House of Lords - Explanatory Note
Health Bill [H.L.] [H.L.] - continued          House of Lords

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Clause 8: Establishment orders

111. NHS trusts are currently established under section 5 of the 1990 Act. This states that the Secretary of State may by order establish NHS trusts,

  • to assume responsibility...for the ownership and management of hospitals or other establishments or facilities which were previously managed or provided by Health Authorities (section 5(1)(a)); or

  • to provide and manage hospitals or other establishments or facilities (section 5(1)(b)).

112. Sections 5(1)(a) and (b) therefore determine the functions that may be conferred on a trust. All NHS trusts were originally established under section 5(1)(a) of the 1990 Act, in recognition of the fact that they inherited property from Health Authorities or their predecessors on their establishment. Their establishment orders limited them to owning and managing property that had previously been managed by a Health Authority or its predecessors.

113. The section 5(1)(a) function has become increasingly out-dated, both in its reference to property previously managed by Health Authorities, and in its restriction of trusts to owning the property they manage. This is particularly true for trusts entering into Private Finance Initiative (PFI) contracts with private sector partners. These contracts typically involve the trust granting a long-lease on part of its property and receiving a sub-lease from the private sector partner or partners for the duration of the contract. The new public-private partnerships may also involve trusts acquiring brand new hospitals. Section 5(1)(a) does not allow a sufficiently wide power to be conferred to do either of these. It has therefore been necessary to amend individual NHS trusts' establishment orders where required, to give them powers under section 5(1)(b).

114. Subsection (1)(a) of clause 8 replaces the current sections 5(1)(a) and (b). It provides for the Secretary of State to establish NHS trusts to provide goods and services for the purposes of the health service. Subsection (1)(b), by replacing the current section 5(6), enables the Secretary of State to confer in a NHS trust's establishment order a duty to provide particular goods or services at or from particular hospitals, establishments or facilities. The function of providing such goods and services includes managing such hospitals, establishments or other facilities. This enables the Secretary of State to specify a particular type of service (such as ambulance services, for example) which the trust must provide and a particular site or associated sites from which those services must be provided.

115. There has been some doubt raised as to whether the functions that may be conferred under the old section 5(1)(a) encompass all property arrangements entered into by NHS trusts to date. There has also been some doubt raised as to whether the functions conferred under section 5(1)(a) allow trusts to acquire new hospitals or facilities not previously managed by a Health Authority. The parties concerned have entered into these arrangements in good faith, so the Government wishes to put their validity beyond doubt. Subsection (3)(b) ensures that existing establishment orders remain valid despite the amendment to section 5(1). Subsection (4) provides that NHS trusts are to be treated as never having been restricted to managing premises previously managed by Health Authorities or their predecessors. In addition subsection (5) allows for amendments to NHS trusts' establishment orders and elsewhere in legislation to be made with retrospective effect where necessary to give effect to the clause in practice.

Clause 9: Exercise of powers

116. This clause amends section 5(9) of the 1990 Act which places limits on NHS trusts' exercise of their charging and income generation powers conferred by paragraphs 14 and 15 of Schedule 2 to the 1990 Act. Section 5(9) currently provides that NHS trusts may only exercise these powers if they are satisfied that this will not to a significant extent interfere with their functions as set out in their establishment order or their obligations under NHS contacts.

117. Subsection (2) extends the current provision to ensure that the restriction it imposes on the exercise of income generation powers applies in respect of all NHS trust functions, not just those conferred on a NHS trust in its establishment order. The exercise of an NHS trust's income generation powers should not to a significant extent interfere with, for example, the trust's obligations under the duty of co-operation (clause 19). It also allows the Secretary of State to specify in directions circumstances in which NHS trusts will also require his consent to exercise their charging and income generation powers. Directions could, for example, specify an amount of income above which his consent is required.

Clauses 10 to 12: Changes to the NHS trust financial regime

118. These clauses, together with paragraph 61 of Schedule 4, effect changes to the NHS trust financial regime. The existing financial regime, as set out in the NHS and Community Care Act 1990, was introduced to support the purchaser/provider split. In the White Paper The new NHS, the Government signalled its intention to amend the existing regime.

119. The main changes made to the NHS trust financial regime in the Bill are:

  • NHS trusts' originating capital debt will be comprised wholly of public dividend capital;

  • additional borrowing by NHS trusts other than from the Secretary of State will be at his direction and subject to conditions he may determine, with the consent of the Treasury;

  • investment of temporary surpluses by NHS trusts will be at the direction of Secretary of State.

