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Baroness Carnegy of Lour: The noble Baroness has expressed very clearly the view that I imagine would pertain in very large parts of the health service. That is entirely natural because it is the culture in which National Health Service employees have lived over many years.

At the same time, if one stands back a little from the health service, one sees that one problem involved in running 1 million people from the centre is that of national wage negotiations. That poses a big problem for the health service because of the different costs in different parts of the country and the fact that people are far better off in one part compared with another and that therefore, as my noble friend Lord Howe said, money is being paid unnecessarily to some or too little is being paid to others. That causes a great economic difficulty for the health service.

As can be seen from the record of industries that have moved into the private sector, an extraordinary difference occurs when national pay bargaining comes to an end. However, that subject is for another day because we are discussing only foundation hospitals.

Frankly, foundation hospitals are not going to be free at all. They will suffer from a combination of the barnacles that will be attached to what could be a very good ship by the governance arrangements, which we have already discussed, and the difficulties caused by bringing in politics and imposing national pay bargaining. Because foundation hospitals are not being allowed to negotiate their own arrangements, it will not be possible to use the money that they generate through greater efficiency to improve the pay and conditions of staff, which is what they should be able to do. It will not be possible for them to influence nearby hospitals with regard to improving their standards. As I believe the noble Baroness said, the only way that it will be possible to improve the pay and

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conditions of staff will be to alter their jobs so that they are promoted and do something extra. That is the present situation, and that hampers everything.

It is extremely unwise of the Government to prevent foundation hospitals being free. The whole idea will falter on that. Originally, I thought that my party's opposition to foundation hospitals was wrong, but the more I look at the Bill the more I realise that it cannot work. This is one of the main obstacles. I feel very strongly about this. The Liberal Democrats and the Government are 100 per cent wrong. I support the amendment.

Lord Warner: It is clear from this debate, and will become even clearer after I have spoken, that the Government are positioned very neatly between the noble Lord, Lord Clement-Jones, and the noble Earl, Lord Howe. I have to say that I feel pretty comfortable in that particular position.

However, I reassure the noble Earl that I would not dismiss with derision the points he makes. Certainly, we agree that NHS foundation trusts should have a degree of flexibility when it comes to staff pay and conditions; indeed, just as NHS trusts do now. Noble Lords probably will be impressed by the kind of practical issues raised by the noble Baroness, Lady Finlay. Those are important considerations.

With the state of my voice, I shall not engage in the kind of ringing phrases used by my noble friend in another place. I should like to set out what I think is pretty convincing architecture which the Government have put in place through the Bill and its policy approach. It is worth reminding the Committee that Ministers are not now involved in pay negotiations. They cannot unilaterally amend the results of those negotiations between employers and employees or introduce new ones. It is our belief that employment contracts are a matter for staff, unions and employers, not for third parties. We start from that position.

However, it is essential—we have said this on a number of occasions; no doubt I shall be accused by one or two noble Lords of having a mantra on this—that foundation trusts act in ways that are consistent with equal pay principles and do not prejudice the interests of the wider NHS, including NHS employers. As I said on an earlier amendment, a "beggar your neighbour" policy among NHS bodies serves no one's interest. The danger with the amendment tabled by the noble Earl is that it could encourage people along that particular path.

The balance between freedom for staff, unions and employers to negotiate what is right for them, flexibility for NHS foundation trusts and looking after the interests of the wider NHS is precisely what we are achieving in the current arrangements that will apply to NHS foundation trusts. We have struck that balance. The issue of balance arises in different guises in the Bill.

As I said earlier, NHS foundation trusts will implement the new Agenda for Change pay system. Again, to repeat what was said earlier, the Secretary of State simply will not support applications from NHS

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trusts without a commitment to implement Agenda for Change. Under the new pay system, foundation trusts will be specifically represented in forums for national collective bargaining on staff terms and conditions. That will be a contractual right for all Agenda for Change staff so that they will be part of that negotiating process. They are not excluded from that negotiating process. They are not, in effect, outside it—that is to say, being told the results and having to lump it. They are part of the process of settling the terms under Agenda for Change. Because there are alternative means for enabling foundation trusts to sign up to Agenda for Change, there is no need, as the noble Lord, Lord Clement-Jones, suggested, to make legislative provision for this in the Bill. Perhaps I may say to the noble Lord, as an aside, that it is quite inappropriate to include a reference to Agenda for Change in legislation as it is a term based on the outcome of a nationally negotiated agreement between the employers and unions and not a statutory body or scheme in the sense that is usually used in a Bill.

Turning to the detail of Amendment No. 182, I do not know whether I shall reassure the noble Earl, but I shall try. We believe that it is not right to suggest that a foundation trust should or would want to have a right in statute to ignore future pay agreements when the vast majority of the staff will be employed on terms negotiated under such contracts as would be the case if we were to take the amendment at its face value. The noble Baroness, Lady Finlay, made an important point about the fact that NHS employers have many staff who do not stay in one place for their whole careers. They move around and there are some issues concerning their ability to have some sort of framework as points of reference, which Agenda for Change produces.

