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Earl Howe moved Amendment No. 96:

The noble Earl said: In moving Amendment No. 96 I shall speak also to Amendment No. 97. Paragraph 1 of Schedule 2 sets out the terms of the regulator's appointment. It includes the provisions governing his resignation or removal from office. The two grounds on which the Secretary of State is empowered to remove him from office are incapacity or misbehaviour. "Incapacity" I can understand. "Misbehaviour" seems very odd. I might have expected to see the word "misconduct", which has a well established pedigree in legislation. Misbehaviour seems to me an altogether looser term, and one that is perhaps open to a measure of subjective judgment. For example, it might cover the Secretary of State if he wanted to sack the regulator just because he did not like his style. Perhaps the Minister could tell the Committee whether there is a legal precedent for that term and what difference there is legally between "misbehaviour" and "misconduct".

However, there is a wider issue; that is, whether the Secretary of State should have an unfettered prerogative to remove the regulator on the grounds listed in paragraph 2(b). There are two issues here: first, that the word "misbehaviour" leaves far too much scope for a subjective judgment, as I have said. Secondly, if the regulator is to be truly independent of government, approval by Parliament of his premature and involuntary departure from office buttresses that point of principle. Also, it makes for transparency, which I would argue is important in such circumstances. I beg to move.

Lord Warner: I shall try to help the noble Earl by taking him through, if he will bear with me, some of the precedent arguments. Certainly, based on the experience of other precedents the Bill has been drafted to ensure that in the case of either misbehaviour or incapacity the Secretary of State has appropriate powers to remove the regulator from office. The regulator still can be dismissed for incompetence but that would be a reason for dismissal in the contract of employment rather than on the face of the Bill, which is the way that statutory office holders are usually dealt with when incompetence occurs. Specifying incompetence on the face of the Bill

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could have adverse implications for the application of wider employment law and moves away from standard wording currently used in legislation.

The choice of the words "incapacity" or "misbehaviour" as the grounds for removal is based on precedence. Precedents include the chair and other members of Ofgem; the rail regulator; the director-general of water services, Ofwat; and the chair and non-executive members of Ofcom, which is probably the most recent parliamentary example in relation to which those words have been used. There has been slightly different wording in earlier legislation. However, I have given the noble Earl some of the most recent examples.

Amendment No. 97 would make the regulator's removal subject to the approval of Parliament. There are already sufficient safeguards to ensure that the Secretary of State cannot behave precipitately. He will be bound by the terms of the regulator's appointment contract and by common law in deciding whether to remove the regulator from office. If the situation is so serious that the Secretary of State has to act, he needs the flexibility to act quickly to safeguard NHS interests. As I said, the model set out in the Bill is based on precedents, so I shall not repeat those. We do not think that making that removal subject to the approval of Parliament is appropriate.

Having said all that, I should like to put on record that we do not anticipate that the Secretary of State will have to remove the independent regulator from office. We do not want to give the impression, before any appointments have been made, that we are just aching to be able to remove the regulator from office before he or she has arrived.

3.30 p.m.

Earl Howe: I fully endorse the Minister's final comments. I am sure that when appointments are made, they will be good for the long term. I am grateful to the Minister for what he told us about the meaning of the words "misbehaviour" and "incompetence" and their precedent in legislation. I shall read carefully what he said about that.

The larger question in my mind concerns Amendment No. 97, which proposes parliamentary approval—some kind of check in the process for Parliament—thereby buttressing the independence of the regulator, as I explained. I understand the Minister's point about speed of action, should that be necessary. I shall have to reflect on the matter between now and Report, but I beg leave to withdraw the amendment.

Amendment, by leave, withdrawn.

[Amendments Nos. 97 to 102 not moved.]

Earl Howe moved Amendment No. 103:

    Page 114, line 24, leave out "(generally or specifically)"

The noble Earl said: I want to raise what may seem a small issue but it is is one about which we need to be clear. Schedule 2(4) allows for the regulator to delegate the performance of his functions to a member of his

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staff. He may give authority for that to happen either generally or specifically. It would be helpful to know what "generally or specifically" means in practice. If the regulator issues a general authority, what kind of activity might that embrace and who might be given it? What implications does that have for decision-making within the office of the regulator?

Equally, if he issues a specific authority, it appears from the Bill that he could do so on any matter whatever that is within his legal powers. I am once again uncertain what implications that will have for foundation trusts, which are looking for consistency of decision-making on the regulator's part, as well as consistency in how they are regulated. They also want to feel that they are being dealt with on behalf of the regulator by a grade of staff competent to do them justice. It is important that foundation trusts have confidence in the regulator.

