic health authorities, whose role is to maintain important services, such as intensive care and child and adolescent mental health services across an area. He is not even bound to consult the PCTs, which will commission services from the foundation trust. That is an extraordinary state of affairs as, nine times out of 10, the regulator will have absolutely no grassroots knowledge of a particular area and no awareness of what local people want or value.

Until now, Ministers have simply deployed a stock answer. They have said that it is incumbent on the regulator to act reasonably and proportionately and that, if he does not do so, he is liable to judicial review. That does not seem satisfactory. To me, judicial review is not a remedy of choice; it is expensive, cumbersome and time-consuming. It is also, by its very nature, retrospective. By the time an issue is determined by a judge, it can be too late to protect patients from the effect of failing services. It really should not be necessary to go to law every time someone voices a serious grievance against the regulator.

To the extent, therefore, that the regulator is, indeed, an independent being with considerable powers, the absence of a legal remedy against his errors or omissions is serious. I do not know what the Government can do, if, indeed, they want to, to address this accountability vacuum. However, I hope that the Minister will take these concerns away with him. We are in danger of replacing central control by elected officers of government with central control by an unelected bureaucrat. I cannot believe that that represents a step forward.

Lord Clement-Jones

I believe that the noble Earl, Lord Howe, expressed the matter absolutely correctly, quite apart from clearly having done his literary homework over the weekend. Our debate on this clause reflects very much the concerns expressed thus far in the amendments to Clause 2. Further concerns about the regulator will arise as we debate the remainder of Part 1, but I shall take a sample of some of the points that have been discussed.

First, there is the question of whether the regulator should be yet another one on top of the 40 or so who are entitled to inspect NHS hospitals or whether he should be part of CHAI. That point was put strongly from these Benches. Secondly, should there be a duty on foundation hospitals to report to the regulator or should the regulator himself report on the impact of a foundation trust on the local health economy? That issue was also debated, with a number of extremely important interventions.

There is the key question of whether the regulator should concern himself with the impact on the local health economy of foundation trusts and whether he really will act to prevent practices such as staff poaching. Such practices are the fear of both staff representatives and many of the existing non-foundation applicants.

Then there is the question of the appointment of the regulator by the Secretary of State being carried out by the appointments board, although that is not set out explicitly in the Bill. In Committee on 9th October, the Minister stated that it was the intention of the Secretary of State to appoint the regulator. The only ray of sunshine was the fact that there may be more than one regulator. Indeed, the Minister seemed to give that proposition a reasonably favourable wind.

Then we have the whole question of the duties of the regulator and whether he must act in a manner that is, consistent with the performance by the Secretary of State of the duties". By the admission of the Department of Health, the words "consistent with" mean only "takes account of. Those are not directly imposed duties on the regulator, and, again, that makes people worry about what precisely the regulator will do and what he will enforce and implement, and so on.

The noble Earl, Lord Howe, was very eloquent on the subject of the relationships of the regulator. One question is: what relationship will bodies such as the workforce development confederations have with the regulator? That is not explicit. What about the planning functions of strategic health authorities? Clearly they will not performance-manage foundation trusts, but what relationship will the regulator have with them? Indeed, as the noble Earl, Lord Howe, asked, what relationship will the regulator have with primary care trusts?

All that adds up to a lack of accountability on the part of the regulator, and, indeed, the relationship with Parliament is by no means clear. Therefore, I believe we must conclude that the regulator idea may be superficially attractive in the sense that foundation trusts may need a regulatory body to oversee them, but scratching the concept brings to the surface a large number of contradictions. I very much hope that the Minister will respond to this debate.

3.15 p.m.

Baroness Carnegy of Lour

From the Liberal Democrat Benches, the noble Lord has just said that foundation trusts may need to be overseen by a regulatory body. I wonder whether that is the case. At Second Reading, the Minister stated what the Government see as the key difference between foundation trust hospitals and existing hospitals. He said: The key difference between NHS foundation trusts and other types of trust is that though both will be required to meet national standards, the new trusts will be free to decide how they achieve them".—[Official Report, 8/9/03; col. 12.] Surely, in order to do that, one needs a system which establishes standards across all hospitals, puts in place an independent system of inspection to ensure that those standards are maintained, and sets up an independent audit system to ensure that the finance is properly managed. That is what one needs.

This regulator has been inserted into the system for whatever reason—presumably with the hope that freedom will stay with the trust. But, as my noble friend Lord Howe said, from the foundation trust's point of view, the regulator is the Secretary of State's representative on earth. He is appointed by the Secretary of State; his staff and set-up are settled by the Government through the Minister responsible for the Civil Service; and, as we shall see as we go through the Bill, he has numerous roles. One such role, as set out right at the beginning of the Bill, is that he will decide which hospitals can become foundation trusts and whether a trust is not adhering sufficiently to the Secretary of State's rules and must therefore stop being a foundation trust. He has enormous power, and his answerability is such that he is a creature of the Secretary of State.

The Minister must justify to us how the sentence that I quoted from col. 12 of Hansard fits with the existence of the regulator. If the new trusts are to be free to decide how they achieve standards, I question whether the regulator is necessary at all.

Lord Warner

Noble Lords may detect the odd weary note in my voice as I go over some of the arguments that we have already put to the Committee. It is clear that the independent regulator is just that: independent. We shall debate that in detail later and I shall deploy some of the arguments to show that this independent regulator is more independent than some of the regulators used in other parts of the public service. I do not want to anticipate that debate at this stage.

The regulator is clearly accountable. I thought that the noble Earl, Lord Howe, put it quite well. As with other public bodies, the regulator has to behave proportionately and reasonably in his actions and is vulnerable to judicial review if he does not do so. The noble Earl and his noble friends cannot have it both ways. From time to time we are attacked because the regulator is not deemed to be independent enough and when we do not wrap around him a whole lot of accountabilities which would damage his independence we are told that we are failing in our duties in that respect.

We have set up a system which, rightly in my view, requires the regulator to satisfy himself that the applicants for NHS foundation trusts have made the case for the authorisations which he is able to give under the Bill. He has responsibilities if there are gross failures of those authorisations to take appropriate action under the Bill. He will take that action unfettered by the Secretary of State in accordance with the provisions in the Bill. We do not think there is a need to go further. We believe that the checks and balances as set out in the Bill are appropriate.

However, we have listened to the arguments put forward about whether there should be a board structure around the regulator and I have agreed to come back to the Committee with possible changes in the light of the report into regulators shortly to be published by the Better Regulation Task Force. So, we shall consider those issues in that context.

The noble Lord, Lord Clement-Jones, referred to concerns about poaching staff and so forth. We shall have another discussion on that at some stage. However, let me make one point crystal clear. It is not the job of the regulator to force himself or herself into the relationship between employers and employees. If the noble Lord considers the roles of regulators in other fields he will see that they do not get into the detail of industrial relations and negotiations between employers and employees and in our view it would be inappropriate for this regulator to do so.

We have debated whether CHI should be merged with the regulator and we simply do not agree with the noble Lord. As I tried to summarise the arguments, CHI is essentially an inspector; the regulator is essentially a referee. We do not think that those roles can be combined in a single office but believe that it is appropriate to keep those roles separate. As it stands, the Bill makes a good fist of setting up the regulator as an independent body. In all probability we shall again consider the issue of whether there should be a board structure around the regulator. However, at present we believe that Clause 2 is appropriately drafted and should stand part of the Bill.

Earl Howe

This has been a useful short debate and I am grateful to all noble Lords who have taken part, including the Minister for his reply. However, to come back as he did to judicial review as a remedy for the regulator's action is an unsatisfactory position to take. There is provision in the Bill for the regulator to submit annual reports to Parliament. I do not belittle that requirement in the least. Certainly, it is better than nothing. However, I cannot believe that that kind of retrospective arm's-length process amounts to accountability for the man or woman in the street who believes, for example, that the licence issued to their hospital has omitted something important, nor indeed, is it a remedy for the foundation trust which believes it is being unfairly dealt with.

There are ways of delivering accountability that would address those day-to-day issues. Later we shall debate amendments which deal with the NHS complaints system, for example, and others which deal with patients forums. I believe that the themes raised in this debate will return as we progress through the rest of Part 1. I hope that we shall be particularly mindful of the key issues of independence and accountability.

Clause 2 agreed to.

Schedule 2 [Independent Regulator of NHS Foundation Trusts]:

[Amendments Nos. 90 to 95 not moved.]

Earl Howe moved Amendment No. 96:

Page 113, line 29, leave out "or misbehaviour" and insert ", misconduct or incompetence

The noble Earl said: In moving Amendment No. 96 I shall speak also to Amendment No. 97. Paragraph 1 of Schedule 2 sets out the terms of the regulator's appointment. It includes the provisions governing his resignation or removal from office. The two grounds on which the Secretary of State is empowered to remove him from office are incapacity or misbehaviour. "Incapacity" I can understand. "Misbehaviour" seems very odd. I might have expected to see the word "misconduct", which has a well established pedigree in legislation. Misbehaviour seems to me an altogether looser term, and one that is perhaps open to a measure of subjective judgment. For example, it might cover the Secretary of State if he wanted to sack the regulator just because he did not like his style. Perhaps the Minister could tell the Committee whether there is a legal precedent for that term and what difference there is legally between "misbehaviour" and "misconduct".

However, there is a wider issue; that is, whether the Secretary of State should have an unfettered prerogative to remove the regulator on the grounds listed in paragraph 2(b). There are two issues here: first, that the word "misbehaviour" leaves far too much scope for a subjective judgment, as I have said. Secondly, if the regulator is to be truly independent of government, approval by Parliament of his premature and involuntary departure from office buttresses that point of principle. Also, it makes for transparency, which I would argue is important in such circumstances. I beg to move.

Lord Warner

I shall try to help the noble Earl by taking him through, if he will bear with me, some of the precedent arguments. Certainly, based on the experience of other precedents the Bill has been drafted to ensure that in the case of either misbehaviour or incapacity the Secretary of State has appropriate powers to remove the regulator from office. The regulator still can be dismissed for incompetence but that would be a reason for dismissal in the contract of employment rather than on the face of the Bill, which is the way that statutory office holders are usually dealt with when incompetence occurs. Specifying incompetence on the face of the Bill could have adverse implications for the application of wider employment law and moves away from standard wording currently used in legislation.

The choice of the words "incapacity" or "misbehaviour" as the grounds for removal is based on precedence. Precedents include the chair and other members of Ofgem; the rail regulator; the director-general of water services, Ofwat; and the chair and non-executive members of Ofcom, which is probably the most recent parliamentary example in relation to which those words have been used. There has been slightly different wording in earlier legislation. However, I have given the noble Earl some of the most recent examples.

Amendment No. 97 would make the regulator's removal subject to the approval of Parliament. There are already sufficient safeguards to ensure that the Secretary of State cannot behave precipitately. He will be bound by the terms of the regulator's appointment contract and by common law in deciding whether to remove the regulator from office. If the situation is so serious that the Secretary of State has to act, he needs the flexibility to act quickly to safeguard NHS interests. As I said, the model set out in the Bill is based on precedents, so I shall not repeat those. We do not think that making that removal subject to the approval of Parliament is appropriate.

Having said all that, I should like to put on record that we do not anticipate that the Secretary of State will have to remove the independent regulator from office. We do not want to give the impression, before any appointments have been made, that we are just aching to be able to remove the regulator from office before he or she has arrived.

3.30 p.m.

Earl Howe

I fully endorse the Minister's final comments. I am sure that when appointments are made, they will be good for the long term. I am grateful to the Minister for what he told us about the meaning of the words "misbehaviour" and "incompetence" and their precedent in legislation. 1 shall read carefully what he said about that.

The larger question in my mind concerns Amendment No. 97, which proposes parliamentary approval—some kind of check in the process for Parliament—thereby buttressing the independence of the regulator, as I explained. I understand the Minister's point about speed of action, should that be necessary. I shall have to reflect on the matter between now and Report, but I beg leave to withdraw the amendment.

Amendment, by leave, withdrawn.

[Amendments Nos. 97 to 102 not moved.]

Earl Howemoved Amendment No. 103:

Page 114, line 24, leave out "(generally or specifically)"

The noble Earl said: I want to raise what may seem a small issue but it is is one about which we need to be clear. Schedule 2(4) allows for the regulator to delegate the performance of his functions to a member of his staff. He may give authority for that to happen either generally or specifically. It would be helpful to know what "generally or specifically" means in practice. If the regulator issues a general authority, what kind of activity might that embrace and who might be given it? What implications does that have for decision-making within the office of the regulator?

Equally, if he issues a specific authority, it appears from the Bill that he could do so on any matter whatever that is within his legal powers. I am once again uncertain what implications that will have for foundation trusts, which are looking for consistency of decision-making on the regulator's part, as well as consistency in how they are regulated. They also want to feel that they are being dealt with on behalf of the regulator by a grade of staff competent to do them justice. It is important that foundation trusts have confidence in the regulator.

That form of words may well be a standard provision. We all understand that the regulator, like Ministers, needs to be able to delegate his role for appropriate practical reasons, but there is surely a limit to that. The purpose of this probing amendment is to discover what are or should be those limits and what effect internal delegation may have on how the regulator exercises his primary functions. 1 beg to move.

Lord Warner

As the noble Earl suggested towards the end of his remarks, we are in the territory of standard provisions. Perhaps I may quickly take him through the arguments.

The Bill provides for the regulator in effect to delegate functions to his staff. The inclusion of the words "generally or specifically" is a standard drafting device that simply makes clear that the regulator does not have formally to delegate his functions on each and every occasion that he wants a member of his staff to do something on his behalf. It would of course be completely impractical for him to be required to do so. Many aspects of his role could and should routinely be carried out by the staff of his office.

For example, under Clause 26(3), the regulator is required to send a copy of any notice given under Clause 23 or 24 to the registrar of companies. That is obviously a simple administrative task and to require the regulator specifically to ask a member of staff to do it on his behalf each time would be absurd. So the precedent of the words "generally or specifically" in a power to devolve functions currently includes the Food Standards Agency, Ofgem, the rail regulator, the director-general of water services, the Chief Inspector of Schools at Ofsted and the director-general of telecommunications. Those are examples in which we have used that wording in regulations.

I agree with the noble Earl that the regulator will need to ensure that his staff carry confidence with the people receiving correspondence, decisions and advice from his office. However, returning to our previous debate, the regulator, like other bodies, is required to behave reasonably and proportionately and obliged to ensure that his staff are fit for purpose to carry out the duties of his office. If his decisions are strange and wonderful, they are subject to judicial review. So we have checks and balances in the system, but this is standard wording that follows precedents in other areas.

Earl Howe

I am most grateful and beg leave to withdraw the amendment.

Amendment, by leave, withdrawn.

Baroness Noakesmoved Amendment No. 104:

Page 114, line 27, leave out paragraph 5 and insert— 5 (1) The Secretary of State shall make such contributions to the regulator's expenses as the regulator shall request. (2) If the Secretary of State believes that the amounts requested by the regulator are unreasonable, he shall refer the matter to the chairman of the Select Committee for Health whose decision shall be binding on the Secretary of State.

The noble Baroness said: The amendment concerns the financial independence of the regulator. I shall speak also to Amendment No. 188, which concerns the regulator's finances.

we have already debated, the regulator is termed an independent regulator, and we shall probe what that independence means in practice. Amendment No. 104 concerns financial independence and would replace the existing Paragraph 5 of Schedule 2 with a new one. The current paragraph gives the Secretary of State the power to contribute to the regulator's expenses; the new one requires the Secretary of State to pay what the regulator asks for. That may be regarded as somewhat sweeping, so the second leg of the amendment contains an arbitration mechanism in case of dispute, suggesting the use of the chairman of the Select Committee on Health in another place.

The regulator will not be independent if the scale of his operation is determined by the Secretary of State. If he cannot determine how many people he needs or how much he needs to invest in systems and property, he will not be truly independent. That is what the amendment is about: ensuring that he has the resources to do the job as he determines. If the Government find that amendment too bitter a pill to swallow, I invite the Minister to say how the financial independence of the regulator is to be guaranteed.

I turn to Amendment No. 188, which deals with Clause 21 and fees charged by the regulator to foundation trusts. That has a slightly different link to independence. The Consumers' Association suggested in its submission to the Committee that the independence of the regulator could be severely compromised by the introduction of fees paid by foundation trusts. Its view is that the regulator would find it difficult to remain independent of foundation trusts if he knew that his actions might well jeopardise the recovery of costs. I should be interested to hear the Minister's views. The amendment requires the fees to do no more than recover the costs associated with dealing with the trust during the relevant period.

Clause 21 mentions a reasonable fee, but I am sure that the Minister will be aware that if you put a dozen accountants in a room, they will come up with a dozen different versions of what is a reasonable fee. The clause does not even state from whose perspective the fee is to be adjudged reasonable: that of the regulator or of the foundation trust. Our amendment ties fee levels to the costs incurred. I hope that the Minister will agree that, on that basis, it would not be acceptable for the total costs of the regulator to be spread across all foundation trusts regardless of a trust's behaviour and whether it complied fully with its obligations.

I hope that the Minister can enlighten the Committee on how much the regulator will expect to recover. The Explanatory Notes say that the costs for 2004–05 will be £2.3 million. Divided among 32 foundation trusts for next year, that will leave them with around £72,000 each. Is that roughly how the system will work? Will all the costs be recharged to foundation trusts under the mechanism?

Amendment No. 188 is a probing amendment. We wish to understand how the Government see the fees systems working in practice. I beg to move.

Baroness Andrews

The two amendments deal with different aspects of funding. The first is the responsibility for funding the regulator's office and the regulator's potential to raise fee income. We have made clear in Schedule 2 our intention that the Secretary of State will fund the office of the independent regulator directly. I do not have to explain in detail why that is the case. As part of his overall responsibility, for which he is accountable to Parliament, he must have control over that expenditure.

Amendment No. 104, which would effectively remove that power, is not acceptable in those terms. If, as the noble Baroness suggested, the amendment is aimed at ensuring that the Secretary of State provides sufficient resources or does not unreasonably withhold them, I assure her that the independent regulator will be a very significant office with a major new responsibility in the health service. It will be funded appropriately. As we discussed earlier, the regulator is accountable to Parliament and required to report to it each financial year in the exercise of his functions. That information will include a report on the office's expenditure. There can be no better check. If the Secretary of State funds the office appropriately, he must make it clear to Parliament.

It is not so bitter a pill for me to address the question of a guarantee, which the noble Baroness raised. Members of the Committee will know that this is hardly a unique model for accountability. There are many examples of bodies funded similarly by Government. The Government's record on NHS funding should provide reassurance. We can be confident that the office will be funded to do its job properly, because we intend that the NHS should be funded to do its job properly. This will be no different, so we see no reason for different legislative provisions. On those grounds, it is inappropriate for the chairman of the Health Select Committee to determine government expenditure.

I shall now discuss Amendment No. 188 and the regulator's ability to raise fees under Clause 21. The Bill refers to "a reasonable annual fee". That simply indicates that we are building foresight into the provision. It is included simply to ensure that the option of funding the regulator's office through a fees structure is not ruled out. We do not intend to commence the provision currently. There is no question of integrity being challenged here.