120. Clauses 10 and 11 change the form in which the originating capital debt of NHS trusts is financed. Assets are transferred to the ownership of a trust by the Secretary of State. These assets are matched in value by a debt, which the trust then owes to the Exchequer (the Consolidated Fund). This is known as the trust's originating capital debt (OCD).

121. The originating capital debt is currently split into two. One part is made up of interest bearing debt (IBD). This type of debt is rather like a bank loan, with defined interest and repayment terms. It is repayable in equal instalments twice yearly in September and March over 25 years. The interest on the debt is based on that charged for an equivalent National Loans Fund loan at the date of establishment. Loan interest is charged on the diminishing balance. The other part of this debt is made up of public dividend capital (PDC). This is similar to share capital or equity, with the Government holding a share in the trust (normally 50%), on which the trust pays dividends to the Government.

122. In practice the total interest and dividend payments are adjusted so that the total return on capital must equal 6% of the trust's average net assets. (The 6% is determined by the Treasury and reflects the long-term cost of Government borrowing.) The Government therefore believes there is now no reason to have separate forms of financing. The Bill therefore replaces the current dual system with a simplified single form of financing for NHS trusts' originating capital debt.

123. The process of phasing out interest bearing debt has already begun for long term loans. Clause 11 provides for the replacement of the remaining originating capital debt IBD. It converts the interest bearing debt portion of existing trusts' originating capital debt to public dividend capital. Clause 10 provides for the originating capital debt of newly established NHS trusts to be issued wholly as public dividend capital. As a consequence of this it provides that OCD will now be known as originating capital.

124. Unlike interest bearing debt, public dividend capital currently has no repayment terms. To prevent NHS trusts building up cash reserves as a consequence of the removal of IBD, therefore, the Government intends to introduce procedures requiring trusts to make repayments of PDC rather than build up cash surpluses.

125. Clause 12 provides that additional borrowing by NHS trusts (over and above their originating capital) will be subject to Secretary of State direction, and amends the current provisions regarding the interest on loans by the Secretary of State.

126. NHS trusts have a duty to obtain value-for-money when they enter into borrowing arrangements. This will usually result in borrowing from the Secretary of State (in effect the Exchequer) since the interest rates on offer will reflect the Government's own credit rating. NHS trusts can borrow from the private sector, but any borrowing must not be secured borrowing and must offer better value-for-money than borrowing from the Secretary of State.

127. In future, it is intended that, in the main, NHS trust borrowing will be from the Secretary of State. There are certain limited circumstances when a trust needs the ability to borrow from sources other than Government. An example is where an NHS trust wishes to enter "step-in" contracts in Private Finance Initiative schemes. Typically these arrangements involve a contract for a loan between the private sector provider and a bank. The trust's "step-in" term allows it to take on the private sector provider's liabilities under the contract if, for defined reasons, the provider is no longer able to meet them. In such circumstances the trust would in effect be borrowing from the bank. The intention, therefore, is to restrict the ability of NHS trusts to borrow from the private sector rather than rule it out altogether. Clause 12 amends paragraph 1(1) of Schedule 3 to the 1990 Act to provide that the ability of NHS trusts to borrow is subject to the Secretary of State's power of direction.

128. Existing legislative provisions (paragraph 1 of Schedule 3 to the 1990 Act) allow the Secretary of State to provide interest bearing loans to trusts, with interest rates determined in accordance with the National Loans Fund. Clause 12 revises these provisions to allow the Secretary of State, with the consent of the Treasury, to decide the circumstances and terms and conditions of any loans given to help with temporary cash flow needs. The Secretary of State, with the consent of Treasury, will be able to decide the interest rate and any charges as appropriate, and will aim to ensure that they are compatible with the funding regime in the NHS and good treasury management.

129. Paragraphs 61(3) and (4) of Schedule 4 make provision regarding the ability of NHS trusts to invest money. Under paragraph 7 of Schedule 3 to the 1990 Act, NHS trusts are able to invest temporary cash surpluses in Government securities, or other approved public or private sector deposit facilities such as local authorities, nationalised industries, banks and building societies. There is a cost to the Exchequer, however, in allowing NHS trusts to hold large sums of money other than in Paymaster Accounts (where the Government acts as the bank): the sums paid to trusts by Health Authorities would have been borrowed by the Exchequer from the market. It is intended that in future, therefore, any surpluses will be invested in Paymaster Accounts, thereby allowing the Exchequer to take account of these balances in deciding the overall amounts which the Government needs to borrow from the market.

