House of Lords - Explanatory Note
Health And Social Care Bill - continued          House of Lords

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Funding the NHS

418. Health Authorities are funded under the provisions of section 97 of the 1977 Act, as substituted by paragraph 47 of Schedule 1 to the 1995 Act and amended by section 36 of the Primary Care Act and sections 4 and 8 of, and paragraph 31 of Schedule 5 to, the Health Act. Health Authorities are paid money in each year under section 97(1) and section 97(3). Section 97(1) concerns the remuneration of persons providing Part II services and is covered in the next section. Section 97(3) concerns Part I expenditure and administrative costs. Under section 97(3) a Health Authority is paid money not exceeding the amount allotted to it by the Secretary of State. This amount is allotted toward meeting its "main expenditure", which includes all expenditure attributable to the performance of its Part I functions, all its administrative costs, and certain other expenditure. The money paid in respect of Part I services is therefore cash limited. To enforce the cash-limits set by the Secretary of State, Health Authorities have various duties imposed upon them by section 97A of the 1977 Act (as substituted by paragraph 48 of the 1995 Act and amended by paragraph 23 of the Schedule 2 to the Primary Care Act and paragraph 32 of Schedule 5 to the Health Act). It is possible for the Secretary of State to make one off direct payments to NHS trusts by way of public dividend capital, loans or payments under NHS contracts. Direct payments to Primary Care Trusts can only be made by NHS contracts.

Intervention Powers

419. Section 84 of the 1977 Act enables the Secretary of State to appoint an inquiry in connection with matters arising under the 1977 Act, Part I of the 1990 Act or Part I of the Health Act. In addition to these formal inquiries, the Secretary of State conducts or appoints a variety of 'informal' inquiries, investigations and reviews in the exercise of his powers under section 2(b) of the 1977 Act. Finally, the Commission for Health Improvement may investigate matters relating to the management, provision and quality of health care for which NHS bodies are responsible (see section 20(1)(c) of the Health Act).

420. The Secretary of State has powers to intervene if NHS bodies fail to perform their functions or fail to comply with regulations or directions (section 85) and if, by reason of an emergency, a service under the 1977 Act may cease to be provided (section 86).

Community Health Councils

421. Community Health Councils ("CHCs") were established in 1974 and are now provided for in section 20 of, and Schedule 7 to, the 1977 Act. The Secretary of State has a duty to establish CHCs for Health Authority areas or parts of Health Authority areas. The members of each CHC include local authority and voluntary organisation representatives and persons appointed by the Secretary of State. Each CHC has a duty to represent the interests in the health service of the public in its district. Further provision for CHCs is made under the regulations under paragraph 2 of Schedule 7 - see the Community Health Councils Regulations 1996 (S.I. 1996/640, as amended by S.I. 1999/646, 1999/2906 and 2000/657). In particular-

  • CHCs review the operation of the health service in its district and make recommendations and provide advice to their local Health Authority

  • Health Authorities must consult CHCs on proposals for substantial developments of the health service in the CHCs' districts and on proposals for substantial variations in the provision of such service

  • Health Authorities must provide information to CHCs about the planning and operation of health services in their area and meet CHCs at least once a year

  • CHCs may inspect premises controlled by NHS bodies

422. In addition to their general duty, CHCs have various specific functions relating to reviewing the operation of the health service in their districts, which are conferred by regulations. They also provide advice and information to the public on local health services and assist patients making complaints about the services provided by NHS bodies and practitioners, although these additional functions are not specified in regulations.

423. CHCs are advised and assisted by the Association of Community Health Councils in England and Wales ("ACHCEW"), which was established by the Secretary of State under paragraph 5 of Schedule 7 to the 1977 Act. The National Health Service (Association of Community Health Councils) Regulations 1977 (SI 1977/874) provides for the establishment and operation of ACHCEW.

Health and Medicines Act 1988

424. Section 7 of the Health and Medicines Act 1988 extended the Secretary of State's powers for financing the NHS, by providing that he had powers to undertake a range of activities (for example, supplying goods or services, or exploiting intellectual property) in order to make more income available for improving the health service. The exercise of these powers is however limited by the provisos in subsection (8); in particular that anything he proposes to do will not to a significant extent interfere with the performance by him of any duty imposed on him by the 1977 Act.

425. The Secretary of State has directed Health Authorities that they may exercise these powers. NHS trusts and PCTs exercise similar powers by virtue of paragraph 15 of Schedule 2 to the 1990 Act and section 18A (5) of the 1977 Act (inserted by section 5 of the Health Act), respectively. Authorities and trusts are however subject to any directions the Secretary of State may make under section 17 of the 1977 Act about the exercise of such powers.

