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2.56 p.m.

Lord Grocott: My Lords, I have two brief statements about business. First, with the leave of the House, after the three opening speeches in the debate on the Health and Social Care (Community Health and Standards) Bill, my noble friend Lady Ashton of Upholland will repeat a Statement on the children's Green Paper. Secondly, following that, with the leave of the House, my noble friend Lady Symons will repeat a Statement on Iraq and Israel/Palestine.

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May I say a very few words about the Health and Social Care (Community Health and Standards) Bill timings? As the House has already heard, there will be two important Statements today. I am always mindful of the advice which I receive from all quarters of the House on trying to finish at around the advisory time of 10 o'clock. I simply say that should the Back-Bench contributions to that Bill be restricted to about eight minutes, we would finish by 10 o'clock. If they were restricted to around 10 minutes, it would be around 11 o'clock.

Northern Ireland (Monitoring Commission etc.) Bill [HL]

Lord Williams of Mostyn: My Lords, I beg to introduce a Bill to make provision in connection with the establishment under international law of an independent commission with monitoring functions in relation to Northern Ireland, to make further provision about exclusion from ministerial office in Northern Ireland, to make provision about reduction of remuneration of Members of the Northern Ireland Assembly, to make provision about reduction of financial assistance under the Financial Assistance for Political Parties Act (Northern Ireland) 2000, to make provision about censure resolutions of the Northern Ireland Assembly and for connected purposes. I beg to move that this Bill be now read a first time.

Moved, That the Bill be now read a first time.—(Lord Williams of Mostyn.)

On Question, Bill read a first time, and ordered to be printed.

Civil Contingencies

The Chairman of Committees (Lord Brabazon of Tara): My Lords, I beg to move the Motion standing in my name on the Order Paper.

Moved, That the Earl of Shrewsbury be appointed a member of the Joint Committee on the draft Civil Contingencies Bill in the place of the Lord Marlesford.—(Lord Brabazon of Tara.)

On Question, Motion agreed to.

Health and Social Care (Community Health and Standards) Bill

2.58 p.m.

Lord Warner: My Lords, I beg to move that this Bill be now read a second time.

We are today debating a Bill that represents another step along the path of adapting our National Health Service to the needs of the patients of today. For too long our NHS was neglected, but now it is getting the investment it needs and its hardworking staff are receiving the support they require. In 2002–03, NHS spending was about 55 billion—a 7.1 per cent increase in real terms over the previous year. That

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increased spending is going to be continued because the 2002 Budget provided for the largest-ever sustained increase in NHS funding.

Patients are now beginning to see the results of this investment. More doctors and nurses are being recruited and trained. Compared with 2001, by 2008 there will be 15,000 more consultants and GPs, 35,000 more nurses, midwives and health visitors and 30,000 more therapists and scientists. New equipment and facilities are coming on stream—100 new hospitals by 2010; 7,000 extra beds by 2004; up to 3,000 GP premises improved or replaced; and 500 one-stop centres established by 2004. All this means improved access and quality of services for patients, with better clinical services and care and more choice. Waiting times are falling. Death rates from cancer and heart disease are decreasing. Neglected areas such as mental health are beginning to receive the attention they deserve. For elderly people, support at home and stroke and fall services are improving.

But it is essential for patients that these large increases in investment must be accompanied by reforms which can help the NHS to use its resources more effectively and efficiently and which can improve services for patients. Our NHS must become even more patient-centred with more individualised care and more choice. Decision-making must be devolved from the centre to local areas so that the NHS can respond better to the specific needs of local communities. Pay arrangements must become more responsive to local circumstances so the NHS can recruit and retain the staff it needs. But all of this has to be achieved within a national framework that retains the core values of the NHS, especially the overriding principle of care being provided free at the point of need; and we need robust national standards that are rigorously monitored independently.

The health and social care Bill will provide the reform needed to go with the additional investment. I should now like to outline how the main parts of the Bill will achieve this.

Part 1 of the Bill provides for a new type of NHS organisation suitable for today's needs: the NHS foundation trust, to give it its full and proper name. The philosophy behind these trusts is consistent with the Government's approach to public service reform: high standards and clear accountability; devolution of responsibility; more flexibility for front-line workers and choice and diversity of provision for patients.

In response to some of the concerns expressed, I should like to make five key points about this new type of trust. First, real improvements can be accomplished only if the NHS both increases capacity and increases the choice and diversity offered to patients. Capacity and choice are not alternatives—they are partners. The new trusts will increase the range of provision within the NHS. Working within NHS national standards they will enable local hospitals to be run to meet local needs.

Secondly, NHS foundation trusts will treat patients entirely within the principles which underpin the NHS—that healthcare should be provided equally to

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those who need it, free at the point of need. They are not a back door to privatisation and they will be legally required to use their assets for the benefit of the NHS and to co-operate fully with other parts of the NHS.