I accept that there is a reason for raising the concern in Amendment No. 188 that the regulator might make a profit through his power to raise fees. I reassure Members of the Committee that that is simply not possible. Even after the commencement of Clause 21, the regulator would not be able to generate funds through fees that exceed the total expenses of his office. Clause 21 requires that fees be reasonable. The Bill does not give the regulator any power either to generate a surplus or to distribute surplus funds to anyone under the legislation. If we commence the provision to allow the independent regulator to charge fees, it will be for him to determine the level of fees payable by the trust.

The noble Baroness asked whether we have in mind a system, and whether the fees will be set according to criteria. There is a specific legislative requirement only that the fees be reasonable. But if the fees structure was size-based, according to the number of trusts or the increase in a trust's size, for example, the fee might grow accordingly. But those are matters for the future, as are the recovery issues.

I reiterate that, as a matter of law, the regulator will simply not be able to charge fees that exceed the total expenses of the office. Those safeguards will ensure that the running costs of the office will not be unreasonable but will be appropriately funded. I hope that, on those very reasonable grounds, the noble Baroness will be able to withdraw her amendment.

3.45 p.m.

Baroness Noakes

I thank the noble Baroness for her response. I was particularly pleased to hear that there is no current intention to implement the fee-charging provisions. That helps for the moment, at least.

On the core issue of financial independence, the noble Baroness said that the Secretary of State must have control. That is at the heart of the issue. The Secretary of State must have control of money because he must have control of the regulator. That is implicit in many of the models cited today. I thought that we were trying to get a genuinely independent regulator for the NHS. Advertisements for the regulator stressed the peculiar independence of the office. We do not have that here; therefore, we will need to reflect on that aspect on Report as part of our overall view on the regulator. I beg leave to withdraw the amendment.

Amendment, by leave, withdrawn.

Baroness Noakesmoved Amendment No. 105: Page 114. line 28, at end insert— "Accounts and audit

  1. (1) The regulator shall keep proper accounting records.
  2. (2) The regulator shall, for each financial year, prepare accounts in accordance with directions given by the Treasury.
  3. (3) The accounts prepared by the regulator for any financial year shall be submitted by the regulator to the Comptroller and Auditor General.
  4. (4) The Comptroller and Auditor General shall examine and certify any accounts submitted to him under this paragraph and shall lay before each House of Parliament a copy of the accounts as certified by him together with his report on them."
The noble Baroness said: The amendment would add a new paragraph after paragraph 5 of Schedule 2. It is a probing amendment setting out requirements for the regulator to keep proper accounting records, to prepare annual accounts and to submit them to the Comptroller and Auditor General, who then audits them and lays them before Parliament. It is a pretty standard formulation for a public sector body. But the purpose of the amendment is not to refer to the detail of that, but to establish what are the accounting and auditing arrangements for the regulator, as I could find no reference to them in the Bill.

I hope that that is not an oversight on the part of the Government. I invite the Minister to explain the auditing and accounting arrangements for the regulator. I beg to move.

Baroness Andrews

One rises always with trepidation to discuss public accounts with the noble Baroness. Of course I agree with the principle that the independent regulator must keep proper accounts to ensure both probity and proper accountability. But there is no need to include that in a statutory provision.

Members of the Committee may well know that detailed public accounting rules apply to non-ministerial government departments. The office of the independent regulator would be a non-ministerial department so the provisions will apply automatically. The noble Lord, Lord Warner, indicated earlier that we would review the structure of the office in the light of the Better Regulation Task Force report on independent regulators, and that we would ensure that such accounting requirements continue to apply—if necessary, by including explicit provision in legislation if any changes are made in that way to the relevant clauses or schedule.

The regulator is also required to report to Parliament in the exercise of his functions. That will also include a financial report. I hope that, with those assurances, the noble Baroness will be satisfied that we have made appropriate provision.

Baroness Noakes

I am grateful for the noble Baroness's response and her confirmation that the office will be a non-ministerial government department. I understand that from that flow the auditing and accounting arrangements. That was the assurance that I sought. I beg leave to withdraw the amendment.

Amendment, by leave, withdrawn.

Baroness Noakesmoved Amendment No. 106: Page 114, line 32, at end insert— ( ) The annual report shall include a summarised account for all NHS foundation trusts for the financial year. The noble Baroness said: The amendment would add a new sub-paragraph to paragraph 6 of Schedule 2. Paragraph 6 concerns the regulator's annual report, to which reference has been made, which must be laid before Parliament. Our amendment would make it a requirement for the annual report to contain a summarised account for all foundation trusts for the financial year. I am not sure that I will hold the attention of all noble Lords on the subject of summarised accounts, but I shall do what I can to sex it up. Apparently, the Department of Health produces summarised accounts for the NHS each year—I have brought a copy, so Committee Members can see the exciting tome that is available each year. It is a weighty document. It summarises the different flows within each part of the NHS and includes a section on NHS trusts. The summarised accounts therefore give a financial overview of the NHS that is not otherwise available.

For example, if we want to see the amount of money that flows through NHS trusts or PCTs altogether, that is where one can look for the information. Importantly, the Comptroller and Auditor General includes an informative narrative at the beginning of the summarised accounts that reveals data that are interesting to some people, such as the amount of deficit and who has financial problems. It is my understanding that, unless we do something in the Bill, there will not be a summarised account for foundation trusts which means that Parliament will be deprived of access to important information. It may also make it difficult for the Public Accounts Committee in another place to conduct a review of the issues arising from the foundation trust sector as a whole.

Our amendment does not involve the C&AG, but it would be essential if there were a summarised account. If the Government were minded to accept our amendment, I am sure that that could be dealt with later. I beg to move.

Lord Warner

At the heart of this amendment is the issue of the clarity of accountability. I suspect that the noble Baroness will agree that the accounting arrangements need to reflect that NHS foundation trusts are public sector bodies ultimately accountable to the public. That is why we have provided in Schedule 1 for each foundation trust to make its accounts available to the public and the National Audit Office and to lay the accounts before Parliament. Therefore, the Bill provides more than adequate provision for public and parliamentary scrutiny of the financial arrangements for NHS trusts.

It is not normal practice for regulators to come along and try to provide summaries of the accounts of the bodies that they regulate. It is important that those who exercise freedoms—we are expecting NHS foundation trusts to do that; that is one of the main purposes of this legislation—should be accountable for the results of their actions. The requirement for an independent regulator to prepare summarised accounts is an unnecessary burden and is potentially misleading, which is perhaps the more serious argument. The presentation of accounts to Parliament would normally be carried out by an accounting officer who was responsible for the expenditure reflected in those accounts. Although the independent regulator sets the accounting requirements and borrowing limits for NHS foundation trusts, he is not accountable for an NHS foundation trust's expenditure or its operational management.

Of course, no one is arguing that the regulator should not assist Parliament when required to do so. Indeed, as has already been said, the regulator will make a report to Parliament on the discharge of his functions and the content of that report is a matter for him in the light of the way that he has discharged those functions. He could also assist Parliament by preparing summaries of financial information relating to NHS foundation trusts if requested to do so—by a parliamentary committee, for example. However, if there were a legislative requirement for him to act as this amendment suggests, the implication is that he is the accounting officer for the information contained therein. As I have tried to explain we believe that that would be quite inappropriate.

Baroness Carnegy of Lour

I see the Minister's argument about the regulator. I know that he does not like my questions because he does not always expect them. However, will there be a summarised account of foundation trusts anywhere? The difference between the costs of foundation trusts and other trusts will be of great interest throughout government. It will also be of interest to the Scots Parliament because, with the Barnett formula, its funding is dependent on what England spends. This change will therefore be very important to the Scots Parliament. Will it be possible to see the summarised accounts anywhere under the arrangements in the Bill?

Lord Warner

Let me make it clear: I very much enjoy questions from the noble Baroness and I am not in any way affronted by her question. Ministers usually learn not to try to forecast the future—at least those who have managed to survive in office a reasonable amount of time—so I am not going to attempt to do that. I expect that, as is often the case, if the regulator is asked to provide information by a parliamentary committee, he will try to respond positively—as most of us do when put in that position. I think we will just have to wait and see.

Baroness Carnegy of Lour

I hope that the Minister will go on enjoying my questions because that is a great encouragement to me. It was extremely nice of him to say that. However, I am asking whether there will be a summarised account anywhere of the cost of foundation trusts. A Select Committee could ask the regulator for one but, leaving the regulator out of this for a moment, will there be a summary account anywhere in the volume that my noble friend Lady Noakes showed us and which made my heart sink?

Lord Warner

We will have to wait and see. We do not want to anticipate doing anything that damages the clear accountability framework for NHS foundation trusts that we have set out in this legislation.

Baroness Noakes

I thank the Minister for his reply and my noble friend Lady Carnegy for her insightful intervention. As usual, she puts her finger on the issue. There will be a lack of information after this Bill and a whole area of the NHS about which we will not be able to get a financial overview, which is an important matter. I completely accept the Minister's concerns that to summarise might imply accounting officer responsibility, but that should not stand in the way of creating this important source of information.

I do not believe that, in moving from NHS to foundation trust status, people will understand it if an important source of summarised information disappears. It is strange that we will have to wait for a parliamentary committee to request a summary when it is perfectly plain and obvious that something is disappearing from the arrangements and needs to be replaced to allow information to be available. I will consider carefully what the Minister has said about not implying accountability alongside the provision of information, but I feel sure that we can get around that and I look forward to debating the matter again on Report. I beg leave to withdraw the amendment.

Amendment, by leave, withdrawn.

[Amendment No. 107 not moved.]

Lord Clement-Jonesmoved Amendment No. 108:

Page 115, line 4, at end insert— 8 The regulator must report in person to any Committee of either House of Parliament, or a Committee of both Houses, which requests information on the discharge by the regulator of his functions. The noble Lord said: Paragraph 7 of Schedule 2 is something of a curiosity. It states: The regulator must respond in writing to any recommendation which … is made by a Committee of either House of Parliament, or a Committee of both Houses, and … relates to the exercise by the regulator of his functions. It is not immediately clear why paragraph 7 is written in that way. Certainly, written evidence given by a regulatory body is perfectly usual in these cases, but oral evidence is also perfectly usual and acceptable. Indeed, it is often very important that oral evidence is given to a Select Committee. In practice of course, the Health Select Committee would be the one most likely to be involved. As currently drafted, does the fact that the paragraph refers only to written evidence—it states "respond in writing"—mean that the intention is to have the regulator respond only in writing? Is there some hidden intention? Is it possible for the Select Committee to call the regulator to give oral evidence?

It is not clear whether the provision in the schedule is explanatory, limiting or whatever. The bare fact is— this is the reason for the amendment—that the ability of a Select Committee to take oral evidence is an important part of the accountability of a regulator to Parliament. 1 look forward to hearing what the Minister says. I beg to move.

4 p.m.

Baroness Finlay of Llandaff

I have added my name to the amendment. Like the noble Lord, Lord Clement-Jones, I have a concern about the ability of Parliament to drill down in depth into information that may be provided in the report. We should allow Parliament the capacity to scrutinise beyond the boundary of the items that are included in the report, to allow any destabilisation in the health economy to be detected in questioning.

Baroness Cumberlege

I support the amendment. Noble Lords who have a good memory may remember that, at the beginning of the Committee stage, I proposed six clauses that would have established an agency that would be responsible for the day-to-day running of the NHS. 1 hope that, in a year or two, that will come about. I see some of the proposals in the Bill as paving mechanisms to prepare the ground for an agency in the future.

In proposing those clauses, I was keen to try to get a different relationship between Parliament, Ministers, the Department of Health and the NHS and to get the politics in their rightful place. A crucial element of that was safeguarding the independence of the agency—in this case, it is the independence of the regulator—and ensuring that the accountability was to Parliament. Having heard through the media the oral evidence that is being submitted to the Hutton inquiry, I find it interesting to see how, when people have to respond immediately to incisive questions, they reveal information that they would not reveal in a written report, in which it would be easier to get away with some weasel words.

It is a good amendment, and I hope that the Minister will agree to it.

Baroness Andrews

I can reassure the Committee that there is nothing sinister about the fact that paragraph 7 of Schedule 2 specifies that the regulator should respond in writing. The provision is there to make it clear that the independent regulator must submit a report to Parliament and must respond in writing to any parliamentary committee with regard to the exercise of his functions. However, that is hardly the limit of his accountability to Parliament.

The fact that it is specified that the regulator must respond in writing does not rule out the fact that he will be available to any Select Committee of either House that wants to scrutinise his activities. The regulator's activities will be subject to the scrutiny of any parliamentary committee, including the Select Committee on Health and the Public Accounts Committee, before which he is summoned to give evidence. We know that Select Committees have the power to order people to attend to give evidence, but we do not expect that they will have to exercise those powers with regard to the independent regulator, who will have a public office with public responsibilities.

In recent months, we have seen the Select Committees, with their formidable reputation, making a strong impact on the public consciousness and on the workings of government. I would not have thought that we needed to provide powers to require the regulator to respond to order. Select Committees have amply demonstrated in recent months the fact that a simple invitation to attend will suffice. If and when that invitation comes, the regulator will surely be pleased to give evidence to the committees.

Lord Clement-Jones

I thank the Minister for that reply. It would be difficult to impute sinister motives to her, given such a reply. Nevertheless, the drafting of the schedule is interesting. If we simply took it at face value, we might ask why that paragraph should exist in the first place. If the Select Committees have the power to insist on the production of papers and people—their general power—why is the schedule drafted in that way?

I am sure that the Government do not have sinister motives, but they may have signposting motives. They may wish to indicate that that is how they think a Select Committee should operate. In a way, that is almost as unhelpful as a sinister motive. It should be expected that the regulator should appear regularly in person before the Health Select Committee to describe his policies.

I am half-satisfied by the Minister. I never would have thought that there would be any sinister motives in the Department of Health, but I do not believe that the paragraph signposts as well as it should do the kind of relationship that the regulator should have with the Health Select Committee. We may pick the matter up at a later stage, but, in the mean time, I beg leave to withdraw the amendment.

Amendment, by leave, withdrawn.

Lord Clement-Jonesmoved Amendment No. 109:

Page 115, line 4. at end insert— "Right of appeal to regulator

Employers of health service staff in non-foundation trusts affected by decisions made by foundation trusts in respect of their terms and conditions of employment may ask the regulator to judge if these are a breach of section 26 of the Health Act 1999 (c. 8) (co-operation between NHS bodies), as amended by this Act. The noble Lord said: In describing the model, as he likes to call it, in the Bill, the Minister says increasingly frequently that it is not the job of the foundation hospital to do something that is proposed from parliamentary Benches or that it is not the job of the regulator to do something else. That is a circular argument. One of the problems that we have with the Bill is the mindset that the regulator should do X, Y and Z and that any amendment that tries to extend the scope of his functions is illegitimate. That is not the most constructive may to proceed with the Bill, particularly if some of the anxieties about the impact of foundations hospitals are to be allayed.

I am interested by the mantra that the Minister is beginning to use. He says that it is a case of "referee versus inspector". That reminds me of how, during the passage of previous health Bills, the noble Lord, Lord Hunt of Kings Heath, assured us that the system was a managed system, not a regulated system, and that those systems were completely counterposed. What happened in the end? That was in response to wanting to merge the functions of CHAI—

Lord Hunt of Kings Heath

The point is that we managed the system so well that we were able to evolve and move on to a regulated system. It is a serious point. By setting up institutions such as NICE, the national service frameworks and CHAI, we have created the conditions in which it is possible to move to a decentralised, regulated system, rather than a managed one. However, we must start with management.

Lord Clement-Jones

I think back on the number of times that the noble Lord talked about how strong performance management in the NHS was and how important it was. Clearly, we are moving away from performance management because of the enormous success that the noble Lord and his colleagues have had over the years.

That is backdrop. In this context, one of the key fears of those who have doubts about foundation trusts is that they will be able to poach staff by improving pay and conditions for staff to a level above those of other hospitals in the area. It is not yet clear what pay flexibility will be available to foundation trusts, and it is hard to see what additional freedoms trusts might require over and above those in Agenda for Change. Many of us welcome the fact that the general broad approach will be that foundation trusts will be expected to implement Agenda for Change, which already offers significant new pay flexibility to all NHS organisations, including an ability to increase pay rates by up to 30 per cent in each organisation to tackle problems with recruitment and retention. It is important that trusts exercise such freedoms with proper regard to the wider local health economy.

The amendment is designed to add weight to Clause 29, which imposes on foundation trusts a duty under the Health Act 1999 to co-operate with other NHS bodies. It would help ensure that the creation of foundation trusts strengthened rather than undermined relationships between hospitals and other NHS organisations. I beg to move.

Earl Howe

The noble Lord's amendment is grouped with my Amendment No. 199, which brings us face to face with the duty of co-operation in Clause 29. As regards the practical operation of the clause, many services are dependent on collaboration between NHS trusts and are provided in hospitals where the skills of the staff are appropriate to the complexity of the disease. That is particularly important, for example, in the treatment of cancer. Some hospitals are designated cancer centres covering the more complex cancers; other hospitals are designated as cancer units providing care for the more common cancers. What is essential is that hospitals are integrated into a network so that patients are referred to a place with the right expertise. That is a fundamental principle which transcends the interests of individual NHS organisations.

The cancer policy framework document, published in 1995, states: Great importance is also attached to the integration of the work of the Cancer Units with the Cancer Centre. This can only be achieved by strong links for all the professions, common treatment policies, audit arrangements and participation in trials". The recent study by Eurocare revealed that five-year cancer survival rates in Britain are below the European average. If foundation trusts are literally free to provide the kind of services which suit their own interests as trusts instead of what fits in best with local hospitals, there will be a serious risk for patients. Providing the right care in the right place cannot be left to chance. Patients must know that it is there for them.

That means that bodies which currently participate in clinical networks must continue to co-operate to co-ordinate both care and capacity. One answer would be to build these arrangements into a contract. Without a legally binding contract, there is no mechanism for resolving disputes between a PCT and a foundation trust in respect of specialised services. The current provision is very vague and could not be relied upon to back up a demand by a PCT that a foundation trust falls in with a joint commissioning arrangement.

Another route is that suggested in the amendment whereby the regulator becomes the arbiter of any dispute involving a lack of co-operation by a foundation trust. Whichever direction this issue takes, it is too important to be ignored. I should like to hear the Minister's answers to the concerns raised by the noble Lord, Lord Clement-Jones and myself, if, over the long term, clinical networks are to remain the mechanism by which specialised services are delivered by the NHS.

Baroness Finlay of Llandaff

Noble Lords have highlighted the tremendous importance of partnership in the provision of high quality services. Indeed, it is in cancer par excellence that that is demonstrated. For example, the number of patients requiring upper gastro-intestinal cancer surgery each year is small, which means that patients need to be concentrated in order to develop a centre of expertise. Over the years, there has been a great deal of evidence that hospitals performing one or two oesophagectomies per annum have much worse results than those performing a critical number with an experienced team around them.

