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Lord Lipsey: I agree with the amendment put forward by the noble Baroness, Lady Noakes, for

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precisely the reasons that my noble friend Lord Hunt disagrees with it. I understand the attraction of the view of foundation hospitals as some sort of Periclean Athens of the health service where the local community—a phrase I have always had difficulty in getting around because I have seen what operations it has carried out—make the decisions. I understand the attractions and I do not want to mock it too far, but for the reasons I stated in our debate on Tuesday I believe that the proposal goes much too far.

It seems to me that there are two ways in which that problem can be defused. One is along the lines put forward in the amendment; namely, to specify that the board of governors (perhaps that name should be changed) is advisory. The second way is to stop it being able to exercise the same options as the people of California in recalling non-executives each time a plausible film star presents himself as the person best equipped to run a local hospital.

Lord Hunt of Kings Heath: I am grateful to my noble friend for giving way. Would he not accept that if one constrains the board of governors to the recall vote and noting else, one can hardly be said to have transferred accountability for the running of local health services from Parliament to the local community? The proposal will not work unless accountability is transferred and it will not work unless the elected board is seen to be the corporate body that ultimately is responsible.

The problem we have at present is that the board of directors is being made solely responsible for the activities of that organisation.

Lord Lipsey: I am grateful to my noble friend, who has led me to my next comment. Accountability is a diffuse concept. In reality, it is rare that one can say that " is totally accountable. There are various levels and forms of accountability and it is right that there should be some accountability to the governing body. However, it should not have a monopoly on accountability, particularly on issues with which it is not, in my view, well equipped to deal.

This time, I am on the optimistic side and my noble friend Lord Hunt is on the pessimistic side. He said that the good people will not stay on unless they have the powers he put forward. I do not believe that. The fact that someone has an advisory function does not mean that they have a nil function. Perhaps I may give as examples Bills recently passed by this House. The consumer panel that exists in the Financial Services Authority does not have the power to compel anything, but it has jolly important advisory functions. On the Ofcom Bill that we passed in the previous Session, the consumer panel cannot direct the board of Ofcom to do anything—and thank God for that—but it has an extremely important advisory function.

The idea that, if these bodies have the vitality that my noble friend Lord Hunt believes they have and attract people to them, the board of directors will then ignore them seems to be pessimism run amok. They do not need to have a guillotine in their hands in order to

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have an appropriate measure of effect on the policies of the hospital and provide an appropriate degree of local accountability to local people.

For that reason, I strongly support the amendment. It starts to pave the way to defusing the bomb that will otherwise blow this whole attractive notion of foundation hospitals apart. I hope that it will be pursued at subsequent stages by the noble Baroness, Lady Noakes.

Baroness Finlay of Llandaff: I support the principle behind the amendment. I have a wider concern than the local accountability of the foundation trusts to their governors; that is, their role in relation to other services within the concept of the clinical network. If a service goes down in one part of the network as a result, for example, of sudden staff illness, the board of directors of the foundation trusts may have to act quickly in order to maintain continuity of service. That may result in some rapid reconfiguration.

I am concerned that unless the hospitals know what the boards of governors are able to do, and know that they are providing advice on an overall strategic direction, a great deal of confusion may arise. At present, the definition of roles is not clear in the Bill. In that regard, I am anxious for those who are running the clinical services.

Lord Warner: I hesitate to rise and to spoil the fun of my noble friends behind me in bringing their discussion to a conclusion. It is a well established principle of public governance that checks and balances are the key to success and the Bill provides many checks and balances, as I shall try to outline. The amendment, while well intentioned—I can see where the noble Baroness is coming from—is too narrow, as several Members have indicated.

