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Baroness Hanham: Does the Minister agree that the NHS trusts going towards foundation status at the moment have very considerable reservations, particularly about the governance issues? What discussions are being undertaken with them at the moment, so that there is feedback for them as they try to prepare for foundation status without the benefit of the legislation behind them?

Lord Warner: Of course people undergoing great change want to be sure that they have got the detail right, and would like as much certainty about the future as possible. All human organisations are like that. However, if they have concerns, those concerns are not so strong that they do not want to move along that path. They are pursuing application in a constructive way with the department.

Baroness Carnegy of Lour: The noble Lord said, very helpfully and encouragingly, that Members of the Committee might be surprised how carefully the Government would listen to amendments, and how much they would think about them. For my comfort, and I think for that of my noble friend Lady Hanham, will he say that some of the amendments to which the Government will listen most carefully and pay particular attention will be those concerned with governance? The whole question of whether doctors, nurses and other hospital staff will be able to give better treatment to patients in hospitals because of the public involvement that the Government have contrived is an open one. From my point of view as someone who has been involved in local affairs and local government, I have great reservations on the subject.

Lord Warner: I can certainly assure the noble Baroness that those were the very amendments to which I suggested that we needed to listen, debate and consider carefully. However, that does not mean that I accept some of the arguments that all the governance arrangements are a total dog's breakfast. Some of the amendments have behind them the thrust of an argument suggesting that we need to control more from the centre and do not want to allow flexibility at local level. In our best intentions to get matters right,

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we must move culturally from the idea that we want to prescribe everything around governance from the centre, while safeguarding the public interest.

Baroness Cumberlege: The Bill will have many days of debate in this Chamber. During its passage even so far, "devolution" and "devolved" have been bandied about. I am in some confusion. It would be very helpful to me, and perhaps to other Members of the Committee, if the Minister could give us a clear definition of what the Government mean by devolution.

Lord Warner: Devolution is one of those words that tends to have different meanings in Scotland, Wales and the regions of this country, as I have observed from listening to a number of political debates over the years. We are trying to give more local autonomy and freedoms to manage assets and design services around the needs of local people. That is the best that I can do on the spur of the moment, but I am happy to write to the noble Baroness to confirm that.

Earl Howe: I am grateful to all Members of the Committee who have taken part in the debate, which I hope that I signalled was intended to be probing. That is indeed what it has been, and it is not my intention to divide the Committee today. However, if we were to take Clause 1 out of the Bill, nothing at all would prevent us debating the rest of Part 1 if we wished to do so. My understanding was that agreement had been reached along those lines through the usual channels.

The central issue that I sought to emphasise was that of risk. The noble Lord, Lord Walton, was absolutely right to say that the devil was in the detail. I am as keen as the Minister to debate the detail of the Bill. He is right that there is enthusiasm for the concept of foundation status, but there are also considerable reservations, as my noble friend Lady Hanham pointed out. There is also considerable bewilderment about how the arrangements will actually work. One of the main purposes of our debates is surely to tease out the implications of the Bill and its proposals for trusts, and for patients and the public. Unless we get satisfactory answers on those questions, I cannot see us supporting Part 1 at later stages.

Clause 1 agreed to.

Earl Howe moved Amendment No. 10:

    After Clause 1, insert the following new clause—

(1) It shall be the duty of the Secretary of State to establish an independent review body to carry out the functions specified in subsections (4) to (6).
(2) The Secretary of State shall appoint at least nine members of the independent review body.
(3) The independent review body shall elect a chairman from amongst its members.
(4) The independent review body shall prepare reports containing proposals relating to the establishment of a local, democratically accountable system of governance for NHS foundation trusts and Primary Care Trusts.

