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Baroness Noakes moved Amendment No. 196:

The noble Baroness said: In moving Amendment No. 196, perhaps I may speak also to Amendments Nos. 197 and 198. These amendments concern Clause 27, which deals with mergers involving NHS foundation trusts.

Amendment No. 196 seeks to strike out paragraph (a) of Clause 27(2). It states that a merger requires the support of the Secretary of State if one of the parties is an NHS trust. I hope that the Minister will confirm that if the merger involves two foundation trusts, the support of the Secretary of State would be wholly irrelevant. That is an important point.

Noble Lords will recall our earlier debate on the involvement of the Secretary of State in the creation of foundation trusts. We queried why that matter could not be left entirely to the regulator, and why it is necessary for the Secretary of State to have a veto on the independent judgment of the regulator at that stage. By the same token, we do not believe that the Secretary of State should have a veto or anything approaching that when it comes to mergers of foundation trusts. Those matters should be wholly within the powers of the regulator.

Amendment No. 197 is a probing amendment to ascertain what role the Government envisage for the Independent Reconfiguration Panel. While the panel is still an unknown quantity, having issued only one report, it seems to us right in principle that the panel should be consulted as a part of any merger decision. The amendment requires only consultation, it does not require the regulator to act on the advice of the panel.

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Lastly, Amendment No. 198 rewrites subsection (6) of Clause 27. The existing subsection requires merger applicants to consult in accordance with regulations. Our rewritten subsection would require the merger applicants to consult in every case—that is, whether or not there are any regulations, and additionally in accordance with regulations. An onus should be placed on the applicant to consult, whether or not any regulations are issued.

Over time, it is inevitable that mergers of foundation trusts will take place. That is why we believe it is important to get these provisions right. I beg to move.

Lord Hunt of Kings Heath: My noble friend may wish to consider this point between now and Report. There will be any number of reasons for foundation trusts being involved in mergers, but there will be occasions where a merger takes place because of the weakness of one organisation and it is felt that a more successful organisation should, in essence, take over. There have been a number of examples of that within NHS trusts. However, the governance arrangements in such mergers are not always satisfactory.

Let me give an example. In my own patch some years ago, the Birmingham Heartlands Trust merged with the Solihull NHS Trust, which was in great difficulty. The Heartlands Trust had very strong leadership. Having agreed to the merger, the first thing that happened is that the people who gave incredibly strong leadership to the Heartlands Trust had to apply for their own jobs within the new trust structure. On my reading of the clause, that would happen again in such circumstances.

It does not make sense. It makes sense where you have a merger of organisations of equal strength, but my reading of the clause is that where a weak performer merges with a stronger organisation, the new governance arrangements in Schedule 1 would, nevertheless, kick into place. I argued, and the House accepted, that there should be transitional arrangements for NHS trusts going forward to NHS foundation trust status, so there is a case for giving the regulator discretion, in the circumstances I have discussed, to allow the governing body arrangements—particularly in relation to the board of directors—to continue in order to achieve continuity. My noble friend may care to look at that issue between now and Report.

Baroness Cumberlege: The noble Lord, Lord Hunt, raises an interesting question. You seldom get a genuine merger in the private sector. That is also true, as the noble Lord said, in the National Health Service. Sometimes the word "merger" is a misnomer for a takeover—and where there is a takeover there are always aggrieved people.

When one considers mergers and the research that has been carried out on them in the private sector, one finds that they take longer than anticipated, that the benefits are less than anticipated and that they do not achieve the savings anticipated. It is a very distracting process, and many people come out of it extremely bruised.

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If you are a shareholder in the private sector you can anticipate these things and disinvest immediately or later on. In the public sector, in the National Health Service, you do not have the opportunity to do that. The least we can do for our public—who are shareholders but cannot make choices in that respect—is to consult with them and ascertain their views.

