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Baroness Noakes moved Amendment No. 173:

The noble Baroness said: In moving this amendment, I shall speak also to Amendments Nos. 174 and 175, all of which relate to the protected property provisions. The amendments do not concern themselves with the basic concept of protected property, though that does not mean that we support the scheme, but test out what might happen over time.

Amendment No. 173 would amend subsection (2) so that protected property did not include property acquired subsequent to the date of the establishment of a foundation trust. If a foundation trust through good management builds up services and acquires further assets, why should those be subject to the regulated powers under the clause? What happens if the foundation trust acquires assets to support its unregulated services, perhaps with the help of a commercial mortgage? Can those assets be grabbed by the regulator as protected assets because he believes that they might be useful for the purposes of authorised services? I hope that the answer to those points is no, because if not any sense of entrepreneurialism in the foundation trusts will be killed at birth.

Amendment No. 174 would require the regulator to consider any representations about designated property from a foundation trust before making a designation. We have already debated the lack of appeal rights, but some right to be heard will be important to protected property because such a designation could significantly impair a foundation trust's ability to expand.

Finally, Amendment No. 175 deals with the different situation of property initially treated as protected property being de-designated. It would also allow for foundation trusts to apply to the regulator for that declaration. We all know that over time the configuration of hospital services changes. It is likely to change further if the vision in the Government's policy document, Keeping the NHS Local—A New Direction of Travel has any impact on the ground.

There are many examples from the past: nurses' homes surplus to requirements, whole units not needed after service rationalisation and, perhaps most striking of all, the redundancy of the large mental illness institutions. Once those assets are no longer needed for

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authorised services they should be freed up so that the foundation trust can maximise their potential without the regulator looking over its shoulder. The money will not be lost to the NHS; any proceeds will remain within the non-profit foundation trust. But there is no reason then for the restrictive property regime to remain in place. I beg to move.

Lord Warner: There may be a misunderstanding. The primary purpose of an NHS foundation trust does not change over time. As I said on the previous amendment, the primary purpose is to provide NHS services to NHS patients based on need and not ability to pay and free at the point of use. That purpose is unchanging. The fact that the NHS foundation trust may acquire new properties and develop new services does not alter that fundamental primary purpose. The regulator will need to take that into account over time. That is not meant to be a disincentive; there are clear provisions when NHS property is surplus to requirements.

As I have outlined, Clause 14 includes provisions which allow the regulator to require the provision of essential NHS services. The provisions in Clause 16 complement the powers of the regulator in setting the terms of authorisation by giving him the powers he needs to protect the assets required for provision of these essential NHS services. These assets will have special protections applied, so that NHS foundation trusts will not be able to relinquish control over them without the independent regulator's consent, although he has to behave reasonably and proportionately as we have discussed previously.

Amendment No. 173 would mean that property which an NHS foundation trust has acquired, and which is used to provide a service which over time has become an essential local NHS service, would not be protected. This would put in jeopardy the continuity of provision of essential services about which many Members of the Committee have expressed concern. The independent regulator needs powers to ensure that the primary purpose of these organisations is, as I said, to provide NHS services to NHS patients. To ensure continuity of NHS services, protections must also apply to essential NHS assets in the event that an NHS foundation trust is dissolved, but we will discuss those issues in relation to Clause 25.

Amendment No. 174 is unnecessary. The independent regulator will be required as a matter of administrative law to exercise his powers fairly, hearing both sides of the case. The views of an NHS foundation trust will always therefore be sought and considered by the regulator before designating property as protected. I hope that gives some reassurance to the noble Baroness.

Amendment No. 175, which would give the regulator powers to remove—"de-classify"—protected property, removing restrictions on its use and disposal, is unnecessary. The regulator already has powers to do this by varying a foundation trust's authorisation under Clause 9. The regulator is under a common law duty to act reasonably and discussions

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with foundation trusts would naturally form part of the process for determining (and revising) the list of protected assets.

