House of Lords - Explanatory Note
Health And Social Care (Community Health And Standards) Bill - continued          House of Lords

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Clause 6: Authorisation of NHS foundation trusts

46.     This clause provides the Independent Regulator with the power to authorise applicants under clauses 4 or 5, whom he is satisfied have met the necessary criteria set out in subsection (2), to be an NHS foundation trust. The criteria are that the constitution and governance arrangements are in accordance with Schedule 1, that the actual membership of the applicant's public constituency will be representative of those eligible for such membership, that necessary steps to prepare for NHS foundation trust status have been taken, that the applicant will be able to provide the goods and services which it will be required to provide, and that any other requirements the Independent Regulator considers appropriate are met.

47.      Subsection (4) gives the Secretary of State power to make regulations setting out consultation requirements on applicants for NHS foundation trust status. Authorisation may not be granted unless the Independent Regulator is satisfied that the applicant has complied with the regulations.

Clause 7: Effect of authorisation

48.     Clause 7 sets out the legal effect of an authorisation to be an NHS foundation trust. Under the clause, where authorisation is granted to an NHS trust it ceases to be an NHS trust and becomes an NHS foundation trust. Where authorisation is granted to a public benefit corporation it becomes an NHS foundation trust.

49.     Subsection (5) provides that the property, rights and liabilities of applicants continue with the NHS foundation trust.

50.     Subsection (6) provides that, like NHS trusts, NHS foundation trusts are not Crown bodies: see paragraph 18 of Schedule 2 to the 1990 Act.

Clause 8: Amendments of constitution

51.     This clause sets out that an NHS foundation trust's constitution may only be amended with the Independent Regulator's consent, so that he can ensure any alterations are appropriate.

Clause 9: Variation of authorisation

52.     This clause allows for the Independent Regulator to vary an NHS foundation trust's terms of authorisation. In deciding whether to vary an authorisation, the Independent Regulator must take into account any report or recommendation made to him by an overview and scrutiny committee of a local authority made pursuant to the Local Government Act 2000, or by the Commission for Patient and Public Involvement in Health.

Clause 10: Register of NHS foundation trusts

53.     Subsections (1) to (3) require the registrar of companies to keep a register of NHS foundation trusts, and set out the information that the register must contain.

54.     Subsection (4) sets out that sections 707A(2) and (3) and 709 of the Companies Act 1985 apply to the register of NHS foundation trusts as if it were required to be kept under that Act. Amongst other things, this provides arrangements for public access to the register, and requires the registrar of companies to keep originals of documents on the register for ten years, or for two years from dissolution of an NHS foundation trust.

Financial matters

Clause 11: Power of Secretary of State to give financial assistance

55.     This clause provides for the Secretary of State to give loans, public dividend capital, grants or other payments to NHS foundation trusts.

56.     Subsection (3) provides the necessary statutory cover for the Secretary of State to guarantee payments due under Private Finance Initiative (PFI) agreements entered into by NHS foundation trusts. Such agreements are currently entered into by NHS trusts. They are certified as "externally financed development agreements" within the meaning of the National Health Service (Private Finance) Act 1997. The clause envisages that these certification arrangements will continue.

Clause 12: Prudential borrowing code

57.     This clause provides for the Independent Regulator to set a code according to which the total borrowing limit of an NHS foundation trust will be determined. The code, and any revisions to it, must be laid before Parliament by the Independent Regulator.

58.     The clause requires that, in making and revising the code, the Independent Regulator must have regard to commercial best practice for determining the amount of loans to not-for-profit sector organisations. This would include taking into account the current and future ability of NHS foundation trusts to service debt. In addition, before making the code, the Independent Regulator must consult interested parties including the Secretary of State, NHS foundation trusts and any other persons he considers appropriate. He must also consult interested parties before revising the code.