Currently, there are partnership agreements in place. What assurances are there that these partnership agreements will remain in place and will be respected? So far, I am not clear how bad co-operation must be for it to be deemed non-co-operation and to cause the regulator to intervene. I am uncertain, too, at what point the national clinical director will be consulted for opinions about the quality of service and whether developments within a foundation trust may jeopardise the quality of service in other parts of the NHS within a clinical network.

4.15 p.m.

Lord Warner

I shall respond to the two different issues in respect of the two amendments. As regards Amendment No. 109, I enjoyed the exchange between the noble Lord, Lord Clement-Jones, and my noble friend Lord Hunt, who, as is often the case on these occasions, almost took the words out of my mouth. I do not want to disappoint the noble Lord, Lord Clement-Jones, by not using one of my mantras. This is an appropriate point at which to use my mantra about flexibility. He knows that it is our belief that NHS foundation trusts should have a degree of flexibility on staff pay and conditions, just as NHS trusts do now. The important point is that it is also our strong belief that employment contracts are a matter for staff, their unions and the employers. They are not issues which should be arbitrated upon by a third party, such as the regulator.

However, it is essential that NHS foundation trusts do not act in ways that are inconsistent with equal pay principles and that they do not prejudice the interests of the wider NHS, including other NHS employers. Quite frankly, a beggar-your-neighbour policy on pay among NHS bodies serves no one's interests, including anyone who started along that path. The balance between freedom for staff, their unions and the employers to negotiate what is right for them, flexibility for NHS foundation trusts and looking after the interests of the wider NHS is precisely what we will achieve in the current arrangements that will apply to NHS foundation trusts.

As the noble Lord acknowledged, first, NHS foundation trusts will implement the new Agenda for Change pay system. The Secretary of State will not support applications from NHS trusts without a clear commitment to implement Agenda for Change. Under the new pay system, NHS foundation trusts will be specifically represented in forums for national collective bargaining on staff terms and conditions of service. That will be a contractual right for all Agenda for Change staff. These national negotiations are a matter for employers and unions, and not for the Secretary of State.

Secondly, national negotiations and terms and conditions of employment are not—I emphasise, are not—a matter for the independent regulator either. The amendment would drag the independent regulator into those sets of arrangements. He does not and should not have the power to intervene in the contracts agreed between NHS foundation trusts and their staff. Effectively, that is what the amendment would do.

However, we recognise that safeguards need to be in place to ensure that the employment policies of individual NHS organisations are not detrimental to the NHS as a whole. That is why NHS foundation trusts will be subject to the same duty of partnership that applies to all NHS bodies; namely, a duty to co-operate in the exercise of their functions, as set out in Clause 29. Any persistent attempt at disregarding neighbouring partners would bring a foundation trust into breach of this partnership requirement.

An NHS foundation trust would be able to increase pay rates only if it were able to generate enough efficiency savings to offset higher costs. We shall probably turn to this issue at a later stage, but all NHS organisations will be bound by a new national tariff for NHS services. Foundation trusts will not be able simply to increase charges to NHS commissioners to cover the costs of an increased wages bill. There are reasonable checks and balances that make the amendment unnecessary. Most inappropriately, if agreed, it would drag the regulator into the field of industrial relations, where he or she does not belong.

The arguments are rather different in relation to Amendment No. 199. I do not disagree with some of the sentiments expressed by the noble Earl, Lord Howe, and the noble Baroness, Lady Finlay, about integrating care for patients, especially in the area of cancer. Nothing in the Bill damages the capacity of individual health professionals to work together to integrate care for patients.

It may be helpful to noble Lords if I give some indication of what the duty of partnership really means. Good partnership working for NHS foundation trusts will involve consultation with PCTs on service development and expanding capacity in line with commissioning requirements, participating in the training and education of the NHS workforce, working together with workforce development confederations and universities to ensure effective co-ordination, as well as working across clinical networks to deliver services along integrated care pathways. Every NHS foundation trust will be under a statutory duty to work in partnership with its neighbours and others involved in that kind of work.

We do not think that anything set out in the Bill would in any way damage those clinical networks and pathways towards integrated care that large numbers of health professionals now deliver day in and day out. It is not the purpose of this Bill to disrupt those activities. Many of those relationships are very much the result of health professionals working together. All we have done in the Bill is to set up an organisational framework which will ensure that partnership working continues in a way beneficial to patients.

The independent regulator has the responsibility of overseeing NHS foundation trusts, including their compliance with statutory obligations. Under Clause 3, he must act in the best interests of the wider NHS, not only NHS foundation trusts. Under Clause 6(3) the regulator can set any terms to an authorisation that he considers appropriate and, under Clause 29, has powers of intervention which he can exercise where an NHS foundation trust significantly fails to meet its statutory obligations. Therefore the independent regulator could issue an NHS foundation trust with warning notices or, in extremis, even replace managers if that trust persistently continued to act in a way contrary to its statutory obligations.

We believe that adequate safeguards have been put in place in this legislation to ensure that a clear signal is given about the importance of partnership working and that enforcement mechanisms will be made available to the regulator, should the need arise.

Baroness Cumberlege

As I understand the legislation—I am sure the Minister will put me right if I am wrong about this—foundation trusts will be able to sub-contract services to the for-profit sector through PFIs and other schemes, as well as to transfer staff. Can the Minister tell the Committee what will be the role of the regulator in those circumstances, in particular if the for-profit sector were to increase pay in a way not in accordance with NHS pay scales?

Lord Warner

I do not think that I can easily forecast exactly what might happen in all circumstances. However, in the situation indicated by the noble Baroness, the outsourcing, as it were, of a particular piece of work to a for-profit organisation would not in any way enable the foundation trust to opt out of its obligations in the way that I have suggested.

It would be unusual to encounter a set of circumstances where the market rate for a particular skill or competency is X and that was changed dramatically by whoever is the source of service provision. However, issues would arise for the foundation trust as regards the best way of organising and managing a particular service.

I cannot answer a hypothetical question of the kind raised by the noble Baroness, but I have sought to give some indication of our thinking.

Baroness Carnegy of Lour

I ought probably to know the answer to this question. Given that the trust will be subject to national wage negotiations in the way just confirmed by the noble Lord, does it mean that the only way in which a trust may attract better staff or exercise its freedom in how it employs staff is by putting individuals into more highly promoted posts, as is the case with universities?

Lord Warner

I would not want either to confirm or deny what a particular NHS foundation trust might do in a given set of circumstances and according to its individual needs. All I would say is that "terms and conditions of service" is a broad term that is available to NHS foundation trusts and goes much wider than simply pay. It takes account of a wide variety of circumstances which may influence its ability to recruit and retain staff.

Lord Clement-Jones

I thank the Minister for his reply and for his responses to the interventions. This is one of the more important replies that we have been given during the course of the Bill and it requires some consideration.

Because of the concerns that have been expressed, the common factor uniting noble Lords on these Benches is the wish to give the regulator more teeth in respect of the duty of co-operation, whether in the narrower area suggested in my amendment or more widely as put forward by the noble Earl, Lord Howe. I recognise the statement made by the Minister about the balance to be struck between flexibility and looking after wider NHS interests. However, the crux of the matter is whether the regulator really does have the power to maintain those interests while retaining the flexibility of NHS foundation trust behaviour.

The Minister's helpful and extended response requires further considered reading in Hansard. In the meantime, I beg leave to withdraw the amendment.

Amendment, by leave, withdrawn.

Schedule 2 agreed to. Clause 3 {General duty of regulator]:

Earl Howemoved Amendment No. 110:

Page 2, line 4, leave out "performance by the Secretary of State of the"

The noble Earl said: In moving Amendment No. 110 1 shall speak also to Amendment No. 111. I have remarked on a previous occasion on the very interesting and, to my mind, revealing phraseology of Clause 3, which brings us face to face with some harsh realities about the regulator and his role, and what those will mean for foundation trusts.

We have heard rather often how this Bill ushers in a new era for the NHS, enabling it to become free of political interference from Whitehall and free to chart its own course according to local priorities and local ownership. The newly created independent regulator will be there to ensure fair play and that foundation trusts comply with the terms of their authorisation and, more generally, that they adhere to the requirements of Part 1 of the Bill. That is the official position on the regulator.

Yet how independent will he be really, and how far removed from the influence of the Secretary of State? We have already debated a number of telltale signs that point to a rather different picture. Clause 3 takes us further down the path of discovery. We see here that the independent regulator will be constrained to behave in a way consistent with the performance by the Secretary of State of the duties laid down in the National Health Service Act 1977. That says a great deal more than simply that the regulator has those same duties. Clearly he does have those duties, but he must also perform them in a manner consistent with the way in which the Secretary of State performs them; that is, he has no independence to interpret those duties in a way substantively different from that of the Secretary of State.

This tells us as clearly as we need to be told that the regulator will live not only in the shadow of the Secretary of State, but actually in his shoes. The idea, therefore, that in this legislation we have separated in one bound foundation trusts from the control of Whitehall is a myth.

That has direct consequences for NHS foundation trusts. It will be idle for a foundation trust to pretend that all it needs to do is to maintain a high quality of health services within the terms of its authorisation and listen to the voice of its local members. It will have to do more than that. It will have to keep a weather eye on what the Secretary of State is saying to the rest of the health service: the targets he is setting and the directions he is issuing. If it fails to do this and instead tries to plough its own furrow as it wishes, the inevitable consequence will ensue—the regulator will descend upon it and pull it into line. Thus the way in which the Secretary of State performs his duties under the 1977 Act will exert a direct pull on the behaviour of foundation trusts.

I am sure that the Minister will argue that this is a necessary—and, indeed, healthy—state of affairs. I am sure he believes that the duties imposed by the 1977 Act should rightly overlay everything in Part 1 of the Bill. But the Secretary of State's performance of those duties also overlays Part 1. In my amendment I am suggesting that this amounts to a backdoor power of direction by the Secretary of State which is both unnecessary and inconsistent with the objectives that the Government have set for foundation trusts. It means that the much-vaunted operational freedoms of foundation trusts will be circumscribed in a way that may not at once be obvious but which is, nevertheless, quite real and evidenced by only the shortest of short trails to Dr Reid's office in Richmond House. I beg to move.

4.30 p.m.

Lord Peyton of Yeovil

I applaud the remarks of my noble friend. It is not unusual for me to do so, but on this occasion I do so with exceptional warmth. I should be grateful if the Minister can tell the Committee whether there is any precedent for bidding a regulator to act in a manner consistent with the way in which a Secretary of State performs his duties. It seems to be a weird criterion.

I am quite accustomed to regulators and others being told that they must do what the Secretary of State orders them to do, but to state that they must accept as a criterion the way in which a Secretary of State performs his duties is going a little too far into the realms of vagueness and speculation. I hope that the Minister will be able to satisfy my curiosity, at least on the point of whether there is any precedent for this kind of criterion to be set up as a standard to which a regulator, or anyone else, should aim.

Lord Blackwell

My noble friend's amendment goes to the heart of a question which has been puzzling me throughout the passage of the Bill. If the Secretary of State were to declare a target in future—for example, a waiting time target in respect of certain operations— would the fact that he had declared that target automatically have any impact or effect on foundation trusts? If the Bill were not amended, would the regulator be the means by which such targets were imposed on the foundation trusts, or would they be completely free of any such targets under the Bill?

Lord Warner

Let me state quite categorically that this is not a backdoor power of direction. I cannot quote chapter and verse off the top of my head for the noble Lord, Lord Peyton, but I shall be happy to write to him when I have carried out more research in this area. However, whatever the outcome of the letter, I do not believe his point is necessarily valid.

Perhaps I may put the term "the duties performed by the Secretary of State" into context. The duties performed by a Secretary of State in the field of health will, to some extent, change over time for good and sound reasons which are not much to do with the political process. We would not expect a Secretary of State to have regard to exactly the same circumstances in relation to healthcare today as would a Secretary of State in 1948. There will be changes in resources, people and money; new professions will develop over time as people develop new skills to cope with new healthcare needs; there will be rapid changes in technology, drug use and development; and there will be changes in public expectations and choice. If Secretaries of State, of whatever political party, were so foolish as to simply ignore such changes in the way in which they performed their duties under NHS legislation, I suspect that they would not last terribly long. It would be Canute-like behaviour that ignored the real processes of change taking place in society and the healthcare field. So to pretend that a Secretary of State would perform his duties in exactly the same way, year in, year out, is a myth we should not perpetuate.

We discussed on earlier amendments the need for the general duties of the independent regulator to strike the right balance between ensuring consistency with the requirements of the NHS as a whole and retaining his or her independence. Striking that balance as we have tried to do, as I have explained on a number of occasions, does not damage in any way the independence of the regulator.

Amendments Nos. 110 and 111 would remove the reference to the Secretary of State's performance of his duties under the 1977 Act. For the reasons I have briefly explained, that would be a slightly unreal way of behaving. Under Clause 3, the independent regulator is required to take account of the wider interests of the NHS by ensuring that he acts consistently with how the Secretary of State performs his duties under the NHS. But we are leaving it—and this is a feature of his independence—to the regulator to determine how to achieve this. What he cannot do is simply ignore how a Secretary of State, at a particular point in history, is performing his duties under NHS legislation. For the reasons I have explained, that would be a rather Canute-like approach to dealing with the healthcare sector.

The removal of the reference to the performance of the Secretary of State's duties is not acceptable because it would allow the independent regulator to second-guess a Secretary of State—who is accountable to Parliament for the performance of his duties—in ensuring that a comprehensive health service was available across the NHS as a whole. We believe that the amendments are not appropriate.

Baroness Carnegy of Lour

I should like to hear the Minister's answer to my noble friend Lord Blackwell.

Lord Warner

We do not want to anticipate the detail of the way in which a particular regulator will behave in particular circumstances. I have made it clear that he must take account of the Secretary of State's performance of his duties, as is appropriate, at a particular point in history.

Earl Howe

That is an extremely revealing answer. My noble friend Lord Blackwell put his finger on the issue: is it or is it not the case that the Secretary of State, at one remove, will be micro-managing the health service? That is what it amounts to. It appears that there could be circumstances in which the Secretary of State was doing just that. This is not ruled out by Clause 3. That is what my amendments were designed to get to the heart of.

I am grateful for the backing and support of my noble friend Lord Peyton on these amendments.

Lord Warner

Can the noble Earl explain to the Committee how, if his party was in office, he would cope with the situation? If the wording was removed and the circumstances in which the Secretary of State had to perform his duties in relation to healthcare were to change over time, how would he deal with the issues I have outlined?

Earl Howe

First, the Conservatives are not in office—we have a Labour Government—and we on this side have a duty to ask the Government questions, not the other way round. Secondly, I do not think the Minister's question is very well put. The point at issue is not whether the regulator should have a general duty to abide by the duties in the 1977 Act—we can see why that should be. The question is whether his every step should mirror the steps of the Secretary of State. That is the point with which I take issue.

Once again, we shall need to return to this matter as we debate the rest of Part 1. How independent foundation trusts will really be, despite the appearances that the Government like to construct, is a very important issue. In view of the time, I do not intend to spend further time on the amendments, but no doubt we shall come back to them later. I beg leave to withdraw the amendment.

Amendment, by leave, withdrawn.

[Amendments Nos. 111 to 113 not moved.]

Earl Howemoved Amendment No. 114:

Page 2, line 6, at end insert— ( ) In performing his duties under this Act, the regulator must have regard to such of the following as appear to him to be relevant in the circumstances—

  1. (a) the principles under which regulatory activities should be transparent, accountable, proportionate, consistent and targeted only at cases where action is needed;
  2. (b) the different needs and interests of persons using NHS services and in particular of the different interests of children, and of those living in rural and urban areas; and
  3. (c) the principles set out in the compact between the Government and the voluntary sector and the codes of practice set out under it."

The noble Earl said: It is perhaps a statement of the obvious that by creating the new office of a regulator, the Bill gives rise to regulation in a new form. The hazards inherent in that process are equally obvious: they are, in simple terms, that the principles of good regulation may not be at the front of everyone's mind when the time comes for the regulator to take up his or her duties. My amendment is designed to address that concern.

The principles of good regulation were enunciated by the Better Regulation Task Force. They were: transparency, accountability, proportionality, consistency and a duty to act only where necessary. We need to decide whether those principles should be reflected in the regulator's statutory obligations as laid out in the Bill.

This is not some dry, theoretical issue. I take the view that deregulation, when it is put into practice, acts directly to enhance operational freedom. The corollary is also true. So we can see that these are principles which have a direct bearing on the extent to which foundation trusts are truly free of unnecessary red tape.

I have made the assumption, rightly or wrongly—the Minister can tell me which—that when an Act of Parliament is silent on the duties of a regulator, no duty that is not explicitly mentioned in the Act can be ascribed to him. It is quite remarkable, to me at least, how so little in the way of general duties for the regulator is laid down in the Bill. Foundation trusts are supposed to be responsive to the health needs of their patients and the local public. You would have thought, therefore, that the regulator might be given a general duty to ensure responsiveness on the part of NHS bodies which he oversees, but there is no such duty. Nor is there a duty to ensure that NHS bodies fulfil their proper duty towards the various elements of the population in a balanced way.

This is not the same as talking about a comprehensive health service, free at the point of need. It is about such things as being aware of the differing needs of patients in rural and urban areas and about interacting with local authorities in configuring children's services, particularly where there are children's trusts.

We would also expect to see some mention of the NHS's duty to interact constructively with the voluntary sector. That should not merely be on the wish list—it is a statement of the Government's policy. The Department of Health website says that all NHS organisations in England should be, signed up to a geographically relevant Local Compact by 31st March 2004".

We need to ask, in the light of that unequivocal statement, whether the regulator will be required to adhere to the compact which, at national level, is an agreement between the Government and the NCVO. For one thing, it is quite possible that at some point in the future, organisations in the voluntary sector such as hospices will elect to apply for foundation status. The Bill provides for that. If that happens, those voluntary organisations would, of course, come directly under the wing of the regulator.

The principles in the compact are good ones: for example, the principles of fairness and equity in applications for NHS funding. Unless there is some reference on the face of the Bill to those principles and the duty of the regulator to abide by them, they might as well never have been articulated, for all the relevance they will have to the regulator. They will simply not be part of his job description. I beg to move.

4.45 p.m.

Lord Peyton of Yeovil

I feel that my noble friend deserves support; I particularly applaud his dazzling faith. His amendment requires that a regulator— somebody who is about to make a government regulation—has regard to transparency, accountability, proportionality, consistency and targeting, all of which are favourite words of governments. However, if you thumb through the pages of regulations that your Lordships have approved in advance and been able to do nothing about in practice, these things are somehow never present. Still, my noble friend's persistence in advocating virtue in the place of sin is admirable.

Baroness Cumberlege

I, too, support my noble friend on this very well thought through amendment. When regulators have been introduced in this country, they often feel they have to win their spurs by being very tough. If one looks across the Atlantic to the United States, one sees the enormous damage that very tough regulators have done to the electricity industry, for instance, in order to keep down prices.