130. For practical reasons, however, NHS trusts will be permitted to hold limited surpluses with other institutions (e.g. their High Street bank), but these will be restricted to an upper limit, to be determined by the Secretary of State and the Treasury. This will enable NHS trusts to continue to use commercial bank accounts for their day to day transactions, and allow them some flexibility around the levels of cleared balances within which they are required to manage. This is in line with the procedures currently in place for Health Authorities.

131. Paragraph 61(3) of Schedule 4 therefore creates a new paragraph 7 in Schedule 3 to the 1990 Act. It allows NHS trusts to invest money in any investments specified in directions by the Secretary of State. Paragraph 61(4) provides that the maximum amount of these investments may also be set, with the consent of the Treasury. These changes will have the effect of reducing overall Exchequer borrowing costs. Furthermore, they should result in reduced administrative costs for trusts in planning and managing their investments, as where to invest and under what terms will be determined by the Secretary of State.

Clause 13: Duty of Quality

132. The White Papers The new NHS and Putting Patients First announced the intention to place a new duty of quality on NHS trusts. At present there is no statutory duty on NHS trusts in respect of the quality of care they provide to patients (although they owe a duty at common law to exercise reasonable care and skill in providing medical treatment and other services). This clause places a duty of quality on NHS trusts and Primary Care Trusts.

133. Under this clause, NHS trusts and Primary Care Trusts will be required to put and keep in place arrangements for monitoring and improving the quality of the health care they provide. A fundamental component of those arrangements will be the implementation of clinical governance arrangements. The concept of "clinical governance" was discussed in the consultation documents A First Class Service and Quality Care and Clinical Excellence, which set out in more detail the Government's plans to improve the quality of NHS healthcare. The main components of clinical governance as described in the consultation documents are:

  • clear lines of responsibility and accountability for the overall quality of clinical care;

  • a comprehensive programme of quality improvement systems (including clinical audit, supporting and applying evidence-based practice, implementing clinical standards and guidelines, workforce planning and development);

  • clear policies aimed at managing risk; and procedures for all professional groups to identify and remedy poor performance.

It is intended that the detail of what is expected of NHS trusts and Primary Care Trusts in implementing clinical governance will be set out in guidance.

134. Subsection (3) enables the Secretary of State to extend the duty of quality to Special Health Authorities. The intention is to use this power in respect of the three Special Health Authorities that provide high security psychiatric services (Ashworth, Rampton and Broadmoor).

Clause 14 and Schedule 2: The Commission for Health Improvement

135. The White Paper, The new NHS, set out the Government's intention to create a new Commission for Health Improvement. The Commission will be established as a body corporate to provide an independent check that local systems to monitor and improve the quality of health care are working. Proposals for the role and functions of the Commission were set out in more detail in the consultation documents A First Class Service and Quality Care and Clinical Excellence, published in July 1998.

136. The Commission is to be administered as an executive non-departmental public body. It will be held accountable through Ministers to Parliament for the effective performance of its functions. The Commission will be required to produce an annual report and annual accounts (see paragraphs 11 and 12 of Schedule 2), and will be subject to the jurisdiction of the Parliamentary Commissioner for Administration (see paragraph 17 of Schedule 2). Members of the Commission could also be required to appear before the House of Commons Health Select Committee, and the Accounting Officer for the Commission may also be required to attend before the House of Commons Public Accounts Committee.

137. Subsection (3) of clause 14 introduces Schedule 2 to the Bill. This Schedule makes additional, more detailed provisions regarding the Commission for Health Improvement. In particular it includes provisions in respect of the membership and staffing of the Commission and their remuneration, funding arrangements and reporting and accounts procedures.

Schedule 2

138. Paragraphs 4, 5 and 6 provide for the membership of the Commission. The Commission will consist of a chairman appointed by the Secretary of State, one member concerned with the interests of Wales and appointed by the National Assembly for Wales, and other members appointed by the Secretary of State. It is intended that the membership will include people with a lay background as well as those with relevant professional expertise. Regulations will deal with matters such as how the appointments are made, persons who are to be disqualified, and the procedures of the Commission. The remuneration of members of the Commission will be a matter for the Secretary of State.