The National Health Service and Community Care Act 1990

NHS trusts

426. Section 5 of the 1990 Act, and the immediately following provisions, provide for the setting up of bodies known as NHS trusts. These are not Health Authorities but are separate, independent bodies set up to assume responsibility for the ownership and management of hospitals or other establishments or facilities previously managed or provided by a Health Authority; or to provide and manage hospitals or other establishments or facilities that were not previously so managed or provided. Section 5(1), as amended by section 13 of the Health Act, now provides that trusts are established to provide goods and services for the purposes of the health service. A trust's functions are conferred by its establishment order made under section 5(1) and by Schedule 2 to the 1990 Act.

427. Nearly all the hospitals in the country are now run by NHS trusts, although increasingly, smaller "community" hospitals are being run by Primary Care Trusts. The essential difference between NHS trusts and the hospitals run directly by Health Authorities is that the latter were funded by money paid to Health Authorities for the purpose by the Secretary of State under (what is now) section 97(3) of the 1977 Act; whereas (subject to certain exceptions) NHS trusts have no money paid to them directly by the Secretary of State, but instead must compete with each other for orders for their services placed by Health Authorities. Health Authorities are thus now seen as "purchasers" or "commissioners" of health care on behalf of the local population; while trusts are included among the "providers" of this health care. Health Authorities may also choose to purchase health care from private sector institutions.

428. This system created the "internal market", whereby the whole of the operation (including trusts) is still the NHS, but for internal purposes the purchasers or commissioners were split from the providers.

429. The 1990 Act conferred on NHS trusts a substantial degree of autonomy. As well as not being funded centrally, the Secretary of State was able to give directions to NHS trusts only in relation to a limited range of subjects (paragraph 6 of the Schedule). The Health Act restricted this freedom by extending to NHS trusts the Secretary of State's power of direction under section 17 of the 1977 Act (section 12 of the Health Act).

NHS Contracts

430. The nature of the arrangements between Health Authorities and trusts is not that of an ordinary contract enforceable at law. Instead the 1990 Act provided for a system of NHS contracts (section 4), which are explicitly not contracts enforceable at law (section 4(3)), but which had attached to them a special form of internal arbitration by the Secretary of State. The list of bodies between whom certain agreements take the form of NHS contracts rather than ordinary contracts is contained in section 4(2).

The National Health Service (Primary Care) Act 1997

Personal Medical Services and Personal Dental Services

431. The Primary Care Act introduced a new method of delivery of family health services. Personal medical services (PMS) and personal dental services (PDS) may be provided under agreements known (in the initial stage at least) as "pilot schemes" (sections 1-3 of the Primary Care Act). These agreements are made between the Health Authority and one or more of the persons listed in section 3(2), which includes NHS trusts, GPs and NHS employees. Before a pilot scheme may be made, the proposals for the scheme must be submitted to, and approved by, the Secretary of State (section 4 and 5). The system of pilot schemes is intended ultimately to be replaced by a permanent regime.

432. Pilot schemes allow PMS and PDS (essentially the same as GMS and GDS) to be provided under the Part I system. The provisions of the 1977 Act apply in relation to functions of the Secretary of State in relation to pilot schemes as if the functions were functions under Part I of the Act. NHS trust may enter into a pilot scheme as a provider of PMS or PDS. The 1977 Act (and in particular section 17) has effect in relation to services under pilot schemes as if the services were provided as a result of delegation by the Secretary of State (by directions given under section 13 of that Act) of functions of his under Part I (section 9 of the Primary Care Act).

433. These provisions allow PMS and PDS to be provided otherwise than through the rigid regulatory system of Part II of the 1977 Act. They allow Health Authorities the power to determine locally the content of the service in their area or the practitioners with whom they choose to make the arrangements.

The Health Act 1999

434. Part I of the Health Act made further changes to both the Part I system and the Part II system.

Primary Care Trusts

435. Primary Care Trusts are a new tier of administrative body below Health Authorities, and are primarily concerned with the Part I system, although they may exercise certain Health Authority functions relating to GMS. Primary Care Trusts are established by the Secretary of State by orders under section 16A of the 1977 Act (as inserted by section 2(1) of the Health Act), with a view to their carrying out the activities listed in paragraphs (a) to (c) of that section. Their functions are conferred, in the main, by directions given by Health Authorities under section 17A of the 1977 Act, as inserted by section 12 of the Health Act.

