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Earl Howe: That was a helpful reply. I shall not exercise the Minister's vocal chords any more than I have to. I have not yet received the letter to which he referred, but that may not reflect in any way on his office: I confess to not having opened my post this morning. I look forward to receiving the letter, and, no doubt, we can return to the matter at a later stage, if need be. I beg leave to withdraw the amendment.

Amendment, by leave, withdrawn.

[Amendment No. 191 not moved.]

Lord Warner moved Amendment No. 191A:

The noble Lord said: This is a technical amendment to ensure that the policy intention for the insolvency regime can be properly applied in practice. Other sections of the Insolvency Act 1986—not in Part I—will require modification to allow the insolvency regime for NHS foundation trusts to be fully effective. All that the amendment does is to give powers to make such necessary modifications to the Insolvency Act at a later stage. I beg to move.

On Question, amendment agreed to.

Clause 24, as amended, agreed to.

Clause 25 [Dissolution etc.]:

Baroness Noakes moved Amendment No. 192:

    Page 10, line 38, leave out subsection (2).

The noble Baroness said: Amendment No. 192 deletes subsection (2) of Clause 25. We now turn to the dissolution provisions of the Bill. Subsection (2) concerns the consultation arrangements that the regulator must carry out before winding up a foundation trust. Our amendment is a probing one.

Clause 12, which deals with the prudential borrowing code, lays down that the regulator should consult the Secretary of State, the foundation trust and other persons that he—the regulator—considers appropriate. But under Clause 25 there is a different formulation based on the regulator having to comply

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with an order on consultation. Are the Government saying that they do not believe that the regulator would get the consultation right in the case of dissolution? What kind of order is envisaged? Would it be a separate order for every dissolution or would it be a generic one? If it is to be generic, why cannot the discretion of the regulator be relied on, as the Government are content to do under Clause 12? I beg to move.

Lord Warner: The regulator clearly has an important role in considering whether a foundation trust needs to be dissolved in order to protect NHS services. That is why the Bill provides for secondary legislation in this area to prescribe the process leading to the dissolution of a foundation trust. It includes requirements on the regulator to consult in making his decision about the future of a foundation trust. It is not a matter of not trusting the regulator; it is a very important and potentially contentious area. It is important that the consultation arrangements are right and appropriate.

It is expected that the consultation requirements cover a range of interests, including bodies with responsibilities for NHS services; that is, the strategic health authority, PCT commissioners, Patients Forums, the oversight and scrutiny committee, staff representatives, the Secretary of State and significant creditors, as well as the governors if they have not been removed already under Clause 23(4).

We think that it is right that the independent regulator consults these groups—there may be others—so that he or she has the relevant evidence required to reach such an important decision about the future of an NHS foundation trust. It certainly would not be in the spirit of the Bill to encourage any arbitrary action in this area. We will put forward secondary legislation in the appropriate form at a later stage, which will go into more detail on the consultative arrangements. I hope that that clarifies matters for the noble Baroness.

Baroness Noakes: I thank the Minister for that reply, from which I take it that the regulations will be generic regulations and not specific to particular dissolutions.

Lord Warner: Perhaps I may reassure the noble Baroness on that point.

Baroness Noakes: I am grateful to the Minister, who, interestingly, said that dissolution is an important matter and that, therefore, it is important to get consultation right. I think that the subtext is that the prudential borrowing code—some of us have significant doubts about its relevance and importance—is not an important matter. We have at least had some light shed on the Government's thinking. I shall consider carefully what the noble Lord said. I beg leave to withdraw the amendment.

Amendment, by leave, withdrawn.

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Baroness Noakes moved Amendment No. 193:

    Page 11, line 1, at end insert—

"( ) any other body specified by the regulator"

The noble Baroness said: In moving Amendment No. 193, I shall speak also to Amendments Nos. 194 and 195, which concern the transfer of assets and liabilities on the dissolution of a foundation trust. Amendment No. 193 extends the bodies to which property or liabilities could be transferred under subsection (3) to include any other body specified by the regulator. The list in subsection (3) is quite restrictive. It does not allow transfer to a special health authority or to a local authority. There could be some circumstances where that could be appropriate. It does not allow transfer to a private sector healthcare provider, which might be appropriate in, say, diagnostic and treatment centres—or whatever it is that we are now supposed to call them. In general, subsection (3) shows a considerable lack of imagination about what might appropriately be done with assets on a dissolution. Our amendment would allow a greater range of opportunities to be considered.

Amendment No. 194 tackles a different issue. It provides that property or liabilities not transferred to the people specified in subsection (3) should be transferred to the Secretary of State; that is, assets and liabilities cannot be left in limbo but must be transferred somewhere. That would prevent the regulator from abandoning liabilities, including assets with a negative value.

In another place, Conservative Members often asked Ministers what would happen to liabilities at the end of the day. They were stonewalled. I hope that the Minister will give us a clear answer today. On our last Committee day, I talked briefly about the doctrine of "standing behind" public sector bodies, whereby the Government are expected to pick up the liabilities of any public sector body, should that situation arise. As far as I am aware, there has never been a case where a public sector body—especially one like a foundation trust, which is classified to central government—has been allowed to go bust without having its liabilities picked up. In that debate, I referred to the Treasury's view that the Government will pick up foundation trust liabilities.

In effect, my amendment expresses what "standing behind" is all about; namely, that the Government will pick up any liabilities. If the Minister thinks that that is not the case, how would the regulator pick and choose liabilities that would be left stranded? The Bill contains no rational way for any deficit to be shared among creditors. I cannot believe that the regulator has an absolute power to determine which creditors are paid and which are not.

