UNCORRECTED TRANSCRIPT OF ORAL EVIDENCE
To be published as HC 1431 -i

House of COMMONS

Oral EVIDENCE

TAKEN BEFORE the

Health Committee

regulatory bodies: the work of monitor

thursday 14 July 2011

dr david bennett, stephen hay and adrian masters

Evidence heard in Public Questions 1- 71

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Oral Evidence

Taken before the Health Committee

on Tuesday 17 May 2011

Members present:

Mr Stephen Dorrell (Chair)

Andrew George

Mr Virendra Sharma

Chris Skidmore

David Tredinnick

Valerie Vaz

Dr Sarah Wollaston

________________

Examination of Witnesses

Witnesses: Dr David Bennett, Chair and Interim Chief Executive, Stephen Hay, Chief Operating Officer, and Adrian Masters, Director of Strategy, Monitor, gave evidence.

Q1 Chair: Thank you very much for joining us this morning. As I am sure you know, this was a session we originally timetabled for a few weeks ago and you were called away to give evidence to the Bill Committee. You are very welcome here this morning. Could I ask you to introduce your colleagues so that we know who we are talking to?

Dr Bennett: Yes. Stephen Hay is Chief Operating Officer of Monitor. He runs all our regulatory operations, which is both the assessment and compliance process for FTs. Adrian Masters, until recently, was Director of Strategy and Policy but has now also taken on the role of Transition Director, leading the work that we are doing to prepare for our new role.

Q2 Chair: Thank you very much. I would like to begin, if I may, by asking you to reflect on what that new role will be. It has clearly been an evolving scene. It would be interesting to the Committee to hear your view as to what was originally proposed, what is now proposed, what are the key changes and what are the implications of those changes.

Dr Bennett: Let me do this by going through each of the major functions that we will have. One overarching point that should be made is this. The Bill originally made it clear that our fundamental duty should be to protect and promote the interests of service users. That is not fundamentally changed, although it is given more emphasis in the amendments, which I think is a good thing.

We can then look at the components of our role, and I will start with perhaps the more straightforward ones such as pricing. We continue to have a role in setting prices and tariffs for the providers of NHS services. As before, we do that in conjunction with the Commissioning Board. The Commissioning Board defines what it is that should be priced and we price it. There is not a lot of change there. There are some requirements, particularly around issues of cherrypicking, which people were concerned about. We had said that we thought one of the ways to deal with cherrypicking was to make sure that prices were as reflective of the underlying costs as possible. That is now mentioned explicitly in the Bill, which is clearly a good thing. The whole role of the pricing function is as it was.

The second of our roles is around continuity of supply, making sure that essential services can still be provided even if the provider of those services gets into difficulty. This is also all wrapped up with notion of a failure regime: what you do as providers get into difficulty. That role, fundamentally, remains, but the specifics of the failure regime are being changed. The Government have not yet said what the details of the new failure regime will look like, but they have said that there will be a failure regime. My understanding is that it will still have the basic and important characteristics: it is coherent; it has a distress element as well as a failure element; it is objective, transparent and so on. As to the detail, we are still waiting to see exactly how they are going to amend that.

The next element of the role-the one, frankly, that was the most controversial-was originally characterised as being about promoting competition, which was an explicit duty in the Bill. That is now taken away as an explicit duty. It would be better therefore to characterise what we are doing in this area as being about cooperation and competition, which is, in effect, the way it is characterised today. The body that looks at this today is called the Cooperation and Competition Panel. The rules that state how players in the service should operate are called the Principles and Rules for Cooperation and Competition. That is the label I would give it. There is a stronger focus on aspects of cooperation as well as competition and, indeed, there are some changes around our role with regard to competition.

Some of this is mostly about restricting, constraining or defining how we should undertake our role. I would like to believe that, in almost all respects, these are things we would have done anyway, but the truth is the original version of the Bill did give us a lot of freedom to interpret how we would undertake our role. That is now more clearly defined and, in that sense, I think, is a good thing. As I say, the things we are constrained to do and the way we are constrained to operate are broadly the way we would have done things anyway.

There is a shift. As I say, the duty to promote competition is gone and, instead, we have a duty to promote an efficient, economic and effective provision of health care. What that does is to place any use of competition in the context of other ways in which you can promote the interests of patients. In so far as we would conclude, in the future, that competition would be a useful way-among other tools we have available-to further the interests of patients, what it now requires is a much stronger burden of proof from us that competition is the right tool to use in those circumstances. Again, I welcome that. Even if we did not need such a strong burden of proof in the past, it was extremely important that we were very clear why we were doing things and, as far as possible, took all the relevant stakeholders with us. The best way to do that is to explain what the justification is. That is now a much clearer requirement on us. There is also a focus in the new duties on taking action with a view to maintaining, or even improving, the quality of care. Again, it is always important and not bad that we now have an explicit focus in that area.

There are a couple of specific things that have changed in the competition area as well as this significant change in emphasis. One of them is around the ability to promote any particular sector, for example to promote the public sector versus the private sector versus the voluntary sector. Neither we nor anyone else is now allowed to do that according to the new provisions, which I do not think is an issue.

There is a second change, which is that the original version of the Bill allowed us to specifically require that one provider should make available some of their facilities to another provider. This has now been explicitly ruled out. This is an area where I wonder whether the full consequences are going to be quite what people were looking for. I can imagine some circumstances where, for example, one foundation trust wants to provide a service in the locality of another foundation trust and, in order to do that, they want to have access to the facilities of the second foundation trust. In the past, if we thought that was the right thing for patients, we could have required the second foundation trust to make their facilities available. We would not be able to do that now. There are other examples where you could imagine that it might be desirable. Of course, if the various players cooperate with each other, maybe it is not an issue and it is a power we would not have used anyway, but that is a rather specific change. Thus, there is clearly a significant change in emphasis in the cooperation and competition area of our responsibilities.

Finally, licensing is the vehicle through which we get to do a lot of these things. It is the way in which we make sure providers have to use the tariff that we set. It is the way in which we can stop anti-competitive behaviour if we see that going on and so forth. Licensing, essentially, remains as it was. Some of the details will change because the other things have changed, but, as a process, that remains as it was.

Chair: Thank you very much. That is a full answer. The reference to your role on care quality as well as economics raises a question that I know Valerie wants to put to you.

Valerie Vaz: I thought you were going to do that, Chairman. Go ahead.

Q3 Chair: The question we were asking ourselves, thinking about the roles of the different organisations here and given that we know there is a very long memorandum of understanding between you and the Care Quality Commission defining who does what, is whether it would be easier if it was one body rather than two.