Although I appreciate what the noble Baroness, Lady Noakes, said about the fact that there are bound to be mergers—I am sure that there are—one of the matters that disturbs even those who have the greatest expertise in the NHS is the concern that bigger is not always best. Huge hospitals are now specialising with great expertise, but they are not that good in dealing with multi-pathologies and patients who have a range of problems.

I hope that the foundation hospitals, if they come into being, are successful. I hope also that there will not be too many takeovers—which I foresee—in the future.

12.45 p.m.

Baroness Carnegy of Lour: In replying to his noble friend Lord Hunt, the Minister will probably remember that in any merger between two foundation trusts there will be attached a huge membership, governors who have been elected by members, and directors who have been appointed by the governors. So there will be a political, with a small "p"—or even, perhaps, with a big "P"—thread running through the discussions on any take-over. When my noble friend Lady Cumberlege refers to aggrieved people, she is thinking about what has happened so far with NHS trusts. However, the grievance may take a more difficult form in a merger of two foundation trusts.

Lord Warner: I have listened carefully to the points made by my noble friend and to the comments of the noble Baronesses. I shall consider what they have said. They raise important issues in regard to governance arrangements if there are mergers. I shall write to my noble friend as quickly as possible and copy the letter to other noble Lords.

The discussions in another place highlighted a gap in the Bill in that it did not provide adequately for mergers of NHS foundation trusts after establishment. We recognise the importance of ensuring that such mergers should occur in a way that balances the need to minimise bureaucracy with the need to safeguard the interests of the NHS and NHS patients. That is why we have brought forward these provisions. That is the context in which we are discussing the amendments.

Amendment No. 196 would remove the veto of the Secretary of State over mergers involving NHS trusts. We believe that it is entirely appropriate that the support of the Secretary of State should be required before an NHS trust applies for NHS foundation trust status through a merger with an NHS foundation

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trust, just as his support would be required if the NHS trust was making an individual application for NHS foundation trust status.

If the Secretary of State did not have this power, there would be effectively a backdoor route for NHS trusts to become NHS foundation trusts without obtaining his support. In effect, there would be a short cut into foundation trust status without going through the processes that other applicants now have to go through. NHS trusts are ultimately subject to performance management by the Secretary of State, and he will be well placed to judge whether they are in a fit and ready state to move forward to an application to the regulator. It is important to preserve those arrangements in order that we do not create loopholes.

Amendment No. 197 requires the regulator to consult the Independent Reconfiguration Panel. I remind your Lordships that the Independent Reconfiguration Panel is not a statutory body and so we are up against the issue, upon which we keep touching, of whether it is right to refer in primary legislation to a body or concept that is not statutorily established. On those grounds, it should not be referred to in legislation.

However, the regulator can take advice from any person he thinks appropriate. This could include the Independent Reconfiguration Panel. I am certainly happy to give the assurance that it is not the Government's intention to exclude it. I shall not outline the details of the arrangements for consultation, but they are fairly extensive and contain many safeguards.

As regards Amendment No. 198, which relates to consultation on mergers, we will require applicants for mergers to carry out the kind of comprehensive public consultation that would need to occur for any major reorganisation in the NHS. Clause 27(6) provides for the Secretary of State to make regulations setting out the consultation requirements. Compliance with these regulations would be a condition of authorisation.

We have included this power—believe it or not—because we intend to use it. We expect to introduce the regulations under Clause 27(6) before any applications are made for mergers involving foundation trusts. These are likely to require consultation with the local public and patients— including patients forums, once established—staff, other local NHS bodies and local authorities, including overview and scrutiny committees.

This important measure is designed to ensure that the views of local communities and stakeholders are sought, listened to and taken into account. However, we do not believe it would be appropriate to remove the Secretary of State's discretion on whether to make regulations and what they should contain, particularly as the requirements may themselves change over time. That, effectively, is what this amendment would do.

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The requirement that a consultation should be "adequate" is simply not necessary. As a matter of law, consultation must be adequate. If it is not, it is open to challenge in the courts.

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