Baroness Noakes: I thank the Minister for that reply. We were not suggesting with these amendments that services would be put in jeopardy but rather that assets which were no longer needed for what the Minister described as essential services could be freed up, or that assets subsequently acquired were also not subject to controls. One of the points I was trying to make was that this lock on assets—the need for which has been debated in the past and we are not seeking to debate with these amendments—acts as a brake on the NHS and on the entrepreneurialism of the NHS and therefore we may not maximise the potential for a foundation trust. We had understood that foundation trusts were meant to become more entrepreneurial. That was certainly what Mr Hutton, the Minister in another place, told Peers when he came to speak at a meeting of Peers last month organised for us by the noble Baroness, Lady Andrews. In a sense, the amendments responded to that entrepreneurialism that we were told was in effect part of the policy.

One aspect of Amendment No. 175 was that foundation trusts could apply for their assets to cease being designated as protected property. Is that procedure available? I do not think that the Minister covered that in his reply.

Lord Warner: I was trying to suggest that the regulator had powers to vary foundation trust authorisation under Clause 9. As I said, he is under a common law duty to act reasonably in discussions with foundation trusts. If they come to him with a reasonable case for revising the list of protected assets, he is able to do that under the present provisions.

Baroness Noakes: I thank the Minister for that clarification. The area is difficult, and I shall consider carefully what he said. In the meantime, I beg leave to withdraw the amendment.

Amendment, by leave, withdrawn.

[Amendments Nos. 174 and 175 not moved.]

Clause 16 agreed to.

Clause 17 [Financial powers]:

Baroness Noakes moved Amendment No. 176:

    Page 8, line 13, leave out subsections (2) and (3) and insert—

"(2) The trust shall have no constraints on its right to borrow except as outlined in subsection (3).
(3) A trust's total borrowing shall not exceed 100 per cent of its total revenues without the approval of the regulator."

The noble Baroness said: I shall speak also to Amendments Nos. 178 and 179 in the group. Amendment No. 176 amends Clause 17 so that no borrowing limits will apply to the individual foundation trusts other than an overall limit set at 100 per cent of total revenues. Above that limit, the regulator would need to give his consent, and doubtless the prudential code that we discussed earlier would come into play. The notion behind the amendment is that borrowing limits should not be

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constraints on a day-to-day basis for most organisations. They should not be the subject of annual review. All that is control-freak thinking that suggests that the Treasury has had too much to say in the drafting of the Bill.

I referred a moment ago to NHS foundation trusts needing to be more entrepreneurial. We would very much like to believe that assertion made by Mr Hutton. In that context, any controls on borrowing should be at a level that prevents only excesses but does not constrain ordinary activity. In the commercial sector, borrowing limits in constitutions are rarely an issue. They are set very high and only occasionally have to be altered. The position of borrowing limits in loan agreements is different, and borrowers typically have to satisfy a number of criteria of various types. However, the main point again is that the limits are constraints only if the borrower is in some financial mess. Then, the greater the mess, the stricter the limits.

The Government's scheme leaves the whole issue of limits in the hands of the regulator, who can set only an absolute borrowing limit. He cannot use more sophisticated indicators of the private sector and generally seems to have relatively little flexibility because he is in an annual review cycle and so on. We do not favour that scheme, and think it highly likely that it will operate as a straitjacket, which is why we favour a high overall limit only.

Our other amendments in the group concern some more detailed aspects of the borrowing regime. Amendment No. 178 deals with the case where the regulator carries out his annual review and sets the limit below the current level of borrowing. Our amendment says that the limit should be not less than the actual borrowing if that borrowing has been acquired within the regulator's previously set limits.

That is not fanciful. Let us suppose that a foundation trust decides to finance a development, possibly for authorised services but not necessarily so. It finances that conventionally with borrowing, but for some reason the development is not a success. Perhaps the quality offered for the authorised services was outclassed by another trust and patients went elsewhere, or a commercial venture went wrong. Whatever the reason, the foundation trust has debt which the regulator thinks is too high. If the regulator immediately reduces the limit, that may mean that the foundation trust must immediately reduce its debt, which may not be the most sensible strategy. The amendment would give a breathing space to the foundation trust so that a proper strategy could be drawn up to restore financial health.

Finally, Amendment No. 179 would require the regulator to review borrowing limits if the foundation trust requests it and would otherwise allow him to review limits other than annually. The amendment would give more flexibility in dealing with dynamic situations which often cannot be compartmentalised into neat, annual packages. How the borrowing

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regime works in practice for foundation trusts is of the utmost importance to them. That is why we propose the amendments. I beg to move.

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