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Baroness Noakes: My Lords, the noble Baroness, Lady Barker, seemed to want to distance herself from these Benches. I have to say that the noble Baroness was not very far away in what she said. The Minister might have thought that some satisfaction would be derived from seeing us disagree, but in fact we do not disagree much. I agreed with much of what the noble Baroness said. She could see no role for the regulator and would have things left, in effect, to the good sense and responsible attitude of the foundation trusts. That is not a million miles from the position in which we find ourselves. We just sometimes use slightly different language to express our views. Therefore, the Minister will not be surprised that I did not take much comfort from what he said. Again, there is a difference of opinion between a controlling attitude and one based on freedoms and responsibility.

Our vote will always be for freedoms and responsibility and not for central control, which is what we thought the policy was designed to achieve. I shall not pursue that theme today, but I believe that it will arise in one way or another when we continue deliberations on Report or at Third Reading. In the mean time, I beg leave to withdraw the amendment.

Amendment, by leave, withdrawn.

[Amendments Nos. 206 to 210 not moved.]

7.15 p.m.

Clause 18 [General powers]:

[Amendments Nos. 211 to 213 not moved.]

Clause 19 [Information]:

Lord Warner moved Amendments Nos. 214 and 215:

    Page 9, line 8, leave out "his" and insert "its".

On Question, amendments agreed to.

[Amendment No. 216 not moved.]

Clause 20 [Entry and inspection of premises]:

[Amendment No. 217 not moved.]

Clause 21 [Fees]:

[Amendment No. 218 not moved.]

Clause 22 [Trust funds and trustees]:

[Amendment No. 219 not moved.]

Clause 23 [Failing NHS foundation trusts]:

Lord Warner moved Amendments Nos. 220 to 222:

    Page 10, line 8, leave out "he" and insert "the regulator".

    Page 10, line 10, leave out "He" and insert "The regulator".

    Page 10, line 11, leave out "he" and insert "the regulator".

On Question, amendments agreed to.

[Amendment No. 223 not moved.]

6 Nov 2003 : Column 1026

Clause 24 [Voluntary arrangements]:

Lord Warner moved Amendment No. 224:

    Page 10, line 23, leave out "he" and insert "it".

On Question, amendment agreed to.

Earl Howe moved Amendment No. 225:

    Page 10, line 23, leave out "may" and insert "must"

The noble Earl said: My Lords, in moving Amendment No. 225, I shall speak also to Amendments Nos. 226 and 227, which are identical to those that I tabled in Committee. I want to come back to one point in particular; namely, the issue raised in Amendment No. 226, which was not resolved last time. Nor was it clarified in the Minister's letter to me, for which I thank him.

If a trust found itself in financial difficulties, it could, itself, invoke the processes referred to in Clause 24(2) under the provisions of the Insolvency Act 1986. In those circumstances, it would make sense for the board to trigger a moratorium or to make a proposal for a voluntary arrangement. A decision of that kind would be momentous for a trust. But it would be right to allow such a decision to be left to the responsible, good sense of the board. After all, the board will be the first to have inklings that all is not as it should be.

I hope that the Minister can reassure me that this idea will not be discarded, but that it will be considered when the regulations are drawn up. I beg to move.

Lord Warner: My Lords, as regards Amendment No. 225, although the regulator's powers to impose voluntary arrangements are discretionary, the situations in which he would exercise his power are clearly set out; that is, when it is necessary or desirable. The regulator is under a duty to act reasonably, including exercising his powers under Clause 24 if it was in the public interest and he was satisfied that it was appropriate to do so. That covers the kind of situation about which the noble Earl is concerned and we believe therefore that Amendment No. 225 is unnecessary.

I turn now to Amendment No. 226, which seems to be designed to ensure that the regulator must take action if he is approached by the board of governors requesting that steps be taken under Clause 24 to obtain a voluntary arrangement. I presume that this is prompted by concerns that the regulator is the only body that can initiate voluntary arrangements procedures, and that the NHS foundation trust has no role set out in legislation.

The regulator is a public body and, as such, must behave reasonably and responsibly. This means that he must consider any approach made to him and respond appropriately. Should the board of governors or, for that matter, the board of directors or any creditor of an NHS foundation trust approach the regulator requesting that voluntary arrangements be started, the regulator must consider that request. Having been approached, the regulator would need to consider if it was "necessary or desirable" to bring procedures and, if so, would issue a notice starting the process.

