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Baroness Noakes moved Amendment No. 183:

The noble Baroness said: My Lords, in moving Amendment No. 183, I shall speak also to Amendments Nos. 184 and 185. The amendments concern borrowing principles. We had a very interesting debate in Committee on the borrowing code. I do not think that it is an exaggeration to say that there was little meeting of minds between the Government Benches and the combination of these and the Liberal Democrat Benches. The Minister promised me an extensive and informative text which would convince me that things were not quite as I would have the House believe. That turned out to be one page of A4 within a rather longer letter. I am sorry to say that it did not convince me.

We have no details of the code. We are told that it is important that the code should have regard to borrowing principles for non-profit, but no one has yet explained what this means. What kind of non-profit? Is it Standard Life or is it the village hall? What exactly is the comparator? We do not know who will be consulted. As I said when speaking on the previous amendment, the PFI will largely be ignored and some slightly strange metrics and ratios will be at work.

Foundation trusts will be able to borrow within this mystical world of prudential codes and borrowing limits. But—and this is the important point—we have the zero-sum game. For every pound that a trust borrows, the department's expenditure limit will be used up. I shall not go through the arguments again today. The Minister has tried to convince us that there is so much money sloshing around that that is not a real issue. We remain unconvinced.

On the whole, the provisions in Clause 12 are financial gobbledegook. We have seen relatively little hard information about the code. The answers that we have received have hardly moved the issue on since first being discussed in another place more than five months ago. It is hard to escape the conclusion that the prudential borrowing code is a figment of the imaginations of young people in the Treasury and the Department of Health.

We think that we have received precious little information because precious little of substance exists. It may be just dressing up political decisions with some kind of plausibility. We do not support that. We do not support the zero-sum game, which is why we have serious concerns about whether Clause 12 should remain in the Bill. I beg to move.

Lord Clement-Jones: My Lords, in speaking to Amendments Nos. 183 and 184, I support the noble Baroness, Lady Noakes. The prudential borrowing code is rather like a universal panacea. I refer back to an interesting exchange in Committee between the noble Lord, Lord Hunt, and the Minister. The noble Lord, Lord Hunt, said:

    "Given that the prudential borrowing code has to fit the external expenditure limit of the department, there has to be a basis on which the borrowing code must relate to the overall

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    expenditure of the department. Therefore, there must be a fair share basis between foundation trusts with a borrowing code and non-foundation trusts with a traditional approach to access to capital".—[Official Report, 13/10/03; col. 727.]

What is interesting is that the Minister agreed. Later, when replying to me, the Minister said:

    "I am saying that the regulator has a requirement to take account of the wider interests of the NHS across a range of his duties".—[Official Report, 13/10/03; col. 728.]

There seems to be a feeling that the prudential borrowing code settles everything. But one of the fundamental objections to the current structure of foundation trusts is to be found precisely in the whole area of borrowing by foundation trusts, which is unsatisfactory in all kinds of ways. In one sense, it is far too restrictive and too little information is available. As the noble Baroness, Lady Noakes, pointed out, the prudential borrowing code should include PFI. If the borrowing powers of foundation trusts are to be truly free, they should be much broader. They should be free of the trammels of the Treasury. On the other hand, in exercising their borrowing powers, they should take regard of the local health economy and regional priorities. That is not squaring a circle or an unusual way of proceeding; that seems to be a sensible way of proceeding.

I think that the department has got it entirely the wrong way around. It is bound into the zero-sum game, described by the noble Baroness, Lady Noakes, yet it still does not have to take account of local health priorities and the local health economy, thus getting the worst of both worlds. It seems to be a topsy-turvy situation. No wonder that so many of us and so many outside organisations have such doubts about this part of the Bill.

Lord Warner: My Lords, I think that Benches opposite believe that if they repeat zero-sum game in a rather mantra-like way, it will necessarily be true. I do not resile from what I said earlier. There is no more zero-sum game under foundation trusts than there is under the present set of arrangements. We are operating within a context where, as I said earlier, we have 8 billion more in the capital budget spend over a four-year period. We are not operating as in the past. I think that some noble Lords opposite forget that the world has moved on since they were in government.

