Previous Section Back to Table of Contents Lords Hansard Home Page

Lord Clement-Jones: I shall be brief. It is extraordinary how, under the provisions before us, the foundation trusts are still shackled as regards their borrowing powers. It is almost like a Faustian pact. We have seen the politics of it, but it is the Treasury's continued determination to control foundation trusts that has led to this complicated set of provisions. If the term "control freaks" applies to No. 10, it applies to the Treasury with even greater force.

Our amendment proposes a different form of loosening of the bonds. It states simply:

That is the key to the matter, but we believe that lenders will impose restrictions in any event on foundations in those circumstances and all the paraphernalia of the Bill will only make life far too complicated for foundation trusts.

The Minister will accuse me of accusing him being of either too timid or too impetuous. In this case, he was too timid, but it is perfectly possible to combine the two, because he is being impetuous by imposing a model that is untried and untested, but that model, in many respects, particularly in respect of borrowings, is far too timid. I hope that he realises that it is possible to square the circle.

11.45 p.m.

Lord Warner: I will not respond to the previous remark. All I would say in relation to some of the comments made is that I used to have to say in a previous incarnation that some of my friends were social workers; now I have to say that some of my friends are in the Treasury. I am not sure that they are quite as sinister as the noble Lord suggests.

I shall address Amendments Nos. 176 and 177 together. The prudential borrowing code will balance the need to provide a framework that safeguards NHS finances while giving foundation trusts freedoms to borrow without reference to the regulator or to the Secretary of State.

Amendments Nos. 176 and 177 would take away that balance of safeguarding patients' interests while allowing freedom to innovate. That would either reduce the NHS to a market with no protections for NHS patients and services or give no clarity about what prudential borrowing means. Amendment No. 176 in particular would allow foundation trusts to borrow up to 1 per cent of their income irrespective of their outgoings. That is quite inappropriate, since the ability to service debt is more likely to be determined by cash flow than by income alone.

Amendment No. 177 would allow foundation trusts to borrow without limit, provided that protected assets were not at risk, but that is not a safeguard against financial failure. Even without being able to secure borrowing against protected property, a foundation trust could run up unaffordable debt. We consider the

13 Oct 2003 : Column 751

amendments to be a trifle irresponsible and the level of risk of failure is simply not acceptable for organisations which will be providing an essential public service.

I fear it is likely that I shall continue to be accused of being timid, but that is the Government's position. In any event, Clause 16 already provides that foundation trusts may not use protected property as security for loans without the approval of the regulator. This safeguard ensures that the property of a foundation trust that is used to provide essential NHS services is not endangered by the trust's borrowing. That is another attempt by us to protect essential services for NHS patients.

I turn to Amendment No. 178. The principle that an NHS foundation trust should not be penalised because its prudential borrowing limit is revised to a level below its current borrowing is correct, but the amendment is unnecessary. The regulator has no powers to intervene in a loan or other borrowing agreement a foundation trust has already undertaken. Any such agreements would not be affected by a change in a foundation trust's borrowing limit. The foundation trust would simply be unable to borrow any more until it had fulfilled its previous commitment.

On Amendment No. 179, the prudential borrowing code will provide a clear and transparent framework governing borrowing by foundation trusts based on their ability to repay. The annual review, I suggest, should provide ample opportunity to take account of changes in foundation trust's circumstances. In exceptional circumstances—for example, in response to a breach or serious failure—the regulator can still exercise his powers of intervention under Clause 23 to place restrictions on a foundation trust's borrowing beyond the borrowing limits determined by the prudential borrowing code. Alternatively, he could set extra conditions to an authorisation about borrowing over and above those in the code. So we do not agree with this amendment for the reasons I have indicated.

Baroness Noakes: I thank the Minister for his response. He mentioned that Amendment No. 176 referred to a limit of 1 per cent of income. Actually, it was 100 per cent of income. If he expressed shock at 1 per cent, 100 per cent will shock him even more—and I am unrepentant about that.

Lord Warner: That was a slip of the tongue. I meant 100 per cent.