Thirdly, we recognise that the NHS should become a more personal health service where meeting the needs of individual patients is the first priority for clinicians, managers and commissioners alike. The principle of the NHS is defined around the needs of the patients, not the needs of the providers. Staff working in the new trusts will have more flexibility to meet the needs of local people because they will have more operational and financial freedoms.

Fourthly, patients will have for the first time a way to direct and shape the organisations and really to influence how they are run. Together with local management flexibility, this will mean that local decisions can be taken which will be more responsive to the needs of local patients without the need to refer up the management chain for approval. For example, the University Hospital Birmingham NHS Trust will shortly open two new day-case wards. The process of getting approval from various tiers of management took 18 months—well over a year. In contrast, the actual building work will take only a few months. For an NHS foundation trust, the whole process could be much quicker. By the time 18 months were up, the wards would have been operational for several months and patients would have reaped the benefits.

My last point is fairness and equity, which were meant to be enduring qualities of the NHS. But while the NHS has aimed to provide a universal service by removing the barrier of cost to the patient, it does not guarantee true equality of access to healthcare. The more personalised health service we want is related to the simple fact that, for all its benefits, the NHS has not as yet fully succeeded in providing equality of access to healthcare. By empowering individual NHS trusts to run services in response to local demand and need, it becomes possible for all to have high standards of access to services wherever they are. This is critical in tackling the health inequalities which permeate many of our most deprived areas.

Part 1 of the Bill will, therefore, establish NHS foundation trusts as a new type of NHS organisation, based on a new corporate form—the public benefit corporation. This will provide local ownership and greater involvement of local communities in NHS trusts by allowing local people, patients, carers and staff to become members of their local NHS foundation trust.

The new trusts will be different from existing NHS trusts in three important ways. First, they will have new freedom to decide locally how to meet their obligations. Secondly, they will be accountable to local people, who will become members and governors; and, thirdly, they will be authorised and monitored by an independent regulator.

The primary purpose of the new trusts will be to provide NHS services to NHS patients and this will be set out in their terms of authorisation which will be

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issued by the independent regulator, who will be accountable to Parliament. NHS foundation trusts will be prevented selling off or mortgaging NHS property and resources needed to provide key NHS services.

NHS foundation trusts will remain fully part of the NHS and like other NHS organisations, they will be required to improve quality of healthcare taking account of national standards for NHS services; they will deliver NHS services to NHS patients free at the point of use; they will treat patients according to need, not ability to pay; and they will be under a duty to work in co-operation with other health and social care partners. The myth being fostered by some that this change is all about competition, is just that, a myth.

NHS foundation trust status will open the way to significant new freedoms as the new trusts will have the flexibility to implement new governance structures. These will be tailored to the individual circumstances of each trust so that it is able to respond much better to local needs. They will have the freedom to recruit and employ their own staff, with flexibility to offer new rewards and incentives that will assist recruitment and retention.

The key difference between NHS foundation trusts and other types of trust is that although both will be required to meet national standards, the new trusts will be free to decide how they achieve them. This will enable them to achieve national standards in ways which best suit their particular local circumstances and requirements.

Unlike NHS trusts now, which have access to public capital via the Department of Health and their strategic health authorities, NHS foundation trusts will access their capital requirements through loans which they will be expected to repay. All NHS foundation trust borrowing will be governed by a new prudential borrowing code which will limit the amount each trust can borrow and link it to their ability to service the resulting debt. So the trusts will have the opportunity to access capital both from the public and private sectors and use a wider range of financing options than are currently available to NHS trusts. This access to capital will allow the new trusts to implement capital schemes that will be locally and directly targeted to improving the patient experience.

The public will have true social ownership of their local hospital, with accountability devolved from Whitehall to the local community. They will have a say in how that hospital is run. Local people will have the opportunity to become involved in the running of their NHS foundation trust, with rights to elect or become governors.

NHS commissioners will be represented on NHS foundation trust boards of governors, giving primary care trusts a way to influence the organisation. NHS foundation trusts will be able to extend the benefits of greater freedom and flexibility to others in the local health community. This may include entering into partnerships with primary care trusts to develop specific services, such as promoting the development of local primary care services. Again, the accusation of increasing competition is untrue.

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Staff will have new opportunities to develop locally based services. They will be free to deliver the healthcare that is most appropriate to their local circumstances without Whitehall interference or bureaucracy. Staff will have rights to be represented and have their say in how the hospital is run, and to elect and stand for election to the board of governors.

The Government have listened carefully to concerns about the change in direction, and have responded to them. We have ensured that all NHS trusts will have the opportunity to become NHS foundation trusts within a reasonable period of time to avoid anxieties about the NHS in England becoming a two-tier service. NHS foundation trusts will be subject to a cap on the income that they receive from private patients, so that NHS patients will always be their principal concern. NHS foundation trust applicants will be among the first to implement the new national pay arrangements for the NHS. The Secretary of State will not support applications from trusts that do not agree to implement Agenda for Change.