Dr Bennett: My answer is no, and for two quite practical reasons. One is I think it is attractive that the quality regulator is unencumbered by considerations of financial performance, particularly looking at our current role as the FT regulator where we have to worry about the financial stability of the providers as well as the quality of the care they are providing. The fact that we do that separately from the CQC and they can focus entirely on quality-and, therefore, for example, in reaching a decision about whether or not the quality of care is acceptable they do not need to consider whether there are any financial consequences for the provider when they have reached that decision-is an attractive thing. That is one reason why putting the two together, in my view, would not be the right answer.

The second-and, in a way, this is an even more practical issue-is a managerial point. The scope of what the CQC has to do is already enormous. For the moment, it is further complicated because they are still in the process of merging three previous organisations. I have been involved in doing that sort of thing and it is a big task. I do not think there is any question but that the leadership group of the CQC face a very challenging task. Frankly, so do we. As FT regulator, I think we have been doing all right. We have a major new role to build, create and get right. It would be an unmanageable task to ask one leadership group to take responsibility for both those challenges. I would also wonder how much would be gained from doing it. I can see the downsides.

Q4 Valerie Vaz: You say in your memorandum, though, that there is overlap in some of the work you do and you mention quality as well as finance. Do you take that into account or not?

Dr Bennett: Our job is to make sure that trusts are well governed, and that is in terms of finance and quality. We do absolutely concern ourselves with quality, but we are very clear that, when it comes to the specifics of establishing whether or not a provider is meeting the essential standards of quality care, that is for the CQC to do, and then we base our decisions on their findings. That is why we have to work extremely closely together, but we are quite clear that, when it comes to really assessing whether the performance of a trust is acceptable or not, that is for the CQC.

Q5 Valerie Vaz: You are doing that and you have mentioned that you speak to them-I think-once a week. I am concerned or unsure about the mechanism of that. Do you pick up the phone to Dame Jo Williams and say, "By the way, this is happening and that is happening"? I wonder whether some of your role falls between the two stools, because you have mentioned that there is an overlap. I am concerned about the costs of running two big organisations. Could that not come under one body with different functions?

Dr Bennett: First of all, as to the issue of how we work together, as the Chairman said, we have a fairly detailed memorandum of understanding, which sets out a lot of how we work together. There are lots of formal processes and regular meetings with people at different levels in the organisation. That is true right the way up to meetings of the two chief executives. In addition, we have a lot of informal contact. A lot of that will be about specific issues. For example, if we find a trust where we are alerted to a problem-through some interaction we have either with the trust or with stakeholders in the trust-we will alert the CQC, and if they find an issue in one of the foundation trusts, they will talk to us in a similar way. There are informal exchanges as well as formal.

There is a degree of overlap. It is quite small and it would be fair to say it is deliberate. That is around what we call quality governance. In terms of the performance of trusts- whether they are delivering safe care-that is very definitely for the CQC. We have to worry about whether, overall, the trust is well governed. That includes, "Does it govern the processes around quality well?" It is not only, "Is it providing safe care today?", but, "Does it have the right processes and systems in place to ensure it provides high quality care in the future as well?" We look at that as, to a degree, does the CQC. There is a little bit of overlap there, but it is a very small part of what either of us does. It helps to ensure that there aren’t things falling between the gaps-or a gap, were there to be one between us.

You might say, "If we put the two together, would this reduce costs?" You could certainly say that the costs within that quality governance would be somewhat less. That would be a very, very small part of our total costs. You might say we could share back-office functions, "Wouldn’t that, at least, reduce costs?" One, the Government has an initiative going on-and the Department of Health, of course, is fully involved in this-to arrange for all arm’s length bodies to share backoffice costs where possible, so that will happen anyway and, two, in a very specific area where Monitor and CQC could have duplication, which is their registration and our future licensing of providers, we are going to work together. Indeed, because they already have a registration process, they are effectively going to do it for us. That means no extra cost, or at least minimal extra cost. Also, from the provider’s point of view, it means they are not facing a new body asking for information. You would have one board instead of two. You might think you could have one chief executive rather than two, although, frankly, it is such a big scope that you would finish up with the equivalent of two chief executives anyway. I think the actual costs savings in relation to our total budget are likely to be very small.

Q6 Valerie Vaz: Focusing on the costs but also the way you do business, if you are doing business together anyway by picking up a telephone, what if you are in a meeting and someone tells you something very important that is going on in a trust, for example, the CQC are ringing up-as you seem to do a lot by telephone or in meetings-and no one is picking up and getting a grip of what is happening? Clearly, we can’t lose sight of the fact that there is a lot of worry out there in terms of care of the elderly, what is going on in homes and that the CQC have been found to be failing in that regard. It is if something is not quite right-I am not focusing only on the costs-and how you work together. You clearly are working together, and maybe there is-I am just exploring it as a possibility to try and stop what is happening-an overlap of duties. Maybe it could be a board with two chief executives, two separate arms. You are doing two jobs now, aren’t you?

Dr Bennett: As it turns out, I am, but they are not quite the same thing.

Q7 Valerie Vaz: Exactly. I don’t know how you are doing that.

Dr Bennett: That is a separate question. The CQC themselves would confess there are some difficulties they are having to deal with. I do not think those are difficulties that have anything to do with potential or actual interfaces or overlaps with Monitor. For example, the issues in adult social care-we don’t have any responsibility in adult social care-are about their inspection regime, and I am sure they are seeking to address those. I am absolutely clear that putting the two organisations together would not only have changed that situation but, at the margin, would have made it more difficult. It would have made the managerial and oversight tasks of the board even more difficult because they had so much more to look at.

Q8 Valerie Vaz: But you are going to license a whole new range of providers, aren’t you?

Dr Bennett: We will be licensing all providers, except perhaps the very small ones. That is why the administrative processes need to be fully integrated. Yes, you are right in the sense that either we or the CQC, in our current or future roles, might identify an issue in a trust or a provider which the other body needs to know about, and there has to be some mechanism-phone calls or whatever it is-to make sure that they find out. However, frankly, if we are all part of the same organisation, the same would be true. There is plenty of evidence of sometimes, within a single organisation, ineffective communication creating difficulties. I do not think putting them together would solve it.