139. Paragraph 7 provides for the staffing arrangements of the Commission. In particular, paragraphs 7(1) to (3) provide for the appointment of the Director of Health Improvement, the chief executive of the Commission. Paragraph 7(4) concerns the appointment of staff. It is expected that the Commission will develop a number of teams to undertake its various functions. Each team would include staff with appropriate expertise who have been employed by the NHS to provide services and also those who make use of NHS services as patients and carers.

140. The Secretary of State will only be able to exercise his powers under paragraphs 4 to 7 of Schedule 2 if he has first consulted the National Assembly for Wales (see clause 51(5)).

141. Paragraph 8 enables the Commission to make arrangements for the performance of its functions by committees or sub-committees, members or employees.

142. Paragraph 9 enables the Commission to arrange for other individuals and bodies to assist it in its work. Examples of individuals and organisations from which the Commission may seek assistance include experts in particular clinical fields, academic organisations such as universities, professional bodies such as the Royal Colleges, and voluntary organisations.

143. Paragraph 10 allows both the Secretary of State and the National Assembly for Wales to provide funding to the Commission. The Secretary of State and the Assembly will be able to direct the Commission as to how it applies the funding it receives from them. As the Commission's role develops, it is envisaged that some of the Commission's work may be funded by charges paid by NHS bodies in respect of which it exercises its functions. Such charges may be provided for by regulations made under clause 15(2)(e). Paragraph 10 also provides that the Secretary of State and the Assembly may make loans to the Commission.

144. Paragraph 11 requires the Commission to keep accounts and submit them to the Secretary of State and the Comptroller and Auditor General and provides for the audit of those accounts.

145. Paragraph 12(1) requires the Commission to make an annual report to the Secretary of State, in which it is envisaged that the Commission will set out the progress it has made during the year and the issues emerging from its work. It is intended that an annual report will be published.

146. Paragraph 16 amends the Public Bodes (Admissions to Meetings) Act 1960, so that the Commission will be required to conduct its meetings in open session (unless business of a confidential nature is being discussed) and to make arrangements for the public to attend.

Clause 15: Functions of the Commission

147. This clause sets out the Commission's functions. It will have four core functions:

  • providing advice and information on arrangements for the monitoring and improvement of health care provided by NHS trusts and Primary Care Trusts (including "clinical governance" arrangements);

  • conducting reviews of the implementation and adequacy of such arrangements;

  • investigating, advising and reporting on specific matters relating to the delivery and management of health care provided by NHS bodies;

  • conducting national reviews on particular types of health care provided by the NHS;

and will perform such other functions in relation to health care provided by the NHS as are set out in regulations.

148. The Commission for Health Improvement will cover England and Wales, and will exercise the same functions in each country. The National Assembly for Wales will be able to determine how the Commission exercises its functions in Wales, by exercising the regulation and direction making powers in clauses 15(2), 15(4), 16 and 17 (conferred on the Assembly by clause 51(2)). In addition the Secretary of State will only be able to confer new functions on the Commission (under clause 15(2)(e)) in relation to Wales, if this is first agreed with the Assembly (see clause 51(4)).

149. Subsection (1)(a). The Secretary of State may follow the advice given by the Commission in the exercise of the function under this paragraph by drawing the Commission's advice to the attention of health service bodies or, if necessary, using his powers of direction under section 17 of the 1977 Act (see clause 7) to require them to act on that advice.

150. Subsection (1)(b) provides for the Commission to conduct reviews of the implementation and adequacy of arrangements to monitor and improve the quality of health care which is the responsibility of NHS trusts and Primary Care Trusts. It is intended that the Commission should review every NHS trust and Primary Care Trust once every 3 to 4 years. During these reviews, the Commission will be expected to look for evidence that the arrangements are working and that they are consistent with established standards. Regulations under subsection (2) will set out how these reviews are to be conducted. The Commission will also be able to look at the actions of Health Authorities (and their Primary Care Groups) in the course of a review if it considers that their actions (for example, as commissioners of the services under review) are related to the issues it is examining. It is intended that the Commission's findings will identify both areas of good practice and areas for improvement. The findings will be reported to the bodies concerned and the Government intends to make appropriate provision as to their publication.