436. In the exercise of the functions under Part I of the 1977 Act delegated to them by their Health Authorities, Primary Care Trusts have taken on the "commissioning" activities of Health Authorities. Unlike Health Authorities, however, they also provide certain services (usually community health services rather than hospital services) in the exercise of those functions. A Primary Care Trust is something of a "hybrid" between a Health Authority and an NHS trust. The other significant feature of Primary Care Trusts is that the regulations for the membership of Primary Care Trusts made under paragraph 5 of Schedule 5A to the 1977 Act, as inserted by Schedule 1 to the Health Act, provide that a substantial number of Primary Care Trust members and Primary Care Trust committee members must be GPs, local nurses and other health care professionals providing or assisting the provision of services under the 1977 Act.

Part II services

437. The Health Act provides new powers for the Secretary of State to require persons providing Part II services to have indemnity cover (section 9), a new structure for the remuneration of Part II practitioners (section 10, which has not yet been brought into force) and makes further provision for the disqualification of such practitioners by the NHS tribunal on the grounds of fraud (section 40, which again has not yet been brought into force).


438. Section 18 of the Health Act imposes a "duty of quality" on Health Authorities, Primary Care Trusts and NHS trusts. Sections 19 to 24 provide for the establishment and operation of a new independent statutory body known as the Commission for Health Improvement, which is responsible for monitoring the quality of care for which NHS bodies have responsibility. The Commission is able to conduct a variety of reviews and investigations (section 20(1)).

The NHS and Local Authorities

439. Local Authorities are responsible for the provision of what may be described as "social care", e.g. residential accommodation for the disabled or elderly. The enactment's under which functions in this respect are conferred on Local Authorities are set out in Schedule 1 to the Local Social Services Act 1970 (c.42) and other legislation. Section 21 and Schedule 8 of the 1977 Act make provision for the exercise of certain specified functions. Local Authorities also exercise functions in respect of housing (eg. the Housing Act 1985 (c.68)) and education (the Education Act 1996 (c.56)).

440. Sections 22 and sections 26 to 28BB of the 1977 Act, as amended by sections 27, 29 and 30 of the Health Act, make provision for co-operation between the NHS and Local Authorities. Section 22(1) of the 1977 Act, as substituted by section 27(2) of the Health Act, places a general duty on NHS bodies (on the one hand) and Local Authorities (on the other) to co-operate in the exercise of their functions in order to secure and advance the health and welfare of the people of England and Wales. Sections 26 to 28 make provision for the supply of goods and services by the Secretary of State to Local Authorities and vice-versa. Section 28A of the 1977 Act, as amended by section 29 of the Health Act, makes provision for Health Authorities in England to make payments towards expenditure by various Local authority bodies on community services, such as social services, housing and education for the disabled. Section 28B makes similar provision for Wales.

441. The Health Act makes further provision for co-operation between the NHS and local authorities. Most importantly, section 31 makes provision for NHS bodies and Local Authorities to enter arrangements under which an NHS body exercises Local authority functions or vice-versa. Provision is also made for arrangements to operate a "pooled fund" from which payments may be made towards expenditure on either NHS or Local authority functions. In addition to section 31, section 28 provides for Health Authorities, with the assistance of Primary Care Trusts, NHS trusts and Local Authorities, to prepare plans setting out a strategy for improving both the health of the local population and the provision of health care to that population. Section 30 of the Health Act inserts a new section 28BB into the 1977 Act, which makes provision for Local Authorities to make payments towards expenditure incurred by NHS bodies: this provision mirrors section 28A of the 1977 Act.

Health Authority funding and performance

442. The Act made it possible for the Secretary of State to increase a Health Authority's allocation where certain conditions around performance are satisfied. The intention was to reward Health Authorities that demonstrated the most progress in implementing their plan for improving health and health care. All Health Authorities including those making good progress from a low baseline are eligible. The Secretary of State is allowed to attach conditions to how the money should be spent and if it is not spent in accordance with the conditions he can claw it back.



443. A key concept in the legislation relating to social care is that of "community care services". This term is defined in section 46 of the National Health and Community Care Act 1990. Community care services are services which a local authority may provide or arrange under:

     Part III of the National Assistance Act 1948,

Section 45 of the Health Services and Public Health Act (promotion by local authorities of the welfare of old people),

Section 21 of and Schedule 8 to the National Health Service Act 1977; and

Section 117 of the Mental Health Act 1983 (after-care).

444. Local Authorities are under given by section 47 of the 1990 Act a duty to assess a person's needs for community care services.

445. National Assistance Act 1948 Part III of this Act deals with local authorities' responsibilities with regard to arranging and charging for residential and nursing care placements.

446. In particular the Act gives powers to and imposes duties on local authorities in respect of accommodation. Section 21 of the 1948 Act enables local authorities (with the approval of the Secretary of State) to provide residential care for people over the age of 18 where they need residential care and care and attention is not otherwise available. Where the Secretary of State directs a local authority to provide such care, a local authority has a duty to provide it. The Secretary of State's approvals and directions are set out in Department of Health Circular LAC (93) 10. Section 26 of the 1948 Act enables local authorities to discharge their responsibility under section 21 by entering into arrangements with certain private and voluntary sector care homes.