Q9 David Tredinnick: I am very interested in what you are saying and my colleague’s line of questioning. I am mindful of the fact that in the House we used to have three House Committees-there was an administration Committee, a catering Committee and, I think, a security Committee. Some years ago they were all amalgamated with much screaming and all the rest of it. Now everyone is very content and we have a streamlined organisation. Personally, intellectually, I cannot see how a hospital can be well governed by governors who are not focusing, as a core activity, on care quality. If they are focusing on care quality as part of their core activity, then I cannot see how you need a Care Quality Commission that is a separate organisation, whether you have memorandums of understanding or not. What I can understand is that, at the moment, the Care Quality Commission is attempting to amalgamate three separate organisations. I think there is an issue right now about the practicality of drawing organisations together, but I am not at all convinced that separating out finance, care and quality, intellectually, is a sustainable approach.

Dr Bennett: I should point out that, in answering this, I am going to sound very selfserving because I am arguing that Monitor should continue to exist as a separate entity. I happen to believe that is right, but I recognise there is that issue. Of course, at the trust level, there is not the slightest question but that all aspects of running a trust, including the quality of care and the financial aspects, have to be viewed in an integrated way. Therefore, because our job is to make sure the trusts are well governed, we, too, have to be concerned about all aspects of governance. We have to be satisfied that the trust is able to deliver and is delivering safe care.

I am still unclear what the specific benefits would be from having one organisation looking at performance in terms of quality versus performance in terms of governance. As long as the two organisations work well together, I am not sure there is any significant difference in having the two put together. They would still be quite separate because they would be doing very different things most of the time, even if they were under the same board with maybe the same chief executive. I think you have to ask where the extra benefits would come from. You would still have different parts of one organisation needing to talk to parts of the other organisation and I am not quite sure what benefit you would get from putting them together. There might be some very small cost savings.

Chair: I think we probably need to move on.

Q10 Dr Wollaston: Can I take you back, Dr Bennett, to your initial response, bringing in two issues about integration and also a further issue about competition law? In particular, could you set out a little more how you see the difference between an economic regulator and a sector regulator and whether you agree with the Future Forum who felt this would be a mechanism to protect against EU competition law? I would like to come on after that to a question about supporting integration.

Dr Bennett : The issue of economic versus sector regulator is mostly about the signals you send. I think the reason the Government chose-and it was the Government’s decision-to call us an "economic regulator" was because many of the functions they were proposing to give us are functions which other regulators have who call themselves economic regulators. In truth, if you look at all the different regulators-Ofcom, Ofgem, and so on-they will have a somewhat different mix of functions. It was always the case that our functions were those of only what you might narrowly call an economic regulator. The problem was that using that label in this sector caused people to think that our focus would be very commercial and very much a financial focus, about markets and so on, which is not right. It sent the wrong signals. The essence of this is about trying to send the right signal, that we are a regulator of the sector and specifically the health sector.

The Future Forum’s point about EU competition law, essentially, is this. Today, EU competition law, brought through the UK Competition Act 1998, encompasses the health sector. It covers the whole of the UK economy. That is not changed by the Bill, either as originally proposed or according to the amendments. The issue is to what extent it applies in detail. In truth, we will only know that when it is tested in the courts-that is the nature of competition law-and it has not been. One of the reasons it has not been is because, today, there is a sector regime covering competition-in fact, cooperation and competition-and that is in the form of the rules, the PRCC. The body that looks at whether those rules have been adhered to is the CCP. Since that body exists, it means that it is less likely people will seek to use the Competition Act to address issues. They have an alternative place to go. The Government, in putting that on a more statutory footing and, in the process, giving the powers to Monitor-and, by giving Monitor concurrent powers with the OFT, moving a step beyond that-help to reinforce the notion that the first port of call when looking at competition and cooperation issues in the health sector should be the sector regulator, the benefit of which is then we can look at it, bringing in sectorspecific expertise.

Q11 Dr Wollaston: To follow up on that, you have just said you will not know unless it is tested in the courts. The point is whether you are going to act as a buffer before the courts in discouraging people from taking legal action. Will you be able to say, "We do not think you should take legal action"? As you yourself have said, "It is untested and we don’t know."

Dr Bennett: Yes, but I would not put it quite like that. If an issue is brought to us, we will be able to look at it using the sectorspecific rules-PRCC-to determine whether or not there is an issue. That does not stop somebody ultimately choosing to take it to the courts. However, since it gives an alternative way of addressing the issues, one hopes that, as long as we can satisfactorily address people’s concerns, we can deal with it within the sectorspecific rules.

Q12 Dr Wollaston: Can I give you a relevant example of that? I know one of your other roles is going to be to support integration, although you did not mention it earlier. My area, Torbay, has a great reputation for horizontal integration, integrating health and social care. Their vision for the future is to look at the possibility of integrating vertically: having a single provider organisation that would combine the Torbay Care Trust, the foundation trust, the partnership trust-which is the mental health trust-and also the noncore GMS aspects of general practice. Would that be considered anti-competitive or would that be part of your role, if you are supporting integration, to make a ruling that, no, it is in the patient’s best interest to have that seamless journey?

Dr Bennett: First of all, I should say the question applies today as much as it will in the future. The PRCC-the rules-apply in this sort of area and the CCP could look at what is proposed to determine whether it is consistent with the rules. What they might do today-and what we most certainly will do in the future-in looking at the extent to which any proposed merger or integration might reduce the degree of competition, is consider what the impact of that reduction in competition might be for patients, set that against the benefits for patients of the integration and then form an objective view as to what is in the best interests of patients.

Q13 Dr Wollaston: It is relevant, is it not, because they would argue you could have competition between competing care pathways, for example?

Dr Bennett: Yes.

Q14 Dr Wollaston: Is that how Monitor is likely to interpret it in the future?

Dr Bennett: It seems like a sound argument to me. One would have to look at the details of the case and really understand the specific situations in that locality, but the notion that you are moving towards a world where you have some competition between alternative providers of a whole integrated pathway sounds like a very plausible place to move to, yes.

Dr Wollaston: Thank you for that.

Chair: Valerie, could we move on to the questions of the implications on the operations of Monitor over the last year? I think that was yours.

Q15 Valerie Vaz: I noticed in your written evidence that you have formal powers to intervene and you did so in a number of foundation trusts. I wondered what that mechanism was, how you do it and how you see your future role.

Dr Bennett: We have a steadily escalating process of intervention. We monitor the performance of trusts. If we see evidence that they may be getting into a risky situation financially, in terms their governance, we will begin a dialogue with the trust.

Q16 Valerie Vaz: To take you back, how do you do that? You say you get evidence. Take us from first principles.

Dr Bennett: There are two basic types of performance measures that we look at. First of all, in terms of financial performance we calculate something called the financial risk rating. It is a combination of various measures of financial performance designed to give us an indication of a trust potentially getting into difficulty, for example, running out of money-as simple as that. It works on a scale of 1 to 5. If they score 3 or above, that tells us that they basically do not have any problems. If they are moving towards 2, that tells us we need to look rather more closely.