The approach taken in the Bill is to set minimum requirements and to allow individual foundation trusts to develop arrangements locally that best suit their needs. While we have deliberately avoided prescribing the whole range of functions that the board might cover, we have made some things clear. It is worth reminding Members of the Committee that paragraph 14 provides that all the powers of the corporation are to be exercised by the directors. In addition, paragraph 1 provides that the powers cannot be exercised by anyone else. The governors, therefore, cannot have a direct role in the operation of the trust. That is crystal clear in the Bill as it is presently drafted. Governors have influence. They do not, for the most part, have executive decision-making powers, although they have an ability to ratify and be involved in particular appointments. That is already set out in the Bill.

The other day, the noble Baroness, Lady Hanham, challenged me to give a tutorial, so to speak, on governance arrangements and on the role of the board of governors. On Tuesday, I shirked that challenge but, if noble Lords will bear with me, I believe it would probably help the Committee if I set out clearly the Government's position. However, before doing so, I need to make it clear that I do not believe we should be

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diverted to having long debates about what goes into primary legislation, about who is formally accountable to whom and whether boards of governors can or should not exercise powers of veto. I believe that that would be to miss the point of the new arrangements.

The primary purpose of establishing boards of governors is to provide a voice and influence for local communities in defining the culture and strategic development of NHS foundation trusts. They will represent the interests of the members and partner organisations of the NHS foundation trust working with, and providing a source of information and guidance to, the board of directors.

However, information cannot just flow in one direction: it does not go only from the governors to the board of directors. The board of governors is also a mechanism for disseminating information to members and partner organisations about the NHS foundation trusts and their development and how their role fits into the workings of the local health economy. I shall say a little more about those relationships because concerns about them were clearly expressed in the previous debate.

That adds up to a radical shift in the relationship between NHS hospitals and the communities they serve. I believe that that radical shift is causing some of the nervousness among your Lordships. The board of governors will empower NHS foundation trusts to become far more responsive to the needs of NHS patients and local communities. And the boards will give the people who care most about what NHS hospitals do—the patients who use them, the staff who work in them and the partner organisations who work with them—a real voice in how they deliver the services that PCTs commission them to provide. That does not change the commissioning pattern but it does change the framework by which advice is given to the executive directors. To define this in legislation as,

    "advising the National Health Service foundation trust on development of the forward business plan",

would only partly cover, and inappropriately circumscribe, what this shift in culture will mean in practice. I hope that I have made that absolutely clear.

Schedule 1 is not a dog's breakfast. It sets out clear minimum requirements in paragraphs 6 and 8 on the composition of the board of governors to ensure that there is representation of the key stakeholders by guaranteeing that patients, staff, the public, PCTs, local authorities and, where relevant, universities have seats on the board. The schedule also includes minimum requirements in paragraphs 25(2) and 26 of Schedule 1, ensuring that governors are consulted on the forward plans and that they receive information on the trusts' activities.

Governors also exercise significant influence through their powers to appoint the chair and non-executive directors of the foundation trust and to approve the appointment of the chief executive and other executive directors, as set out in paragraph 16 of Schedule 1. They also decide the terms of office and remuneration of the non-executive directors and

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appoint the auditor of the NHS foundation trust. Both those tasks benefit from being carried out by a body which is independent of the board of directors. We shall reach that issue at later stages in our consideration of the Bill.

The legislation sets out only minimum requirements for the duties of the board of governors, and it will be for individual trusts to include other provisions in their constitution concerning the role and duties of the board of governors, consistent with the requirements of Schedule 1. Therefore, we are not limiting their ability to give more authority to the boards of governors, subject to the requirements in the legislation that I have already mentioned. They may, for example, want to include governors on sub-committees established to advise the board of directors on development of the strategy and forward business plan. Pace the noble Lord, Lord Peyton, we do occasionally need the odd committee to bring people together to consider the future direction and pace of change.

The trusts may also want to establish a formal structure for liaison between the governors, members and partnership organisations that they are elected or appointed to represent so that there is a clear route for stakeholder views to feed into the organisation. We do not want to preclude development of that kind.