Finally, Amendment No. 195 provides that liabilities cannot be transferred under Clause 25 without the consent of the person to whom they are being transferred. For example, can the regulator foist liabilities on another foundation trust without that trust's consent? I hope not, which is why our amendment provides for consent. These amendments

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may seem to be matters of detail, but they raise issues of very real substance which could have practical implications should the unfortunate situation of having to wind up a foundation trust occur, which is not beyond the bounds of possibility. I beg to move.

Lord Warner: Perhaps I may set out the context of the amendments before turning to them specifically. As I have said before, an essential aspect of the new disciplines being placed on management as the quid pro quo for additional freedoms which come within an NHS foundation trust is that the Secretary of State does not intend to guarantee debt. I have said that before. It is important that we begin at that point. In the event of a failure by a foundation trust, the Government would stand behind NHS patients and behind essential NHS services—that is, the protected services—which would be part of the authorisation. They would not stand behind or bail out poor management. I say that again, and it is a point to which we may return several times in later discussion. To ensure that we do not end up bailing out NHS foundation trusts, the Bill includes provisions for a special failure regime with the primary aim of protecting the staff and assets required to deliver NHS essential services. Before turning to the amendments, perhaps I may explain why I shall not address all the detailed points. The insolvency paper I referred to when responding to an earlier amendment deals with some of the specific matters raised by the noble Baroness.

Amendment No. 194 would require the Secretary of State to pick up all the property and liabilities of a dissolved NHS foundation trust. We have made our intentions quite clear. The effect of Amendment No. 194 would amount to a guarantee on foundation trust viability and thus would be wholly inconsistent with our policy aims. For that reason, we do not think that the amendment should be accepted.

Amendment No. 193 seeks to ensure that the property of a dissolved foundation trust can go to any body specified by the regulator. Here we return to the important point about what should happen to the protected assets of a dissolved NHS foundation trust. Those assets may be transferred only to other NHS foundation trusts, PCTs, NHS trusts or the Secretary of State because they are protected assets of the NHS. In a dissolution of a foundation trust, it would not be right to enable those assets to be transferred to other alternative bodies. In responding to another amendment, I shall return to the matter of non-protected assets; the distinction here is between protected assets and non-protected assets.

A private healthcare provider, for example, could be asked to step in and manage a service previously provided by a failed foundation trust. This would be effected either by a franchising arrangement or by tendering for contracts. But the assets associated with that service would remain within NHS ownership and the service would remain free at the point of use. The Bill as currently drafted ensures that NHS assets are not transferred to a private provider in the kind of

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circumstances that I have indicated; that is, where they are protected assets. We believe it is right that such assets, which are crucial to the delivery of NHS services—and in the spirit of what I have said about the Secretary of State standing behind patients and NHS services, but not bailing out failing management—should be retained. That is consistent with ensuring that those assets could not be privatised or sold off to pay the debts of a foundation trust whose management, in that particular situation, would effectively have failed. That is why Amendment No. 193 would be inappropriate.

I turn now to the non-protected assets. Once the Secretary of State has arranged for the transfer of those property rights and liabilities essential to the continuity of NHS services, any remaining property and liabilities will be subject to normal insolvency rules. Potentially this could include assets such as retail facilities, car parks and buildings used solely for the provision of private patient care or other income-generation activities. One possibility—it is not the only one—is that such assets could be transferred to creditors, including the Secretary of State, who may himself be a creditor in these circumstances. Alternatively, they could be sold off to meet the liabilities of the failed foundation trust in the same way that trust-owned assets can be sold off at present. That covers the distinction we make here between the protected assets for NHS services and the non-protected assets.

Amendment No. 195 would ensure that dissolved NHS foundation trust assets and liabilities could not be transferred to another body without that body's consent. We believe that this amendment is unnecessary because both the Secretary of State and the regulator are under a common law duty to act reasonably. Foisting unwanted things on to other bodies would not be deemed reasonable. Discussions with bodies that were to receive the assets and liabilities of a dissolved foundation trust would in any case form part of the transfer process because the regulator would be required to consult those bodies before the powers in Clause 25, including the transfer of property and liabilities, could be exercised.

I have done my best to address and deal with the points raised by the noble Baroness, but more detail is set out in the letter that I mentioned earlier.

12.30 p.m.

Baroness Noakes: It is clear that we shall not be able to conclude our deliberations on these issues until the letter to which the noble Lord referred has surfaced and noble Lords have had an opportunity to read it.

I wish to comment first on the point made about discipline on management and not guaranteeing debt. I have never heard an explanation of how not guaranteeing debt results in imposing discipline on management. I understand that nothing in the Bill would make management responsible for the debt. Any debts built up by a foundation trust would remain the debts of that trust and would have nothing to do with the management. Perhaps I may suggest that that is a piece of empty rhetoric.

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Further, I would suggest that the Minister has not yet explained how, if certain liabilities are not to be picked up for one reason or another, the regulator is to choose between them. Given that there is no framework covering the payment for certain liabilities, I am concerned whether such an ability to pick and choose between liabilities, leaving some of them stranded and therefore not met, satisfies human rights law. No doubt we can expand on that point further.

I look forward to reading the letter, in particular in order to understand how protected and non-protected assets are really defined and to see how the process will work in practice. I had assumed that the importation of the Insolvency Act provisions was much more a matter connected with the voluntary arrangements. Clearly that is something that I shall have to consider further. On that basis, I beg leave to withdraw the amendment.

Amendment, by leave, withdrawn.

[Amendments Nos. 194 and 195 not moved.]

Clause 25 agreed to.

Schedule 3 agreed to.

Clause 26 agreed to.

Clause 27 [Mergers]:

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