The second type of performance we look at is quality performance, particularly with regard to the performance metrics that the Government is interested in, things like waiting times and so on. We look at those partly because we want to make sure the trusts are meeting the targets that the Government or the commissioners are setting and regard as important, but also because we see the performance on those measures as a proxy measure as to whether the governance of quality is working well in a trust. Again, if we see trusts beginning to miss targets-and it is all very formulaic-

Q17 Valerie Vaz: Yes, but you have relaxed those targets now, have you not? Is that right?

Dr Bennett: No. We largely follow the operating framework. As the operating framework has changed, we have changed those things which we monitor. We have an interesting challenge-which I was discussing only yesterday-in that it is quite clear we should be regulating and not performance managing these trusts. If you finish up measuring everything they do and seeking to intervene every time they do something which is slightly off target, you are managing them and not regulating them.

Q18 Valerie Vaz: Are you saying that you need to change your powers?

Dr Bennett: No. I am saying that, as the number and complexity of the metrics the Government and the commissioners are interested in has increased, there is a danger for us. If every single one we add on is another proxy measure of governance, we finish up virtually performance managing them. Therefore, in one or two areas, we have said we will not look at every last performance measure that commissioners should be looking at but use a slightly smaller set. Our real focus is to understand whether the trust is governing itself well and we are using its performance against these measures to tell us whether it is governing itself well.

Q19 Valerie Vaz: What do you do? You have powers of intervention and you formally intervene. What does that mean and what is the outcome?

Dr Bennett: This is where we get to the escalating process. If we see that a trust is missing its targets or that its financial risk rating is deteriorating, in the first instance we will probably talk to them and ask them to explain to us what is going on. That may happen at a relatively informal discussion, if it is a fairly minor movement. If it is a significant issue, we can have a very formal meeting with the trust board where we ask them to explain exactly what had been the issues and what they have done about them.

If we think the board does not fully understand the nature of its problems and does not have in place actions that look to us credible to address those problems, then we may put the trust in significant breach. That enables us to ask for extra information from the trust, monitor very closely whether they are addressing the problems and suggest what they should do in order to fix their problems. It will go alongside pretty regular meetings between the senior executive in Monitor and the board of the trust. I should also say that putting a trust in significant breach-which we do not do very often-is a very, very clear signal to the trust that they have problems the board really must sort out.

Q20 Valerie Vaz: Does that information come out to patients then, or is it still discussions among you and the trust?

Dr Bennett: The key elements of it are made public. Whenever we have the meeting we will follow up with a letter, which is made public.

Stephen Hay: We publish when a trust is in significant breach. If we intervene again, we have to issue a public notice of intervention explaining what we have done and why.

Dr Bennett: The final step in this escalating process is to use our formal intervention powers. Up to now a lot of it has been about suggesting what the trust should do. Mostly, they do the things we suggest. However, if we feel a trust is not doing what needs to be done, and in particular if we feel that there is a real failure of leadership in the trust, we will use our formal intervention powers. That is sometimes to tell them they must seek additional help, which can come in a variety of forms, but also very occasionally-and formally only ever twice-to remove the chair of the trust and put in a new chair, on an interim basis, to provide stronger leadership for the trust.

Q21 Chris Skidmore: I want to move on to what may be a significant problem in the future, which is the current process of assessing whether trusts can have foundation status. We have 137 foundation trusts at the moment and I believe there are another 90 that need to be assessed before April 2014. At the same time, in this financial year, you have only managed to effectively assess and approve seven trusts. You have stated in your evidence to us that getting them all assessed and signed up as foundation trusts "will be challenging" and that "The Department of Health will need to work extremely hard to ensure that trusts meet the required standard and are put forward to Monitor in a timely fashion otherwise it is unlikely that this deadline will be met."

I want you to comment further on that evidence. The way we are going, do you think that it will be possible by April 2014 to get every trust signed up as a foundation trust?

Dr Bennett: It will be very challenging. It is worth mentioning that one of the other changes-and I did not do all the detail, you are right-in the recent Government amendments is to provide some flexibility around that 2014 date. Nevertheless, the Government are clear that they want to get most trusts through by that point. One of the things we are very concerned about is that they all finish up being backloaded, which, apart from anything else, presents us with an almost impossible challenge. I have been very clear to the Department that: one, if you do that, we will not be able to do our bit, but, two, when you tell us you are going to deliver the trust to us, be realistic; do not just take the total number of trusts divided by the total number of months and tell us you are going to deliver that in each month because we know you will not. In any case, if we are not aware of a likely spike towards the end, then we will not be able to plan for it. I am encouraging them to bring as many forward as possible so that it is manageable for us, but also to be realistic. Then, once they say-and they have not yet got their final profile-what they are willing to commit to, we have to look at what we can do on our side.

Q22 Chris Skidmore: You have so far had 13 put forward to you this financial year, of which six were either postponed or deferred.

Dr Bennett: I think that is right, yes.

Q23 Chris Skidmore: That was because you did not feel they could meet the standard-the bar that you set-that is understandably high.

Dr Bennett: Yes.

Stephen Hay: If they are deferred, it is a formal decision by us that they are not yet ready. If they postpone themselves, it means that they have realised that they are not going to get through the process and need to do further work. Then they come back.

Q24 Chris Skidmore: You are absolutely clear that, in terms of the standard you set for becoming a foundation trust, that bar will not be lowered. You will not compromise on that standard at all.

Stephen Hay: Absolutely.

Dr Bennett: As I have said many times, our bar is set in order that we can be confident these trusts are well governed in terms of finances and quality. I do not think that is a bar that should be moved.

Q25 Chris Skidmore: In terms of telling the Department their time scale is inappropriate, given that that standard will remain, you are willing to tell them that.

Dr Bennett: Absolutely.

Q26 Chris Skidmore: Talking about the standards of foundation trusts and the importance of becoming one, you are probably aware of the recent research published by the University of York’s Centre for Health Economics on foundation trust status. They believe that the actual foundation trust status itself makes little difference to the general performance. The research from the Centre for Health Economics suggests that though foundation trusts generally perform better against some key financial and nonfinancial indicators than nonfoundation trusts, that difference is not attributable to their foundation trust status. Instead, the differences are longstanding and existed prior to the reform. Would you challenge that research or do you think there is a case in point?

Dr Bennett: The first thing I would say is they do accept, which is our view as well, that the process of becoming a foundation trust usually leads to an improvement in performance. They are saying, however, that once they are a foundation trust there is no further acceleration away of the FTs versus nonFTs. We have taken a look at their report. Frankly, there is not enough evidence at the moment to be sure about it.