Price is not an issue here, but it seems to me that having a board of regulation, as the Minister said might happen in the future, is very good indeed. The Minister has said that he will pursue that. Introducing that element would moderate some of the excesses of an individual who would feel they had to be very tough. When a person comes in to a new post such as this and wants to make a mark, they could easily go off beam. The amendment would, I feel, keep the regulator on the straight and narrow, and nothing concentrates the mind more wonderfully than having it in legislation.

Lord Blackwell

I particularly support proposed paragraph (a), which refers to regulation being, targeted only at cases where action is needed". We had an interesting intervention earlier from the noble Lord, Lord Hunt, about the movement from managed to regulated activities. The important thing about regulation as opposed to management is that regulation only addresses situations in which we move away from acceptable norms and activities, whereas management tries to encompass everything that organisations do. But without the amendment I can see nothing in the Bill or schedule which describes what the regulator should be doing, other than the clause we have just debated, which effectively seems to pass on any targets, priorities or initiatives that the Secretary of State should impose on him. Unless we pass the amendment, the regulator could equally well be defined as a manager at one step removed. Therefore, I support the notion that we need a definition like this, which makes it clear that the regulator should deal only with exceptions.

Lord Warner

It may surprise the noble Lord, Lord Blackwell, that I agree with his concerns, but not with his solution. In particular, proposed paragraph (a) of the amendment is totally superfluous. As a public office holder, the regulator is under a duty to act proportionately and reasonably. The Bill has been drafted with a view to establishing a light-touch regulator. Clause 23, in particular, requires the regulator to intervene only where contravention or failure is significant. We simply do not believe that we need paragraph (a).

Paragraph (b) would add nothing whatever to the regulator's duty to ensure that there is comprehensive provision of healthcare in line with the Secretary of State's duties under the 1977 Act, which I justified in an earlier debate and which seemed to cause some upset to some noble Lords. We do not believe that paragraphs (a) or (b) are necessary.

Perhaps I could develop the slightly different arguments about the compact in relation to paragraph (c). We of course support the compact with the voluntary sector, and one would not disagree with the spirit of the provisions set out in paragraph (c). As a recent chairman of the National Council for Voluntary Organisations, I would not dare do other than to support the spirit of that amendment. As head of a non-ministerial department, and consistent with his common law duty to behave reasonably and proportionately, the office of the independent regulator will already be expected to work within the compact, as agreed with the community and voluntary sector in 1998. There would therefore be an obligation on him or her to act in co-operation and in the spirit and letter of the compact.

To reinforce the point, the Department of Health is determined to see all NHS organisations in England signed up to a geographically relevant local compact by 31 st March 2004. Applicants are likely to have local compacts in place when they become NHS foundation trusts. The duty in Section 11 of the Health and Social Care Act 2001 on NHS organisations to make arrangements to consult and involve patients and the public will also apply to NHS foundation trusts and provide an additional statutory incentive for NHS organisations not already signed up to a local compact to do so. The local compact will be one of several mechanisms through which NHS organisations will be able to demonstrate their compliance to their Section 11 duty.

Therefore, there is already a framework in place to ensure that, in effect, the requirements in paragraph (c) are provided for under a mixture of current legislation and the new Bill. It might help noble Lords to know that, in an audit of progress in February, we found that more than half of NHS trusts and primary care trusts were either already members of a local compact or working towards it. We expect the next audit of progress, in February 2004, to demonstrate that, overwhelmingly, trusts and primary care trusts are signed up to a local compact. For the reasons that I have given in detail, paragraph (c) is also unnecessary.

Earl Howe

I am most grateful to the Minister for what he said with regard to local compacts—that is an encouraging picture. I am also grateful for the support of my noble friends behind me, for giving again the arguments that I tried to articulate on paragraph (a) of the amendment.

The Minister has tried to be reassuring, and I accept his assurances in the spirit in which they are given. However, the issue is not whether the regulator is expected to abide by good deregulatory principles or might wish to work within them. The issue is whether the regulator is legally obliged to have regard to the duties, if they are not directly referred to in the Bill. The Minister referred to common law duties, but I am not sure that that is enough. Everyone needs to have certainty that the regulator will behave in a proportional and consistent way.

The regulator is a great deal less accountable than the Secretary of State, as we have discussed. If a foundation trust believed that the regulator was not acting consistently, proportionately or transparently, what remedy would it have? It cannot appeal against any decision taken, as the Bill does not allow for that. It can seek judicial review, but judicial review is dependent on interpreting legislation. That brings us round in a circle to where we began.

I must reflect further on the issue. I should add that the inclusion of children's services in the amendment deliberately picks up the later reference in the Bill to the rights and welfare of children in Clauses 47 and 74, which set out the respective functions of CHAI and CSCI. With thanks once again to my noble friends, I beg leave to withdraw the amendment.

Amendment, by leave, withdrawn.

[Amendment No. 115 not moved.]

Clause 3 agreed to.

Baroness Barkermoved Amendment No. 116:

After Clause 3, insert the following new clause—


  1. (1) The regulator shall, in carrying out his functions, have due regard to the need to promote the equalisation of opportunity and the elimination of unfair discrimination and harassment so as to ensure that persons do not suffer detriment or are not denied opportunities and benefits for reasons related to one or more of the following grounds—
    1. (a) age;
    2. (b) colour, race, nationality or ethnic or national origins;
    3. © impairment;
    4. (d) family status;
    5. (e) gender re-assignment;
    6. (f) marital status;
    7. (g)pregnancy;
    8. (h) religion or belief;
    9. (i) sex;
    10. (j) sexual orientation.
  2. (2) As soon as is reasonably practicable after the end of each financial year the regulator must publish a report containing—
    1. (a) a statement of the arrangements made under subsection (1) and having effect in the year;
    2. (b) an assessment of how effective the arrangements were in promoting the equalisation of opportunity.
  3. (3) The report must also contain a statement of the arrangements which the regulator has made, or proposes to make, under subsection (1) in respect of the financial year immediately following that referred to in subsection (2).
  4. (4) The regulator must send a copy of the report to the Secretary of State."
The noble Baroness said: We come to a debate that picks up in a different way some of the arguments just aired under the previous amendment. It is obvious that the main concern about the creation of foundation trusts, which has been expressed publicly, is the extent to which it will cut across some of the founding principles of the NHS and the principle of equality. The four amendments seek to set out a fundamental duty—to the regulator, the two NHS trusts, CHAI and CSCI. That is a duty of equality. The amendments would build into the legislation the principles of good practice. They would build on existing principles within the NHS. Many of those principles are to be found in different parts of legislation and practice in the NHS—in the National Health Service framework and the NHS employment initiative, for example.

Noble Lords may ask why we should set out the principles in such an obvious manner. The tariff system for payment for treatment will have a significant influence and it is difficult to see how it will be possible for foundation trusts to perform their duties and live up to all the functions and tasks set them by the regulator, without transgressing the principles of equality. There is very real fear that those patients who will lose out are not as articulate or as powerful—or as organised into lobbies—as others; hence the amendments.

The NHS has had a history of trying to tackle inequalities. It is fair to say that there has been progress, but there is also a recognition that there is a great deal more to do. A report from the Leonard Cheshire Foundation earlier this year noted the extent to which disabled people failed to be offered treatments that other people would be offered, for services unrelated to their disabilities—some screening services, for example. The only reason that could be found for that was discrimination on the part of the providers.

The amendments would impose a duty on all parts of the NHS in the new set-up to have principles of equality as part of what they do. I imagine that the Minister will come back with his usual response about the amendments being too prescriptive. I argue that they are not: they constitute principles that have to be adhered to. It is up to each part of the NHS how they implement those principles in practice. Provided they can do so, and can prove that they can do so in an annual report, they are not being prescriptive.

I believe that this approach has been built on not just in the NHS but, since the Macpherson report, in other public bodies such as the police. In those services it has proved not to be a cumbersome or bureaucratic requirement which has got in the way of their primary function, but a great benefit to what they do. One can see that the application of these principles in the NHS could have immediate and beneficial effects in areas such as primary prevention and preventative treatment. It is in that light that I recommend this series of amendments.

5 p.m.

Lord Peyton of Yeovil

Before the noble Baroness sits down, will she explain what is meant by "gender re-assignment"? It is not a term with which I am familiar.

Baroness Barker

It is a technical term referring to people who are born of one gender but who feel themselves to belong to another and who undergo a process of surgical and medical treatment to be changed into the gender into which they feel they should have been born. I beg to move.

Baroness Finlay of Llandaff

I give my strong support to the amendment. Some groups in the population find it much more difficult than others to access healthcare and require much more flexible healthcare. People do not want to be treated alongside members of certain groups in the population, particularly prisoners. Prisoners are stigmatised and sometimes encounter difficulties being treated on general wards. The same applies to people with severe disability and particularly to those with severe mental handicap.

In referring to paragraph (b) of the amendment, which mentions, colour, race, nationality or ethnic or national origins", I take the opportunity to probe the Minister a little further on a response he gave me on the first day of Committee regarding patients from Wales. He said that, it is likely that that trust will continue to provide those services as before, provided that the local health board in a devolved administration area continues to contract with that NHS foundation trust … The regulator will not and should not be able to protect the provision of services to Welsh patients. That is a matter for the National Assembly for Wales".—[Official Repor, 7/10/03; cols. 183-184.] I seek assurances that the regulator will have a dialogue with the National Assembly for Wales to ensure that those services which are not provided in Wales will remain available to Welsh patients and that they will be treated with equity. I envisage a situation where a foundation trust's services may come under pressure and patients who have travelled some distance, who perhaps also demand accommodation and local help, may find themselves subtly discriminated against. I am also concerned that a foundation trust could decide to drop its contracts with local health boards in Wales before it drops contracts with commissioners in England.

Baroness Greengross

I add my strong support for the amendment. I spoke on this issue at Second Reading. It concerns equitable treatment. Equitability is not a word that we use often but it may apply in this context. Some groups—I think particularly of older people or people with mental health problems—need flexible treatment. They often need quite expensive treatment. It would be sad if they were denied that treatment. We know that the national service frameworks are not strictly enforceable. The measure would constitute a protection for the many groups whose needs must be protected, and the regulator is in a position to do that.

Lord Warner

On the subject of Wales, I repeat the assurances that I gave earlier to the noble Baroness, Lady Finlay. The issue of commissioning is a matter which will be taken forward in discussion between the Secretary of State, the Department of Health and the National Assembly for Wales. I do not think that that is an area for the regulator. I certainly do not accept that the noble Baroness's concerns are well-founded; namely, that many trusts are waiting to offload their current arrangements regarding Welsh patients. I tried to say as clearly as I could that under devolution commissioning services for people who live in Wales is the responsibility of the National Assembly for Wales. I said neither more nor less than that. I thought that was a statement of the obvious.

As regards the amendment moved from the Liberal Democrat Front Bench—

Baroness Finlay of Llandaff

I hope that I may interrupt the Minister for a moment. I thank him for giving way. Will he clarify the line of communication that will be established between the National Assembly for Wales and the regulator when a trust applies for foundation status which has a contract to provide a service which is not provided within Wales? I am concerned about whether there is a formal line of communication in that regard.

Lord Warner

It is for the Secretary of State to consider applications for trust status. No doubt he will take account of the kind of considerations that the noble Baroness mentioned when an application is made. In my experience, if the National Assembly for Wales has concerns about anything it is usually able to find a way to express its concerns and put its points across to all those who need to receive the relevant messages.

Although I applaud the sentiments of the amendments spoken to so eloquently by the noble Baroness, Lady Barker, their inclusion in the Bill is largely unnecessary and would considerably confuse the situation. I do not wish to take a long tour through discrimination legislation but it is worth bearing in mind that we already have on the statute book a Human Rights Act. Section 6 provides that it is unlawful for a public authority to act in a way that is incompatible with human rights. Such public authorities would include the independent regulator, NHS and independent health and social care bodies, CHAI and CSCI, as by definition at Section 6(3) of that legislation "public authority" includes, any person certain of whose functions are functions of a public nature". The effect of that is when making decisions such bodies must act in a way which is compatible with the convention. The Sex Discrimination Act, the Race Relations Act and disability legislation provide very particular protections for particular groups. Those Acts incorporate processes for dealing with discrimination and apply both in employment situations with particular individuals and to the actions taken by a particular public body.

I suggest that the regulator, CHAI and CSCI are also being created for specific reasons. The regulator is being established to regulate healthcare provided by a foundation trust; CHAI is to be responsible for the inspection of NHS bodies and the regulation of independent healthcare providers; and CSCI will have a similar remit in relation to social care. Clearly the primary considerations of those bodies will need to be the inspection and regulation of the services with which they are concerned. Of course that does not mean that the regulator, CHAI and CSCI, or the bodies with which they will be concerned, will not take account of the need to promote equality and combat discrimination. But as I said, anti-discrimination legislation of the kind I have mentioned already exists and it provides clear mechanisms for dealing with those kind of issues. The legislation will apply to NHS foundation trusts, the regulator and the new inspectorates, just as it currently applies to NHS and social care bodies. We have not changed the obligation on bodies related to the NHS and social care to take account in their behaviour and conduct of anti-discrimination legislation. The amendments are unnecessary.

Baroness Barker

I thank the Minister for that reply, which I rather suspected would be along those lines. It is therefore important to explain that, while I understand that equality legislation as it stands has not been changed, one reason why the amendment was tabled in such a form is that there is some doubt about the extent to which that legislation applies to healthcare. That is why the much tighter and neater form of expression of how equality legislation needs to cut across the whole of the health service—it is right to include the regulator, CHAI and CSCI in those functions—is important. The drafting of the amendment makes much clearer what the outcomes of that should be, without recourse to other legislation.

That said, I accept in part some of the Minister's comments about how existing legislation will be binding on some functions of some of the new offices. I shall study his reply in detail, and may come back to the matter at a later stage. I beg leave to withdraw the amendment.

Amendment, by leave, withdrawn.

Clause 4 [Applications by NHS trusts]:

[Amendment No. 117 not moved.]

Earl Howemoved Amendment No. 118:

Page 2, line 10, leave out from "trust" to end of line 11.

The noble Earl said: I shall speak also to Amendments Nos. 123 and 130. Amendment No. 118 is very simple. It is designed to ask the Minister why, when a hospital applies to the regulator for authorisation to become a foundation trust, it is necessary for the Secretary of State to endorse the application in advance. That amounts to a duplication of the application process. I imagine that a trust would have to put a detailed case to the Department of Health for the Secretary of State's consideration. We do not know what form that case will have to take; the Bill is silent on that, and silent on the criteria that the Secretary of State will use to make his decision. We do not know how much time that element of the application process will add to the process as a whole.

I cannot see why that duplicated approvals process is needed, or why it is necessary to dilute the autonomy and independence of the regulator, in whose hands the decision is supposed to rest. The Bill lays out quite clearly the matters on which the regulator must be satisfied before issuing an authorisation. Why cannot the regulator simply decide whether an application by an NHS trust is appropriate and worthy of approval?

One is driven to think that, in reality, the decision will rest not with the regulator but with the Secretary of State. After all, that is the position with the first wave of foundation trust applicants. It is Ministers who will decide which of the current applicants are to become foundation trusts in April 2004. The regulator does not yet exist. If the Secretary of State decides that he can support an application, are we really meant to imagine that the regulator will turn it down? Conversely, if the regulator approves an application and the Secretary of State disagrees, what happens then? A veto in advance by the Secretary of State would be a very considerable blow to a hospital trust, but there is no way that it could then look to the regulator for any comfort, as the decision would have been removed from it.

If my criticisms of the Secretary of State's involvement apply to applications from NHS trusts, they apply with even greater force to applications from non-NHS bodies. I find it quite difficult to imagine a private or voluntary-sector body applying of its own volition to become part of the NHS. Be that as it may, I simply do not see why the regulator should not be entrusted with the responsibility of assessing and authorising such applications. The Secretary of State's prior involvement makes the whole decision-making process politically based rather than merit based. It takes political interference too far.

The Minister may well say that the Secretary of State has a legitimate interest in the decisions taken by the regulator in the authorisation of foundation trusts. I see that that is so, which is why I have tabled Amendment No. 130. It would allow the Secretary of State to object to an application if he had reasonable grounds for doing so. That is different from what the Bill states, which is that an application cannot even be made to the regulator without the Secretary of State's prior blessing.

My formulation represents a better balance and respects rather more clearly the autonomy and independence of the regulator as the person who takes the lead on authorisations. I beg to move.

5.15 p.m.

Lord Clement-Jones

On these Benches, we have very considerable sympathy with the amendments spoken to by the noble Earl. However, the focus of Amendments Nos. 122 and 128 is rather narrower than that put forward in his amendments.

What exactly is intended by Clauses 4(4)(b) and 5(7)(b)? Clause 4(4)(b) suggests that, after the NHS trust has made an application to become a foundation trust, it, may do anything … which appears to it to be necessary or desirable for the purpose of preparing it for NHS foundation trust status". Similarly, Clause 5(7)(b) suggests that, after the certificate has been issued, the corporation may do anything … which appears to it to be necessary or desirable for the purpose of preparing it for NHS foundation trust status". In our previous debates, the Minister has been reluctant even to contemplate that CHAI has a role to do with foundation hospitals. Obviously, that will remain a bone of contention between us. However, what limits are there on the foundation trust doing anything, such as making changes to clinical services and how it performs them? For that reason, we would add CHAI to the Bill. That would be a way at least to establish that in the run-up, before the trust has even started the process of performing as a foundation trust, CHAI has some handle on how it will perform its clinical services.

Our amendments are probing. The paragraphs are very wide and need some testing.

Lord Peyton of Yeovil

Once again, I find myself in cordial and warm agreement with my noble friend. I do not always find myself in that position, but this afternoon I do. One feature of modern governments that I profoundly dislike is the habit of mistrust. Having made an arrangement that on the face of it is perfectly justifiable, they then double-bank it.

The arrangement in the first instance is made, partly at any rate, for the Secretary of State's protection. If anyone comes to him and says, "I hope that you will give me permission here", he can say, "That is really a matter for the regulator". Now he will require some applicants to go through a previous hoop to gain his own approval. What is the point of that? If he approves an application, surely the regulator will not say, "I do not approve of that".

The provision is ridiculous. I hope that the noble Lord will take the amendment seriously. We all know that at the bottom of his brief will be the single word "Reject". I hope that the noble Lord is capable on occasion of some measure of disobedience to those monotonous requests. I hope that my noble friend will go so far—and he will have my support if he does—to say that the matter will be raised again on Report and thereafter and that we will certainly press it to a Division. I find hideous the idea that a Secretary of State can appoint a regulator and then say, "I have to allow for the possibility that he might screw everything up and make a hideous mistake and I have to stop him". It is nonsense and I hope that the noble Lord opposite has sufficient crumbs of candour left in him to admit it.

Lord Hunt of Kings Heath

My noble friend has shown already that he can be extremely flexible in his approach to the Bill, but I hope that he will not provide comfort to the noble Lord on this occasion. It is eminently justifiable for the Secretary of State to have a role in the processing of applications for foundation trust status. I do not have a problem with the architecture of the Bill because, as the noble Earl, Lord Howe, suggested, the Secretary of State, at this stage, has a lot of information on which to make a judgment and to enable applications to be passed to the regulator. I do not have a problem with the Bill as it is constructed.