Baroness Noakes: I note what the Minister has said. He owned up to having friends in Her Majesty's Treasury. I shall make a confession to the Committee: I worked for two years at the Treasury and so I clearly recognise the kind of Treasury thinking that has dominated this part of the Bill.

From our perspective, the borrowing codes will squash the entrepreneurialism out of NHS foundation trusts. We thought that they would become more creative in this area, but the more we see of how the provisions will work, the more negative and

13 Oct 2003 : Column 752

constraining rather than enabling they appear to be. We will therefore want to continue to consider these issues.

I was grateful for the Minister's comments on Amendment No. 178: that there was no question of foundation trusts having to reduce borrowing imminently in order to meet a new borrowing limit. That was a helpful clarification. I shall consider carefully his reply before considering what to do at a later stage. In the meantime, I beg leave to withdraw the amendment.

Amendment, by leave, withdrawn.

[Amendments Nos. 177 to 179 not moved.]

Baroness Noakes moved Amendment No. 180:

    Page 8, line 17, at end insert—

"( ) An NHS foundation trust may not invest in assets or classes of assets prescribed by the regulator."

The noble Baroness said: Subsection (4) provides that:

    "An NHS foundation trust may invest money . . . for the purposes of or in connection with its functions".

Our amendment proposes that it,

    "may not invest in assets or classes of assets prescribed by the regulator".

Its purpose is to discover whether the Government intend to give foundation trusts carte blanche to invest surplus cash as they wish. It is quite possible that a foundation trust would have surplus cash; for example, it may be accumulating surpluses to finance a new capital development which it has not paid for. It will be right and proper that that surplus cash is put to good use and not simply left in the bank. Will the Minister say what he expects to happen if a foundation trust has surplus cash? I believe that NHS trusts are currently required to deposit surpluses as reverse NLF. I may be out of date with regard to that, but I am sure that there are some kinds of restriction on what they can and cannot do.

Noble Lords may remember what happened in the London Borough of Hammersmith when the director of finance thought it a good wheeze to invest surplus cash in derivatives without realising how risky those investments were. More recently, another council finance director thought it a good idea to deposit money with BCCI without understanding the basic rule that higher returns equate with higher risk. The financial world is full of high-risk investment opportunities—split caps, precipice bonds and so on.

If the Minister does not like my amendment, will he say what controls or constraints there will be to stop a foolish foundation trust investing its money unwisely? I beg to move.

Lord Warner: There is no need to give the regulator a specific power to limit the nature of assets in which foundation trusts may invest. Under Clause 14(3), the regulator already has powers to restrict a foundation trust's non-healthcare-related activities. He could therefore exercise that power to restrict the nature of

13 Oct 2003 : Column 753

the assets in which a foundation trust could invest, if he had good reason to do so. The legislation already restricts the power of foundation trusts to invest,

    "for the purposes or in connection with its functions".

That limits foundation trusts to investments that fall within the framework of the legislation. That means that a trust cannot simply invest in any venture that it sees fit. We would expect the regulator to provide some kind of guidance in this area.

In addition, the regulator's powers to limit investment are broader than those proposed in the amendment. First, Clause 6(3) gives the regulator the power to set any terms to an authorisation that he or she sees fit, and that includes terms relating to investments. Secondly, under Clause 14(3), the regulator has powers to restrict a foundation trust's non-healthcare-related activities, as I indicated. Therefore, he could exercise that power to restrict the nature of assets in which an NHS foundation trust could invest. Thus, we believe that plenty of safeguards

13 Oct 2003 : Column 754

exist and that there is plenty of scope for the independent regulator to give guidance to foundation trusts if they are in doubt.

Baroness Noakes: I thank the Minister for that reply. I must confess that my attention started to waver as we are just coming up to midnight. I shall read his response carefully tomorrow in Hansard. I beg leave to withdraw the amendment.

Amendment, by leave, withdrawn.

[Amendment No. 181 not moved.]

Clause 17 agreed to.

Baroness Andrews: I beg to move that the House do now resume.

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

House resumed.

        House adjourned at one minute before midnight.

Next Section Back to Table of Contents Lords Hansard Home Page