Clause 13: Public dividend capital

59.     Under section 10 of the 1990 Act, each NHS trust is given an originating capital representing the excess of its assets over its liabilities when it is established. This originating capital is "public dividend capital" and the NHS trust must pay dividends on it at a set rate. It constitutes an asset of the Consolidated Fund.

60.     Subsection (1) sets out that the public dividend capital of an NHS trust applicant immediately before authorisation is granted continues as public dividend capital under the same conditions for the NHS foundation trust. Under subsection (2) the capital remains an asset of the Consolidated Fund.

61.     Subsection (3) provides for the Secretary of State, with the consent of Treasury, to decide the terms on which any public dividend capital of an NHS foundation trust is issued. Under subsection (4) the dividend to be paid by an NHS foundation trust is the same as that payable by NHS trusts in England under section 9(7) of the 1990 Act.

62.     Subsection (5) requires the Secretary of State to consult the Independent Regulator before deciding the terms on which any public dividend capital of an NHS foundation trust is to be issued.

63.     Subsection (6) requires that any repayment of public dividend capital made to the Secretary of State must be paid into the Consolidated Fund, as it is for NHS trusts.

Functions

Clause 14: Authorised services

64.     This clause sets out the powers and functions of the Independent Regulator when authorising an NHS foundation trust to provide goods and services.

65.     Under subsection (1) an authorisation must authorise an NHS foundation trust to provide goods and services for purposes related to the provision of health care. But subsection (2) provides that the authorisation must ensure that the principal purpose of the NHS foundation trust is the provision of goods and services for the health service in England.

66.     Subsection (3) gives NHS foundation trusts powers to enter into other, non-health care related activities for the purposes of generating income to be used for the health service in England. Such activities may be subject to any restrictions set out in the authorisation.

67.     Subsection (4) allows the Independent Regulator, as part of an authorisation, to require an NHS foundation trust to provide particular NHS services. By exercising his power, the Independent Regulator can ensure that NHS foundation trusts are obliged to continue to provide certain goods and services to the NHS. Subsection (7) sets out the factors the Independent Regulator is to consider in deciding whether to require provision of particular services by an NHS foundation trust; and subsection (8) sets out the terms in which such a requirement may be framed.

68.     Subsection (6) provides that an authorisation must authorise an NHS foundation trust to carry out health care research and to make facilities and staff available for education, training and research carried on by others. An authorisation may also require such services.

Clause 15: Private health care

69.     This clause gives the Independent Regulator power to restrict any goods or services provided by an NHS foundation trust that are not provided for the purposes of the health service in England.

70.     Subsection (2) obliges the Independent Regulator to exercise this power to impose a cap on the total level of income derived from the provision of services to private patients, if the NHS foundation trust was an NHS trust. In the case of an NHS foundation trust that was an NHS trust in the financial year ending 31st March 2003, the cap must restrict the NHS foundation trust to the proportion of total income received from private patients in that year. For NHS foundation trusts that were not an NHS trust throughout this period, the cap must restrict the NHS foundation trust to the proportion of total income received from private patients in its first full financial year as an NHS trust.

Clause 16: Protection of property

71.     This clause provides a 'lock' on any assets of an NHS foundation trust that are needed for the provision of goods or services required under its authorisation. The clause allows the Independent Regulator to designate property as "protected" if he considers that the property is needed for the provision of the goods or services that the NHS foundation trust must provide to the NHS in England under its authorisation. If property is designated as protected in this way, an NHS trust may not dispose of it without the Independent Regulator's approval.

Clause 17: Financial powers

72.     This clause gives NHS foundation trusts powers to borrow money, subject to the prudential borrowing limit calculated according to the code set under clause 12.

73.     Subsections (4) and (5) give NHS foundation trusts financial and investment powers for the purposes of their functions, including powers to invest money, form subsidiaries and enter into joint ventures.

74.     In addition, subsection (6) allows NHS foundation trusts to give financial assistance to anyone in connection with their functions. The powers are however, potentially subject to any terms to the authorisation set by the Independent Regulator.

