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Baroness Noakes moved Amendment No. 2:

"( ) In making the code the regulator shall ensure that the economic effect of all commitments to make payments over periods exceeding one year is taken into account."

The noble Baroness said: My Lords, Amendment No. 2 relates to the borrowing code for foundation trusts under Clause 12. We debated the matter extensively both in Committee and on Report. It is not inaccurate to say that there has been no meeting of minds between the Government Benches and the Conservative and Liberal Democrat Benches.

The Government believe that the borrowing code will somehow solve the problems of the borrowing capacity of foundation trusts. We believe that it is at best harmless and at worst a major distraction. This mystical borrowing code—mystical because no one has ever seen it—is somehow to distil the knowledge and practice of commercial lenders. It is supposed to help the regulator determine limits on total borrowing by any NHS foundation trust. But that is about all we know about it.

On Report, the Minister told us about information that late in the day was made available on the department's website. That information adds almost nothing to our knowledge of the borrowing code. It contains some highly simplistic ratios but no real substance.

We remain highly sceptical about the worth of the borrowing code. It seems to us to be a pseudo-technical device designed to conceal the fact that the emperor has no clothes. We believe that this part of the Bill is ill thought-out and that it will cause problems in practice.

The simple solution would have been to take this silly code out of the Bill, but if the Government are committed to it, it must be absolutely clear that the borrowing code will take account of the economic impact of liabilities which arise from long-term commitments, such as those from the private finance initiative. We have heard the Minister's arguments that PFI obligations will be scored in arriving at free cash flow, but we want the regulator—for it is the regulator who will be lumbered with creating this code—to be in do doubt whatever that the economic impact of PFI liabilities must be taken into account. It is not simply a matter of establishing free cash flow; it is as much about the overhang of liabilities.

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I have previously argued that PFI liabilities in the NHS are a serious concern. They are continuing to rise at a rapid rate and we are concerned about the robustness of these deals over time in terms of practicality and value for money. The one thing that is absolutely certain is that PFI deals must be kept fully in mind when determining what borrowing should be permitted for foundation trusts. That is what the amendment seeks to achieve. I beg to move.

Lord Clement-Jones: My Lords, I support the amendment. We on these Benches do not believe that the question has been properly answered. It would be wrong not to have on the face of the Bill a provision of this type, making it clear that PFI was included in the terms of the prudential borrowing limit. The Minister's answers on Report were not fully satisfactory and in those circumstances we fully support the fact that the noble Baroness has brought the amendment back to the House.

Baroness Carnegy of Lour: My Lords, I support the amendment. It is important that foundation hospitals should not become part of the Exchequer's charade in pretending that PFI has nothing to do with real borrowing. The debts incurred by foundation hospitals, and the interest due on those debts, will be no less than any other form of capital borrowing and interest on it. Surely, it should be taken into account and I therefore support the amendment.

Lord Warner: My Lords, on this issue, I feel slightly like someone being asked to keep taking his accountancy exams. It is the Government's view that Amendment No. 2 is unnecessary. As we have already discussed in Committee and on Report, the prudential borrowing limit, which determines an NHS foundation trust's ability to repay debt, must take account of payment commitments which affect the free cash flow of an NHS foundation trust. The checks in the system are not quite as mystical as the noble Baroness suggested.

When we discussed these issues on Report, the noble Baroness raised concerns that the financial ratios which will be used to determine the prudential borrowing code will not take account of balance sheet issues and accumulated liabilities. However, I can reassure her and other noble Lords that we agree that in addition to ensuring that there is enough cash in the business to service debt year on year, total indebtedness is also an important issue. That is why applicants were issued with guidance to model their debt profiles assuming a maximum 10-year debt maturity for the first period of borrowing. The application of the ratios together with this 10-year term limit serve to manage total indebtedness as well as year-on-year serviceability issues. The noble Baroness cannot dismiss those ratios merely as mystical. They are real ratios. She may not agree with them, but they are there as part of the checks on incurring excessive indebtedness.

We also agree that quality of cash flows is an important issue. In this regard, we recommended that the regulator takes into account the quality of the

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underlying data provided to support projected numbers—such as references from PCTs—and establishes appropriate rules for ensuring that the way the data are reported is transparent and robust. Work has been going on within the department on developing new reporting requirements to aid the regulator—when appointed—in this regard. We therefore believe that appropriate arrangements are in place and that this is not a mystical exercise. There are proper arrangements for ensuring that debt is bearable and that cash flows are adequate year on year.