After thorough scrutiny of the provisions on NHS foundation trusts in another place, the Government have put forward or accepted amendments to the Bill aimed at strengthening the constitutional and governance arrangements. I believe that we have now struck the right balance between ensuring accountability and genuine local representation, while leaving the new trusts free to tailor arrangements to their own local circumstances. For example, there are now requirements to ensure that the public membership of an NHS foundation trust is representative of the local community, that local authorities are represented on the board of governors, and that foundation trusts make explicit provision to deal with conflicts of interest for directors. The independence and accountability of the regulator have been strengthened to make him or her directly accountable to Parliament.

Further amendments have clarified the position that patients from Scotland, Wales or Northern Ireland referred to NHS foundation trusts in England can continue to be treated as now. Particular concern was expressed in another place that patients resident in Wales might be excluded or disadvantaged by English NHS foundation trusts in, for example, border areas. I assure noble Lords that there is no need for further concern on that.

The audit arrangements for NHS trusts were strengthened by introducing a new schedule on audit and giving the independent regulator the power to set standards, techniques and principles with which NHS foundation trust auditors must comply, in order to toughen the arrangements for financial probity and accountability.

I hope that your Lordships agree that those changes substantially improve Part 1, but no doubt we will discuss the NHS foundation trust provisions in more detail at a later stage.

Alongside our devolution of autonomy and resources to a local level, we need a stronger mechanism to ensure that national standards of care

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are met and maintained across the country. That mechanism has to drive out poor performance, improve further quality of care and continue to raise health and social care standards.

The Government have agreed to take further steps to address Professor Sir Ian Kennedy's concern that there was potential for inconsistency and fragmentation when a number of bodies retained responsibility for inspection, and to reappraise the future role of the Audit Commission's work on clinical effectiveness and assessing the performance of the NHS.

Under Part 2, functions currently performed by the Commission for Health Improvement, the National Care Standards Commission and the Audit Commission will be brought together in a single body, the Commission for Healthcare Audit and Inspection. The new CHAI will consolidate and build on the NHS review work currently done by the existing Commission for Health Improvement, the private healthcare regulation work carried out by the National Care Standards Commission, and the national healthcare value-for-money work of the Audit Commission. That will reduce the burden of bureaucracy on NHS organisations and remove any doubt whatever about who is the independent judge of performance and value for money in the NHS.

The Bill will also apply the principle of independent inspections against national standards, or statutory guidance in the case of local authority social services, to the public and independent social care fields by creating the Commission for Social Care Inspection. CSCI will represent the rationalisation of the functions of the Social Services Inspectorate, the regulation of independent social care providers currently performed by the National Care Standards Commission, and certain social care audit functions of the Audit Commission.

For the first time, there will be single inspectorates for both health and social care, which will be independent of government and reduce the burdens of inspection on those being inspected. That should generate increased confidence in both the public and the health and social care providers. CHAI and CSCI's independence will be made manifest in the duty that they will each have to lay an annual report directly before Parliament, rather than the Secretary of State.

The independence of the organisations will be further ensured by the delegation of the appointments process for the chair and commissioners to the NHS Appointments Commission. Following recommendations from the commission, shadow appointments have already been made to both inspectorates to enable the transition work between the old and new organisations to be supervised independently.

Both CHAI and CSCI will provide the public with performance ratings to make clear their assessment of individual NHS bodies and local councils. Both will develop their own respective criteria, taking into account the national standards set by the Secretary of State. There was some debate in the other place about whether the Secretary of State's approval of the

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criteria would compromise CHAI's independence, but it is the Secretary of State's responsibility to ensure that the criteria to be used by CHAI in its inspections are consistent with NHS national standards. It is the Secretary of State's role to set those national standards in his accountability to Parliament for the funding and running of the NHS.

National standards will continue to be issued for social care, and CSCI will use those standards in determining the performance of all providers of social care through reviews and inspections. CSCI will be able to advise the Secretary of State about any changes that it thinks are needed to the standards.

Our intention is to establish both new bodies from April 2004. That may require early commencement of certain provisions, and I will update the House about that in due course. Detailed work is currently in progress on the management structure of the new bodies, the transfer of staff and their accommodation. That is essential for a very large organisation such as CSCI, which will bring together the staff of the National Care Standards Commission and the SSI, with about 2,500 people working in the organisation. CHAI is expected to employ around 600 staff.

To address particular concerns raised in the other place, we made amendments to the CHAI clauses on Report. First, we have made it explicit that CHAI will have a duty to conduct national reviews of particular types of healthcare as may be specified by the Secretary of State. Following a commitment made in Committee, we also made it quite clear that CHAI is to be concerned with all the factors related to the quality of healthcare when it exercises any of its functions in relation to the provision of healthcare, and in relation to reviews and investigations. Finally, we brought forward amendments to make it explicit that both inspectorates and the National Assembly for Wales are always required to produce a report or a summary of recommendations following individual inspections, and we introduced revised, slimmed-down and more straightforward clauses on the new national complaints procedures.