We commissioned a similar piece of work ourselves some time ago from an economics consultancy, which reached a different conclusion. We need to understand why there is this difference. If their conclusion were to be robust, we need to think about what we can do about it. In the early days, people thought foundation trusts were a sort of elite and they ought to be much better than the rest. As we turn all trusts into foundation trusts, they are not going to be elite: they are going to be all of them. Nevertheless, as part of becoming a foundation trust you get a greater degree of independence and autonomy. While, to a degree, that should be beneficial in and of itself because it enables a trust to connect better with their local communities, you would like to think it would also lead them to do things they could not otherwise have done and that would have been manifest in a better performance. If the evidence is that that is not happening, we would need to try and understand what could be done to encourage it more. Adrian, you have looked at it. I do not know if you want to add anything.

Adrian Masters: I read the report a couple of days ago. The York report is essentially consistent with previous reports, in that it is clear FTs perform better than nonFTs. It is not in their report, but-from elsewhere-we know if you talk to the chairs and chief executives of FTs they will say the regime is better because they have more freedom and they can make decisions more quickly. Also, if they generate a surplus they get to make their own decisions about how to invest it to the benefit of patients, which they value. When you look to try and see if we have data that show whether the gap between how nonFTs perform and how FTs perform is increasing or is about the same, nobody has been able to find evidence-including in the York report-that the gap is actually increasing.

People then debate why that might be the case. One thing is: is it a question of the evidence? If you talk to some FTs, they will give you anecdotal evidence. The Health Committee itself published a report in 2008 which brought out some of these examples, where, if you go to individual FTs, they will say, "Yes, it is different because we can make these investments and we are improving our services faster than we otherwise would." That is anecdotal evidence.

Some people say if you look at the actual measures you can use-you need to have a longrun sequence of measuring the same type of quality to check for the change and you have to look over a long period of time-the truth is that the quality of data, and the depth to which we consistently and systematically measure outcomes, have been poor in the system. It is one of the reasons why the Government are trying to push for a better way of measuring the quality of care. It could be that it is a question of the evidence. If we had a better system of looking at the quality of outcomes, we would see something in that data which would support the anecdotal data we talked about.

Another possibility is that you could say the incentives have not been strong enough. We have given them extra freedoms, but for them to make use of the extra freedoms, they need stronger incentives which are good incentives. Again, you might say that because commissioning has not worked to date as well as we would have wished, the incentives have not been strong enough to see the gap increase.

Q27 Chris Skidmore: I am quite interested by this. What incentives would you be thinking about-payment by results or something like that?

Adrian Masters: Payment by results and the strength of commissioning are probably the two key ones. At that level, a lot of the things the Government are trying to do will provide us with a better basis for saying, "Now that we have given them the freedoms, do we have in the data an increasing gap between FTs and nonFTs to support what we get from, basically, case studies-anecdote-at the moment?"

Q28 Chair: Can I bring you back to the body of providers that are trusts that still have to be got over the bar if we are going to have 100% foundation trusts as the basis for provision in the Health Service? It is presumably correct that, among those that are not yet foundation trusts, those who have significant financial or quality problems are over-represented-let me put it no stronger than that-and the circumstances in the Health Service in the next few years are likely to be tighter and more challenging for management than they have been in the last few years. These are institutions that have not been able to get over the bar so far and the bar is becoming relatively more difficult for them to get over. Is it fair to conclude from that nexus of circumstances that, in truth, very few of these bodies are going to qualify properly for foundation trust status without significant reconfiguration of the services they deliver?

Dr Bennett: Fundamentally, one would have to say it is a question for the Department, because it is the Department who are charged with the job of getting them over the bar. They are the ones who are in discussion with the trusts to really understand the nature of the problem. We can only report what we hear from the Department.

Nevertheless, you can see different categories of challenges, and some trusts will face multiple challenges. There is a managerial challenge in some trusts-they do not have good enough leadership teams-and hopefully that can be addressed. There are some trusts with legacy debt or very expensive PFIs. Frankly, they need some form of financial restructuring in order to deal with them. I know that, right now, the Department is doing a very detailed study of the PFI issue. As I understand it, their emerging conclusion is that there are not that many trusts where the PFI is the fundamental problem, but there are a few and they need to find a solution to that.

It is certain, however, that a lot of trusts will need to achieve major productivity improvements. This is true of FTs as well, not just of nonFTs. Improving productivity will include major changes to the way they work, and some of those changes will have knockon consequences for the configuration of their services. They may be relatively straightforward things, like reduction in length of stay. That is a classic way in which you can drive up productivity and improve patient care at the same time, but the end result may be that you need fewer beds, fewer wards and fewer nurses. In that sense, you need to change the configuration of what you have.

However, you may also decide, if you have multiple sites, that you need to concentrate services on one site. You may even find situations where one trust says, "Frankly, we are not in the best position to provide the service. A neighbouring trust can do it better." Therefore, the service would no longer be provided at one site but at a neighbouring trust site. Then you are into proper reconfiguration. Yes, I am sure that is going to be needed and, as I say, even some of the current FTs are going to need to do that. In some sense, all trusts forever more will need to do that. As technology and demographics change or for all sorts of reasons, such as real estate gets too old, there is a need to move services around and reconfigure them.

Q29 Chair: Are you comfortable that the changes coming forward from within the management teams, both of foundation trusts-to take your point-and nonfoundation trusts, are at a pace that is consistent with what we in this Committee refer to as the "Nicholson challenge," the pace that is determined by the availability of resources?

Dr Bennett: I cannot answer that question for the nonFTs because we do not have any direct involvement with those. As to foundation trusts, I meet with chairs or chief executives of the FTs on a regular basis. A consistent concern they raise, as they move from improving productivity by what many people term "addressing the lower hanging fruit"-the relatively straightforward improvements-to having to think about these more significant changes, is that they will find it difficult to make the changes as quickly as they need to, given the time scale within which the £20 billion, or whatever, needs to be saved. By the way, of course, it will not just be this £20 billion. There will be more after that as well. They are certainly nervous that they will not be able to get the changes through as fast as they need to.

Q30 Chair: What is the response of Monitor if it is in conversation with a specific foundation trust where those concerns are raised? In effect, what that chairman or chief executive is saying to you is, "We may pass your bar now but, at some point in the future, unless we deal with these concerns, we won’t."