I would find it helpful if my noble friend could give the Committee some idea of the timetable for the processing of the first wave of foundation trust applications. There is an assumption among a number of the applicant foundation trusts that the regulator will not take much time to turn around the applications once received from the Secretary of State. It will be helpful to know whether the incoming regulator has agreed to a timetable or whether that regulator intends to go through each application in great detail. That is highly relevant to the timetable for those foundation trusts.

Lord Peyton of Yeovil

I cannot resist the temptation to intervene. The noble Lord, whom I greatly respected when he was answering for the department, is obviously suffering from rather too long a sojourn there and has come away with its habits of mind indelibly stamped on his own. I am so sorry. I do sympathise with him.

Lord Hunt of Kings Heath

It is true that when I entered the Department of Health I went through a process of re-education, but I am fully recovered and I am speaking from my own mind in saying that the Secretary of State has a role to play in going through the applications to inform the process for the regulator. That should be supported.

Baroness Carnegy of Lour

The noble Lord, Lord Hunt, obviously thinks—and he is probably right because he probably knows—that the process will be that the Secretary of State goes through all the facts and then says to the regulator, "This is okay". In that case, I would like to hear from the Minister on what grounds the regulator might then say, "No, Secretary of State, you are wrong".

My noble friend Lord Howe made a very good point. He asked whether the facts would be gone over twice—first by the Secretary of State and then by the regulator—and whether that would not be duplication. He had a good solution, which was that the regulator would do the work and then ask the Secretary of State, "Is this okay?" If the Secretary of State were to object, it would not be okay. That is what the amendments of my noble friend—Amendments Nos. 118 and 130—amount to. We need to know whether it is the Secretary of State who is doing all the work, as the noble Lord, Lord Hunt, suggests, with the regulator endorsing it—I hope the Minister will explain why she objects to that—or whether it is the other way round. Whichever it is, either the Bill is all right or my noble friend is all right, but we do not want duplication of work. The question of whether it becomes a foundation trust is extremely important to a trust and very important to the public. We need to know precisely how that will be decided. I hope the Minister will provide a precise answer.

Baroness Howarth of Breckland

I wish to add just a few words and to seek clarification. When hospital trusts are making their application, the transparency of the process will be extremely important. In our discussion, the issues have sounded almost like boundaries of governance. Who has the responsibility and in whose job description is included the right to have the final say? I agree with the noble Lord, Lord Hunt, that the Secretary of State may ultimately need to have defined responsibilities, but it would be extremely helpful if we had some kind of diagram or picture in our heads which sets out a clear process and a clear set of accountabilities and responsibilities, so that all of those involved would know where they could turn.

Baroness Andrews

I shall attempt to be precise; I shall attempt to offer candour; I shall attempt to offer simplicity. Unfortunately, I cannot provide a diagram, but I shall do my best to answer the questions that have been raised, which range from the general to the specific. The combination of the noble Earl, Lord Howe, and the noble Lord, Lord Peyton, is quite formidable. I reassure them that we take seriously the issues that have been raised, but I must disappoint them in rejecting the amendment for reasons which I hope will become clear. Perhaps I may spend a little time explaining the difference in the roles between the Secretary of State and the regulator. I hope that I can also reassure the noble Baroness, Lady Carnegy, about the process. I am grateful to my noble friend Lord Hunt for having anticipated what I wanted to say about the Secretary of State and his role, because we have come to the part of the Bill which addresses the process and the distribution of roles within it. It is therefore important to be clear.

Perhaps I may first make the case for the role of Secretary of State as gatekeeper. We must have a process for determining the preparedness of the trusts that want to go forward to become foundation trusts. I do not think that anybody would quibble with that. We must have a process that makes sure that they have done their homework, have presented their case properly and are ready to take on that additional responsibility.

During the past nine months, the Department of Health has issued a whole series of advisory documents to help trusts prepare their case. That started with guidance on the application process in December last year. It was followed in July with notes on the determination of criteria, setting out what would be required under six headings. We have since produced material which describes the process of governance, and further documents are in preparation which address the financial health-checks and what is necessary.

It is important that it is the Secretary of State's task to ensure that those preparations have been made, that the information has been provided and that the trusts which go forward are proceeding in the appropriate way in providing all the information that it is necessary for that judgment to made. Why the Secretary of State? First and quite simply, we would all surely agree that he is responsible for ensuring that the whole of the NHS thrives in all its parts. The primary purpose of the foundation trusts is to play a key role in delivering NHS services to the highest standards. Those foundations trusts are NHS trusts; they are part of the family; they are working to the highest standards. They will be given the extra challenge of being innovative and of being at the leading edge, but they are firmly within the firmament of the NHS. Therefore, the Secretary of State has a legitimate and appropriate role in deciding, not at the end of the process, but at the beginning, at the formative stage, the broad direction in which those applications are going. As the person responsible for the funding of the NHS, he must have a role in advising on the development and the number of foundation trusts, particularly as foundation trust borrowing is scored against the Department of Health's expenditure limit. Indeed, my noble friend recently anticipated that by October next year 25 per cent of people in the country may be covered by foundation trusts. This is a large element of the NHS.

A second and equally powerful reason is that the existing performance framework means that the Secretary of State, as the responsible Minister, is evidently well informed and well placed to consider the performance and potential of NHS trusts and whether they are ready to go forward. That is well in line with the principle of earned autonomy. Yes, we are starting with our best-managed hospitals and it makes sense to do that. In the first wave of foundation trusts, the acute and specialist trusts will have won three stars in the performance rating. However, I reluctantly dispute with the noble Earl that that is a political judgment. It is not. These judgments are based on merit. The merit has been obtained by CHAI standard-setting and the award of those criteria. We know from the various processes that applicants have satisfied the key criteria in terms of the three-star rating.

However, nothing in that process compromises the independence of the regulator. I say to the noble Lord, Lord Peyton, that the Secretary of State will not suppress the regulator—far from it. The regulator will make the final decision. The regulator will determine the success or failure of an application and, yes, I can envisage him turning down an application. He is not compelled to accept any application that comes forward: he can ask for extra information. That will not be duplication, to reassure the noble Baroness, Lady Carnegy, because he can ask for more information if he does not feel satisfied. That is the case in respect of any aspect of the application: on governance; on the process of consultation; and on financial management. If the regulator is not satisfied, he can go back to ask for more information. That is independence and we have every confidence that that will happen.

Amendment No. 130 introduces another confusion of roles. It would allow the Secretary of State to prevent an applicant from being authorised as an NHS foundation trust by objecting to the application. It extends the Secretary of State's role well beyond the gate-keeping function and in an unhelpful way. My primary concern is practical in relation to the impact it will have on applicants. They will have to prepare full applications, spend time and money and, in doing so, put in management effort. That is even before the independent regulator considers granting them an authorisation. If the Secretary of State objected at this stage, much more time and effort would have been wasted. Furthermore, applicants who have gone to great efforts would feel extremely demoralised if the Secretary of State could veto the application at that point. The amendment parachutes the Secretary of State in at the wrong point. We must have a gate-keeping function. He should be involved at the beginning and not the end.

I turn to Amendment No. 122 tabled by the noble Lord, Lord Clement-Jones. Of course CHAI is involved in the process. It will have been involved in the determination of star ratings, but we do not want CHAI to act as another barrier at this stage of the process. These amendments seek both in respect of NHS trusts and potential non-NHS trusts to give the power of approval to CHAI. I do not want to go over our debates, but it confuses the role of inspection and audit with the regulator's role of independent arbiter and referee.

Applicants for NHS foundation trust status will have to undergo rigorous checks. They will have to meet a number of stringent criteria before they can be authorised. They obviously include high attainment in the NHS performance ratings. Although CHAF's views on performance will inevitably be considered as part of the application process, we do not believe that it should be the appropriate judge of whether the preparatory steps taken by an applicant are sufficient or necessary for achieving that status.

I turn to the specific questions the noble Lord asked about Clauses 4(4)(b) and 5(7)(b). They are intended to allow prospective NHS foundation trusts to prepare for that. They are simply enabling provisions; for example, to discuss the terms of authorisation with the regulator or to discuss contracts with the PCTs. I hope that that will satisfy the noble Lord. They are not a carte blanche provision; they will be able to do only that which is necessary and related to becoming foundation trusts. They offer an enabling power.

My noble friend Lord Hunt asked about the timetable. We are at the mid point of the consultation process and good progress is being made. However, we will ensure that the independent regulator has the time he needs to give full and proper scrutiny when he is considering the applications.

5.30 p.m.

Baroness Cumberlege

I thank the Minister for the sincerity of her response. I understand what she is saying in terms of the Secretary of State, who is the guardian of the NHS in its widest terms. However, I fail to understand one aspect of the Government's proposals; that two people have the right of veto or the right to accede to the request.

The Minister said it would be demoralising if the Secretary of State had a veto once people have gone through the process with the regulator. But in the system laid out before us, the regulator has the right of veto. That is equally demoralising for applicants because here is another body. Perhaps we can look at some of the other processes and laws which govern the way in which we behave in this country. Under the Town and Country Planning Acts, for instance, the inspector, or the regulator, has the first call and the right of appeal is to the Secretary of State. That is a more logical way. However, if the Minister is so anxious to try to define the different roles and responsibilities of the Secretary of State and the regulator, would it not be clearer and easier for applicants if the regulator were not involved and we knew that the Secretary of State would agree or disagree with the applications? That would prevent many fears which will arise in respect of the present system.

Baroness Andrews

I am aware that the noble Baroness has long experience in the health service. I believe that her proposal will leave us with a highly politicised situation—exactly that so deplored by the noble Lord, Lord Peyton. The point of the regulator is to introduce an independent, unconditional element of fair play on which everyone can rely and can take comfort from.

Baroness Cumberlege

I believe that that is a charade. I believe that the whole thing is politicised. The Bill uses the words: if the application is supported by the Secretary of State". I cannot imagine a regulator going against the Secretary of State. Who will appoint the regulator and ensure that he produces the type of regulations that the Secretary of State wants? We are tied into the political system—which of course is why we need an agency.

Baroness Carnegy of Lour

There is another element, which has not been mentioned. Clause 4(3) states: The applicant may modify the application with the agreement of the regulator at any time before the authorisation is given". That means that the regulator will negotiate with the hospital about altering its submission. If, having done that, the regulator asks the hospital to change the submission from the one which the Secretary of State has approved, and if it happens in a way that the Secretary of State does not much like, how long will the regulator last, especially if he keeps doing that?

My noble friend Lady Cumberlege made an important and constructive suggestion. This is a political operation. It is no good trying to disguise it by giving the regulator a role which carries the pretence that he is making the final decision if he cannot disagree with the Secretary of State. It would be far better if the Bill stated specifically that, ultimately, the Secretary of State decides. Everyone will want him to decide. There may be a great row or problems in relation to a certain hospital, and everyone will want the Secretary of State to carry the responsibility. I consider that to be a very serious suggestion and one that the Government should take on board.

Lord Peyton of Yeovil

I want to take up what my noble friend Lady Cumberlege said about the noble Baroness's reply to the amendment. It was very gracious. I agree with my noble friend that the response was most amiable, fair and generous. But my difficulty is that, greatly to my regret, the noble Baroness is neither immortal nor the Secretary of State. If she were both those things and if the Government were sensible enough to keep her in office for ever, then my difficulties would be removed. As it is, Secretaries of State are not only temporary but also fallible, which I am sure the noble Baroness is not.

My anxiety on this matter is huge. The noble Lord, Lord Hunt, suggested that he has been cured since his treatment in the department, but I rather doubt that. What he said just now seemed to me to be absolutely what the noble Baroness was waiting for in support of a case which had been written out for her by the department.

I believe that this is pure double-banking. One assumes that the Secretary of State has done his best to appoint a reliable and competent person as regulator but he is now going to say, "Well, I need to have a first look at this to make sure that this man will not have an opportunity to make an ass of himself. It has been known to man for Secretaries of State to make very grave mistakes and real asses of themselves. Therefore, it is more likely that a regulator, drawing a certain amount of peace of mind and detachment, will sometimes be a fairer judge than a Secretary of State.

Lord Clement-Jones

I return briefly to Amendments Nos. 122 and 128.I believe that perhaps the noble Baroness's response was more illuminating than she intended. She said that CHAI's views on an application by a trust for foundation status would be taken into account. However, that seems to go rather wider than simply considering the star rating of the trusts concerned—particularly the current trusts—and seeing whether they are eligible for foundation trust status. Precisely how will CHAI's views be taken into account? Clearly they will not be determinative but will form part of the process.

Baroness Andrews

Secretaries of State are not immortal, although sometimes they seem to be so. On the other hand, they sometimes also seem to undergo a rather rapid turnover.

I believe I shall have to agree to disagree with the noble Baroness, Lady Cumberlege. With regard to what she and the noble Baroness, Lady Carnegy, said, perhaps I may talk a little about the objectivity on which the process is built. I believe that the processes— for example, those relating to the six heads which a trust is required to prove that it has in terms of governance, clinical governance and consultation, and so on—are objective. They are not processes with which the Secretary of State can interfere. Either they will have been validated or they will not. That is an objective process.

There are other objective processes. Each trust will be required to produce a five-year service development plan setting out its financial and operational business strategies. That is an objective process. The trusts will be required to hold that plan up to a health test, administered by some of our leading accounting firms. I am sure that the noble Baroness will be pleased to know that those include KPMG, Deloitte & Touche and PricewaterhouseCoopers. They will all be involved in examining what a trust aims to do in relation to its objectives and ambitions to become a foundation trust. Therefore, there is a solid, factual-based objectivity about the process, which I believe will be successful. I hope that noble Lords will be reassured to hear that there will be no political input into the process at every level. Obviously it is too important for that, and also too many mechanisms have been built in—necessarily and properly so.

The regulator will be able to go back to the trusts and ask for modifications, but the Secretary of State has no locus in that. The regulator will say, for example, "I think your governance arrangements are admirable but I believe that there are some additional questions that I would want to have answered I seek reassurance on this point, for example. Have you ensured full consultation with this group?" I am simply thinking aloud, but that is the type of question that the regulator will be able to ask. No regulator worth his salt will be afraid to disagree with the Secretary of State. I believe it is extremely unlikely that there will be no dissent and no contradictions.

In response to the question raised by the noble Lord, Lord Clement-Jones, as I said, CHAI's views on performance and quality will inevitably be considered as part of the application process. The three-star ratings will be in place. But the trusts will also put forward other evidence which will show their clinical competence, and so on. I imagine—if I am wrong, I shall write to the noble Lord—that that might form part of the CHAI inspections.

5.45 p.m.

Baroness Noakes

Perhaps I may ask the noble Baroness a question which relates to the provision of CHAI's views on applicant NHS foundation trusts. Clause 54 states that CHAI is to keep the regulator informed about, the provision of health care by or for an NHS foundation trust". It says nothing whatever about applicant NHS foundation trusts. Therefore, can she explain how CHAI can provide information to the regulator about such applicants?

Baroness Andrews

I believe I have done so already in that I said that CHAI would have gone through the process which generated the three-star ratings. If other aspects of clinical competence are to be judged, then it is possible that CHAI will put those forward. Again, if I am incorrect about that, I shall write to noble Lords.

Earl Howe

This has been a very good debate. I believe that my noble friends Lady Cumberlege and Lady Carnegy got it absolutely right. Let us be honest about this. If it is the Secretary of State's job to ensure that the application is all in order, why have the regulator go through the whole process again? As my noble friend Lord Peyton said so well, it is double-banking.

Amendment No. 130, which I tabled, seeks to get the balance slightly different. It acknowledges the point made by the noble Lord, Lord Hunt, that the Secretary of State has an interest in the decision, but it says that it is up to the regulator, first and foremost, to reach the main decision.

During her first intervention, my noble friend Lady Carnegy asked who should do the real work here. I maintain that the regulator should do it. The noble Baroness's answer told me that, in practice, the regulator will play only a secondary role in the decision-making process. He will ask a few detailed questions but will not be truly independent as the arbiter of foundation trust applications. His role cuts in only once a decision has effectively been made in the Department of Health to create a shadow NHS foundation trust. So, right up to the point of the creation of the shadow trust, the regulator is effectively nowhere. His job is a rubber stamp. That is more than just a pity. It is wrong in principle and unnecessary. As I have tried to suggest, there is a better balance to be struck.

Lord Hunt of Kings Heath

I thank the noble Earl for giving way. He suggests that the role of the regulator is that of a rubber stamp. However, does he not agree that the whole history of regulation in this country suggests that regulators are not rubber stamps, and that they have been keen to assert their own independence? Why would the behaviour of the regulator of foundation trusts be any different? Surely, the incoming independent regulator will seek to assert his or her independence. That was the reason I asked my noble friend a question regarding the timetable. It is important that we know the amount of time that is likely to be taken by the regulator so that foundation trusts know when it is that they are likely either to be given their authorisation or finally to have it turned down.

Earl Howe

The reason that other regulators are able to act in a much more independent fashion is that they do not have the Secretary of State round their necks in precisely the way that the Bill will lead to with the regulator of foundation trusts. If, to be worth his salt, the regulator wants to assert his independence, he can do that by disagreeing with the Secretary of State. He would not do that flippantly or without cause, but it is not clear what scope he has to do that. Once the Secretary of State has examined the proposal in detail, presumably the process will have been gone through in a thorough and effective way and the regulator will be left standing there saying, "I agree".

Baroness Andrews

In simple terms, the regulator sets the terms of the authorisation as well as deciding whether to authorise. That is his critical role and the Secretary of State has no role in that.

Earl Howe

That is helpful. I thank the noble Baroness and shall reflect on that distinction. It is quite a nice distinction, but the noble Baroness is a very nice lady and that is an illuminating point to have made. In view of the progress we need to make today, I do not think that we should spend longer on the point. I beg leave to withdraw the amendment.

Amendment, by leave, withdrawn.

The Deputy Chairman of Committees (Lord Tordoff)

Before calling Amendment No. 119, I must inform the Committee that if that amendment is agreed to, I cannot call Amendments Nos. 120 and 121, which stand in the name of the noble Lord, Lord Hunt of Kings Heath.

Earl Howemoved Amendment No. 119:

Page 2, line 21, leave out paragraph (a).

The noble Earl said: Amendment No. 119 raises a concern prompted by Clause 4(4)(a), which relates to the actions that an NHS trust may take once it has submitted its application for foundation status. It seems to me that an applicant for foundation status is likely to take its cue from this clause to rush ahead and set up membership lists, run elections and establish boards of governors. In doing so, clearly it will anticipate approval of the application by the regulator. But what if the application is not approved? In that event the trust will have gone to enormous trouble and expense for no benefit. In the process it will have raised public expectations only then to have to dash them.

I am concerned that the Bill gives explicit permission to trusts to jump the gun in that sense. Perhaps the Minister can explain what lies behind this provision and how he believes, if he does, that it will not lead to a waste of public money in those cases where applications are turned down. I beg to move.