That form of words may well be a standard provision. We all understand that the regulator, like Ministers, needs to be able to delegate his role for appropriate practical reasons, but there is surely a limit to that. The purpose of this probing amendment is to discover what are or should be those limits and what effect internal delegation may have on how the regulator exercises his primary functions. I beg to move.

Lord Warner: As the noble Earl suggested towards the end of his remarks, we are in the territory of standard provisions. Perhaps I may quickly take him through the arguments.

The Bill provides for the regulator in effect to delegate functions to his staff. The inclusion of the words "generally or specifically" is a standard drafting device that simply makes clear that the regulator does not have formally to delegate his functions on each and every occasion that he wants a member of his staff to do something on his behalf. It would of course be completely impractical for him to be required to do so. Many aspects of his role could and should routinely be carried out by the staff of his office.

For example, under Clause 26(3), the regulator is required to send a copy of any notice given under Clause 23 or 24 to the registrar of companies. That is obviously a simple administrative task and to require the regulator specifically to ask a member of staff to do it on his behalf each time would be absurd. So the precedent of the words "generally or specifically" in a power to devolve functions currently includes the Food Standards Agency, Ofgem, the rail regulator, the director-general of water services, the Chief Inspector of Schools at Ofsted and the director-general of telecommunications. Those are examples in which we have used that wording in regulations.

I agree with the noble Earl that the regulator will need to ensure that his staff carry confidence with the people receiving correspondence, decisions and advice from his office. However, returning to our previous debate, the regulator, like other bodies, is required to behave reasonably and proportionately and obliged to ensure that his staff are fit for purpose to carry out the

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duties of his office. If his decisions are strange and wonderful, they are subject to judicial review. So we have checks and balances in the system, but this is standard wording that follows precedents in other areas.

Earl Howe: I am most grateful and beg leave to withdraw the amendment.

Amendment, by leave, withdrawn.

Baroness Noakes moved Amendment No. 104:

    Page 114, line 27, leave out paragraph 5 and insert—

"5 (1) The Secretary of State shall make such contributions to the regulator's expenses as the regulator shall request.
(2) If the Secretary of State believes that the amounts requested by the regulator are unreasonable, he shall refer the matter to the chairman of the Select Committee for Health whose decision shall be binding on the Secretary of State."

The noble Baroness said: The amendment concerns the financial independence of the regulator. I shall speak also to Amendment No. 188, which concerns the regulator's finances.

As we have already debated, the regulator is termed an independent regulator, and we shall probe what that independence means in practice. Amendment No. 104 concerns financial independence and would replace the existing Paragraph 5 of Schedule 2 with a new one. The current paragraph gives the Secretary of State the power to contribute to the regulator's expenses; the new one requires the Secretary of State to pay what the regulator asks for. That may be regarded as somewhat sweeping, so the second leg of the amendment contains an arbitration mechanism in case of dispute, suggesting the use of the chairman of the Select Committee on Health in another place.

The regulator will not be independent if the scale of his operation is determined by the Secretary of State. If he cannot determine how many people he needs or how much he needs to invest in systems and property, he will not be truly independent. That is what the amendment is about: ensuring that he has the resources to do the job as he determines. If the Government find that amendment too bitter a pill to swallow, I invite the Minister to say how the financial independence of the regulator is to be guaranteed.

I turn to Amendment No. 188, which deals with Clause 21 and fees charged by the regulator to foundation trusts. That has a slightly different link to independence. The Consumers' Association suggested in its submission to the Committee that the independence of the regulator could be severely compromised by the introduction of fees paid by foundation trusts. Its view is that the regulator would find it difficult to remain independent of foundation trusts if he knew that his actions might well jeopardise the recovery of costs. I should be interested to hear the Minister's views. The amendment requires the fees to do no more than recover the costs associated with dealing with the trust during the relevant period.

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Clause 21 mentions a reasonable fee, but I am sure that the Minister will be aware that if you put a dozen accountants in a room, they will come up with a dozen different versions of what is a reasonable fee. The clause does not even state from whose perspective the fee is to be adjudged reasonable: that of the regulator or of the foundation trust. Our amendment ties fee levels to the costs incurred. I hope that the Minister will agree that, on that basis, it would not be acceptable for the total costs of the regulator to be spread across all foundation trusts regardless of a trust's behaviour and whether it complied fully with its obligations.

I hope that the Minister can enlighten the Committee on how much the regulator will expect to recover. The Explanatory Notes say that the costs for 2004–05 will be #2.3 million. Divided among 32 foundation trusts for next year, that will leave them with around #72,000 each. Is that roughly how the system will work? Will all the costs be recharged to foundation trusts under the mechanism?

Amendment No. 188 is a probing amendment. We wish to understand how the Government see the fees systems working in practice. I beg to move.

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