I would like to say a few words about the new complaints procedures, which will replace the current arrangements for complaints about both health and social care. In future, CHAI and CSCI will operate an independent review stage of the complaints procedure when the health body or local authority concerned has been unable to resolve the complaint. That meets a key concern expressed by complainants about the perceived lack of independence in the review part of the current systems. It is also intended that regulations will allow for people unhappy about packages of services provided by health and social care bodies to make only one complaint about both, putting the onus on the organisations themselves to work together and instigate the necessary procedures to resolve all aspects of the complaint. That will make the process easier for complainants to use, and provide bodies dealing with complaints greater flexibility to work together to resolve them.

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The Bill gives the Assembly equivalent powers to the Secretary of State to define the complaints process in regulation. The Assembly already uses trained lay people to conduct third-stage independent reviews of complaints. That is felt best to reflect the needs of Welsh patients, and complements the process in England.

I turn now to the implications of this part of the Bill for Wales. Although responsibility for healthcare provision is devolved to the National Assembly for Wales, CHAI will be established as an England and Wales body with some functions in Wales.

The Bill acknowledges that the Assembly, working closely with existing standards-setting agencies, is best placed to determine the approach to implementing clinical standards for Wales, given the need to reflect the policy, priorities, structures and circumstances in Wales. The Bill provides for the Assembly to prepare and publish statements of standards in relation to the provisions of healthcare by and for Welsh NHS bodies.

The Bill also provides for the Assembly, in the same way as CHAI, to conduct reviews of, and investigations into, the provision of healthcare by and for Welsh NHS bodies, including that provided by hospitals in England. To guard against duplication of reviews or inspections, the Bill places the Assembly and CHAI under a duty to co-operate. CSCI will not have jurisdiction in Wales and the Bill therefore places the functions of CSCI in England on the Assembly in respect of social care provided by local authorities in Wales.

Part 3 extends the provisions made by the Road Traffic (NHS Charges) Act 1999 to enable the NHS to recover the 150 million or so it currently costs each year to treat injuries to patients to whom personal injury compensation has been paid. This implements a proposal by the Law Commission in 1996. The majority of respondents to the department's own consultation, which ended last November, supported the idea of such a scheme. The Bill is explicit that money received through this charge will be used for the benefit of patients receiving treatment at the hospitals concerned or the benefit of NHS ambulance services.

At the Committee stage in another place, the Bill was amended so that there will be a right to apply for a waiver of the current requirement to settle a payment before lodging an appeal within the system, if exceptional financial hardship could result. At the Report stage, the Government fulfilled a commitment made in Commons Committee and clarified the definition of "injury". Diseases, such as asbestosis, are not included in the definition of injury, but psychological and physical injuries are, together with diseases occurring as a result of the injury in respect of which compensation has been paid.

The Government are conscious that these powers are being taken at a time when the whole issue of employers liability compulsory insurance is being reviewed. We have made a commitment that, while we are taking this legislative opportunity to get the

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provisions on the statute book, we will not commence the provisions in the Bill until the final outcome of that review has been taken into account.

It is intended that the new scheme will be operated by the Compensation Recovery Unit, in the same way as it currently operates the Road Traffic (NHS Charges) Act scheme. The scheme will operate in England, Wales and Scotland, the Scottish Parliament having approved its extension north of the Border.

The scheme has been designed to meet the concerns of insurers and businesses. It will not apply to the costs of primary care treatment. As with the road traffic scheme, tariffs used to calculate payments due will be set at a fixed rate, irrespective of the actual costs of the treatment, so compensators will not be paying the full costs of the treatment received. There will be an overall cap on the total amount payable in NHS costs in respect of any one claim, so it is not an open-ended liability. Diseases are excluded from the scope of the scheme, unless they occur as a direct result of the injury, specifically in response to concerns voiced by the insurance industry about the added complexities of such cases. Contributory negligence will be taken into account in cases where there is a court finding or court-endorsed agreement between the parties involved. This is a move away from the current road traffic scheme, but was seen by the Government to be a more equitable way forward in this case.

The BMA and the BDA welcome the Government's medical and dental provisions in Part 4. In a recent ballot, nearly 80 per cent of voting general practitioners accepted the new general medical services contract negotiated for them by the General Practitioners Committee of the BMA and the NHS Confederation, which Part 4 implements.

There is little doubt that the general medical and dental service contractual arrangements are in need of modernisation. They have been tinkered with for many years, but the time has come for more fundamental changes that meet today's needs both for patients and practitioners. This Bill addresses four key problem areas.

Primary care organisations need to be able to contract with practices, commission more services where necessary or even provide services themselves. People wishing to access NHS dentistry cannot always find an NHS dentist. We need more NHS dentists in particular places and NHS dentistry needs to be a more attractive proposition. General dental practitioners need a better method of remuneration. GPs want to be able to control their workload in order to provide a better service to patients and for their job to continue to attract new recruits.