Some Peers have raised concerns that applicants may seek to sideline the board of governors and that the minimum legislative requirements would not necessarily prevent that. If I am honest, I was not totally reassured by one or two of the remarks of my noble friend Lord Hunt on that aspect. But perhaps I may say to those who are thinking of moving down that path—I shall try to reassure my noble friend Lord Hunt in particular—that the Secretary of State would not support applications that sought to bypass the board of governors, and the independent regulator will not issue an authorisation or agree any changes to the constitution if the trust does not abide by the spirit, as well as the letter, of the law. I am trying to set out this issue very clearly so that the Government's position on the board of governors is placed on the record.

The legislation is clear that the board of directors and not the board of governors will be responsible for the day-to-day running of the trust. Each board will have its own defined role, but they are all part of one organisation and, as such, will need to work together for the benefit of that organisation. They will be chaired—quite deliberately, despite the later amendment which deals with this matter—by the same person to help to facilitate working together. In the same way that members of a board need to resolve disagreements, these two boards will need to work through their differences. I would expect the skills of those chairs, with practical and experienced people such as the noble Baroness, Lady Hanham, who, sadly, is not in her place today, to enable some of the possible disputes to be avoided or resolved. The chair's skill will keep the two bodies in effective relationships with each other.

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Governors do not have a right of veto unless an NHS foundation trust makes specific provision in its constitution for particular matters to be referred to the board of governors; for example, the ratification of the chief executive and executive director appointments. However, as I have already said, governors have significant influence over the board of directors—and rightly so—because of their role in the appointment and removal of directors. The appointment of non-executive members to the board of directors should ensure that prudence and good management are adhered to. As I said, I believe that a failure to resolve disagreements, which is always a risk in any human organisation, would be indicative of wider failure in the organisation, and the independent regulator may wish to investigate that if it leads to the non-functioning of a trust.

Perhaps I may deal with the issue of relationships with others. As we have said previously and shall no doubt say again in our debates, the NHS foundation trust is not an island; it is a part of the local health economy. The noble Baroness, Lady Cumberlege, mentioned the strategic health authorities. The SHA sets the strategic direction for its territory, and any foundation trust will have to take account of that and, under the provisions of the Bill, work in co-operation with the other partners in the local health economy.

The other day I said—I shall elaborate on it a little because it may be of comfort to some Members of the Committee—that we are prepared to consider the issues raised by the noble Earl, Lord Howe, in his amendment on the review mechanism. Certainly I can say today that the Government are prepared to encourage the regulator to carry out a review of governance after the first wave. We shall look at some of the wider issues on governance that the noble Earl put in his amendment. We accept that it would be sensible after the first wave to review the experience of governance arrangements. We are not being rigid on this matter, but we do not believe that now is the time to make major changes to the detail of those arrangements that are already set out in the Bill.

12.15 p.m.

Baroness Carnegy of Lour: I have been enormously comforted by a more detailed description of the Government's thinking. I was shivering a little when I listened to the noble Lord, Lord Hunt, who I believe said that the whole point of the Bill was to move the running of the health service from central government to local communities. The noble Lord is nodding so I think that was the gist of what he said. We all know that central government should never have run the health service—that was the trouble—and to give it to local communities to run would be absolutely lethal. Anyone who has been in local government knows what would happen if that were the case. I do not believe that the aspirations of the noble Lord, Lord Hunt, in relation to this democratic element are sensible.

Nothing that the noble Lord said contradicts Amendment No. 31. It may be sensible to point out that the main role of the governors will be advisory. When the governors stand for election they will realise

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that that will be their role. I agree with the Minister that people are prepared to be elected to act in an advisory role. I do not know whether, in this case, it will be a satisfying job, but people do not mind being elected to advise.

It seems to me that this clarification is helpful. Those who understand the system very well believe that there is still some confusion in the Bill. I hope that the Government will find a way to clarify that. The word "governors" is peculiar for an advisory body. I believe that if there is to be a politicised body, it would be far better for it to be advisory rather than for it to have an executive role.

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