Clause 18: General powers

75.     This clause gives an NHS foundation trust general powers to do anything it needs to in relation to its functions. In particular, subsection (2) sets out that this includes acquiring and disposing of property, entering into contracts, accepting gifts and employing staff.

Clause 19: Information

76.     This clause sets out requirements for NHS foundation trusts and other health service bodies to provide information in certain circumstances.

77.     Under subsection (1)(a), the Secretary of State is given the power to specify any information he requires from NHS foundation trusts. The provision of the information is included as a term to each NHS foundation trust's authorisation.

78.     Subsection (2) gives the Independent Regulator a power to require other health service bodies - defined in clause 39 as being Strategic Health Authorities, Special Health Authorities, NHS trusts, PCTs and NHS foundation trusts - to provide him with any information he requires in fulfilling his functions.

Clause 20: Entry and inspection of premises

79.     This clause provides for the Independent Regulator to include right of entry and inspection of premises as a term of authorisation for NHS foundation trusts.

Clause 21: Fees

80.     This clause allows the Independent Regulator to charge NHS foundation trusts a reasonable fee as a term of their authorisation.

Clause 22: Trust funds and trustees

81.     This clause provides for the Secretary of State to appoint trustees for an NHS foundation trust to manage charitable assets on its behalf. The arrangements are analogous to those set out under the 1990 Act for NHS trusts.

82.     Subsection (2)(a) allows for the Secretary of State to make provision as to the persons by whom trustees are to be appointed. It is anticipated that the appointment of trustees will be delegated to the NHS Appointments Commission, which is a Special Health Authority established under the 1977 Act.

83.     Subsection (3) allows the Secretary of State to transfer property from an NHS foundation trust to the trustees of the NHS foundation trust where trustees have been appointed under this clause.

84.     Subsection (4) provides that trustees of an NHS trust that becomes an NHS foundation trust are to be treated as though they were appointed under this clause.

Failure

Clause 23: Failing NHS foundation trusts

85.     This clause gives the Independent Regulator broad powers where an NHS foundation trust is breaching or has breached obligations under an Act or its authorisation. Under the clause, the Independent Regulator may issue a warning notice, and may also require Directors or the Board of Governors to act, or to cease acting, in a particular way. The Independent Regulator also has the power to remove or suspend any or all of the directors and members of the Board of Governors, and appoint directors to act in the interim period.

Clause 24: Voluntary arrangements

86.     This clause gives the Independent Regulator powers to intervene in the operation of an NHS foundation trust in cases of financial difficulty.

87.     Under this clause, the Independent Regulator has powers to require an NHS foundation trust's directors to make a proposal for a voluntary arrangement with its creditors. In addition, the Independent Regulator also has the power to require an NHS foundation trust's directors to obtain a moratorium on its business prior to the approval of a voluntary arrangement.

88.     The power to require the directors to reach such a voluntary arrangement with the NHS foundation trust's creditors, and also to obtain a moratorium over the business of the NHS foundation trust, are set out in detail in Part 1 of the Insolvency Act 1986. Subsection (2) gives the Secretary of State the powers to apply Part 1 of the Insolvency Act 1986 with modifications.

Clause 25: Dissolution etc.

89.     This clause gives the Secretary of State the power in certain specified circumstances to dissolve an NHS foundation trust by order. The power may be exercised where an NHS foundation trust fails to comply with a notice under clause 23 or 24, or where an NHS foundation trust fails to implement a voluntary arrangement under clause 24, and where the Independent Regulator considers that, despite the exercise of his powers under either of those clauses, the goods and services of the NHS foundation trust remain at risk. Before an NHS foundation trust is dissolved, the Independent Regulator must, consult those individuals specified by the Secretary of State. This provision is intended as a safeguard on the use of the power. Where an NHS foundation trust is dissolved under this clause, the Secretary of State may transfer any of its property, rights and liabilities to the persons listed in subsection (3). The transfer is made by order.