The Bill will provide a better deal for patients seeking NHS medical and dental services and for professionals choosing to provide them. The Bill gives primary care organisations—primary care trusts in England and local health boards in Wales—an overarching responsibility to secure or provide primary dental and medical services. They will be able to do so through contracting with practices or by commissioning or providing services themselves. For

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dentistry, 1.2 billion, currently held centrally, will be directly allocated to PCTs to secure NHS dental services.

For the first time, primary care organisations will contract with individual practices, not individual practitioners, under the general medical services contract and general dental services contract. It is not only GPs and general dental practitioners who make NHS primary care tick—other professionals, such as dental hygienists and practice nurses, are key to providing high standards of patient care.

All practices will be required to provide a specified level of services to their patients under the general medical and general dental services contracts, but the provision of certain services, such as out-of-hours medical cover, will be open for negotiation as to whether it forms part of that contract. This means that professionals will be able to tailor their workload to fit their individual circumstances. The primary care organisations will have the power in this Bill to commission or provide services themselves to plug the gaps where necessary.

The Bill overhauls dental remuneration and patient charges. Dentists tell us that the current remuneration system, whereby they are paid for each service and treatment they provide, is rather like a treadmill. Patients tell us that it is hard to understand how the charges are calculated. Others tell us that the arrangements lead to a focus only on remedial and not preventive work. To improve this, the Bill provides for remuneration to be part of the contracts negotiated between primary care organisations and particular practices, adhering to national guidelines in regulations. Practices will be paid for their continuing responsibility for their patients as well as for the particular treatment provided.

Part 5 of the Bill reforms the welfare food scheme to provide for pregnant women, mothers and young children, including children in nursery or day care, to have access to a wider range of "health" foods under the scheme. This reflects the conclusions of the scientific review undertaken by the Committee on the Medical Aspects of Food and Nutrition Policy. Milk will continue to be an important part of the scheme, but the intention is that beneficiaries will have access to a wider range of health foods such as fruit and vegetables to provide a better balanced diet.

Part 5 also enables the Secretary of State to delegate to a special health authority all or part of his appointment-making function in respect of bodies with functions concerned with health, social care or the regulation of professions associated with health or social care. This will allow for greater independence and transparency. It is our intention that this special health authority would be the NHS Appointments Commission.

Part 5 also modifies the legislation that provides for the protection of vulnerable adults and the protection of vulnerable children lists so that persons holding a permanent NHS contract will not require another check against those lists should they undertake agency work.

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This is an important Bill which continues essential reform to match this Government's unprecedented financial investment in the NHS. It will provide a new, more autonomous, local delivery system—the NHS foundation trust—alongside a more coherent and independent inspection system and new NHS national standards. It provides for new local contracting for primary medical and dental services which has been welcomed by the BMA and the BDA and which will benefit patients.

There has been a lot of debate about NHS foundation trusts, but their critics should recognise that they preserve long-cherished fundamental NHS values while giving local communities a greater chance of getting a health service more tailored to their needs. This is a Bill that will produce real benefits for patients. I commend the Bill to the House.

Moved, That the Bill be now read a second time.—(Lord Warner.)

3.30 p.m.

Earl Howe: My Lords, the House will be grateful to the noble Lord, Lord Warner, for his very helpful and clear explanation of this important Bill. There is much in it to occupy us over the weeks ahead, but I am sure that he, like me, is greatly looking forward to the debate ahead of us today. It is especially heartening to see the distinguished list of noble Lords who have put their names down to speak, not least—if I may mention one individually—the noble Lord, Lord Hunt of Kings Heath. He has brought his wisdom and experience to so many health Bills over the past few years that I have lost count.

In many ways this is a landmark of a Bill. When I first became Opposition health spokesman six years ago, times were very different. We had a health secretary, and indeed a government, who believed passionately in the power of centralised political control. For them the success of the National Health Service required, above all, two things: taxpayers' money and detailed, prescriptive target setting. Any form of competition in the NHS, whether between hospital trusts or between different GP practices, was regarded as having no place at all in publicly funded healthcare. Privately funded healthcare was thought to be such anathema that it was practically banished off the political map.

There followed, as we know, a period of almost obsessive adherence to that centralist mentality: the relentless stream of targets, instructions and guidance issued from Richmond House; the constant harrying and bludgeoning of managers and doctors; the blank looks that appeared on Ministers' faces at the mere utterance of the phrase "patient choice"; and finally, of course, the abolition of those terrible nuisances, those regular thorns in the flesh of Ministers, community health councils. That was the climate of Labour's first term.

So when, shortly after the last election, Mr Milburn started talking about patient choice, of devolving money and power downwards in the NHS and of

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creating one inspectorate for the NHS and private hospitals—something for which we had been arguing for years—it seemed truly like a Damascene conversion. It was a change of heart that we on this side of the House could only applaud. Talk to anyone senior in the health service, or come to that anyone more junior, and they will tell you that central direction of the kind that we have witnessed over the past few years is a recipe for bureaucracy, stifled morale, thwarted initiative and ultimately ineffectiveness. In the commercial world there is no organisation of the size of the NHS, or even half its size, that can be micro-managed, Soviet-style, from one office. It is an impossible aspiration, because, as the Government have found, any attempt to achieve it proves ultimately to be counter-productive.

