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House of Lords

Thursday, 6th November 2003.

The House met at eleven of the clock: The CHAIRMAN OF COMMITTEES on the Woolsack.

Prayers—Read by the Lord Bishop of Oxford.

Health and Social Care (Community Health and Standards) Bill

Report received.

Clause 1 [NHS foundation trusts]:

[Amendment No. 1 not moved.]

Earl Howe moved Amendment No. 2:

    Leave out Clause 1.

The noble Earl said: My Lords, in moving Amendment No. 2, I wish to speak also to Amendment No. 97.

From the very start of our debates at Second Reading I have made clear not only my doubt about the supposed benefits of foundation trusts as envisaged in this Bill but also, and more importantly, my deep disquiet about their adverse consequences—consequences which I believe are inevitable. If our disagreement with the Government amounted just to a difference of opinion on whether or not the freedoms on offer to foundation trusts are really as significant as Ministers maintain they will be, frankly we on these Benches would feel that we had done our duty simply by explaining our point of view, but because we believe that these proposals carry profound dangers for the NHS itself we are into a much more serious realm of disagreement.

One of the main advantages of all those marathon sessions in Committee was that, by taking our time in examining the minutiae of the Bill, we were able to tease out its underlying implications quite successfully. Certainly one or two spectres were banished and that was helpful, but on the whole our exploration of Part 1 served only to confirm the worries that we entertained previously, and, I may say, to add a few more to the list.

We do not argue with the core case for foundation trusts. The case for foundation status is that by being freed up from the dead hand of central control hospitals will become more entrepreneurial and creative and thus more responsive to the needs of patients. The problem with that simple concept is that since it started out on its journey various people in high places have thought twice about it and the plan for its implementation has been successively diluted and devalued.

If as a chief executive you are subject to a legal lock on your hospital's assets and a cap on the amount of private income you can earn and a regulator who tells you how much you are allowed or not allowed to borrow, it does not seem to me that you have much scope in which to be creative and entrepreneurial. If on top of that you are subject to national pay agreements

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and unable to develop your own IT systems in the way that suits your own hospital's needs, you will start to wonder what managerial flexibility is really available to you. If you are then told by the regulator what clinical services you have to provide in your hospital, what services you may not provide and what programmes of research you have to conduct, you might be forgiven for questioning whether the entire game is worth the candle.

If freedoms are being granted to a publicly funded system of healthcare, I for one do not have a problem with the idea of an independent regulator. Where I do have a problem is with a regulator who is constrained in almost every move he makes by his relationship with the Secretary of State. He owes his appointment to the Secretary of State; he is financially dependent on him; and in a very real legal sense, he must walk in the Secretary of State's shoes.

I described the duties in Clause 3 as a back-door power of direction over foundation trusts by the Secretary of State. Although the Minister took issue with that description, I do not think that it is very wide of the mark. Not even the business of authorising new foundation trusts is in the regulator's sole gift. We have what my noble friend Lord Peyton so aptly refers to as the double banking arrangement whereby all applications for foundation status first have to meet with the approval of the Secretary of State. The Secretary of State's presence runs through this part of the Bill like the message in a stick of rock. For foundation trusts the main problem with this arrangement is not just its scope for prescriptiveness from the centre but its lack of equity. If they look around for a route of appeal against the regulator's pronouncements, they will find that there is not one.

That lack of equity extends a lot further. Insolvency provisions may not be everyone's idea of an absorbing read at bedtime, but I do not exaggerate if I say that the proposals that the Government have published for the insolvency of foundation trusts are truly outrageous. My noble friend Lady Noakes will speak on this issue later. Let me simply say that as the implications of these provisions dawn on the business community, I shall be interested to see how many banks or businesses will believe that foundation trusts represent an acceptable trade risk.

I need to move on to what I consider to be the most serious consequences of this part of the Bill. The first is its effect on the NHS as a whole. There is to my mind one pre-eminently damaging feature of the Government's proposals and that is the ability of foundation trusts to gain privileged access to capital at the expense of the rest of the health service. It is what my noble friend Lady Noakes referred to as the zero-sum game. The issue can be described very simply. We know from the Treasury that the total pot of capital available to the NHS, including money borrowed from the private sector, is a strictly limited one. If foundation trusts are allowed readier and freer access to that pot of money than are other NHS bodies, then as night follows day every pound of foundation trust borrowing means a pound less for the rest of the NHS. The trusts that really need more capital and that are trying desperately to raise their standards

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and improve their services will actually find that with the advent of foundation trusts it is more difficult for them to do so. Patients will be the losers from the proposal. As I said at Second Reading, it amounts to a dog-eat-dog culture, and it is one that we should not countenance.