As I said, these national negotiations are a matter for employers and unions and not the Secretary of State. I emphasise again that it is also not for the independent regulator to interfere. Negotiations are not matters in which either the Secretary of State or the regulator should be involved. In concluding on why we do not think the amendment is appropriate, I should point out that we have had a number of discussions about partnership working. That is why NHS foundation trusts will be subject to the same statutory duty of partnership that applies to all NHS bodies—a duty to co-operate in the exercise of their functions.

In our view an amendment such as Amendment No. 182 would cut across that partnership approach and having to have regard to a wider NHS interest. For those reasons and some of the other reasons I have suggested, we believe that it is inappropriate.

Lord Clement-Jones: Although the Minister has just displayed admirable consistency with his previous response on Monday, I want to put on record that noble Lords on these Benches do not believe that it is wholly satisfactory. I well understand his unwillingness to include in the Bill references to Agenda for Change. That is simply a device to debate this issue once more. However, what is particularly troubling is the fact that the regulator will have no

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place in this process at all. I can well understand wishing to keep this as a matter between unions and employers, but to have no regulatory mechanism at all in these circumstances bodes very badly for foundation trusts. That is the root of many objections to foundation trusts, particularly on the staff side. No doubt we shall return to this issue.

Earl Howe: Once the Secretary of State has given approval for a foundation trust to be authorised on the condition that that trust signs up to Agenda for Change—quite obviously, in the light of what the Minister said—what would happen if the regulator did not see eye to eye with that point of view, was ambivalent about Agenda for Change and the foundation trust then decided that it did not want to have anything to do with it? Would the regulator be obliged to make Agenda for Change a condition of the licence in the light of the Secretary of State's point of view, or is the regulator free to say that he has no views on the matter?

Lord Warner: It is not for me to second guess the regulator who no doubt would want to take account of the Secretary of State's position in approving a particular applicant for foundation trust status. It would be a matter of public record that that was the Secretary of State's position and that that was the condition on which he had approved a particular application to go forward to the regulator in that sense.

The regulator would have to make his own judgments either before he had considered giving authorisation or after if, indeed, the behaviour had changed from that which was expected at the time he had given it. Both circumstances could apply. The regulator would need to consider whether in subsequent behaviour by a foundation trust there had been a significant breach of the conditions under which he had given the authorisation. The noble Earl and I could debate the issue all day, but none of us is clever enough to think of the myriad of circumstances under which that might happen.

The regulator would then make a judgment about whether he wanted more information from a foundation trust, or whether ultimately he thought that the trust's collective behaviour had been so significantly different from that suggested in its application for foundation trust status that he had to take some appropriate action. I repeat that the duty of partnership is there and would be an important issue if there was a gross change of behaviour by a foundation trust after an authorisation had been given.

I have done my best to try to clarify matters for the noble Earl.

11.30 a.m.

Earl Howe: I am most grateful to the Minister. I agree with him about the duty of partnership. That is in the Bill for a purpose and I share the noble Lord's interpretation of that purpose.

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The fact remains that if the regulator is of a free market disposition and is indeed an independent entity then it does not really matter what the Secretary of State believes in these situations. If a foundation trust were to break away from Agenda for Change, and provided it did not destabilise the local health economy, I should not have thought that the regulator could object too much. So I think that we are entering some very interesting territory. I shall read very carefully what the Minister has said on the issue.

However, it seems to me that my noble friend Lady Carnegy was absolutely right—and I must disagree with the noble Baroness, Lady Finlay, for whom I have an enormous amount of respect and time—that a beggar my neighbour approach and driving up the cost of healthcare is not actually what happens in the healthcare economy. Yes, sometimes people leave hospitals because they will get a little more money, but it does not happen on a great scale. If the noble Baroness really fears that this will happen, then logically she should be against Agenda for Change, because that presents the same kind of opportunities for pay rises in the NHS.

The NHS cannot exist outside the whole economy. If we are going to have foundation trusts that are truly free to assume responsibility for themselves, their patients and for their local communities, there should be no place for a straitjacket of national pay agreements that does not take account of the realities of the local market place. If, in urgent individual cases, a manager judges that he can justify paying more than the maximum limit laid down by Agenda for Change in order, for example, to prevent a serious staffing shortage, he should be able to do so.

We can learn these lessons from Spain and Sweden where pay freedoms have been allowed with the result that productivity and morale have prospered without detriment to the rest of the health economy.

I am most grateful to all noble Lords who have taken part, whether or not they have agreed with me. I beg leave to withdraw the amendment.

Amendment, by leave, withdrawn.


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