The concept of foundation trusts represents one part of the new direction for the health service. It is an idea that has been presented to us in terms with which no sensible person could disagree. Removing the power of direction from Whitehall; devolving resources; giving front-line professionals the freedom to take strategic decisions and to set their own priorities for patient care; making the service more responsive to patients and the needs of local people; giving hospitals control over their own assets; allowing them to borrow from the private sector; giving employees greater flexibility; are all positive ideas that, for us at least, struck exactly the right chord when the former Secretary of State first spoke of them in April last year.

We then waited for the publication of this Bill, and as we waited, we were conscious of other and more reactionary forces at work; not least the combined manoeuvrings of the Treasury and the Chancellor of the Exchequer. We knew almost without being told that with foundation trusts the rhetoric might be one thing but the reality could turn out to be quite another. The proof of the Government's lofty aspirations lies in the Bill. We need to look at it critically.

There are perhaps four principal claims for foundation trusts that the Minister has just articulated: that they will enjoy real and substantive freedoms; that they will be genuinely accountable to their local populations; that their governance structure will be soundly based; and that they will deliver real benefits to patients.

Let us first look at the freedoms. Would we be right in supposing that the influence of the Secretary of State will suddenly be removed from foundation trusts? No, we would not. It is a cardinal feature of the Government's plans that foundation trusts will be made to undergo annual performance reviews in accordance with the star rating system. The star rating system depends on nine key targets and 28 performance indicators; all of which are determined by the Secretary of State. Fall foul of those and you will find the regulator homing in on you; for in every area where the Secretary of State has relinquished his control, the regulator will step into his shoes with powers that are every bit as extensive. The services that the trust provides, the asset sales that it wants to make, the private income that it wants to earn; all those and

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much more the regulator has to approve; and as Clause 3 tells us, he has to do so in a way that is consistent with the Secretary of State's performance of his duties. If that is someone's idea of devolved decision-making, then it certainly is not mine.

We should also disabuse ourselves of the idea that foundation trusts will have the freedom to configure their services as they see fit. The reality is, as Mr Milburn admitted in another place, that the PCT, as the commissioning body, will hold the power. The local PCT, in Mr Milburn's words,

    "will decide where the money goes".—[Official Report, Commons, 7/5/03; col. 712).

That is of course perfectly correct because under the Government's plans for financial flows, patients and GPs will increasingly call the tune about the services that they want. That means that foundation trusts in practice will have very little choice as to how to configure themselves.

But if that is so, one may very well ask what on earth is the point of the elaborate and costly governance structures with which foundation trusts will be saddled? Ministers have sat down at a desk and convinced themselves that what foundation trusts need is local democratic accountability. So they have devised a structure, based on membership and elections, that purports to give local populations the power over the services that their local hospital provides, but it will do no such thing. The expectations created by that system of governance are bogus and, as I shall argue in Committee, are very likely to lead to frustration and disenchantment on the part of those who participate.

The Government have not consulted on the governance model; nobody out there has asked for it; yet it is going to be foisted on all foundation trusts, including the specialised national hospitals, without any evidence at all that patients and the public will thereby be genuinely empowered and still less evidence that it will lead to the one thing that is needed which is good governance. On the contrary, I believe that it will deliver little more than a talking shop for different factional interests and, what is more, factional interests who are legally accountable to no one.

These are half-baked, muddled ideas that carry huge risks. In advance of the Committee stage, I say to the Minister that they are not acceptable to this side of the House. However, if there is one feature of the Government's proposals that for me renders them not simply unacceptable, but actually wrong in principle, it is their effect on the rest of the health service. Foundation trusts will enjoy the advantage of being able to borrow from the private sector in order to enhance and expand their services. But we know from the Chancellor that every pound of foundation trust borrowing is a pound less for the rest of the NHS. There is no extra pot of commercial money for foundation trusts. Their borrowing capacity will be part of a zero-sum game within the health service as a whole.

The Government profess to believe in levelling up the standards of NHS care. I frankly cannot see how that is possible when the very trusts which need capital

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most—those which are struggling zero, one and two star trusts—will be deprived of it while foundation trusts get it because they are considered by Ministers to have earned it as their privilege. As night follows day, financial growth in foundation trusts will mean cuts in the budgets of other hospitals to the detriment of patients. This is a culture that has been described as "dog eat dog". I say unequivocally to the Minister that it has no place in our National Health Service.