Lord Warner

I apologise to noble Lords in advance for the fact that the nice, amiable, infallible noble Baroness, Lady Andrews, is not going to respond to this amendment.

Amendment No. 119 would prevent NHS applicants from effectively setting up shadow governance arrangements in preparation for authorisation as NHS foundation trusts. However, it is clear that they will need to do that in order to be ready for NHS foundation trust status. In our view it would not be acceptable for there to be a gap between the removal of the powers of the Secretary of State over the trust and the setting up of the local accountability mechanisms which replace them.

Furthermore, the regulator will need to see an applicant's proposed governance arrangements before he issues an authorisation in order that he can satisfy himself that they are in accordance with Schedule 1 and are otherwise appropriate.

I understand that the noble Earl may be concerned about wasted effort. However, I reassure him that he should be aware that there is nothing to prevent an NHS trust resubmitting an application. So, if a trust has done the work and the application fails, the work is not wasted because it can be taken forward in a resubmission.

We have discussed issues concerning the cost of governance and I see no need to repeat the arguments and assurances I have given. Amendment No. 119 could create a hiatus in those trusts which are ready to move forward to foundation trust status and we think that it should not be proceeded with.

Earl Howe

Once again the Minister has given me food for thought. This situation is all rather chicken and egg. However, I see the force of his point. To add to what the Minister said, I believe it is the Government's intention that all NHS acute trusts should achieve foundation status within five years, so presumably no work would be wholly wasted. However, it would be more than just a disappointment if a trust fails to achieve foundation status at the first attempt, because all the effort and the publicity will have been expended. The eager public would be waiting to cast their votes for real, to elect the board of governors and to have their say and suddenly they would not be able to do that. Nevertheless, what is stated in the Bill may be the lesser of two evils. I shall reflect on that. I beg leave to withdraw the amendment.

Amendment, by leave, withdrawn.

Lord Hunt of Kings Heathmoved Amendment No. 120:

Page 2, line 22, leave out "17" and insert "17A"

On Question, amendment agreed to.

Lord Hunt of Kings Heath moved Amendment No. 121:

Page 2, line 23, leave out from first "of to end of line 24 and insert "establishing the initial membership of the NHS foundation trust and of the board of governors, and the initial directors, and enabling the board of governors and board of directors to make preparations for the performance of their functions

On Question, amendment agreed to.

[Amendment No. 122 not moved.]

Clause 4, as amended, agreed to.

Clause 5 [Other applications]:

[Amendment No. 123 not moved.]

Lord Clement-Jonesmoved Amendment No. 124: Page 2, line 33, leave out from "trust" to end of line 34 and insert "provided those persons do not continue to undertake commissioning work on behalf of NHS patients

The noble Lord said: The wind has been somewhat taken out of the sails of Amendment No. 124 by Amendment No. 9 tabled by the noble Lord, Lord Blackwell, on which we had an interesting debate. We on these Benches agreed with the response but it was probably not quite to the taste of the noble Lord, Lord Blackwell.

Amendment No. 124 concerns the issue of whether the status of foundation trusts is accordable under this legislation to bodies other than acute hospital trusts. It has been clearly indicated that in future mental health trusts will be able to benefit from this legislation. However, from the response given by the noble Lord, Lord Warner, on the first day of Committee at col. 188 of Hansard, it seems clear, although there does not appear to be a bar under the Bill, that it is not the intention of the Government to accord foundation status to primary care trusts at this stage under this legislation. Indeed, the noble Lord went as far as to say that he did not think this model was appropriate for primary care trusts.

Be that as it may, the Bill as drafted does not appear to prevent primary care trusts achieving that status. It is in the discretion of the Secretary of State and the regulator. On these Benches we believe that there should be a bar. If the Government are genuine about saying that they do not intend to give foundation status to primary care trusts, we believe that words to that effect should remain on the face of the Bill. I do not intend to debate the issue of the Secretary of State's approval, as we have already had a considerable debate on that relating to applications by NHS trusts, but Clause 5, "Other applications", currently leaves the possibility of a loophole that would allow primary care trusts to attain foundation status.

Not only is the model set out inappropriate for acute hospital trusts, as is well known and as we have made clear throughout discussion of the Bill, it would be even worse when applied to commissioning bodies— primary care trusts. We seek reassurance from the Government; indeed we want them to agree to such a bar in the Bill. I beg to move.

6 p.m.

Baroness Andrews

I am grateful for that explanation of the amendment, which I initially found rather puzzling. It would, first, remove the requirement for applicants other than NHS trusts to obtain the Secretary of State's support. On previous amendments, we discussed why it is appropriate for the Secretary of State's support to be sought before any body—whether an NHS organisation or otherwise—applies for NHS foundation trust status. Although such organisations do not yet exist, as a later amendment will allow me to say in a little more detail they should be treated exactly the same and subject to the same criteria.

We had a good debate on Amendment No. 117 on the position of PCTs, which I do not want to rehearse. We have designed the model—I cannot think of a better word—in the Bill with provider organisations in mind. We are not opposed in principle to applying democratic or foundation principles to PCTs, but the time is simply not right.

I know that the noble Lord has been exercised during the past 18 months about capacity issues in PCTs and will agree that they are embryonic organisations. They are in development and have a way to go before they are doing the job that we want them to do. They are simply too new at present to be able to cope with another set of demands and requirements. So we cannot accept the amendment, and I hope that the noble Lord will agree that there are reasonable grounds for our not doing so.

Lord Clement-Jones

The Minister's reply seems to agree precisely with the tenor of my argument: not only can PCTs not deal with the set of demands on them; it would be inappropriate for such a model to be imposed on them. That gives stronger force to the need for some wording in the Bill to prevent commissioning bodies achieving such status. I very much agreed with what the noble Lord, Lord Warner, said, when dealing with Amendment No. 9 moved by the noble Lord, Lord Blackwell, whom I am pleased to see in his place. We felt that it was inappropriate for a commissioning body to achieve that status. In that sense, the Minister has made a stronger case than I did.

Baroness Andrews

In case the noble Lord is under any misapprehension, I reiterate that the model was designed with provider organisations in mind. It requires the principal purpose of any NHS foundation to be the provision of services. It does not provide a framework for dissolving a PCT and transferring its staff, assets and liabilities to an NHS foundation trust. That would simply not work. For those practical reasons, I ask the noble Lord to withdraw the amendment.

Lord Clement-Jones

But it is possible under Clause 5 for a PCT to achieve foundation status. I hear what the Minister says and entirely agree with her. But, in that case, if the model set out in the schedule is the wrong one, why does not the Bill say so?

We can bat this ball back and forward for several more happy moments, but there is a flaw at the heart of the Government's argument on the matter. We certainly intend to return to the matter, because if that is really the Government's intention, it should be in the Bill. Otherwise the Government are giving hope to all those organisations that may want to become foundation trusts, inappropriate though they may be, that they may be able to do so, by not clearly delineating that they are talking about bodies such as mental health trusts, not primary care trusts. I beg leave to withdraw the amendment.

Amendment, by leave, withdrawn.

Earl Howemoved Amendment No. 125:

Page 2, line 37, after "trust," insert— ( ) the financial position of the applicants, The noble Earl said: I shall speak also to Amendments Nos. 126 and 127. I am sure that the Minister will be delighted to read my "may" and "shall" amendment, without which no Committee stage would be complete. However, it has a serious purpose, which is to highlight the matters that the regulator must consider before issuing a certificate of incorporation for a non-NHS body to become a public benefit corporation.

What are those matters? Subsection (3) appears to set them out, but at the end we find that even if those conditions are met, the regulator still does not have to issue the certificate. Why is that? Why might he not issue a certificate when he is satisfied on the matters contained in paragraphs (a), (b) and (c)? There should be no hidden agenda; the applicant ought to be aware of exactly what is expected of him when he makes the application; but it seems that that may not be so.

I have tabled a further amendment intended primarily to probe the Minister about quality standards. Where a non-NHS body applies to become a public benefit corporation, it would seem only logical that it should have to pass the same sort of quality tests as would an NHS body in the same situation. However, there is nothing to say that that will be so. Whether it will have to receive a formal star rating before its application is advanced is another matter again, but I should be grateful for any comments that the Minister may feel able to make on the matter.

By the same token, the regulator will clearly need to guard against the possibility that non-NHS organisations that are financially failing may take advantage of the provisions of Clause 5 to gain access to public money. I am sure that that eventuality is most unlikely, but there seems no reason not to guarantee a financial focus on the applicant as an extra guard against that risk. The only safeguards that appear in the Bill are the need for the application to be approved by the Secretary of State—despite my earlier amendments, I have not contested that principle—and the general level of scrutiny by the regulator.

We could imagine a charity that to all outward appearances was a high quality provider of services applying to the Secretary of State for foundation status knowing that it had over-stretched itself and hoping that a state bail-out would be the answer to its prayers. I should be glad if the Minister would sympathetically consider the amendment or reassure me that my concerns are misplaced. I beg to move.

Baroness Andrews

I hope that we do not drift into surreality in debating the amendment or the clause, because they deal with organisations that as yet do not exist, but which may well do in future. For clarity's sake, perhaps I could offer some brief background about the intention behind the clause and how it will work.

The NHS foundation trust model has been designed to be sufficiently responsive to allow organisations outside the NHS to advance a proposal to support the establishment of a new organisation that would become part of the NHS family. That is to say, it would share the values and commitments of the NHS. Such a body would generate the formation of a new public benefit corporation. There is no provision for converting an existing organisation into another one; a new organisation must be formed. Organisations would do that by agreeing to enter into sponsor or partnership arrangements. They might then be eligible to seek the support of the Secretary of State in an application. Clause 5 provides for that potential, but, since we are dealing with the future, it is not possible to anticipate the range of organisations, and no invitations for applications have been issued yet. Applications could conceivably come from voluntary organisations or hospices, as mentioned by the noble Earl.

I agree with the intention of Amendment No. 125 that applicants for NHS foundation trust status should be financially sound, and that non-NHS organisations should not be able to obtain the status if it is not in the wider interests of the NHS. Non-NHS organisations will have to conform. Au fond, no matter what their status, organisations that come forward will have to conform to the same set of standards and principles, regardless of their initial status.

Organisations will have to satisfy rigorous assessments; for example, financial and business tests. As the department's guidance on the preparatory phase makes clear, all applicants will have to prepare a five-year service development plan—a robust business plan. The plan will set out the anticipated range and volume of services to patients, and it will have to provide evidence that what is envisaged will lead to benefits for patients. That will be underpinned by an independent "health check" by accountants. That process is in line to be applied to the first wave of applicants at present. Those requirements will ensure that both the Secretary of State and the regulator have the information that they need to assess an applicant's position.

In addition, under Clause 6(2)(f), the regulator can impose any additional requirements on applicants. I hope, therefore, that the noble Earl is reassured that non-NHS trust organisations that might apply will be treated in the same way.

The same principles will apply as regards quality standards. Amendment No. 126 rests on a tautology. The same quality standards will, and must, apply to all forms of NHS care, regardless of the nature of the organisation providing it. Non-NHS organisations will, in time, provide NHS care.

Clause 5 provides for the establishment of new public benefit corporations. The Bill does not provide for organisations other than NHS trusts to become public benefit corporations. The applicant would have no way to demonstrate that it could meet the quality standards, only that its supporter-partner could. It could never be incorporated as a PBC otherwise. We are building in that requirement.

The noble Earl raised the "may/shall" debate. We should have a new parliamentary ritual to greet the appearance of the first such debate in every Bill. This is a classic example. Amendment No. 127 would remove the regulator's discretion to incorporate a PBC if it meets the criteria in Clause 5. That is a step too far. Once incorporated as a public benefit corporation, applicants can exercise the functions of the corporation on its behalf until the governance arrangements can be put in place. That is a considerable responsibility for a new organisation. It is therefore necessary and appropriate that the independent regulator retains discretion over whether he issues a certificate of registration to an applicant.

The independent regulator may become aware of factors other than those set out in Clause 5(3)(a) to (c), which should be considered before an applicant is incorporated as a public benefit corporation. He might discover, for example, that it is not in the best interests of the NHS as a whole, for financial or other reasons.

Clause 5 is slightly complicated. I hope that I have reassured the noble Earl. I will be very happy to write to him if there are other questions that he wishes to explore.

Baroness Carnegy of Lour

It is very sad that the Government are not considering the merit of thinking on this side of the Committee. I know that the noble Baroness is not personally responsible, as she was simply speaking to a brief—she did so beautifully. But the future of voluntary organisations is not necessarily financially sound. Very often, they depend on donations from members of the public—on flag days, for example. Voluntary organisations go in and out of fashion. To be sure that they are capable of such changes, it would be very important to go into such details. The organisations, and those who contribute to them, should know that those matters will be examined. Voluntary organisations are different creatures. The funds of applicant hospitals come from the taxpayer. They are a different matter.

The Government should think harder about the issue. I felt that their response was just a way of replying to my noble friend and not a proper argument. The department is not doing well in responding to the most sensible and important amendments moved on this side of the Committee or by Cross-Benchers.

The amendment would require, that the applicant has demonstrated the ability to meet quality thresholds". How can they? Are they talking about the past or the ability to meet thresholds in the future? Voluntary organisations are different. They vary among each other and in their own performance over the years. Having been involved in many voluntary organisations, I speak with great feeling on the issue. The Government should think jolly hard before they turn down the amendments.

6.15 p.m.

Baroness Andrews

I hope that we are responsive to thinking on the other side of the Committee— certainly, as the noble Baroness mentioned, the role of the voluntary sector coming forward if it wishes. The precise purpose of building additional flexibility into the Bill was to enable applications to be made by voluntary organisations, or any bodies outside the NHS, that feel that they have something to contribute and that foundation trust status would be the way forward for them.

We all know the huge contribution that the voluntary sector makes to health care provision—in particular, palliative care. We wish to use all our imagination and resourcefulness to ensure that, if the criteria were satisfied, that would happen. Such responsiveness has been built into the Bill.

It is difficult at present to talk credibly about what we mean by applying quality thresholds to organisations that do not exist. It is a very dynamic process. When applications are invited and then received, those new organisations will undergo growth and change. They will have to conform to the quality standards that we would expect throughout the NHS.

I will be happy to write to Members of the Committee to discuss further the details of our plans, if it would help.

Baroness Carnegy of Lour

The noble Baroness certainly need not write to me, as she would just reiterate what she has been saying—she expressed a point of view. In this instance, as I have thought on several occasions, the Government should accept the spirit of the amendments and return with something like them. They should provide that a voluntary organisation must be able to show that its financial position is consistent with what will be its continuing responsibility if its application is accepted, and that it can meet the thresholds required—because they have already done so or they will be able to in the future. Those are good points. Could not the noble Baroness accept the spirit of the amendments?

Baroness Andrews

What we would expect of the NHS organisations putting themselves forward to be foundation trusts is no more nor less than we would expect of the non-NHS organisations. Clause 5 specifies the provision of goods and services and the ability to provide the constitution in accordance with Schedule 1. It conforms with what we expect NHS trusts to do. On that basis, I hope that the noble Baroness will accept that we are opening every possibility for these organisations to come forward when invited.

Earl Howe

I could not be more grateful to my noble friend Lady Carnegy for her support. However, there are two stages for a non-NHS body wanting to become a foundation trust. First, it should receive a certificate of incorporation as a public benefit corporation. Without that it cannot become a foundation trust. Uncharacteristically, the Minister did not give me a very good answer to my "may"/"shall" amendment because Clause 5(3) relates to the process leading to gaining a certificate of incorporation. When I first read that subsection, it appeared that (a), (b) and (c) were likely to be enough to gain a certificate—they were the necessary and sufficient conditions. However, the only trouble is with the word "may".

The Minister explained the inclusion of that word by saying that there may be wider considerations such as the way that approval of the certificate may affect the wider NHS. However, that is surely a consideration for stage 2, when the regulator considers the application for NHS status. It does not make much sense to deny a certificate of incorporation for extraneous reasons not contained in the subsection. Therefore, I am not particularly happy with the Minister's answer.

The Minister also suggested that my Amendment No. 126 was not necessary. I had understood that star status and the standards that CHAI will assess apply to NHS bodies. CHAI will be involved in the process of acute healthcare bodies. All sorts of other bodies may apply for foundation status that CHAI will not have to assess. It is entirely appropriate that we insert something in this clause to say that those bodies should achieve equivalent standards to those achieved by NHS bodies. That was the reason for the amendment. Again, the Minister did not answer that point as fully as I had hoped. Nevertheless, we will have the opportunity to return to this matter on Report. Time is moving on and it is right for the Committee that I beg leave to withdraw the amendment.

Amendment, by leave, withdrawn.

[Amendments Nos. 126 to 128 not moved]

Clause 5 agreed to.

Lord Clement-Jonesmoved Amendment No. 129:

After Clause 5, insert the following new clause—


  1. (1) The Secretary of State shall—
    1. (a) by regulations require that an NHS trust proposing to make an application under section 4(1) or any person proposing to apply under section 5( 1), shall first consult prescribed persons;
    2. (b) by regulations prescribe persons to be consulted which shall include—
    1. (i) the NHS trusts and Primary Care Trusts in the area in which are resident all or any of the persons to whom the applicant NHS trust has provided goods or services for the purposes of healthcare, or to whom the applicant person (as the case may be) intends to provide such services if its application is successful,
    2. (ii) the Patients' Forums for those NHS trusts and Primary Care Trusts, and
    3. (iii) local staff side trade unions and such other persons as the Secretary of State considers may be affected by the application.
  2. (2) In section 7 of the Health and Social Care Act 2001 (c. 15) (functions of overview and scrutiny committees)—
    1. (a) in subsection (3) (matters to be covered by regulations) at the beginning for "may" substitute "shall";
    2. (b) in subsection (3)(b) at the end insert "which shall include all matters prescribed under subsection (3)(c) below,";
    3. (c)in subsection (3)(c) at the end insert "which shall include any application or proposed application under section 4 of the Health and Social Care (Community Health and Standards) Act 2003"."
The noble Lord said: In moving Amendment No. 129 I shall also speak to Amendments Nos. 139 to 142 and 200. Clearly, as Committee Members will see from the Marshalled List, we on these Benches feel so strongly about consultation that we have tabled one amendment twice, just to confuse the department in replying.

The new clause set out in Amendments Nos. 129 and 200 would require the Secretary of State to regulate for public consultation on applications for foundation trust status. Many of us have now seen quite a bit of material emanating from foundation trusts. I have personally seen material from two of my local hospitals and other material from Moorfields Eye Hospital, all of which differs considerably between hospitals and is probably constructed in different ways. I have also read the guidance on foundation trusts that is available, which is, in a sense, a precursor of the regulations due to be made under the Bill.

A quiet aside to this debate is that the Government seem to jump the gun on these matters. We are debating a very important aspect of the Bill, yet all the time the steamroller moves forward. Only recently, the noble Lord, Lord Warner, announced a large number of additional trusts to the ones already earmarked that had made their applications. The juggernaut rolls on despite the fact that the Government do not know at this point whether the legislation will actually pass.