Baroness Noakes: My Lords, first, I thank the noble Lord, Lord Clement-Jones, and my noble friend Lady Carnegy for their support. I have not tried to subject the noble Lord to accountancy examinations, but I shall keep my own counsel as to whether I believe that he would pass them with distinction.

I was pleased to hear what the noble Lord said about moving beyond simple free cash flow and taking into account indebtedness and the quality of cash flow. But we have argued from the outset that the Government—led, in particular, by the Chancellor—have been trying to account PFI out of existence. We have argued consistently that we must keep it firmly in view. For that reason, I have been trying to make an amendment of this nature to the Bill. Going forward, it will be extremely important to ensure that, when considering the subject of foundation trusts, the full impact of PFI liabilities is scored alongside more conventionally financed liabilities. I was grateful for what the noble Lord said, but he did not meet that point. We believe that it is important, and I should like to test the opinion of the House.

3.49 p.m.

On Question, Whether the said amendment (No. 2) shall be agreed to?

Their Lordships divided: Contents, 177; Not-Contents, 122.

Division No. 2


Ackner, L.
Addington, L.
Alexander of Weedon, L.
Allenby of Megiddo, V.
Alton of Liverpool, L.
Anelay of St Johns, B.
Ashcroft, L.
Astor of Hever, L.
Attlee, E.
Avebury, L.
Barker, B. [Teller]
Beaumont of Whitley, L.
Blackwell, L.
Blatch, B.
Bledisloe, V.
Bowness, L.
Bradshaw, L.
Bridgeman, V.
Brittan of Spennithorne, L.
Brooke of Sutton Mandeville, L.
Brookeborough, V.
Brougham and Vaux, L.
Buscombe, B.
Byford, B.
Caithness, E.
Campbell of Alloway, L.
Carnegy of Lour, B.
Cavendish of Furness, L.
Chadlington, L.
Chalker of Wallasey, B.
Chan, L.
Clement-Jones, L.
Coe, L.
Colville of Culross, V.
Colwyn, L.
Cope of Berkeley, L. [Teller]
Craig of Radley, L.
Crickhowell, L.
Cuckney, L.
Cumberlege, B.
Dahrendorf, L.
Dean of Harptree, L.
Denham, L.
Dholakia, L.
Dixon-Smith, L.
Eden of Winton, L.
Elliott of Morpeth, L.
Elton, L.
Emerton, B.
Ezra, L.
Falkland, V.
Feldman, L.
Ferrers, E.
Finlay of Llandaff, B.
Flather, B.
Fookes, B.
Freeman, L.
Gardner of Parkes, B.
Garel-Jones, L.
Geraint, L.
Glentoran, L.
Goodhart, L.
Greaves, L.
Hamwee, B.
Hanham, B.
Hannay of Chiswick, L.
Harris of Richmond, B.
Hayhoe, L.
Henley, L.
Higgins, L.
Hodgson of Astley Abbotts, L.
Howe, E.
Howe of Aberavon, L.
Howe of Idlicote, B.
Howell of Guildford, L.
Hunt of Wirral, L.
Hurd of Westwell, L.
Hussey of North Bradley, L.
Jacobs, L.
Jenkin of Roding, L.
Kimball, L.
Kingsland, L.
Knight of Collingtree, B.
Laing of Dunphail, L.
Lamont of Lerwick, L.
Lester of Herne Hill, L.
Lewis of Newnham, L.
Lindsay, E.
Liverpool, E.
Lyell, L.
Mackie of Benshie, L.
Maclennan of Rogart, L.
McNally, L.
Maddock, B.
Mancroft, L.
Mar and Kellie, E.
Marlesford, L.
Marsh, L.
Masham of Ilton, B.
Mayhew of Twysden, L.
Methuen, L.
Michie of Gallanach, B.
Miller of Chilthorne Domer, B.
Miller of Hendon, B.
Monro of Langholm, L.
Montagu of Beaulieu, L.
Montrose, D.
Mowbray and Stourton, L.
Naseby, L.
Newby, L.
Noakes, B.
Northesk, E.
Northover, B.
O'Cathain, B.
Onslow, E.
Park of Monmouth, B.
Peel, E.
Peyton of Yeovil, L.
Pilkington of Oxenford, L.
Plumb, L.
Prior, L.
Quinton, L.
Rawlings, B.
Razzall, L.
Reay, L.
Redesdale, L.
Rees, L.
Rennard, L.
Renton, L.
Roberts of Conwy, L.
Rodgers of Quarry Bank, L.
Rogan, L.
Roper, L.
Rotherwick, L.
Saltoun of Abernethy, Ly.
Sandberg, L.
Sandwich, E.
Scott of Needham Market, B.
Seccombe, B.
Selborne, E.
Selsdon, L.
Sharman, L.
Sharp of Guildford, B.
Sharples, B.
Shaw of Northstead, L.
Shutt of Greetland, L.
Skelmersdale, L.
Smith of Clifton, L.
Soulsby of Swaffham Prior, L.
Steel of Aikwood, L.
Stoddart of Swindon, L.
Swinfen, L.
Taverne, L.
Tebbit, L.
Tenby, V.
Thomas of Gresford, L.
Thomas of Swynnerton, L.
Thomas of Walliswood, B.
Thomson of Monifieth, L.
Tordoff, L.
Trefgarne, L.
Trumpington, B.
Tugendhat, L.
Ullswater, V.
Vinson, L.
Vivian, L.
Waddington, L.
Wakeham, L.
Wallace of Saltaire, L.
Walmsley, B.
Walton of Detchant, L.
Warnock, B.
Watson of Richmond, L.
Weatherill, L.
Wigoder, L.
Wilcox, B.
Williams of Crosby, B.