90.     Subsection (4) makes provision for Schedule 3 which sets out the legal effect of any transfer of employees of a dissolved NHS foundation trust. Under the Schedule, the contract of any employee that is transferred under clause 25(3) is not terminated. Rather, it transfers to the transferee as if it were originally made between the employee and the transferee. The employee is however, given the right to object to such a transfer. Where an employee objects in this way, his contract of employment is terminated.

91.     Subsection (6) gives the Secretary of State the powers to apply Part 4 of the Insolvency Act 1986, which relates to the winding up of companies, with modifications to the dissolution of NHS foundation trusts.

92.     Subsection (7) allows the Secretary of State to exercise his powers under this clause where the Independent Regulator refuses to give an authorisation to a public benefit corporation.

Mergers

Clause 27: Mergers

93.     This clause provides a mechanism for mergers between two NHS foundation trusts or between an NHS foundation trust and an NHS trust.

94.     Under subsection (1) an NHS foundation trust and another NHS foundation trust, or an NHS foundation trust and an NHS trust, may make a joint application to the regulator for authorisation as a new NHS foundation trust. Subsection (2)(a) provides that, as for new NHS foundation trusts, if the application involves an NHS trust, the application must be supported by the Secretary of State; and subsections (2)(b)-(d) set out the matters that must form part of such an application.

95.     Subsection (4) allows the Independent Regulator to issue a certificate incorporating the directors of the applicants as a public benefit corporation, and to authorise the corporation to become an NHS foundation trust, if he is satisfied that the criteria set out in subsection (5) have been met. The criteria are that the constitution and governance arrangements are in accordance with Schedule 1, that the actual membership of the applicant's public constituency will be representative of those eligible for such membership, that the new NHS foundation trust will be able to provide the goods and services which it will be required to provide, and that any other requirements the Independent Regulator considers appropriate are met.

96.     Subsection (6) gives the Secretary of State power to make regulations setting out consultation requirements where an application to merge is made. An authorisation may not be granted unless the Independent Regulator is satisfied that the applicants have complied with the regulations.

Clause 28: Section 27: supplementary

97.     This clause provides for the Secretary of State to make orders dissolving the applicants, and transferring their property, rights, liabilities and staff to the new NHS foundation trust authorised under clause 27.

Co-operation

Clause 29: Co-operation between NHS bodies

98.     This clause amends section 26 of the Health Act 1999. This amendment requires NHS foundation trusts to co-operate with other NHS bodies in exercising their functions. In turn, other NHS bodies must also co-operate with NHS foundation trusts.

Patient and public involvement

Clause 30: Public involvement and consultation

99.     This clause amends section 11(2) of the Health and Social Care Act 2001. This amendment provides that, when planning service provision and considering service change, NHS foundation trusts must involve and consult patients and the public.

Clause 31: Patients' Forums

100.     Subsection (2) amends section 16(4) of the National Health Service Reform and Healthcare Professions Act 2002. This amendment allows a PCT Patients' Forum to advise NHS foundation trusts about how to encourage the involvement of members of the public in decisions which might affect their health.

101.     Subsection (3) amends section 17(1) of the 2002 Act. This amendment provides for the Secretary of State to make regulations requiring NHS foundation trusts to allow members of a Patients' Forum authorised to do so under the regulations to enter and inspect the premises of NHS foundation trusts.

102.     Subsection (4) amends section 18(2) of the 2002 Act. This amendment provides that where a Patients' Forum prepares an annual report about activities that relate to an NHS foundation trust, it must send a copy to the Independent Regulator.

Clause 32: Commission for Patient and Public Involvement in Health

103.     This clause amends section 20(12) of the 2002 Act. This amendment provides for the Commission to promote the involvement of members of the public in England in decisions made by NHS foundation trusts which might affect their health.