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While I understand and am sympathetic to the intention behind the amendment, I am satisfied that the provisions as drafted achieve the necessary position. I hope that this response will reassure the noble Earl.

Earl Howe: My Lords, I am grateful to the Minister for those remarks. I beg leave to withdraw the amendment.

Amendment, by leave, withdrawn.

[Amendments Nos. 226 and 227 not moved.]

Clause 25 [Dissolution etc]:

Baroness Noakes moved Amendment No. 228:

    Page 11, line 6, at end insert—

"( ) An order under subsection (3) may not transfer assets or liabilities to any person without his consent."

The noble Baroness said: My Lords, in moving Amendment No. 228, I shall speak also to Amendments Nos. 229 to 231. We now move on to consider what happens to the liabilities of a foundation trust when it fails.

We were somewhat thwarted in our discussions in Committee because the Minister's officials failed to deliver in time a document outlining the Government's intentions for the insolvency regime. Our discussions were therefore inconclusive. That document has subsequently surfaced and, while it answered some of the points that were raised in Committee amendments, it posed further worries about the financial failure regime.

The Government have already confirmed that they have no intention of taking a power to guarantee the liabilities of a foundation trust. Indeed, we debated the point again earlier this afternoon and the Minister made the position perfectly clear. Let me be clear in return: if the Government do not have a power to guarantee the external liabilities of an NHS foundation trust, the effect of the insolvency provisions set out in Clauses 24 to 26 makes it likely that any financial pain caused by the financial failure of a foundation trust will fall wholly on external lenders and other creditors.

Unless the Government accept the amendments in this grouping, or propose something similar, there is one message that should go out from this House: no creditor or lender in his right mind should lend a penny piece or advance credit to a foundation trust. NHS trusts are a much better bet because the Secretary of State will pick up their liabilities. Foundation trusts put creditors in a worse position than the creditors of Enron.

The combined effect of Clauses 24 to 26, as helpfully explained in the Government's memorandum to which I referred earlier, is that the Secretary of State can take whatever assets he likes from a failed foundation trust; he can decide whether any of the liabilities should be paid off in full and transfer them to another part of the NHS, and he can leave whatever assets and liabilities he does not like to the ordinary course of insolvency law. We should be clear that this is worse than Enron. At least the creditors of that company know that the

6 Nov 2003 : Column 1028

assets will be realised and the creditors paid off in accordance with a non-discretionary legal framework. That is not the case for foundation trusts. The Secretary of State can choose what assets are left over and what liabilities remain. This is not an insolvency regime, it is a daylight robbery regime.

Amendments Nos. 229 and 230 seek to reverse the position. Amendment No. 229 would ensure that the insolvent trust will receive value for the assets that the Secretary of State takes out. Let me make it clear: we have no problem with the Secretary of State ensuring that essential NHS services are continued. It is quite right that the Secretary of State should be allowed to keep assets needed to deliver services. However, it is not right that he should be able to asset strip if the effect of that is to leave ordinary creditors high and dry. If there is a residual financial loss, that should be shared. It is absolutely not right to leave the loss in one place only: the private sector.

Amendment No. 230 stops liabilities being transferred if there is likely to be insufficient money for all the creditors. At present, the Bill allows the Secretary of State to cherry-pick liabilities. If he likes the creditors, he can transfer their debts to a new part of the NHS where they will be paid in full. If he does not like them, he will leave them behind to take whatever pickings are left at the end of the day. Again, that is a way in which the private sector can, and probably will, be victimised by the failure regime. We do not consider that to be appropriate.

Amendment No. 228, which heads this group, merely asks that the NHS body which receives assets or liabilities has an opportunity to consent or, in effect, to refuse. We know, for example, that the Secretary of State has guaranteed PFI liabilities. If a foundation trust were involved in a PFI deal and then failed, the Secretary of State would be keen to pass on that liability. But if a PFI deal turned out to be a bad one—and the jury is definitely still out on the long-term value for money of PFI deals—a recipient trust should have the opportunity to decline the Secretary of State's apparent generosity.

The insolvency provisions are very seriously wrong. We must not allow the Government to create a regime which can be so heavily dependent on discretion and so heavily weighted against the private sector. Amendment No. 231, which would delete Clause 25, is not the right approach because there needs to be a rational regime for financial failure. Clause 25 does not provide that but, as amended, it would come closer to an equitable solution. I beg to move.

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