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Baroness Cumberlege: As I understand the legislation—I am sure the Minister will put me right if I am wrong about this—foundation trusts will be able to sub-contract services to the for-profit sector through PFIs and other schemes, as well as to transfer staff. Can the Minister tell the Committee what will be the role of the regulator in those circumstances, in particular if the for-profit sector were to increase pay in a way not in accordance with NHS pay scales?

Lord Warner: I do not think that I can easily forecast exactly what might happen in all circumstances. However, in the situation indicated by the noble Baroness, the outsourcing, as it were, of a particular piece of work to a for-profit organisation would not in any way enable the foundation trust to opt out of its obligations in the way that I have suggested.

It would be unusual to encounter a set of circumstances where the market rate for a particular skill or competency is " and that was changed dramatically by whoever is the source of service provision. However, issues would arise for the foundation trust as regards the best way of organising and managing a particular service.

I cannot answer a hypothetical question of the kind raised by the noble Baroness, but I have sought to give some indication of our thinking.

Baroness Carnegy of Lour: I ought probably to know the answer to this question. Given that the trust will be subject to national wage negotiations in the way just confirmed by the noble Lord, does it mean that the only way in which a trust may attract better staff or exercise its freedom in how it employs staff is by putting individuals into more highly promoted posts, as is the case with universities?

Lord Warner: I would not want either to confirm or deny what a particular NHS foundation trust might do in a given set of circumstances and according to its individual needs. All I would say is that "terms and conditions of service" is a broad term that is available to NHS foundation trusts and goes much wider than simply pay. It takes account of a wide variety of circumstances which may influence its ability to recruit and retain staff.

Lord Clement-Jones: I thank the Minister for his reply and for his responses to the interventions. This is one of the more important replies that we have been given during the course of the Bill and it requires some consideration.

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Because of the concerns that have been expressed, the common factor uniting noble Lords on these Benches is the wish to give the regulator more teeth in respect of the duty of co-operation, whether in the narrower area suggested in my amendment or more widely as put forward by the noble Earl, Lord Howe. I recognise the statement made by the Minister about the balance to be struck between flexibility and looking after wider NHS interests. However, the crux of the matter is whether the regulator really does have the power to maintain those interests while retaining the flexibility of NHS foundation trust behaviour.

The Minister's helpful and extended response requires further considered reading in Hansard. In the meantime, I beg leave to withdraw the amendment.

Amendment, by leave, withdrawn.

Schedule 2 agreed to.

Clause 3 [General duty of regulator]:

Earl Howe moved Amendment No. 110:

    Page 2, line 4, leave out "performance by the Secretary of State of the"

The noble Earl said: In moving Amendment No. 110 I shall speak also to Amendment No. 111. I have remarked on a previous occasion on the very interesting and, to my mind, revealing phraseology of Clause 3, which brings us face to face with some harsh realities about the regulator and his role, and what those will mean for foundation trusts.

We have heard rather often how this Bill ushers in a new era for the NHS, enabling it to become free of political interference from Whitehall and free to chart its own course according to local priorities and local ownership. The newly created independent regulator will be there to ensure fair play and that foundation trusts comply with the terms of their authorisation and, more generally, that they adhere to the requirements of Part 1 of the Bill. That is the official position on the regulator.

Yet how independent will he be really, and how far removed from the influence of the Secretary of State? We have already debated a number of telltale signs that point to a rather different picture. Clause 3 takes us further down the path of discovery. We see here that the independent regulator will be constrained to behave in a way consistent with the performance by the Secretary of State of the duties laid down in the National Health Service Act 1977. That says a great deal more than simply that the regulator has those same duties. Clearly he does have those duties, but he must also perform them in a manner consistent with the way in which the Secretary of State performs them; that is, he has no independence to interpret those duties in a way substantively different from that of the Secretary of State.

This tells us as clearly as we need to be told that the regulator will live not only in the shadow of the Secretary of State, but actually in his shoes. The idea, therefore, that in this legislation we have separated in one bound foundation trusts from the control of Whitehall is a myth.

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That has direct consequences for NHS foundation trusts. It will be idle for a foundation trust to pretend that all it needs to do is to maintain a high quality of health services within the terms of its authorisation and listen to the voice of its local members. It will have to do more than that. It will have to keep a weather eye on what the Secretary of State is saying to the rest of the health service: the targets he is setting and the directions he is issuing. If it fails to do this and instead tries to plough its own furrow as it wishes, the inevitable consequence will ensue—the regulator will descend upon it and pull it into line. Thus the way in which the Secretary of State performs his duties under the 1977 Act will exert a direct pull on the behaviour of foundation trusts.