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(5) The independent review body may in particular make proposals in accordance with the provisions of subsection (4) relating to—
(a) methods of securing wider public participation in the governance of NHS foundation trusts, and Primary Care Trusts;
(b) methods of increasing public awareness and access to information about the governance of NHS foundation trusts and Primary Care Trusts; and
(c) the membership of public benefit corporations.
(6) The independent review body must—
(a) lay a copy of any report prepared in accordance with the provisions of this section before Parliament, and
(b) once they have done so, send a copy of it to—
(i) the Secretary of State, and
(ii) the regulator."

The noble Earl said: I freely admit that I tabled the amendment not so much for what it actually proposes, but more as a means of shining a spotlight on the role of local democracy in healthcare and the system of governance devised for foundation trusts in the Bill. Some of that territory has already been very ably mapped out by my noble friend Lady Hanham and the noble Lord, Lord Clement-Jones.

The almost unquestioned assumption underlying the Bill's proposals is that accountability to local people and responsiveness to local healthcare needs necessitate a democratically organised model of governance. The presupposition is that, without direct representation of patients, the public and, for that matter, staff on the board able to influence and steer the way in which an organisation is run, we will not get stewardship or control of hospitals that is truly in the public interest. I am clear that nothing could be more mistaken.

The United States is not always the paradigm of choice in matters to do with healthcare. However, in relation to governance, if we look at how a typical not-for-profit hospital in the US is run—most are run well—success depends on one factor above all: competent directors and managers taking the key decisions. Where there is a board of trustees or shareholders, those individuals are responsible for appointing the non-executive directors, but apart from that they have no role beyond holding the management to account and, where appropriate, providing the benefit of their advice on forward plans.

The trustees or shareholders do not second guess the executive board on how the hospital is run. They have no power to issue it with directions. They are appointed, not elected, to ensure on behalf of the community that the founding principles of the hospital are honoured, and that competent individuals are in place to fulfil the managerial remit. The directors—and only the directors—are responsible for resource allocation.

The governance model devised for foundation trusts places too great an emphasis on democracy and not nearly enough emphasis on competence. A largely elected board of governors having the power to instruct the directors on resource allocation and treatment priorities is a recipe for poor governance and demotivated management. I have unqualified

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enthusiasm for the concept of patient and public involvement and for patient groups acting in an advisory role, but, to put it at its simplest, patients should not be running hospitals.

What is more, the all-out desire to see boards of governors 20 or 30 strong, populated by every conceivable type of stakeholder from patients to would-be patients, to staff, to local councillors, to commissioners of healthcare, to academics and voluntary bodies is a guarantee that you will get the very opposite of focused decision-making. A board of that unwieldy size and composition is a formula for posturing, for vocal factions and for instilling into each board member the mere illusion of influence. Anyone with experience of corporate governance will tell you that a board of 10 or 12 people is the maximum number needed for effective, tight operation.

The cost of all this should not be overlooked. It is estimated conservatively that the cost for each foundation trust of maintaining membership lists, running elections, communicating with members and servicing the board of governors will be somewhere between a quarter and half a million pounds every year. That will be the cost in hard cash. In terms of opportunity cost, the number of working hours that the chief executive will have to spend on governance matters will be very considerable. One chief executive estimated to me the other day that it might very well take up as much as 50 per cent of his time.

The cost can be measured, too, in terms of the drag on innovation and service development. At a time when healthcare is evolving at a rapid rate, speed of decision-making and hence local responsiveness will not be enhanced by the constant need to refer upwards to an alternative debating forum.

It is probably too late for the Government to row back from this model because its supposed merits have been talked up too loudly, but row back they ought to if this experiment in democracy is not to result in failure. Ministers are attempting in one leap to move from wholly appointed hospital boards to the most complex possible governance model imaginable—and a model of which the NHS has no experience. That fact alone makes the experiment foolhardy.