I have deliberately chosen to concentrate my speech on perhaps the most politically contentious part of the Bill. Less prominent in the public debate, but no less important, are the Bill's proposals for the new Commission for Healthcare Audit and Inspection and its sister body, the Commission for Social Care Inspection. My noble friend Lady Noakes will be devoting the bulk of her speech to the numerous concerns that we have in that quarter. I will only foreshadow what she is going to say by making one point. Public confidence in the existing Audit Commission, of which I believe there to be a great deal, is underpinned by its very obvious independence from government. If we wish to create an equal measure of public confidence in new CHAI and CSCI, then I firmly believe that these bodies must be allowed to operate as independently of politicians as it is possible to engineer. The Bill as it stands does not remotely provide for that. We will reflect that concern with considerable emphasis in Committee.

With any Bill there will be areas of agreement as well as disagreement between the political parties. My overriding feeling about this Bill is one of acute disappointment; disappointment that its most significant proposals—the ones that in the wake of all the Government's rhetoric we would like to have supported enthusiastically—have in the event been botched. The criticisms that we will be voicing at later stages will therefore be more extensive than I would have wished; but as ever they will be as constructive as we can make them. I look forward to those debates as the avenue to creating a better and more coherent Bill.

3.43 p.m.

Lord Clement-Jones: My Lords, I, too, thank the Minister for his lucid exposition and say how much I look forward to the debate today.

The Bill, which I think is the fifth or sixth health reform Bill that has been put forward by this Government, is a characteristic piece of work. The Government always argue that the next reform in the health service will do the trick, but then a few months later another set of reforms is announced, often contradictory to the previous ones, and followed by a new—guess what?—health service reform Bill.

The depressing thing about having been an opposition spokesman for more than a few years is seeing just how little faith one can place on government's statements of confidence in a particular set of reforms at any particular time. The noble Earl, Lord Howe, very ably described the lurches in policy which have taken place already under this

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Government after only six years. This Government do not just have second thoughts; they have third and fourth thoughts as well.

Sir Andrew Foster, the former chief executive of the Audit Commission, in a valedictory interview with the Financial Times in February, I believe had it right. He said:

    "I worry about the sheer mass of structural change there has been . . . and whether that will really bring the result that is needed . . .

    But one of my experiences of 30 years in public service is that setting up these new institutions and getting them working well always takes two to three years, and longer than people hope.

    People become preoccupied with establishing them, and politicians very often then become impatient, and before you know it there are calls for further change. There is a danger of people getting slightly punch drunk about the amount of change".

I think that that is an understatement.

The fact is, however, that this Bill is an orphan. It limped out of the House of Commons. At Third Reading the Government secured their lowest majority—of 35—during their term of office. The Government had to rely on the votes of their Scottish and Welsh MPs to get the Bill through. Some of the biggest names on the Government Benches opposed it. I make a small prediction that this Bill will have an even harder time in this House.

Let us start with foundation hospitals. Adjustments have undoubtedly been made as the Bill progressed through the other place. However, just because we now might have 63 foundation hospitals rather than 25 does not make them a better idea. Our view on these Benches is that the basis for selection is poor; the star ratings are arbitrary; and there is evidence that the assessment process can be manipulated.

Then we turn to the impact on the wider NHS of foundation trusts. It is doubtful whether all NHS trusts can achieve foundation status within four to five years. In any event, in the interim, foundation trusts are likely to affect the viability of other hospitals in their areas. They will be able to vary employment terms and conditions and to draw staff away from non-foundation hospitals. Foundation trusts will compete with other trusts for resources. That will lead to even greater inequalities between hospitals. The Health Select Committee's comprehensive and probing report rightly questioned whether this kind of competition between hospitals would benefit patients.

There is a great deal of uncertainty about the duty to consult before the initial 63 foundation hospitals are established. Being the first 63, will they escape any kind of consultation requirement? Moves to form foundation trusts are afoot, yet no consultation has actually taken place. Furthermore, no consultation with oversight and scrutiny committees appears to have taken place. On top of that, plans to merge, change or close hospitals which plan to become foundation trusts can be changed up to the very last moment without public consultation.

There is the issue of patient and public consultation. Foundation hospitals will have no duty to establish patients forums or to introduce PALS. There is huge

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disappointment that patients forums are not provided for in the Bill. Simply having a few non-executive directors on boards is no substitute for a properly constituted patients forum.

Critics of foundation trusts will not be mollified by requirements that hospitals will have to prove that all sections of the community are represented. Far from it; the constitution of what are described under the Bill as "public benefit corporations" promises to be a nightmare of bureaucracy. Each trust will have two tiers, a board of governors and a board of directors. A membership—the so-called public constituency—will elect the majority of governors. Non-executive directors must be members. The membership and governance system in each foundation hospital will be locally determined within an overall template. It will be very cumbersome and complex. The membership, for instance, could be 5,000 strong, but it is to be arbitrarily determined. That itself will cause divisions in local communities.

The governance will be massively expensive to administer. This is not cutting red tape but creating more. All this will not lead to better performance or democratic accountability. Public benefit corporations could quite adequately be run as companies limited by guarantee, as many of our major charities are, with trustee directors nominated to represent the communities or stakeholders that they serve.