I am sure that the Minister will argue that this is a necessary—and, indeed, healthy—state of affairs. I am sure he believes that the duties imposed by the 1977 Act should rightly overlay everything in Part 1 of the Bill. But the Secretary of State's performance of those duties also overlays Part 1. In my amendment I am suggesting that this amounts to a backdoor power of direction by the Secretary of State which is both unnecessary and inconsistent with the objectives that the Government have set for foundation trusts. It means that the much-vaunted operational freedoms of foundation trusts will be circumscribed in a way that may not at once be obvious but which is, nevertheless, quite real and evidenced by only the shortest of short trails to Dr Reid's office in Richmond House. I beg to move.

4.30 p.m.

Lord Peyton of Yeovil: I applaud the remarks of my noble friend. It is not unusual for me to do so, but on this occasion I do so with exceptional warmth. I should be grateful if the Minister can tell the Committee whether there is any precedent for bidding a regulator to act in a manner consistent with the way in which a Secretary of State performs his duties. It seems to be a weird criterion.

I am quite accustomed to regulators and others being told that they must do what the Secretary of State orders them to do, but to state that they must accept as a criterion the way in which a Secretary of State performs his duties is going a little too far into the realms of vagueness and speculation. I hope that the Minister will be able to satisfy my curiosity, at least on the point of whether there is any precedent for this kind of criterion to be set up as a standard to which a regulator, or anyone else, should aim.

Lord Blackwell: My noble friend's amendment goes to the heart of a question which has been puzzling me throughout the passage of the Bill. If the Secretary of State were to declare a target in future—for example, a waiting time target in respect of certain operations—would the fact that he had declared that target automatically have any impact or effect on foundation trusts? If the Bill were not amended, would the

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regulator be the means by which such targets were imposed on the foundation trusts, or would they be completely free of any such targets under the Bill?

Lord Warner: Let me state quite categorically that this is not a backdoor power of direction. I cannot quote chapter and verse off the top of my head for the noble Lord, Lord Peyton, but I shall be happy to write to him when I have carried out more research in this area. However, whatever the outcome of the letter, I do not believe his point is necessarily valid.

Perhaps I may put the term "the duties performed by the Secretary of State" into context. The duties performed by a Secretary of State in the field of health will, to some extent, change over time for good and sound reasons which are not much to do with the political process. We would not expect a Secretary of State to have regard to exactly the same circumstances in relation to healthcare today as would a Secretary of State in 1948. There will be changes in resources, people and money; new professions will develop over time as people develop new skills to cope with new healthcare needs; there will be rapid changes in technology, drug use and development; and there will be changes in public expectations and choice. If Secretaries of State, of whatever political party, were so foolish as to simply ignore such changes in the way in which they performed their duties under NHS legislation, I suspect that they would not last terribly long. It would be Canute-like behaviour that ignored the real processes of change taking place in society and the healthcare field. So to pretend that a Secretary of State would perform his duties in exactly the same way, year in, year out, is a myth we should not perpetuate.

We discussed on earlier amendments the need for the general duties of the independent regulator to strike the right balance between ensuring consistency with the requirements of the NHS as a whole and retaining his or her independence. Striking that balance as we have tried to do, as I have explained on a number of occasions, does not damage in any way the independence of the regulator.

Amendments Nos. 110 and 111 would remove the reference to the Secretary of State's performance of his duties under the 1977 Act. For the reasons I have briefly explained, that would be a slightly unreal way of behaving. Under Clause 3, the independent regulator is required to take account of the wider interests of the NHS by ensuring that he acts consistently with how the Secretary of State performs his duties under the NHS. But we are leaving it—and this is a feature of his independence—to the regulator to determine how to achieve this. What he cannot do is simply ignore how a Secretary of State, at a particular point in history, is performing his duties under NHS legislation. For the reasons I have explained, that would be a rather Canute-like approach to dealing with the healthcare sector.

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The removal of the reference to the performance of the Secretary of State's duties is not acceptable because it would allow the independent regulator to second-guess a Secretary of State—who is accountable to Parliament for the performance of his duties—in ensuring that a comprehensive health service was available across the NHS as a whole. We believe that the amendments are not appropriate.

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