The most obvious feature of the governance model chosen for foundation trusts is that nobody has asked for it. It is being imposed from above across the entire acute sector of the NHS without consultation. It does not take a genius to discern that in general local people do not want a say in how their hospital is run any more than they want a say in how their branch of Tesco's is run. What they want is a hospital that delivers services that they need in an effective manner. Their expression of need emerges through the commissioning process and through the good offices of GPs as patient advocates. That fact, in the end, is what will lead to disillusionment on the part of those who offer themselves for election as foundation trust governors. They will rapidly find that financial flows from PCTs, not their own attendance at meetings, really determine how a hospital functions and moves forward.

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If democracy is to play a role in the governance of hospitals—and I understand all the arguments about local engagement—at the very least hospitals need guidance on what a good system looks like. The Government are saying that it is up to each foundation trust to design its own constitution. It is stating the obvious that hospitals have no experience of this sort of thing.

I was, frankly, disappointed in the guide to developing governance arrangements which the department published last month. The section headed "How will you know the governance arrangements are good ones?" is less than one side of A4. At the end it states that a template constitution and explanatory notes are provided in the annex. When one turns to the annex one finds that it contains nothing at all—it is a blank page. I am sure that soon something will emerge from the great brains in the department, but as and when it does it needs to contain a great deal more meat.

As will be abundantly clear, my view of the governance model devised for foundation trusts is that it is a mess—such a mess that I do not know whether it is possible to remedy it. It will certainly be very difficult to unwind it if it is put in place and then seen not to work. I can only offer my views to the Government in what I assure the noble Lord is a constructive spirit and hope that they will listen. I beg to move.

6.30 p.m.

Lord Harris of Haringey: The noble Earl, Lord Howe, has proposed an interesting and attractive amendment, but, unfortunately, for all the wrong reasons. I find it extraordinary to hear the noble Earl say that there is too much emphasis on democracy when ironically, on the same day, the Shadow Home Secretary suggested that we should have directly elected sheriffs meddling in the operations of local policing, 143 different districts and so forth. But that is an aside.

The question raised by the amendment, but no so much by the noble Earl's speech, relates to where the balance should lie in the parts of the health service in which there should be improvements in democratic accountability. I was particularly attracted to subsection (4), which emphasises that the proposed review should look at,

    "the establishment of a local, democratically accountable system of governance for NHS foundation trusts and Primary Care Trusts".

The danger in some of the proposals contained in the Bill is that they will fossilize public support around a democratic structure of institutions. That will produce precisely the wrong dynamics in creating a health service which will respond to changes and changing needs. Democratic support and accountability is most important in the commissioning function, which is clearly the responsibility of primary care trusts.

The noble Earl expressed himself most concerned about the cost of democracy. The point about better systems of local accountability—how those are arrived at is open to question—should not be measured by the

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cost of that. Rather one should assess whether as a result of that greater accountability of NHS managers, they deliver a service which is more responsive to the needs of the communities they serve. That must be the emphasis which surrounds this measure.

It is difficult to put a price on that and to measure it against the costs of democracy or accountability arrangements, but it must be accepted that if services are to be genuinely responsive to local needs and the requirements of the local population, there must be a mechanism enabling a linkage to the local community. That will cost resources. Indeed, it is a fallacy to assume that leaving it all to the managers will produce an insight, somehow magically, into what is needed to be responsive to the local community.

I welcome the proposed amendment because it provides the Government with an opportunity to think again about the precise mechanisms of governance that are being put forward. It is unfortunate that there is no read-across in the amendment to the existing Commission for Patient and Public Involvement in Health. It is also lacking in what it does as regards the rest of Part 1 and what happens after the learned review has presented its report to the Secretary of State and to the regulator. I believe that real timing issues arise.

However, the Government need to consider very carefully the principle of looking first at the most appropriate accountability structures within the NHS—examining the balance of accountability between primary care trust commissioners and the institutions which will be represented by foundation trusts. They need to recognise that perhaps what we have in the Bill is not at present the final answer. There could be considerable merit in further discussion—perhaps along the lines of the review proposed in the amendment.

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