As a final consequence, the governance provisions could mean that competent non-executive directors, having steered their trust into foundation membership, will actually have to stand down.

What does the financial future hold for foundation hospitals? In fact the Treasury regards them with distaste. Having gone through the hoops to become foundation hospitals, the Treasury will still rule the roost. Ultimately, the NHS budget for acute hospitals will remain unchanged and foundation trusts will be playing a zero-sum game with NHS resources in competition with other parts of the NHS.

Then we come to the extent to which foundation trusts can compete with the independent healthcare sector and the provisions of Clause 15. I am all in favour of strong finances for NHS trusts. But if we genuinely believe in achieving capacity for the NHS and in a mixed economy which allows the private sector to compete to deliver services to the NHS, it is important firmly to restrict the provision of private healthcare by NHS hospitals.

The job of NHS acute hospitals is to deliver for the NHS. The short-term attractions of additional income could skew the system, deter private sector provision of NHS services and fail to make the best use of the capacity of the NHS. There should therefore be explicit limits under Clause 15. I was pleased by what the Minister said today but I believe that that should be enshrined in the primary legislation.

At the end of the day, rather than going down the foundation hospital route, the essence must be to free the providers of healthcare from bureaucracy and central control and to increase democratic

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accountability where it really matters—with the commissioners of NHS healthcare. They are the ones who hold the budgets. It would be much better to make the commissioning system democratic. On these Benches, we say that the best way to achieve that is via local government. Ultimately, it is very likely that, despite all the rhetoric, foundation hospitals will in fact be no freer than they were before this legislation.

I turn briefly to CHAI and CSCI, as the Minister called it. This is the classic third or fourth thought. But we welcome the very late conversion of the department to the regulation of the private sector by a single body along with NHS bodies. We welcome the Government's conversion to a new and broader role for CHAI, which we urged on the then government Ministers some three or four years ago. Last year, Mr Milburn gave an undertaking that the new commissions would be every bit as independent as the Audit Commission.

However, there is a distinct flavour of a lack of independence under the Bill. CHAI is charged to have regard to government policy. There is also the crucial issue, referred to by the Minister, of who sets the standards to be inspected—CHAI or the Secretary of State? The criteria for star ratings should be set objectively and designed to raise clinical quality and improve patient experience. It should not be the Secretary of State who determines the new standards and the criteria for star ratings. Where is the CHAI/CSCI duty to lay a report before Parliament enshrined in the Bill?

However, we take some confidence from the nature of the appointments and the fact that the NHS appointments commission will appoint members of both regulatory bodies. But why should commissioners of healthcare, such as PCTs, not also be covered within the scope of CHAI? After all, CHAI will be inspecting strategic health authorities as part of its duties. Will private dentistry be covered by CHAI, as per the government commitment on this subject?

Generally, the powers of CHAI could be more defined. There should be an explicit duty to ensure implementation of NICE guidance and the national service frameworks to ensure that, for example, mental health services are provided nation-wide or that particular treatment or medical technologies are introduced.

Furthermore, the General Medical Council is concerned about the issue of patient confidentiality and the possible use of personal confidential information by CHAI and the other regulators in carrying out their duties. They should use aggregated or anonymised data where possible and not breach confidential information contained in patient records.

There are also issues relating to the division of responsibilities between CHAI and CSCI. Although generally Clause 29 is sensible in setting out that division, there is concern that treatment of some long-term conditions, such as that provided by brain injury units, and time-limited treatments, such as in relation to drugs and alcohol, will come under CSCI and not CHAI. It is important that each regulator has the

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appropriate expertise in the field which it regulates. In the course of his reply, perhaps the Minister will comment on that.

Again, what are the precise lines of demarcation between CHAI and the Audit Commission? What is the intention behind Clause 57? Is it purely a matter of sub-contracting? There is the issue of national standards. They should be determined independently and not by the Secretary of State. Are the national service frameworks and NICE guidelines not already meant to constitute a set of national standards, or do we see yet another confusing change of direction by the Government?

A number of areas of the Bill deserve discussion but time is moving on and I shall not go through the comments that we have on these Benches regarding complaints, the welfare food scheme and dentistry, in particular. But we shall put forward amendments in Committee.

The Minister may believe that I have engaged in harsh criticism of the Bill. However, he can be reassured that, whatever the criticisms raised today from these Benches, they will be a picnic compared with Bournemouth in three weeks' time.

It is unfortunate that great swathes of the Bill received no scrutiny at all in the Commons. Foundation hospitals are, of course, at its core but it has many other flaws as well. On these Benches, our aim is to force the Government to scrap completely this half-baked scheme of reform. Foundation hospitals were nowhere in the Government's manifesto at the last election and there has been no consultation on these proposals, as the noble Earl, Lord Howe, pointed out. The Secretary of State who dreamt up these proposals is not even in office. On these Benches, we greatly look forward to the Committee stage and to improving the Bill.

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