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"( ) Every NHS foundation trust shall publish a statement of its total income and expenditure relating to the goods and services referred to in subsection (4) in each financial year."

On Question, amendment agreed to.

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Clause 25 [Dissolution etc.]:

Baroness Noakes moved Amendment No. 6:


    Page 11, line 19, at end insert—


"( ) An order may not be made in respect of property and liabilities under subsection (3) if it appears to the Secretary of State that the property remaining in the NHS foundation trust immediately after the transfer will be insufficient to meet the liabilities remaining in the trust at that time unless the Secretary of State has made arrangements which have the effect of leaving the creditors of the trust in no worse a financial position on a dissolution of the trust than if the property and liabilities had not been transferred by the order."

The noble Baroness said: My Lords, this amendment would insert into Clause 25 a new subsection dealing with what happens when a foundation trust is wound up. We had an interesting debate on the financial failure regime on Report. Throughout, we have expressed surprise that foundation trusts, which are classified by the Office for National Statistics as central government, will not be backed by explicit or implicit government guarantees. If NHS foundation trusts have one differentiating characteristic from NHS trusts of the non-foundation variety, that is it.

Accepting that the Government were set upon the policy, our concern shifted to the effect of the Bill, which appeared to leave private sector creditors and lenders to shoulder the whole burden of any financial loss when a foundation trust goes belly up. That would not have been fair. On Report, I thought that I was crying in the wilderness, so little effect did my words appear to have on the Minister. But I am delighted to see that he has tabled other amendments in this group, particularly Amendment No. 28, which will make the first regulations under Clause 26 subject to the affirmative procedure. I shall say no more on my amendment but look forward to the Minister's explanation of his. I fully expect to be able to withdraw my amendment in due course.

When the Minister speaks to his amendments, will he say whether the Government believe that public dividend capital is a liability of a foundation trust? The implication is that the Government would bear loss proportionately with other lenders or creditors. I am not saying that I object to that, but I would like it to be clear, because public dividend capital, throughout its history, which predates its use in the NHS, has always been a form of hybrid financing, not fitting into any private sector pigeonholes. With the use of the private sector insolvency regime proposed in the Bill, it is necessary to be clear.

Clarity is particularly important to lenders and creditors. The Minister said on Report:


    "It is clearly very important that the insolvency regime applied to NHS foundation trusts is completely transparent so that those who are thinking of doing business with them can properly assess the risks, particularly should one fail".—[Official Report, 6/11/03; col. 1029.]

We agree, which is why I hope that the Minister will clarify today the status of PDC. I beg to move.

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4.45 p.m.

Lord Warner: My Lords, we listened carefully to concerns raised by the noble Baroness that the provisions on dissolution could be applied in a way that was unfair to creditors. Although that was not our intention, we saw that we needed to address legitimate concerns. We therefore propose to introduce safeguards to address those concerns, through Amendment No. 10 and its consequential amendments, Amendments Nos. 7, 8 and 9.

In earlier debate about the failure regime for NHS foundation trusts, we made it clear that the Secretary of State must be able to ensure the continuity of essential NHS services. I do not believe that there is any difference between us and the opposition Front Bench on that. New subsection (4), to be introduced by Amendment No. 10, makes explicit that any transfer of assets made by the Secretary of State must be motivated by the need to ensure continuity of the protected services that the NHS foundation trust is required to provide under its terms of authorisation.

Only property linked to the provision of protected services may be transferred—for example, hospital buildings and equipment—and liabilities may be transferred only to the extent that that is necessary to ensure the continuity of protected services, not simply because they relate to, or arise from, the provision of those services. The intention is that the Secretary of State would transfer only those liabilities that relate to his interest in the failed NHS foundation trust, including public dividend capital, loans made for developments in protected services and contractual liabilities relating to staff, together with any fixed charge on property transferred. He would not selectively transfer liabilities beyond that in a way that would favour some creditors over others.

We have also made it clear that the Secretary of State would not remove valuable assets from an NHS foundation trust without recompense, which could penalise creditors by reducing the funds available for distribution in winding up. New subsection (5) requires the Secretary of State to ensure that any transfer does not result in a net loss of value to the NHS foundation trust. That means that if the value of the assets transferred by the Secretary of State to ensure continuity of protected services is greater than the value of the liabilities transferred, as described above, the Secretary of State will need to fund the difference. He can do that under his powers in Clause 11(2). The funds injected by the Secretary of State would then be available to the NHS foundation trust's creditors for distribution in winding up.

New subsection (5) will have the same effect as intended by opposition Amendment No. 6. I hope that the opposition Front Bench will find it an acceptable alternative to their amendment. Subsection (5) includes a power to make regulations setting out the rules on how the net value is to be calculated. That will include rules on how the assets and financial liabilities are to be valued. As a result of Amendment No. 28, the regulations will be subject to affirmative procedure in the first instance, with subsequent sets of regulations subject to the negative procedure.

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New subsection (6) ensures that the Secretary of State, in applying a modified version of the Insolvency Act 1986 to wind up an NHS foundation trust, cannot modify insolvency law to discriminate between different types of creditor. Once a winding-up procedure has begun under Clause 25(4), the NHS foundation trust's debts must be dealt with according to the same priority that applies in the Insolvency Act.

We intend to ensure that creditors have sufficient information to assess the risk of doing business with an NHS foundation trust—not in the expectation that every small business dealing with an NHS foundation trust would assess its creditworthiness, but because, as a point of principle, it should be no more difficult for potential creditors that wish to make such an assessment than if they were dealing with a company. NHS foundation trusts will, therefore, be required in their accounts clearly to set out the Secretary of State's interests so that creditors can easily see what property and liabilities may be transferred by the Secretary of State when winding-up procedures begin.

No amendment is required to effect that aim; it is secured through the requirement for the Treasury to approve the accounting requirements for NHS foundation trusts that appear in the schedule on the constitution of public benefit corporations. That schedule would need to be re-introduced if NHS foundation trusts are to be established, and we will look to the other place to do so.

In response to the noble Baroness's question, public dividend capital is an asset of the Consolidated Fund. It is issued to NHS organisations on the basis that it can be required to be repaid, and, as such, is a liability.

Baroness Noakes: My Lords, I thank the Minister for that explanation and for taking on board the points made in earlier stages. I still believe that this is a hugely complicated area. I hope that we now have sufficient legislative cover. As the Minister is aware, I am moving from the health brief to pastures new and would like him to know that I am looking forward to the first affirmative regulations under this clause. I beg leave to withdraw the amendment.

Amendment, by leave, withdrawn.

Clause 26 [Sections 23 to 25: supplementary]:

Lord Warner moved Amendments Nos. 7, 8, 9 and 10:


    Page 11, line 31, leave out subsection (1).


    Page 11, line 32, at beginning insert "In sections 24 and 25"


    Page 11, line 33, at end insert "under section 24(2)"


    Page 11, line 39, at end insert—


"(4) The power conferred by section 25(3) is to be exercised with a view to securing the provision of the goods and services which the authorisation requires the trust to provide.
(5) That power is also to be exercised (together, if required, with the power conferred by section 11(2)) with a view to securing that any transfer of property in pursuance of the power does not result in a net loss of value to the trust; and the question whether a transfer would result in a net loss of value is to be determined in accordance with regulations.
(6) The Insolvency Act 1986 may not be modified under section 25(6) so as to alter the priority of debts or the ranking of debts between themselves."

On Question, amendments agreed to.

18 Nov 2003 : Column 1882

Clause 31 [Patients' Forums]:


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