There is more money going into the NHS, but there are still the same requirements. People must have priorities. They must borrow and use capital in a way that reflects particular needs in particular localities. Nothing has changed. But we have a more generous funding environment in which the NHS operates.

I am a little confused, but I think that we are speaking to Amendments Nos. 183, 184 and 185. I shall therefore deal with those amendments together. There is a simple reason why the prudential borrowing code is not available: as the Bill makes clear, it is to be set by the independent regulator, who has not yet been appointed. We are wonderful people in Richmond House, but we cannot actually produce the prudential borrowing code—a matter that is clearly causing much frustration—because it is not our job to do so, it is a task for the independent regulator.

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In doing that, the independent regulator must take into account commercial best practice for issuing loans to the not-for-profit sector and must consult interested parties, including NHS foundation trusts themselves. It is not for the Department of Health to determine how much borrowing individual NHS foundation trusts will undertake, but their capital expenditure will score on the Department of Health balance sheet, as we have said already.

Amendment No. 183 would require the regulator to take account of generally accepted principles that apply to loans in setting the prudential borrowing code. We think that that is inappropriate. The code places a limit on overall borrowing, but it does not set the terms and conditions under which loans are issued. Those are matters for lenders, not the regulator. However, loan repayments affect the free cash flow of NHS foundation trusts and therefore will be reflected in the calculation of a trust's individual prudential limit.

If, as I thought was the case, Amendment No. 183 is aimed at elucidating how the prudential borrowing code will be calculated, I shall give the noble Baroness some further information. The independent regulator is required to take account of generally accepted principles used by financial institutions to determine the amounts of loans to non-profit-making bodies. The independent regulator can also take account of whatever principles he thinks appropriate in determining the prudential borrowing code; the inclusion of the words "amongst other things" in Clause 12(2) makes that clear. The reason for requiring that, at a minimum, he takes account of principles relating to non-profit-making bodies is that the assessment of the creditworthiness of not-for-profit bodies is somewhat different from that in the for-profit sector, and necessarily more restrictive because there is no equity holder to fall back on in times of financial turbulence.

On the nature of the principles and whether they differ between the range of bodies across the non-profit-making sector, I can tell the noble Baroness that financial analysts employ a range of hard and soft analytical techniques in assessing creditworthiness. Overall, the techniques aim to ensure that debt is kept to prudent levels commensurate with the institution's revenue-generating capacity. I am sure that the independent regulator will wish to look at all types of not-for-profit bodies when assessing the creditworthiness of NHS foundation trusts.

As regards Amendment No. 184, the independent regulator must, by virtue of Clause 3, exercise his functions in a manner consistent with the performance by the Secretary of State of the duties under Sections 1, 3 and 51 of the National Health Service Act 1977. That includes a duty to provide a comprehensive health service free at the point of use. In drawing up the prudential code, the independent regulator will have to take account of the impact of any borrowing on the wider NHS as part of his Clause 3 duty. NHS foundation trusts will not rob Peter to pay Paul, and we believe therefore that Amendment No. 184 is unnecessary.

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I do not doubt that I have not satisfied the noble Baroness, but at least I have the virtue of consistency in my argument.

Baroness Noakes: My Lords, the Minister is absolutely right. It appears that we all have mantras. He remarked that our mantra was the "zero sum game", which I must tell him that we sincerely and absolutely believe to be the case. However, he too has one: "more money in the NHS", which seeks to suggest that all the problems of the health service have somehow been solved.

Some of this comes down to not being able to share with the House the prudential borrowing code because of the fiction—I believe that it is a fiction—that the regulator needs to issue it. Our intelligence suggests that work is going on with someone who ultimately may be appointed as the regulator and that this is not completely virgin territory. However, if the Minister does not wish to share that with the House, he can expect the scepticism to remain on this side as regards whether the provisions are soundly based.

I shall not pursue the issue today. I shall consider again what the Minister has said, but I believe that we shall return to it at a later stage. I beg leave to withdraw the amendment.

Amendment, by leave, withdrawn.

[Amendments Nos. 184 and 185 not moved.]

Clause 13 [Public dividend capital]:

[Amendments Nos. 186 to 188 not moved.]

Clause 14 [Authorised services]:

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