Miscellaneous

Clause 33: Taxation

104.     Subsection (1) amends section 519A of the Income and Corporation Taxes Act 1988. This amendment exempts NHS foundation trusts from income and corporation taxes.

105.     Subsection (2) amends section 61(3) of the 1990 Act. This amendment exempts NHS foundation trusts from stamp duty.

106.     Subsection (3) amends section 41(7) of the Value Added Tax Act 1994. This amendment provides for Value Added Tax to apply to NHS foundation trusts in the same way it applies to NHS trusts.

Clause 34: Other amendments relating to NHS foundation trusts

107.     This clause makes provision for Schedule 4 which makes various minor and consequential amendments relating to NHS foundation trusts.

108.     Paragraph 18 amends section 113 of the Local Government Act 1972. This amendment allows NHS foundation trusts to enter into joint staffing arrangements with local authorities.

109.     Paragraph 20 amends Part 3 of Schedule 1 of the House of Commons Disqualification Act 1975. This amendment disqualifies Chairmen and other non-executive directors of NHS foundation trusts from membership of the House of Commons.

110.     Paragraph 25 amends section 22 of the 1977 Act. This amendment includes NHS foundation trusts among the list of NHS bodies required to co-operate with one another in exercising their functions.

111.     Paragraph 34 amends section 91 of the 1977 Act. This amendment sets out that where property held on trust is given to an NHS foundation trust for a specified purpose, the trustees for the NHS foundation trust must apply those funds for the specified purpose.

112.     Paragraph 37 amends section 96A of the 1977 Act. This amendment allows NHS foundation trusts to raise money by appeals etc. and to hold, administer and apply any property given on trust for the purpose it was given.

113.     Paragraph 84 amends section 21 of the 1990 Act. This amendment provides that NHS foundation trusts may choose to participate in schemes established by the Secretary of State for meeting losses and liabilities etc. of certain health service bodies.

114.     Paragraph 109 amends section 31 of the Health Act 1999. This amendment allows regulations to be made which enable NHS foundation trusts to enter into joint arrangements with local authorities.

115.     Paragraph 116 amends section 7 of the Health and Social Care Act 2001. This amendment provides for the powers of local authority oversight and scrutiny committees to apply to NHS foundation trusts as to other NHS bodies.

Clause 35: Offence

116.     This clause makes it an offence for a person to vote at an election to the Board of Governors, stand for election to the Board of Governors or vote at a meeting of the Board of Governors if the person knows that they are not eligible to do so.

Clause 36: Representative membership

117.     This clause provides that an authorisation may require an NHS foundation trust to take steps to ensure that, taken as a whole, the actual membership of its public constituency is representative of the population eligible for such membership.

Clause 37: Audit

118.     This clause introduces Schedule 5 which sets out provisions relating to the audit of NHS foundation trusts' accounts.

119.     Paragraph 1 of the Schedule places a number of duties on auditors of NHS foundation trusts. They include a duty that, when auditing an NHS foundation trust's accounts, the auditor must be satisfied that they are prepared in accordance with directions and any relevant enactments, and that proper practices have been observed in their compilation. The auditor must also be satisfied that the trust has made proper arrangements for securing economy, efficiency and effectiveness in its use of resources.

120.     Paragraph 2 gives the auditor rights of access to documents and information relating to the NHS foundation trust. The provision also gives auditors the power to require such explanation as is necessary to enable an audit to be properly completed. Failure to provide information, or to give an explanation related to audit matters, is an offence.

121.     Paragraphs 3 to 5 set out some provisions relating to auditors' reports on NHS foundation trusts, including requirements for submitting reports.

122.     Paragraph 6 requires the auditor to inform the Independent Regulator if an NHS foundation trust has or is about to incur unlawful expenditure or take action that is likely to be unlawful and cause a loss or deficiency.

123.     Paragraph 8 places restrictions on when auditors may disclose information relating to an NHS foundation trust. It is an offence to contravene these restrictions.

 
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Prepared: 14 July 2003