The Minister's reply to my noble friend in Committee was completely unconvincing. He said that the limited amount of available capital was not in practice an issue, because the pot of money was very much bigger now than it ever had been in the past. Anyone who knows how tight the finances of the NHS currently are—that is anyone who has spoken recently to managers of trusts—will realise that the Minister's argument is bogus. Record sums of money are indeed flowing into the NHS, but the vast bulk of it is already spoken for, not least in pay and pension rises, but also in funding past deficits.

It will take several years for every trust to become a foundation trust—five years at the very least. During that time, the increases in the health budget will be nothing like those that we are now experiencing. That means that NHS trusts will need to compete as hard as ever for capital. Those trusts that are not foundation trusts will find that they are competing on a decidedly unlevel playing field.

This part of the Bill stands or falls on its detailed provisions. That brings me to the other area of profound difficulty for us. The governance arrangements for foundation trusts carry very serious risks for the health service. Set aside the obvious fact that running elections and maintaining membership lists are a cumbersome and expensive distraction for the NHS from its core task, which is looking after patients. Set aside that democracy of such a kind and on such a scale has never been attempted in the NHS before; look instead at its implications for the care of patients.

In the words of the noble Lord, Lord Lipsey, the system will embed politics in the management of our hospitals. He spoke of governing boards consisting of party-slate politicians, single-issue campaigners and, at worst, extremists. The influence of the elected board of governors on how a hospital is run will be enough to ensure that its board of directors has its hands tied in ways that may run completely counter to its professional judgment.

We debated the phenomenon of entryism. I have yet to hear a convincing argument from the Minister that demonstrates that the risk can be eliminated. A small group of agitators on a board will wreak havoc, and there will be no remedy for it, because of the lack of accountability that lies at the heart of the arrangements. Those whose interests really need to be represented—the inarticulate, the disabled, the mentally ill—will be excluded. Again, the Bill provides no remedy for that. It substitutes one kind of politicisation for another, in a potentially much more dangerous form. As my noble friend Lady Hanham emphasised, how a hospital is run is not just a detail, but very important. Innovation, change, well motivated management and rapid decision-making are being put seriously at risk.

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It is no small thing to ask the House to reject a major part of an important Bill. However, I feel justified in doing so on this occasion. The proposals are either ill-thought through or, to the extent that they have been thought through, misconceived and wrong. Grave concerns were expressed on the issues when the Bill was in another place. The slim majority secured by the Government was testament to that. I do not therefore believe that it would be inappropriate to ask the other place to think again on whether foundation trusts, as conceived in the Bill, are the right way forward for the NHS. I beg to move.

11.15 a.m.

Lord Clement-Jones: My Lords, I shall speak to Amendments Nos. 2 and 97. I support the arguments of the noble Earl; we on these Benches agree with many of them. I also want to place further arguments on record.

I have been asked on a number of occasions whether the Liberal Democrats object to foundation trusts in principle or as a practical matter. The answer is both. When a concept is fundamentally flawed in so many ways and becomes beyond redemption, practical objections essentially become ones of principle. No one argues with the principle that more devolution is necessary. That is a view of the NHS nowadays held in common by all political parties, and particularly strongly on these Benches. The issue is whether foundation hospitals essentially deliver that. Our view is that foundation hospitals are completely flawed as a mechanism, in terms of both their impact on the health system and the governance system adopted.

On a number of occasions in Committee, the Minister rather stoically said that he did not accept that foundation hospital arrangements were a dog's breakfast. The conclusion all the way round the Committee after many days was that they were. As we discussed then, the basis for selection is subject to considerable criticism. Star ratings are a flawed mechanism. They are arbitrary in many cases, and there is evidence that the assessment process can be manipulated.

As the noble Earl said, the impact of foundation hospitals will be adverse. It is doubtful whether all NHS trusts can achieve foundation status within four to five years. During the course of the passage of the Bill through Parliament, the Government have increased the number that may be eligible to 63. Even if they stated that the number would be 200, that would still not be achievable in the period of time. In the mean time, foundation hospitals will affect the viability of other hospitals in their areas. Despite ministerial assurances in Committee, after an initial phase during which foundation hospitals need to adhere to Agenda for Change, they will be able to vary employment terms and conditions and draw staff away from non-foundation hospitals.

As regards borrowing, which we debated at length in Committee, foundation trusts will compete with other trusts for resources. The NHS budget for acute hospitals will remain unchanged and foundation trusts

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will be playing a zero-sum game with NHS resources in competition with other parts of the NHS. There is no duty on foundation trusts when borrowing to have regard to the impact on the rest of the NHS. That inevitably will lead to greater inequalities between hospitals.