447. A local authority may be required under section 21 of the 1948 Act to provide nursing care incidental or ancillary to the provision of accommodation. The Court of Appeal so decided in the case of R v North Devon Health Authority ex parte Coughlan [2000] 3 All E R 850, [2000] 2 WLR 622.

448. Sections 22 and 26 of the 1948 Act set out the system whereby a charge may be made for the provision of accommodation under sections 21 and 26. The charge is determined in accordance with a means test. This means testing system is set out in regulations, namely the National Assistance (Assessment of Resources) Regulations (S.I. 1992/2977). It follows that where a local authority provides nursing care incidental or ancillary to the Part III accommodation such services fall within the means testing system

449. Where a person is required to make a contribution towards his care under the means testing regime, but falls behind with the payments, the local authority may take a charge over any interest in land that the person has in the circumstances set out in section 22 of the Health and Social Services and Social Security Adjudication's Act 1983.

The 1977 Act

450. The 1977 Act places a duty on the Secretary of State to continue to promote a comprehensive health service in England and Wales. It provides that NHS services are in general to be free. The Secretary of State is required by section 3 of the 1977 Act to provide such health services as he considers necessary to meet all reasonable requirements in England and Wales. Section 3(d) specifically mentions nursing services. As mentioned above, however, the NHS is not currently solely responsible for providing nursing care. Nursing services which are incidental and/or ancillary to the provision of accommodation provided by local authorities can be provided by those local authorities.

The NHS and Community Care Act 1990

451. This Act introduced community care. It requires a local authority to assess a person's need for community care services (see sections 46 and 47 of the 1990 Act). Where a local authority considers that a person needs NHS or housing authority services, it is required to involve those authorities in the assessment.

452. When the community care provisions were brought into effect (on 1 April 1993) those already in residential accommodation on 31 March 1993 were excluded from the obligation on local authorities to provide residential accommodation under section 21 of the 1948 Act (except in circumstances set out in regulations) (see section 26A of the 1990 Act.) Instead, those people already in residential accommodation on 1 April 1993, retained the right to higher rate benefits (the relevant benefits are now income support and jobseeker's allowance). These higher rate benefits were intended to enable people to continue to make their own arrangements for residential accommodation.

The Community Care (Direct Payments) Act 1996

453. This Act enables (but does not require) local authorities to make cash payments to adults specified in regulations as an alternative directly to providing or arranging community care services. The Act provides that where an authority makes a direct payment the authority ceases to be under a duty with respect to the provision of the service to which the direct payment relates, provided that they are satisfied that the person's need will be met by the person's own arrangements. The Act also enables regulations to set out a category of person from whom services may not be secured by means of a direct payment and also the maximum period of residential accommodation which may be secured by means of a direct payment (see the Community Care (Direct Payments) Regulations 1997. The Carers and Disabled Children Act 2000 makes amendments to the 1996 Act to enable local authorities to make direct payment to carers in lieu of services under section 2(1) of the 2000 Act. Under the provisions persons who are to be provided with carers services are eligible for direct payments in respect of those services unless they are of a description specified in regulations. The 2000 Act also inserts section 17A into the Children Act 1989 to enable local authorities to make direct payments to persons having parental responsibility for a disabled child and also to make direct payments to disabled children aged 16 or 17. Regulations under section 17A may prescribe categories of person from whom a person may not secure services with a direct payment.



Other Relevant Legislation

The Medicines Act 1968

454. The Medicines Act 1968 regulates the licensing, sale, supply and administration of medicinal products, and applies to both the private sale, supply and administration of medicinal products and to the supply and administration of such products in the NHS.

455. Section 58 of the Medicines Act 1968 provides for the designation of descriptions or classes of health professional, falling within the classes listed in section 58(1), for the purpose of prescribing or administering prescription only medicines. It is unlawful for such medicines to be sold or supplied - whether privately or on the NHS - except under the prescription of a designated health professional, or administered except by or under the directions of such a professional.


456. Many of the functions of the Secretary of State in relation to the NHS are exercised in Wales by the National Assembly for Wales for Wales. This Bill has been drafted in consultation with the National Assembly for Wales for Wales and they agree with the provisions contained in it.


457. The legislative framework for the NHS in Scotland is devolved. However this Bill will amend the Social Work (Scotland) Act 1968 and some amendments relating to the dispensing and prescribing of medicines will also extend to Scotland.

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Prepared: 21 February 2001