Be that as it may, the intention of the amendments is to set out the process of consultation in a much clearer fashion than would otherwise be available by regulation. I recognise the intention is to have provisions by regulation, but as the Bill goes through the House, there is no guarantee that the draft regulations will be available to us. All that we have is the guidance made available to those current applicants for foundation trust status.

The new clause would require the Secretary of State to require public consultation on applications for foundation trust status. Both the NHS trusts and non-NHS bodies applying—this is one of the most important points in this set of amendments—must consult relevant patients forums. In the case of NHS trusts, any relevant local authority overview and scrutiny committee must also be consulted. That is because existing legislation only requires consultation with such committees by local NHS bodies. The amendment would also ensure that the overview and scrutiny committee's right of referral to the Secretary of State will apply if it is unhappy with the merits of the NHS trust proposal. That would ensure that local people would have a say through the local democratic process in whether or not an NHS trust in their area applies for foundation trust status.

In the case of non-NHS applicants, overview and scrutiny committees do not have rights of referral as these apply only in respect of local NHS consultations. As under Clause 5, as we discussed earlier, any body can apply to be a foundation trust, even if not an NHS organisation. The amendment would also require the Secretary of State to require consultation by such organisations with all local patients forums. As patients forums—and indeed CHCs, if the Bill goes through and they still exist—have broader referral powers than overview and scrutiny committees, which may not exist in every area, that would ensure that there is a local mechanism to refer to the Secretary of State an unwelcome application for foundation trust status from a non-NHS organisation.

The amendments integrate, therefore, the foundation trust application process with the new system of patient and public involvement that this Government have been at such pains to introduce— the word pain is what springs most to my mind when I think about the long and convoluted way in which the patient and public involvement system that we now have was introduced.

On Amendments Nos. 139 to 142, the first amendments of the group require the regulator to take account of the outcome of any public consultation in giving an authorisation to foundation trust status. The second amendment suspends the application process if an overview and scrutiny committee for a patient's forum exercises referral rights under new Clause 5. Until the Secretary of State has responded to any referral under the new clause and confirmed his continued support for the application, the regulator may not proceed.

We believe passionately that devolved structures such as the foundation trusts must have the wholehearted support of the local community. That is exactly what the amendments are designed to achieve. I beg to move.

6.30 p.m.

Baroness Finlay of Llandaff

I strongly support the amendments. They insist that the local population should have an involvement and a say. There may be groups in the local population that would not come forward to register themselves as members of any body and may not know the routes by which they can make their voice heard. That is why there must be an active process of consultation.

The other reason why I believe strongly that a local consultation process is required is that there may be local intelligence, particularly about new bodies that may come forward later, apart from the standard NHS hospitals. That local intelligence may be crucial to the regulator to inform the decision. There may be issues that are not well publicised but are well known on a local grapevine. That grapevine will be tapped into only by a rigorous consultation process.

Earl Howe

I support the amendment moved by the noble Lord, Lord Clement-Jones, and I shall speak to Amendment No. 138.

There is an irony at the heart of this part of the Bill, which is that a set of measures designed to put the patient at the centre of NHS planning and to devolve autonomy omits the one feature that should come before all else: the requirement to ensure that those who will be directly affected by such monumental changes are happy with them. The blueprint for foundation trusts, devised from behind desks in Whitehall and, no doubt, intended for the good of everybody, is being imposed on the NHS from the centre, whether people like it or not.

There is plenty in the Bill about a would-be foundation trust having to consult on how it will operate—its governance arrangements, for example— but there is nothing to say that it must consult on whether it moves to foundation status at all. It is revealing and disturbing that the consultation document issued by King's College Hospital says this: It is important to clarify that this is not a consultation about the pros and cons of the government's policy on foundation trusts (which is a matter for government) or whether King's should apply (which is a decision for the board)". In drawing that distinction, King's is not to be criticised; it has followed the guidance given to it by the Department of Health. The department has gone to great lengths to point out that the creation of a foundation trust is not something that legally requires consultation. The reason for that is that it is not a disestablishment or merger of the trust; nor is it a substantial variation in service. If it were either of those, consultation would be a legal requirement under existing legislation, but the department is keen to prove that consultation on the big issue—the setting up of the foundation trust in the first place—should not happen.

That attitude may be understandable from a government who believe in what they are doing and genuinely want to improve the NHS, but it is not understandable, or right, that the cardinal principle articulated after the Bristol scandal should be ignored; that is, the principle that, wherever decisions are made that affect services, patients and the public should be involved. That principle was also endorsed by Derek Wanless. If we are to create a truly patient-centred health service, we must involve patients from the outset in what we are doing. Anything else is just paternalism.

It could be, for example, that a community wants to see foundation status go ahead at some point, but not immediately. There might be concerns that a hospital needed another couple of years of tight performance management on its clinical outcomes or its A&E waits before taking the step of freeing itself from the oversight of the strategic health authority. Without consultation, nobody will know that. Without consultation, nobody will know whether there are enough people sufficiently interested to participate in a very bold democratic experiment.

Enforcing more democracy on people may sound like a benign and benevolent thing to do, but it is not. It is inconsistent with the democratic principle itself. Consultation should therefore be made a requirement, before any foundation trust is established. The power of the Secretary of State to make regulations should become a duty. That would mean that all trusts— indeed, all non-NHS bodies—would be made to consult their local communities before they could apply for foundation status. The local overview and scrutiny committee would be given a role in relation to NHS bodies, and patients forums would be given a role in relation to non-NHS bodies. The regulator would then need to take account of the result of the consultation.

I hope that the Minister will be receptive to the amendments and the arguments of principle underlying them.

Lord Blackwell

It is difficult to oppose the principle of consultation, but I would like the Minister to explain whether, if the amendments were made, the requirement to consult would have the implication that foundation trusts and the Secretary of State would be bound by the results of that consultation. It is one thing to consult; it is another thing to be clear about what one does with the results.

If they are to be bound by the results, I have some nervousness about subsection (l)(b)(iii) of the proposed new clause, which would require foundation trusts to consult, local staff side trade unions". If, as a matter of national policy, one or more of those trade unions decided that they opposed the introduction of NHS trusts, that opposition would be represented locally, whatever the particular circumstances. We should be careful about giving a power of veto—if that is what it amounts to—to the trade unions in that respect. I would be grateful for clarification on that point.

Baroness Andrews

I know that the Committee feels strongly about consultation, as do the Government. That is why it occupies such a key position in everything that we have tried to do to take forward the process for achieving foundation trust status. Without local consent and involvement and the widest possible reach—I take the point made by the noble Baroness, Lady Finlay of Llandaff—we would be on shaky ground. Local trusts who seek foundation status know that well.

I shall deal with the amendments as a group. Amendments Nos. 129, 138 to 142 and 200 relate in different ways to the way in which we ensure that applications for NHS foundation trust status are properly consulted on. Amendments Nos. 141 and 142 are virtually identical. I see no difficulty in that. It is always good to know that the Liberals are clear about where they stand.

I can assure the noble Baroness, Lady Barker, who, unfortunately, is not in her place, that this is not another example of the consultation industry gearing itself up to no effect. The noble Baroness spoke powerfully last week about the cynicism that can be generated when consultation takes place and there is no effect. She has immense experience of and respect for the consultation process. So do we. We want it to work as well as it can.

With the Bill, we are intent on improving services for NHS patients. To achieve that, we want staff, patients and local communities, with all their expertise and their experience of local hospitals and the health service as a whole, to bring that experience and knowledge to bear not at the end of the process, but at the beginning. Such experience and knowledge can make a difference to the practical way in which the vision—I am not ashamed of using that word; it is the word that we want to use—for NHS foundation trusts is realised and how it is worked through in detail.

Perhaps I may return to the analogy deployed by the noble Baroness, Lady Cumberlege; namely, that this is where the canvas is being secured to the frame and where it is being stretched, and where the proportion, the content and the colour scheme are being determined. As the noble Earl, Lord Howe, said, this is a bold, democratic experiment. We have not been here before. We have never embarked on this kind of local consultation at such a formative stage when making public policy intent on enhancing institutions. It is ambitious because it needs to be. It is an essential part of our commitment to public ownership. Put simply, it comes down to practical involvement.

Examples have been given of the way in which the consultation process is becoming visible in our communities. Noble Lords will have seen the University College Hospital advertisements on buses about consultation. That is very dramatic. I cannot believe that public policy has ever been advertised on a bus before. It certainly works. My noble friend has been approached by his local trust. No doubt he was targeted, but, nevertheless, I am sure that he felt that it was part of the consultation process. It is a question of reaching out to local intelligence, whether it be to individual intelligence or to expert patients. We want everyone to have a chance to contribute, which sets the tone and terms of success for the future.

Our purpose is simple. It is to ensure that NHS foundation trusts are properly prepared; that the structure is fit for the purpose. Who better to contribute to that than the people who use the service? That is why Clause 6(4) specifically provides for the Secretary of State to make regulations setting out consultation requirements and why compliance with these regulations is a condition of authorisation. Put simply, we include that power because we intend to use it.

We expect to make regulations under Clause 6(4) in time for the second wave of applications for establishment as an NHS foundation trust from October 2004. I assure noble Lords that we shall consult on the regulations. They are likely to require consultation of the local public, patients—including patients forums, once established—staff, other NHS bodies and local authorities, including overview and scrutiny committees. That is an important measure designed to ensure that the views of local communities and stakeholders are sought, listened to and taken into account.

As the noble Lord, Lord Clement-Jones, pointed out, we have issued clear and detailed guidance to first-wave applicants setting out what the consultation should cover. The guidance is in the House of Lords Library; it is also available on the department's website. It is being used as a practical guide as to what should be done.

The three key areas which consultation must address are the case for NHS foundation trusts, the governance arrangements—that is, the size of proposed membership committees, the composition of the boards of governors, the directors and the election processes—and, above all, the service development vision of what a trust expects and wants to achieve in terms of patient benefit. We have also spelled out the people and organisations that should be invited to consult. It should include not just members of the public who are provided for. It should also include local MPs, community health councils, primary care trusts, strategic health authorities, other local NHS partners, other local health care providers, any local authority with a significant interest—including those which work in partnership—any relevant university, staff, unions, and so forth.

Lord Clement-Jones

I am sorry to interrupt the noble Baroness, but there are two words missing; "patients forums". Do they appear on her list?

Baroness Andrews

I am just coming to that in the next sentence. The guidance document states that it is likely that the regulations will closely reflect the requirements set out here. In answer to the noble Lord's specific point, it is our intention to specify patients forums in the list of consultees.

Lord Clement-Jones

I apologise for interrupting again. The Minister will have noticed that in the guidance those two words do not appear.

6.45 p.m.

Baroness Andrews

I shall explain why in the context of another amendment. The noble Baroness, Lady Barker, was sceptical that anyone listens to the consultative process. In response to the point raised by the noble Earl, under Clause 6(4) before supporting the submission of an application to the independent regulator, the Secretary of State must be satisfied that appropriate and meaningful consultation has taken place. There is no question of a Secretary of State supporting an applicant who has not done that. If the regulator was not satisfied that proper consultation had taken place, he could send the application back for improvement and review.

I hope that I have covered many of the intentions set out in the amendments. The Secretary of State and the independent regulator are bound to take account of consultation. However, they are not bound by the result of consultation because there is no right of veto. If there was a situation in which it was clear that the community was divided and that there was not a wholly consistent or a coherent view of what should be done, clearly, the Secretary of State and the independent regulator would be affected by that and would want to investigate further.

Turning to Amendments Nos. 129 and 200, it would not be appropriate to remove the Secretary of State's discretion as to whether to make regulations or to determine what those regulations should contain specifically—a point raised by noble Lords. Realistically, requirements may need to change over time. An obvious example is that the first wave of applicants must consult their local community health councils. After December 2003, when the CHCs are replaced by the patients forums, that will be updated by a requirement to consult new bodies. That is a good example of why flexibility must be retained in the regulations. As regards the timetable, we intend to make regulations in time to apply to consultations on the second wave of applications.

Amendments Nos. 129 and 200 seek to amend the Health and Social Care Act 2001 to provide that local authority overview and scrutiny committees may make reports and recommendations on applications for NHSFT status. That is unnecessary. It is clear in the guidance on consultation sent to applicants that we expect them to consult their local overview and scrutiny committees. Regulations already provide for that if it were appropriate.

Again, I reiterate that the Secretary of State and the independent regulator are clear in their intent and their purpose of taking into account the outcome of consultation when determining whether to support applications. We do not need to specify in the legislation how that might happen or how outcomes might be taken into account. Their duty is expressed clearly. I do not need to reassure noble Lords that both would behave reasonably and proportionately in line with their common law duty.

Finally, I turn to the question asked by the noble Lord, Lord Blackwell. As I understood him, he asked whether, if amendments were passed, they would hold. I believe that he raised the point about consultation with the unions. If the amendments were agreed, the Government would have to consider what they should do about them. We would have to have further discussions. I hope that will satisfy the noble Lord for the moment.

Lord Clement-Jones

Perhaps I may answer the question asked by the noble Lord, Lord Blackwell. It is not intended that consultation should be binding, but it should be that regulators shall have regard to the outcome of public consultation. It is not absolutely binding. It is right that it should not be so. Nevertheless, if we are engaged on a bold, democratic experiment—the words which have been bandied about—we should have genuine democracy. I am not so sure that this is a bold, democratic experiment in its current form. It is a statement of aspiration that we should have a newly devolved system of providers thoroughly keyed into the local community.

The noble Baroness has given us a vigorous response with a great deal of assurance. In the Bill, the substance behind that assurance is very limited. The wording of Clause 6(4) is wishy-washy. It states: If regulations require the applicant to consult prescribed persons about the application, the regulator may not give an authorisation". The use of the word "if seems incredibly tentative. The noble Baroness said that it is the Government's intention to publish regulations, but that is hardly a ringing declaration that the local community will have an absolute buy-in to foundation trusts.

If one is considering foundation trusts of this kind, then surely the keystone should be the local community. The foundation trust will be built on that, not on the construct of the Secretary of State speaking on high and determining which hospitals will be eligible for foundation trust status. Members of the local community must ask: is the status right for local patients? It is that which forms one of our fundamental objections to the top-down structure erected in the Bill.

Is the noble Baroness really suggesting, if the consultation process determines that no foundation trust is required—"We are fine, thank you very much, and happy with our current acute trust and we do not want foundation trust status,"—that under the terms of the Bill it will be open for the local community to have such a strong say in the process that the local hospital would decide not to pursue foundation status on its merits? I wonder about that. The pressure currently is such that I do not believe that that would be a reality.

The noble Earl, Lord Howe, has shrewdly collected material from King's College Hospital which makes it pretty clear that, come hell or high water, it is going to go ahead. No doubt a few points at the edges will be dealt with, but that will be about it. I find that very depressing if this proposal is really meant to be about local communities being tied in to their local providers.

I come back to the scepticism expressed by my noble friend and to which the Minister referred. I am not sure that in the Bill we have anything like the vehicle we need for genuine devolution; this debate about consultation exemplifies that. We have further debate on the matter to come and we shall very much take this into account in our approach to the whole of Part 1. For the moment, however, I beg leave to withdraw the amendment.

Amendment, by leave, withdrawn.

Clause 6 [Authorisation of NHS foundation trusts]:

[Amendment No. 130 not moved.]

Earl Howe moved Amendment No. 131:

Page 3, line 28, leave out paragraph (b).

The noble Earl said: I am puzzled and rather worried about the provision in Clause 6(2)(b) which requires an applicant to demonstrate that the actual membership of its public constituency is representative of those eligible for such membership. Perhaps I may couple my remarks on this provision with what I was going to say on Clause 36. As we are likely to reach that clause rather late at night, I thought it best to condense my remarks into one contribution at this point.

Clause 36, covering much the same ground, was inserted into the Bill only at a late stage in the proceedings in another place with little, if any, real debate. The intention behind Clause 6(2)(b) and Clause 36 is clear: on 8th July the latter clause was spoken to in another place by the honourable Member for West Bromwich West. The concern it is designed to address is that the membership of a foundation trust could be unrepresentative of the local population or, worse, that it might contain factions or single-issue fanatics who succeed in hijacking a board of governors and imposing on it their agenda, irrespective of the wider interests of the community. Fears were also expressed that only the more articulate and educated members of the community would put themselves forward for foundation trust membership and that these people would tend to crowd out the views of those less able to speak up for themselves.

Those concerns fall under the general umbrella of what is known rather vulgarly as "entryism", and we are being asked to accept that Clauses 6(2)(b) and 36 will act as means of preventing that undesirable phenomenon. If that is the claim being made, I should like to hear from the Minister quite why he believes that that is so, and what implications it carries for foundation trusts.

What means will a foundation trust have at its disposal to demonstrate that the list of its members is a representative cross-section of the local population? It is a requirement which seems to imply that hospitals will have to become socio-economic research bodies. Not only will they have to establish the educational characteristics and health needs of those within their public constituency, they will also need to inquire into the religious and moral convictions of those individuals in order to demonstrate that a particular lobby group forming part of the membership either is or is not representative of patients at large. That, I suggest, is a Herculean as well as a pointless task.

It will never be possible to demonstrate beyond peradventure that a list of members contains a fully representative cross-section of the public constituency. Further, it will be almost impossible to engineer a situation whereby the different elements in the population are represented in the right proportions. If it is feared that the disabled and the inarticulate may not have their needs and wishes represented on the board of governors—in my view, a perfectly legitimate fear—it would be interesting to learn how a foundation is supposed to rectify such an omission. You cannot force anyone to become a member of a body if he does not wish to do so; here I echo a point made last week by the noble Lord, Lord Lipsey. Equally, it is not easy to eject someone from membership of a body without a very good reason.

If it so happened that expectant mothers were represented in the membership list in a disproportionately large percentage, would a trust be within its rights to ask some of those ladies to resign? I doubt that. In practice, a trust's ability to be selective with its members will be extremely limited.

The other practical dimension to this provision is the question of what a hospital is supposed to do, year by year, to prove that its board membership is representative. Like the local population, the membership will change over time. Is a foundation trust expected to continue running a population survey, and exactly how is it meant to do that? What would be the consequences for a foundation trust if at any point the regulator was not satisfied that its board of governors had been elected on a representative mandate? Would the board have to resign?

Clause 6(2)(b) speaks of the membership being, representative of those eligible for membership". I take it that the word "representative" is used here in the narrow sense of being a reasonably typical cross-section of those eligible for membership. What it cannot mean, surely, is that those accepted as members of a foundation trust are somehow expected to represent the views and interests of those who are not members. Nowhere in the Bill is that stated or implied other than here. It would be an impossible condition to attach to membership. Indeed, one of the main faults in the Government's model for foundation trusts is that members have no responsibility beyond the length of their own noses, and no accountability or liability to anyone whatever. They will not even have to pay one pound as a token of their good faith.