Then we come to the extent to which foundation trusts can compete with the independent healthcare sector and the provisions of Clause 15. I am all in favour of strong finances for NHS trusts, but if we genuinely believe in achieving capacity for the NHS and in a mixed economy which allows the private sector to compete to deliver services to the NHS, it is important firmly to restrict the provision of private healthcare by NHS hospitals. We know from the recently announced NAO review that that body has considerable doubts about the provision of private healthcare in NHS hospitals as regards whether it is being delivered as a loss leader. That NAO review is long overdue.

At the end of the day, the key issue is whether there will be any resulting benefit for patients. The well respected Health Select Committee rightly questioned whether such competition between hospitals would benefit patients. There is also a great deal of uncertainty about the nature of the duty to consult before a foundation hospital is established. We are promised regulations and we know that guidance has been issued for the existing applicants. Indeed, throughout the Bill we are promised regulation at every turn. But there should be a minimum requirement on the face of the Bill.

There is the issue of patient and public consultation. Foundation hospitals, even under the Government's current proposals, will have no duty to maintain patients' forums. There is huge disappointment that patients' forums are not provided for in the Bill. Simply having a board of governors or a few non-executive directors is no substitute for a properly constituted patients' forum.

In Committee, much faith was placed on the regulator. But at that stage we established that the regulator will have limited powers and duties in regulating foundation trusts. Indeed, throughout the Committee stage the Minister said, rather bizarrely, that the regulator was a referee, not a regulator.

At the end of the day, rather than going down the foundation hospital route, the essence must be to free the providers of healthcare from bureaucracy and central control and to increase democratic accountability where it really matters—with the commissioners of NHS healthcare. They are the ones who hold the budgets; they are the ones charged with improving health outcomes; and they are the ones charged with improving public health and reducing health inequalities.

It would be much better to make the commissioning system democratic. On these Benches we say that the best way to achieve that is by integrating health and social care. But, ultimately, under these proposals, it is very likely that, despite all the rhetoric, foundation hospitals will be no more free than they were before the legislation.

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Turning to Schedule 1, in Committee Members on all sides were in agreement that the "architecture" of the governance set out in the Bill as the Minister described it is of an unbelievably Gothic nature and quite unsuitable for delivering genuine devolution of power to acute hospitals. In the amendments tabled today, the Minister has tried to install a few flying buttresses, but, if anything, he has made the situation worse. No doubt we shall be debating those further.

The constitution of what are described in the Bill as "public benefit corporations" promises to be a nightmare of bureaucracy. Each trust will have two tiers, a board of governors and a board of directors, but the board of governors will have virtually no powers. A membership—the so-called "public" constituency, staff constituency and patients—will elect the majority of governors. But what constitutes a patient? Who will be eligible? The area to be covered for membership purposes will be entirely arbitrary.

The membership and governance system in each foundation hospital will be locally determined within an overall template. It will be cumbersome and complex. We hear that the average membership of a foundation hospital is likely to be 10,000. But that membership will be self-selecting, giving rise to the danger of take over, as the noble Earl, Lord Howe, mentioned, by sectional interests. What are the limits on how foundation hospitals define membership?

The cost of maintaining the register of members and communicating with members will be massive. This is not cutting red tape, but creating more; and it will not lead to better clinical governance. Something like 250,000 to 400,000 could be spent on the governance of some of the foundation hospitals to maintain and communicate with their membership. That is a staggering figure when we consider for what other purposes the money could be used. Until the Minister's amendment tabled today, there was no minimum requirement for clinicians to be members of the board of governors, so the Government are still tacking on additional bits to this incredibly gothic structure.

We believe that public benefit corporations could be quite adequately run as companies limited by guarantee, as are many of our major charities, with trustee directors nominated to represent the communities or stakeholders they serve. But the bottom line of all this is that none of it will lead to better clinical outcomes for patients. We have had too much tinkering already.

It may be that throughout these debates the Government will not listen to the Opposition parties. Obviously, we would prefer that they did, but if they will not at least they might listen to their own members and supporters. Virtually every organisation affiliated to the Labour Party representing staff in the NHS either has doubts about or opposes foundation hospitals. Look at the vote of the Government's own conference in October. Who will this Government listen to if they will not listen to their own members and supporters?

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This is an opportunity for the Government to think long and hard about these proposals and take them away and rethink them. We on these Benches very much hope that they will take that opportunity.

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