Dr Bennett: Yes. At the moment, it is only a very few trusts where this is a specific issue. In particular, we seek to get the commissioners to take a larger responsibility for supporting the reconfiguration of services. The commissioners, as representatives of the patients’ interests and the bodies that are looking across all providers-not just a particular trust-are in the best position to work out the best solution with the trusts. I think this is a nettle they need to grasp more firmly.

Q31 David Tredinnick: You have this responsibility for making sure these foundation trusts are financially robust. What happens if one of them runs out of money? Do you have a pot of gold that you are given to help them out?

Dr Bennett: We do not.

Q32 David Tredinnick: What happens if there really is a crisis and you get a call saying, "We can’t pay the nurses on Friday"?

Dr Bennett: I mentioned the issue of the failure regime and the fact that we need one in the Bill because we do not have a coherent one at the moment.

Q33 David Tredinnick: There is a gap. Do you think that is a problem?

Dr Bennett: If a trust needs funding, we-or, more specifically, they-have to turn to the Department of Health. That is the only source of funding. To address one very specific point, I would be very disappointed-to put it mildly-if a trust phoned up and said, "We cannot pay the nurses on Friday". That means all of our risk monitoring and anticipating problems would not have worked.

Q34 David Tredinnick: That is something I want to come on to. For 201011, Monitor’s review of the performance of foundation trusts showed that of 12 foundation trusts, 9% are rated red for governance. I am used to dealing with traffic lights when we look at food, but here we are looking at hospitals. Presumably red is bad, not, as it might be in China, good. Is that right?

Dr Bennett: It is the UK version.

Q35 David Tredinnick: Why have you moved to change the rating system to go from 1 to 5? Is that not likely to cause confusion?

Dr Bennett: I clearly did cause confusion.

Q36 David Tredinnick: Why did you do it?

Dr Bennett: There are two-

Q37 David Tredinnick: You admit it caused confusion-

Dr Bennett: No, I am sorry. I caused confusion perhaps in my earlier answer.

Q38 David Tredinnick: Was it confusing to begin with and it has been made more confusing, or did you relieve or create the confusion? I am trying to be helpful.

Dr Bennett: I hope I did not create confusion earlier, but maybe I did. There are two parameters that we look at, financial and quality. We measure financial risk on a scale of 1 to 5.

Q39 David Tredinnick: That is 1 to 5.

Dr Bennett: We measure governance, and particularly quality governance, using traffic lights.

Q40 David Tredinnick: That is red, amber and green, is it?

Dr Bennett: Correct.

Q41 David Tredinnick: Thank you very much. From April next year, the majority of foundation trusts will move to even greater selfgovernance with Monitor retaining transitional powers-we have touched on that-to scrutinise and intervene until 2016. How confident are you that governance and financial compliance standards will be upheld, especially in the weaker FTs-for instance, the 12 that are redrated that I have referred to already?

Dr Bennett: We did have concerns about that. The Government, in the original version of the Bill, put in some transitional arrangements so that we could continue some compliance for those trusts that seemed most at risk. However, in the amendments, it is proposed that our compliance regime stays in place for all trusts through until at least 1 April 2016. That is a very useful much longer period to prepare governors to take on the role.

Q42 David Tredinnick: What action are you taking to ensure that the governance systems are fit for purpose at the point of handover?

Dr Bennett: We need to work out what-

Q43 David Tredinnick: Do you have a plan? Is there something in place at the moment?

Dr Bennett: Not specifically at the moment, because this is a very recent change. Also, it is something we need to do jointly with the Department and, indeed, with the FTs themselves. We need to work out how to do it.

Q44 David Tredinnick: Your response to the Government’s original proposals stated that Monitor should, for the time being, retain the function of monitoring the financial security of foundation trusts and, if necessary, intervening. Do you still hold those views?

Dr Bennett: We still retain that.

Q45 David Tredinnick: Do you agree that that is a good policy?

Dr Bennett: Yes.

Q46 David Tredinnick: Do you think that Monitor should retain any of its other duties that it is scheduled to relinquish?

Dr Bennett: This is the thing that has changed. We were to relinquish our compliance role for probably the majority of trusts from, originally, April next year. We now retain that for all trusts through to 2016.

Q47 David Tredinnick: Are you not really up against a massive bottleneck here? You are trying to maintain a high standard, as I understand it, but you are not going to get them all checked through in the time.

Dr Bennett: We are not going to what? I am sorry.

Q48 David Tredinnick: If you are going to retain this responsibility, is that not a huge burden for you? Are you geared up to do that because of these recent changes? It is a burden in the sense that it is extra work. Whether it is a good thing or not is a political issue. You have been given this extra charge. Is that going to be very difficult for you to deal with? It is unexpected, I suppose, is it not?

Dr Bennett: In essence, what is being asked is simply that we continue to do what we are doing today. In that sense, there is no increase in the burden at all, except that we will have more foundation trusts over time, and that was happening anyway. If the Government are to achieve their ambition of an allFT sector by 2014, there will be an acceleration of the number of new FTs appearing and we are going to have approaching twice as many at the end of the period as we have today. Under the original proposals, that would not have represented any increase in the burden on us because the majority of trusts would no longer have been under our umbrella. We will now have to increase our capacity. What we have been asked to do is exactly the same thing that we have been doing for many years now. As long as we can scale up-and I see no reason why we should not be able to-we should be able to manage that.

Q49 David Tredinnick: You will have to take on a lot of extra people.

Dr Bennett: We will need some additional staff, yes.

Q50 David Tredinnick: At a time of massive constraints elsewhere in the Health Service with the "Nicholson challenge" and all these things, you will be going against the trend, won’t you?

Dr Bennett: Yes, and of course we will need to take on some extra staff for our new roles.

Q51 David Tredinnick: That is all cleared and sorted, is it? You have the clearance for that, have you?

Dr Bennett: For the new sector regulator role, we have agreed in principle with our sponsors in the Department what that will imply in terms of the number of staff and budget, although we do not have formal approval for that. For the continuing and growing in scale role of compliance monitoring, we will have to have the discussion with the Department. We have not done that yet because this is a very recent development.

Q52 David Tredinnick: There is no money there yet.

Dr Bennett: There is not yet, no.

David Tredinnick: Thank you very much.

Q53 Andrew George: First of all, I apologise for the fact that I was not here when you arrived but, because of the nature of parliamentary business, these things happen. I want to ask you about the manner in which you assess an applicant foundation trust during the process of authorisation, particularly in relation to their financial competence. As you know, there is variability in the resource allocation across the country as a whole, some areas being way above their target, others being very significantly below. To what extent, when looking at those applications, are you able to see or identify issues of, for example, historic debt and so on, possibly being explained by long periods of the PCT being significantly below their target? Perhaps it is a resource allocation issue rather than a financial competence issue, for example.