151. Subsection (1)(c) provides for the Commission to investigate, advise and report on specific matters relating to the delivery and management of health care. Regulations will provide that this may be at the invitation of health service bodies such as Health Authorities, NHS Trusts or Primary Care Trusts, or at the direction of the Secretary of State, when concerns have been raised about the quality of the health care they provide. It is anticipated that the Commission's investigation will focus on clinical issues but it may also have regard to management and other issues if it considers that problems in these areas lie behind the matter under investigation. During an investigation the Secretary of State would be able to request that the Commission consider such matters as he thinks appropriate.

152. When the Commission has conducted an investigation, or a local review, follow-up action will be the responsibility of the NHS organisation in question, overseen in England by the NHS Executive Regional Office (for NHS trusts) or the Health Authority (for Primary Care Trusts), and in Wales by the Assembly. It is intended that the bodies concerned will share their action plans for addressing the Commission's recommendations with the Commission, and the Commission might be involved in follow-up action at local request. The expectation is that the body concerned would act on the Commission's recommendations, but if necessary the Secretary of State will be able to direct the body concerned to do so (using his powers of direction under section 17 of the 1977 Act (see clause 7)).

153. Subsection (1)(d) provides for the Commission to conduct national reviews on topics relating to health care provided by the NHS as requested by the Secretary of State. These topics will include the implementation of National Service Frameworks and of guidance issued by the National Institute for Clinical Excellence (set out in more detail in A First Class Service). Similar reviews are currently conducted by the Clinical Standards Advisory Group, which is to be abolished (see clause 18).

154. It is planned to establish the National Institute for Clinical Excellence (NICE) as a Special Health Authority under section 11 of the 1977 Act. NICE will appraise, and disseminate guidance on, the clinical and cost-effectiveness of new and existing health technologies (including drugs) and other interventions in England and Wales. It is intended that the Commission will look at how this guidance is being implemented in the NHS.

155. Subsection (1)(e) provides for the Commission to take on additional functions, which the Secretary of State may prescribe by regulations. In particular it is envisaged that regulations may provide for the Commission to advise, review and investigate persons and bodies other than those listed in subsections (1)(a) to (c). For example, this will allow the Commission's role to be extended to the Special Health Authorities which manage the special hospitals.

156. Increasingly the Commission is likely to have a role in assisting with inquiries. At present, the Secretary of State can institute informal inquiries in the exercise of his powers under section 2(b) of the 1977 Act, and institute formal inquiries under section 84 of the 1977 Act. Where formal inquiries are instituted under section 84, the Commission will be able to provide advice and assistance to those carrying out such an inquiry.

157. Subsection (2) enables the Secretary of State to make regulations which will set out how the Commission performs its functions. For example they may provide for the frequency of the Commission's reviews (subsection (2)(a)), arrangements for working in conjunction with other statutory bodies (subsection (2)(f)), or the publication of reports (subsection (2)(d)).

158. Regulations under subsection (2) will provide that when the Commission has undertaken a local or national review or an investigation, reports will be made to the bodies involved and to the Secretary of State. The regulations will also make provision for their publication. For example, where in a local review visit or investigation, the Commission's findings show clear evidence of very serious and continuing concerns about the performance of a clinical department and/or there has been failure by the NHS organisation to act, it is proposed that regulations will provide that the Commission may issue an immediate report rather than wait until the conclusion of its review or investigation. Regulations will provide that the Commission will bring these findings to the attention of the organisation concerned, the appropriate Health Authority or the Secretary of State. The Commission may also decide to make its findings public if it would be in the public interest to do so.

159. Subsection (2)(e) provides for the Secretary of State to make regulations as to the recovery by the Commission of some of the expenditure it incurs in exercising its functions. It is not intended that the Commission will charge individual health service bodies directly for its work from the outset. However in the longer term, the Government envisages that some of the Commission's work may be funded locally.

160. Subsection (2)(f) provides for regulations to be made regarding joint working between the Commission and other bodies. As well as working closely with health service bodies, the Commission may work in conjunction with organisations such as the Audit Commission, the Social Services Inspectorate, the Health and Safety Executive, the Health Service Commissioner, professional regulatory bodies and professional organisations such as the Royal Colleges.

161. Subsections (4) and (5) provide that the Secretary of State may issue directions to the Commission as to the exercise of its functions. The Commission will have a work programme agreed with the Secretary of State. The Secretary of State will be able to specify in directions, for example, specific clinical quality issues where it wishes the Commission to have a particular focus.

 
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