I fail to see how the problem of entryism and the risks associated with it have been addressed. I also fail to see a practical answer to these issues without there being a vast bureaucratic effort by trusts. If the Minister is inclined to say that no one is talking about such a vast bureaucratic effort, I would have to ask him how the exercise predicated by these two provisions could be anything other than a fudge. If there is a concern that a board membership is unreasonably skewed one way or another, or is seriously atypical of the local patient population, that concern has to be addressed in a thorough and professional manner.

I want to hear whether, unlike myself, the Minister is fully confident that this paragraph and Clause 36 will deliver the benefits that have been claimed for them and, if so, why? I beg to move.

Baroness Finlay of Llandaff

This amendment is extremely important, going right to the heart of one of my concerns about issues of equity of provision for those who are ill. Within the population around a hospital applying for foundation trust status, fortunately the vast majority will be well and not in need of the services of that hospital. If we look at the example of King's College, which has already been cited, that hospital has a very large liver unit. Fortunately, so far as I am aware, the local population does not suffer an excessive incidence of liver failure, but many patients come to the hospital because they are completely dependent on those services to remain alive. The unit provides services of excellence that need to be continued and supported. However, I can envisage a local population beginning to resent the amount of time and resources used up by a highly specialised service for people coming from far away. They may take a different view.

I am also concerned that the most vulnerable people who need to use the service would not be adequately represented by the population-based tokenism set out in these proposals. As the noble Earl, Lord Howe, pointed out, it would be almost impossible to detect large pressure groups hidden in whatever statistics the trust may use. They could say, "We represent this percentage of ethnic minorities" or "We represent this age group", and so on, but within that there could be concealed very powerful single-issue pressure groups putting forward very powerful views.

7 p.m.

Lord Warner

As we have made clear throughout the Committee's discussions, NHS foundation trusts will be a new form of social ownership where accountability for health services will be to local people rather than to central government. We start from a rather different position from some Members of the Committee on the Benches opposite. In this way, much stronger connections will be established between providers of NHS services and their local communities, extending beyond the current arrangements for consultation and building on the sense of ownership that many people feel for their local hospitals.

In listening to the discussions, I am reminded that in many other areas reformers have always been challenged to prove a negative in the future. I have a slight sense of that on this occasion. We have made clear in the Guide to NHS Foundation Trusts, paragraphs 2.9 and 2.10, that this is a policy designed to secure inclusion, not exclusion. We are trying to bring people into an engagement with their local hospitals. It is not simply about engaging the people who already support the trusts—for example, through patient support groups or the League of Friends. Access to membership needs to be opened up as widely as possible. Applicants for NHS foundation trust status will be expected to demonstrate innovative approaches to ensuring genuine community membership. They will need to demonstrate that they are establishing new and meaningful ways of connecting with the public, patients and their staff.

They do not have to be socio-economic researchers, as someone said, to engage in a more constructive way with the wide range of people who use their services. We have debated user involvement in services for at least two decades, to my own knowledge and experience. We are not starting afresh. We are operating in a context where large numbers of people involved in health and social care have been trying to engage with their communities and users.

As the noble Earl said, concerns were raised in another place that the governance arrangements of NHS foundation trusts might be subject to, he called it crudely, "entryism"—I am quite comfortable with the term; we know what it means—by interest groups or particular sections of the community. Similar concerns were raised by the Health Select Committee in paragraph 43 of volume 1 of its report on NHS Foundation Trusts. It stated: Foundation Trusts must proactively attempt to extend registration so as to achieve real and representative community engagement. This, including the involvement of disadvantaged groups, should be an issue both in assessing applications for FTs and an on-going responsibility for the attention of CPPIH or, failing that the Regulator". So there is a real understanding across Parliament— certainly in another place—that there has to be an attempt to make the membership of foundation trusts broadly based.

We have listened carefully. Noble Lords have sometimes suggested that the Government have not been listening, but we have listened both in another place and here. I have already agreed to a number of amendments and to consider further other amendments. We have listened to the concerns about entryism expressed in another place and we have accepted amendments there which ensure that NHS foundation trusts are committed to real engagement with their memberships. The requirement for the regulator to be satisfied that an NHS foundation trust's membership will be representative as a condition of authorisation is one such provision. The amendment moved by the noble Earl would remove this provision and weaken the safeguards against entryism.

If noble Lords are concerned that it is not within an NHS foundation trust's gift to ensure that its membership is representative, and that therefore an applicant may be refused authorisation simply because it has not been able to build up a representative membership, I can assure them that that is not the case. An NHS foundation trust will not have to persuade every person who is eligible for membership to get involved in order to achieve a representative membership. We are not being unrealistic about this. However, it is important that they are proactive about engaging minority or "hard-to-reach" groups. A number of noble Lords have raised concerns about such groups. We are trying to ensure that a real effort is made to engage with them. It has often been the case in the past that the NHS has failed to engage with some of these hard-to-reach groups.

There are many mechanisms for doing this, and to help applicants develop their membership and governance arrangements the department has produced a governance sourcebook, which has been made available to noble Lords and a copy placed in the Library. This provides for a range of good practice and case studies showing different approaches that have been applied in other areas. It has been put together by the Department of Health drawing on a wide range of contributions from business, public and third sector organisations.

Some noble Lords have suggested that we have been engaged in a silo approach, beavering away in Richmond House to draft all this without engagement with the outside world. I agree that life may be more comfortable like that, but that is not the way we have been working. If you look at the sourcebook you will see that we have not been afraid to look at good practice in other areas relevant to this field. The sourcebook is, as they say in the trade, a "living document". It will be supplemented with learning from the experience of the first wave applicants. I have already given assurances on that.

As I said, it would be perfectly acceptable for an applicant to start off with a relatively small membership, provided its application included suitable proposals for engaging its stakeholders and increasing its membership.

We recognise that this is a great change; we recognise that Rome was not built in a day. In bringing forward their proposals we are asking people to show that they have considered the issue of reaching a good cross-section of people who could reasonably be expected to be a part of the membership and how they are tackling the problem of trying to engage with hard-to-reach groups.

We have tried to respond to the concerns expressed in another place about entryism. I hope that the noble Earl will not pursue the amendment because it would damage those safeguards.

Baroness O'Neill of Bengarve

The Minister has given excellent arguments for being inclusive and for good practice in recruiting, but he has not given any arguments for thinking that those good practices will end up producing a representative cross-section of those eligible to be members. It would be better if it were not stated on the face of the Bill that the target of good practice is to produce something that is representative or a cross-section. The Minister stated that that was not the intention. Could he not remove these words from the face of the Bill?

Lord Warner

We do want it to be representative. I said exactly the opposite. I said that we accept that it may take time in the initial stages to build up processes to ensure that a good cross-section of people representative of a particular foundation trust are involved in the membership of that organisation. As I have said before, we are saying that in their application, they need to show that they have a game plan for addressing that issue and will move forward in an orderly way to ensure a better cross-section. We are unapologetic about trying to be bolder in this area.

Earl Howe

The noble Baroness, Lady O'Neill, hit the nail on the head. It is fine to have an aspiration for achieving a representative balance of members, but do we need to have that on the face of the Bill? This is a very difficult requirement to fulfil. The Minister seems to have given us a way forward for foundation trusts that is essentially a fudge.

I asked whether a hospital was supposed to engage in socio-economic research or not. The Minister suggested not. I cannot see how it can fail to have to do that if it is to demonstrate to the regulator that it has fulfilled the requirements laid down here. How, in practice, is a trust supposed to achieve a balance of membership that is truly representative? It can reach out to hard-to-reach groups, but how is it to enlist members who do not show any interest in becoming members? The trust may make an effort, but what if it does not succeed? What happens if a hospital—

Lord Warner

1 assure the noble Earl that an NHS trust—let us forget NHS foundation trusts for the moment-— has a pretty good idea of and access to data on the demography and socio-economic nature of the area for which it is responsible. This is not rocket science—these data are available to many people in the way they conduct their day-to-day affairs.

Earl Howe

Perhaps PCTs might have that kind of demographic information—I am not sure that I accept that every trust has it. Nevertheless, if the Minister tells me that that is so, I must take it on board.

Placing this requirement on the face of the Bill will lead to serious practical problems. We can all sign up to the general wish that there should be representative membership, but I think it is an unnecessary straitjacket to have it as a legal requirement.

Once again, we must be mindful of the time, and I beg leave to withdraw the amendment.

Amendment, by leave, withdrawn.

[Amendment No. 132 had been withdrawn from the Marshalled List.]

Earl Howe moved Amendment No. 133:

Page 3, line 36. after "provide," insert— ( ) the applicant has met quality thresholds set by the regulator and reported on by the Commission for Healthcare Audit and Inspection,

The noble Earl said: We see in Clause 6 the matters on which the regulator will need to be satisfied before he issues an authorisation for a new foundation trust. "Earned autonomy" is a phrase we have heard rather a lot of in the context of foundation trusts. I have always taken it to mean that a hospital which managed to reach certain targets and quality standards laid down by the Government would be allowed greater freedom to manage its own affairs in its own way. It is quite surprising, therefore, that quality standards are nowhere mentioned in the list of prior criteria on which the regulator will need to be satisfied. The list of matters in subsection (2) is largely administrative.

However, if a trust's performance is to have a bearing on whether its application receives approval— and we understand that it will have a major bearing— we need to be certain that the basis on which it is assessed really reflects its degree of overall competence. I do not intend to have a long debate on star ratings, but we need to recognise that the current assessment system simply does not do that.

If one looks, for example, at out-patient appointment times, a hospital may appear to do very well. But the criteria relate only to first appointments, not follow-up appointments. There are 3 million first appointments and more than 7 million follow-up appointments, which suggests that if there is to be a target at all, the target is too narrow. Similarly, the target for cancelled operations relates only to operations cancelled on the day, whereas operations can often be cancelled several times in succession before the day of surgery. These cancellations are left out of the reckoning altogether.

Star ratings are therefore not necessarily reliable guides to underlying performance. Even if they were, they are unstable. Recently, four trusts which had been invited to apply for foundation status lost a star and had to withdraw. What would happen if they had lost the star after they had been authorised?

It is not clear what would happen if there were an even more precipitate fall. Two trusts recently moved from three stars to zero stars in the space of 12 months. A hospital's record can be quite variable, depending on the time of year—for example, on the four-hour A7amp;E target. Eight of the foundation trust applicants failed the four-hour A&E target in the first quarter of this financial year.

We need to hear from the Minister whether there will indeed be quality standards and what measures of quality the regulator will be using. I beg to move.

7.15 p.m.

Baroness Finlay of Llandaff

I hesitate slightly to speak to this amendment because I completely agree with the spirit of it and have been very impressed with all the contributions from the noble Earl, Lord Howe, to date. Therefore, I feel almost churlish in questioning part of the amendment's wording.

Not enough quality standards are stipulated within the process of approval as it is, and they are set through the national service frameworks and the National Institute for Clinical Excellence. I am concerned that the amendment's wording could make the regulator feel that he could override these. I seek a little reassurance from the noble Earl on that aspect.

I also seek reassurance from the Minister that the quality standards laid out by the National Institute for Clinical Excellence and in the national service frameworks, and those that the Government have so successfully driven through their national clinical directive and the national service frameworks, will be the basis on which applications for foundation trust status will in future be judged. That is preferable to the very crude targets encapsulated in the star rating system, with all the criticisms that we have received. We have seen an excellent raising of quality standards over the last few years, and not to embody that in the process of developing foundation trusts would be to throw out the baby with the bathwater.

Baroness Andrews

It is tempting to have a debate on the star rating system, but I shall resist it, as it would tie up the evening.

One can hardly be against the amendment, but it is not necessary. Let me take forward the argument of the noble Baroness, Lady Finlay. This is the first time in the history of the NHS that a government have, over the past few years, established national standards and comparative measures. These are being refined and improved as time goes on.

I agree that the system is not perfect, but it is improving and will continue to improve. The fact that the way in which the ratings are calculated is published and revised in the light of previous findings means that it is an iterative process. It does not stand alone—it is part of the whole range of clinical judgments being made, as the noble Baroness said. It demonstrates our continued commitment to reform all elements of health service provision. This is a very important means of informing the public about how their local hospitals are performing. We need to be sure that that assessment is independent and robust.

It is very important that all NHS care meets the very highest standards. That is why the same quality standards, backed up by monitoring and inspection by CHAI, will apply to all NHS care, regardless of the nature of the organisation providing it.

With this guarantee, there is no need to include a specific reference to quality in the criteria for authorisation as an NHSFT. Applicants must seek the approval of the Secretary of State, as we have discussed this evening. He will have to be satisfied that the care would be of an appropriate quality. The current NHS applicants must come within the category of three-star performance ratings. These are the best indications we have of a track record of good performance.

To take the noble Earl's point, this can be an unstable method, as the performance of some trusts changes year on year. When that occurs, the regulator will have to consider why the ratings have dropped, taking other information into account. He will have to exercise his discretion in determining whether the change was indicative of a breach of terms of authorisation. That will depend on how serious the change was. Clearly, a range of factors will be taken into account, and one has to be prepared sometimes to look at serious failure. We have built in that provision.

I should stress that the standard is, of course, a minimum. Under Clause 6(2)(e), the regulator must also be satisfied that, the applicant will be able to provide the … services", protected under its authorisation. That clearly means being able to provide services to an appropriate standard.

We have common concern that quality thresholds are met. We believe that the three-star rating offers us the best and most appropriate position to start from. I hope that with those assurances the noble Earl will feel able to withdraw his amendment.

Earl Howe

I am grateful to both noble Baronesses who contributed to the debate, including the Minister for her reply.

I should explain to the noble Baroness, Lady Finlay, that the wording of my amendment was meant to reflect the fact that it is for the regulator to authorise foundation trust status. Therefore, if he is the referee or adjudicator, CHAI acts as the inspector. That is why both bodies are mentioned in my amendment; the one is not supposed to second guess the other.

I take note of the Minister's comments, and there may be little to separate us. Would she mind if I asked her a specific question? What is the precise linkage between the star rating system and foundation trust applications? I understood the star rating system to be proportional to the total number of hospitals, so that three-star status was intended to represent only a certain percentage of hospitals. By definition, it would be impossible for all trusts to achieve three stars, because there was an element of relativity in the assessment process. I may have misunderstood the system but, if that is so, and if all acute trusts become foundation trusts within a five-year span, how will that happen? It will be impossible for all trusts to achieve three-star status. I can only conclude that the star rating system will have to be modified so that the relative ingredient that I mentioned is removed.

Baroness Andrews

The first wave applications will all be required to have three-star status as a threshold. If the noble Earl considers how we have approached the whole business of raising standards in the NHS— in the document of that name—and the additional funding given to work with trusts, especially the weaker trusts that have not done very well, he will see that we are tailoring support to a range of trust performance, so that we can give the best and most appropriate support where it is needed. We intend every trust in the country to be as good as it can be, and an improvement programme is designed to achieve that. As for whether they will all get three-star status in due course, that is a question that I cannot answer at this point. I refer the noble Earl to the measures in place to have them achieve the highest standards.

Earl Howe

I have no quarrel with getting the lowest status hospitals up to the standards of the best. We all want that. However, either it is a requirement for three-star status to be achieved, or it is not. The Minister seems to be saying that the requirement will not be strict; if that is so, why is it strict now?

One aspect of the Bill that vitiates it is that staggering the entrance to foundation status will create a very unlevel playing field and the risk of a dog-eat-dog culture. It would be much better if there were a big bang solution rather than a gradual one, so I doubt whether the star rating system has as central a place in the process as the Government appear to want it to have.

We may return to the matter, but I am grateful to the Minister for her comments. I beg leave to withdraw the amendment.

Amendment, by leave, withdrawn.

Baroness Noakesmoved Amendment No. 134:

Page 3, line 36, after "provide," insert— ''( ) the applicant has adequate financial controls and financial management procedures,

The noble Baroness said: This amendment also relates to Clause 6(2). My noble friend Lord Howe has already said that the list in that subsection is largely an administrative one. The amendment probes another matter of substance, alongside the one to which he referred under the previous amendment.

The amendment would add another requirement that the regulator must be satisfied about the applicant's, financial controls and financial management procedures".

I hope that the Government would not dream of allowing a foundation trust to be created unless it had adequate procedures, so my amendment is in part a probing one. to discover how that will be done.

In the guide to foundation trusts, the Government said that applicants would be asked to submit an independent financial review, undertaken by the Department of Health. In a Written Answer, the Minister confirmed that accountants—including KPMG, that excellent firm, in which I have no financial interest—have carried out an exercise costing £1.1 million. If we add that to the money already being poured into applicant trusts, we begin to build up a picture of the application process as quite expensive.

Putting that issue on one side, we know who has been appointed, but we do not know what the accountants are being asked to do and what the Government will get for their money. Will the Minister say what the accountants' terms of reference are? Will they cover both financial controls and financial management procedures? Will the accountants' report be made public before the decision to confirm or deny foundation trust status? That is to say, will other people be allowed to see the strength of the finances of the applicants?

I hope that the Government see those requirements as straightforward matters that need to be demonstrated and that they will be able to accept the amendment. I beg to move.

Baroness Andrews

I can use the same arguments as I used in the previous debate, in respect of ensuring appropriate financial controls as a condition for authorisation. We believe that the application process includes sufficient checks to ensure that that is the case. As part of the application process, there will be a requirement for applicants to prepare a service development strategy, setting out their vision and plans, including costings and information on financing for the next five years. We have prepared guidance on what is required in seeking the Secretary of State's support, including details of what should be included in the service development strategy.

The noble Baroness asked specific questions about the independent health check. I cannot answer all her questions, but I can tell her that the aim is to provide an independent evidence-based review to ensure that the service, the systems and assumptions are robust and that the right management systems are in place. There will be an opportunity for applicants to address any issues that arise from that. Organisations will need to allocate dedicated resources to support that process. An action plan will be prepared detailing any shortcomings or areas of concern.

Given the hour I would prefer to write to the noble Baroness to answer the questions that she raised. I shall refer to the guidance and make that correspondence available to other Members of the Committee with similar interests. As has been said, the regulator has discretion over whether to authorise an applicant and would not do so where he was not satisfied with the financial arrangements. Under Clause 6(2)(f) he can impose any additional requirements on applicants which must be met prior to authorisation. If he had concerns about an applicant's finances, he could require further information from the applicant, or even require the applicant to take steps to improve their finances as a condition of authorisation. With those assurances and the promise to write to the noble Baroness, I hope that she will withdraw the amendment.

Baroness Noakes

I thank the Minister for that reply. She will be aware that she did not answer the questions that I asked although her reply was very interesting. I hope that she will publish the terms of reference, that she will confirm that the results of the work by the accountants will be made public and that she will comment in particular on whether or not financial controls and financial management procedures will be covered as I do not think that she mentioned that in relation to a service development strategy, although I may be wrong. Clearly, I cannot turn down the generous offer of a letter copied to all Members of the Committee who have an interest in financial issues. Therefore, I beg leave to withdraw the amendment.

Amendment, by leave, withdrawn.

Lord Davies of Oldham

I beg to move that the House do now resume. In moving that Motion, I suggest that the Committee begins again not before 8.32 p.m.

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