Dr Bennett: It is certainly something we look at, but Stephen could address this.

Stephen Hay: The assessment process is built on a business plan the hospital puts together that is underpinned by a financial model that goes out every five years. That financial model is built up with the revenue and the cost drivers. We look at the underlying assumptions and assess those assumptions against what we know is realistic and not realistic. Where the assumptions are considered to be unrealistic, we do what we call a sensitivity analysis, which is where we change the assumptions and see what the financial profile looks like in the future with what we consider are more realistic assumptions. That is the basis on which the financial analysis is done.

To answer your question about historic debt, historic debt can be seen within the balance sheet of an organisation. You will identify it in terms of the work we do, and the key issue is whether the hospital can generate the profits and the cash flows to service and repay that debt over the period at which we are looking. In terms of allocations, we are looking to see whether an applicant foundation trust is going to be financially viable or not. It is difficult to then say, if it is not, that the reason for that is because of allocations in the local health economy.

Dr Bennett: To build on that, when we are looking at the projected income stream for a trust we will obviously compare that with historic performance. If a trust, for example, assumes that there is going to be a sudden acceleration of income-maybe imagining that their PCT is suddenly going to get more money-then we will certainly be asking questions about the basis on which they think that is likely to happen.

Q54 Andrew George: On scrutinising their structures and financial planning, if you find that they are an efficient and lean operation and they are more comfortably achieving a recurring balance but are still carrying some historic debt from the past, will that mean they will not achieve authorisation? If you have a deadline of 2014 coming up, will you be obliged to authorise those trusts or will you simply say, "Sorry, the gate is closed to you"?

Dr Bennett: The gate does not close but the bar does not move. Absolutely, if they have a heavy burden of legacy debt-even if they are now very efficient and, aside from that, their financial performance looks all right-and when you add in the legacy debt, their financial performance does not look sound or does not look as if they would be financially viable longterm, that would be a barrier to authorisation. This is exactly why the Department is having to work with the applicant trusts to identify those where their legacy debt is a potential barrier and find a way of dealing with it.

Q55 Andrew George: Do you fear the Government’s expectation that all trusts should become foundation trusts by a set point might result in a dumbing down of standards? I don’t know whether this question has been asked before, but do you think this might, in effect, require you to lower the bar as far as authorisation standards are concerned-across the board, not just financial competence?

Dr Bennett: As long as the governance arrangements of Monitor remain as they are, it cannot require us to lower the bar. We are an independent body and we set our own bar. We will not be lowering it. We are very clear that the bar is set in order to reassure us and everybody else that the trusts we authorise are well governed and financially sound, in so far as one can be sure about that. There always will be some uncertainty, but, as far as possible, that is what we seek to do and what we should continue to seek to do.

Q56 Andrew George: You might therefore expect, for those that could not achieve straddling this bar, perhaps the only solution, if a deadline is being set, is for them to be taken over by other competent and authorised foundation trusts.

Dr Bennett: I know that is one of the solutions the Department is looking at for some of the troubled trusts. In particular, if the trust’s problem is that it has a weak management team, by merging it with a much stronger trust it may well be that you address that problem. All I would say is you need to be satisfied that that is going to be true. It may be one thing for a good trust management team to manage an existing well-performing trust, but adding the burden of a failing trust may still be a very big stretch for them. If the underlying problems are issues like legacy debt or a configuration which is structurally unviable, you have to ask to what extent merging one trust with another would fix those problems.

Q57 Andrew George: With regard to the transition from where you are now to where the Government want you to be following the passage of the Bill into Act, what discussions or reassurance have you had that you will be given the freedom to adjust your structures and also have sufficient budget to be able to perform all your functions?

Dr Bennett: I have no reason to suppose that we will not have the freedom to adjust our structures. As far as I am concerned, that is very much an issue for the Monitor board and, as I say, I have no reason to suppose anyone is going to try to prevent us from doing whatever we feel is the right thing to do. In budgetary terms, we need to agree with the Department a budget which gives us sufficient resources to do what we are being asked to do. We have had a number of discussions and we have an indicative agreement, at least with regard to our new sector regulator role. We do not actually have a budget yet.

Q58 Andrew George: In those circumstances, you have not appointed a chief executive either. Is the uncertainty of the last year a reason or cause for that post being unfilled?

Dr Bennett: I certainly would not connect the fact that we did not appoint a chief executive to any discussions about our budget. The reason we have not appointed a chief executive is because, at the time at which we began the recruitment process-back in March, pretty well as soon as I was appointed as chair-we needed to get on with it because, of course, by 1 April we were to take on our new responsibilities and we did not want the chief executive turning up on 2 April. We moved quickly and, recognising we did not exactly know what structure of the organisation into which the individual was going to have to fit was going to look like, we defined a very broad and, no doubt, demanding specification for the person we were looking for. We went through a thorough search process to try to find a suitable person but, at the end of the day, the board took the view that, although we got some very good candidates, we did not have anyone who fully met our requirements.

In the meantime, not only had our role become clearer, but there had been significant changes as a result of these amendments. One of the most important changes was the decision to keep this compliance role for at least another five years. The reason that is important is that there is a potential conflict of interest between being an FT regulator and being a sector regulator. We have to construct a Chinese wall between them. The nature of that Chinese wall-what it looks like-will impact on the chief executive’s role. The fact that we now have to keep that Chinese wall in place for five years and we will be looking at all trusts, not just a small segment of the trusts, means the Chinese wall is even more important and the impact on the chief executive’s role even more significant.

When the board was confronted with strong candidates who nevertheless did not quite meet our very broadranging specification-and a recognition that we would benefit from being able to do the organisational thinking that would help us to be much clearer about what roles we needed to fill among the senior leadership team-we decided the best thing was to put a hold on the recruitment process and do the organisational work, now that we are much clearer about what our responsibilities are going to be.

Q59 Andrew George: So it is now that you are clearer, not that you are awaiting the clarity of outcome from the parliamentary processes.

Dr Bennett: Of course, the parliamentary process may make further changes. I can only say I am hoping that we are reasonably close to what it is going to look like, but if Parliament changes it we will have to deal with it.

Q60 Andrew George: I have one final question, and this may stray into an area you touched on earlier. Given your role in preventing anticompetitive behaviour, to what extent have you had discussions with the OFT about how your role in that regard crossreferences or interplays with the role of the OFT, which obviously has the same function?

Dr Bennett: At this stage, we have only made preliminary contact. It is one of the many things that we need to do but, absolutely, we need to do that.

Q61 Andrew George: I am sure you understand, but you see that there is a difference as a result of the listening process-

Dr Bennett: Yes.

Q62 Andrew George:-on promoting competition. You can identify that that is significantly different from preventing anticompetitive behaviour.

Dr Bennett: Clearly, there are differences arising from the changes to the Bill and we did talk about that a little earlier.

Q63 Andrew George: I thought you had, but I wanted to cover that aspect of it.

Dr Bennett: Clearly, there are differences and they will have to be reflected in the way we work, which is, I suppose, an illustration of the benefit of waiting until we are reasonably certain.

Q64 Andrew George: That role of preventing anticompetitive behaviour is one which straddles that of the OFT. I can’t see how you can fulfil that role without regular reference to the OFT and its functions.

Dr Bennett: Indeed, and the proposal is that we will have concurrent powers with the OFT. Absolutely, we will have to work closely with the OFT. Other sector regulators have to do that as well, so at least there is custom and practice that we can build on.

Q65 Valerie Vaz: I have some quick followup questions. You mentioned that you used the traffic light system for quality. Does the CQC use that as well?

Dr Bennett: No. It has a different system. Our traffic lights are for quality governance. Governance is our focus.

Q66 Valerie Vaz: Picking up a point made by my colleague, did you get legal advice on whether competition law applied?

Dr Bennett: We did not take legal advice because, of course, the policy is the Government’s. It will, in due course, be our job to interpret it, but the policy itself is theirs.

Q67 Valerie Vaz: Do you have a contingency fund for any legal action that might be taken against you?

Dr Bennett: Going forward, we are going to have to think about this. At the moment, I do not believe we do. I suppose there is an implicit guarantee from-

Stephen Hay: There is a memorandum of understanding between Monitor and the Department of Health that would fund us in cases of significant litigation costs.

Adrian Masters: Under the current budget, we could also be challenged-judicial review and so on. The way the memorandum of understanding currently works at the Department of Health is that, for any significant case, they would fund that separately from our normal budget.

Q68 Valerie Vaz: Looking at your written report, in paragraph 3.34 you mention that in 2010 you did not use your intervention powers but you used them on seven occasions the previous year. Could you explain why you have not used them?

Dr Bennett: Of course, the obvious answer is there was no trust that got to a point where we felt the need to use the powers. I mentioned earlier that we seek to persuade trusts to make changes that we think are appropriate where they are not already doing so and, in the main, they will do so. Why has it changed? It is a little difficult for me because I was not there before. I imagine part of the reason is that, having used the powers, and trusts having seen that we will use the powers where necessary, they have understood they might as well follow our advice anyway. Also, there has been an improvement overall in performance. You could say that was partly because trusts that had issues got fixed earlier on. I am sure there will still be trusts with issues, but I think there has been improvement and learning overall. That is part of it as well. There will also be just simple statistical fluctuation. In five years, if you look back, you will see the number will go up and down. They are small numbers.

Stephen Hay: There is one other reason as well. Last summer we changed our annual planning process. For the last four or five years, that annual planning process has been basically the same for every foundation trust. Last year, we did a twostage process. The first stage was the same for everybody, but we then identified the higher risk foundation trusts-whether it was on quality issues or financial issues-and did a deep dive. That deep dive enabled us to understand some of the issues they were facing. We called them in for more of an informal meeting with David and me, or with David or me, to have a conversation about some of the risks that we saw they were facing to try to be more preventative upfront. We cannot prove it, but that could be another reason why we have seen a reduction in the number of significant breach decisions we have had to make.

Q69 Valerie Vaz: I have one last question. I mentioned earlier that, in your memorandum, you say the A&E fourhour waiting target was reduced from 98% to 95% and also that the 18 weeks’ referral to treatment waiting target was removed. Could you explain what that is and why you did it?

Dr Bennett: This is an example of us following the Department’s operating framework. The Department changed its A&E target from 98% to 95% and decided to drop the 18week waiting time targets-which are now reinstated. Our change was largely reflecting the changes the Department had made.

Adrian Masters: These are triggers for us to try and identify where there may be a governance problem. As the system changes, we adjust what triggers we use. For example, with the CQC coming in with their registration standards and so on, that has been added in as a trigger. If they have a problem with the CQC, then that trigger is now in our system. As the Government introduce their Outcomes Framework, we will be looking at that to see if there are triggers we should put in. We are using these as triggers and, as the system changes, the triggers we use are adjusted.

Dr Bennett: In part, this is about minimising the burden on the trusts. If the trusts are required by commissioners to meet a 95% target then, unless there is an extraordinarily good reason, we are not going to have a 98% target. That just makes life difficult for them.

Q70 Chair: I have some concluding questions. You referred to your desire to see a failure regime. As you know, this has been the subject of substantial discussion in the foundation trust sector in particular. The previous Government were committed to introducing a failure regime. We are roughly 10 years on now and we have not had one yet. What is your level of comfort that you are going to get agreement on a failure regime, given the history? That is the first question.

The second and more immediate question in my mind, if I am honest, is that, before failure, there needs to be a distress regime. We were discussing circumstances in which distress may increase in the foundation trust sector, for which you are already responsible. Do you see that the transitional powers oversight can be used effectively as a form of distress regime?

Dr Bennett: Yes.

Q71 Chair: If you do, is it realistic to have a distress regime without any money attached?

Dr Bennett: First of all, on this issue of distress, at the moment we operate a distress regime. It is part of our compliance regime. When we see a financial risk rating falling down to 2, it does not mean that the trust is in crisis but it does mean it is heading for distress. That is when we start to intervene. In so far as we are going to retain our compliance regime through to 2016, we will still have that operating. Even had that gone away, we would have strongly argued that any failure regime should have a distress element to it, and indeed the Government’s original proposals did. We would argue that should stay. The only difference is that our compliance regime applies to everything a foundation trust does.

The proposal was that a failure regime would only apply to essential services. Therein lies a big question: how many of a foundation trust’s services are to be regarded as essential? That is still under discussion. I think it is very important that a distress regime is there. It is much better to deal with distress and fix problems at that stage than to let it go to failure, but precisely what it will look like is for the Government to determine. Am I confident that they will come forward with a failure regime which will be coherent and provide money to fund what needs to be done, and so on? I am hopeful. We had one that looked as though it could do it, although it had some challenges, which is why they have gone back to the drawing board. They have said they are going to come up with something that has the same basic design characteristics. I think that would be good.

Chair: You are hopeful and it is often better to travel in hope than to arrive. Thank you very much for your evidence.

Prepared 19th July 2011