Acton, L.
Amos, B. (Lord President)
Andrews, B.
Archer of Sandwell, L.
Ashley of Stoke, L.
Ashton of Upholland, B.
Bach, L.
Barnett, L.
Bassam of Brighton, L.
Berkeley, L.
Bhatia, L.
Billingham, B.
Blackstone, B.
Borrie, L.
Bragg, L.
Brett, L.
Brooke of Alverthorpe, L.
Brookman, L.
Brooks of Tremorfa, L.
Burlison, L.
Campbell-Savours, L.
Carter, L.
Christopher, L.
Clark of Windermere, L.
Clarke of Hampstead, L.
Cohen of Pimlico, B.
Corbett of Castle Vale, L.
Crawley, B.
Davies of Coity, L.
Davies of Oldham, L. [Teller]
Dean of Thornton-le-Fylde, B.
Desai, L.
Dixon, L.
Donoughue, L.
Dormand of Easington, L.
Dubs, L.
Elder, L.
Evans of Parkside, L.
Evans of Temple Guiting, L.
Falconer of Thoroton, L. (Lord Chancellor)
Farrington of Ribbleton, B.
Faulkner of Worcester, L.
Filkin, L.
Gale, B.
Gibson of Market Rasen, B.
Gilbert, L.
Golding, B.
Goldsmith, L.
Gordon of Strathblane, L.
Goudie, B.
Gould of Potternewton, B.
Graham of Edmonton, L.
Gregson, L.
Grocott, L. [Teller]
Harrison, L.
Haskel, L.
Haskins, L.
Hayman, B.
Hogg of Cumbernauld, L.
Hollis of Heigham, B.
Howells of St. Davids, B.
Hoyle, L.
Hughes of Woodside, L.
Hunt of Kings Heath, L.
Irvine of Lairg, L.
Islwyn, L.
Janner of Braunstone, L.
Jay of Paddington, B.
Jeger, B.
Jones, L.
Judd, L.
King of West Bromwich, L.
Kirkhill, L.
Lea of Crondall, L.
Lockwood, B.
Lofthouse of Pontefract, L.
McIntosh of Haringey, L.
McIntosh of Hudnall, B.
MacKenzie of Culkein, L.
Mackenzie of Framwellgate, L.
Mason of Barnsley, L.
Massey of Darwen, B.
Mishcon, L.
Mitchell, L.
Morgan, L.
Morris of Aberavon, L.
Nicol, B.
Orme, L.
Ouseley, L.
Parekh, L.
Patel of Blackburn, L.
Paul, L.
Peston, L.
Plant of Highfield, L.
Portsmouth, Bp.
Prashar, B.
Prys-Davies, L.
Radice, L.
Ramsay of Cartvale, B.
Randall of St. Budeaux, L.
Rendell of Babergh, B.
Richard, L.
Sainsbury of Turville, L.
Sawyer, L.
Scotland of Asthal, B.
Sheldon, L.
Simon, V.
Stallard, L.
Stone of Blackheath, L.
Strange, B.
Taylor of Blackburn, L.
Temple-Morris, L.
Thornton, B.
Tomlinson, L.
Turnberg, L.
Turner of Camden, B.
Warner, L.
Whitaker, B.
Whitty, L.
Wilkins, B.
Williams of Elvel, L.
Woolmer of Leeds, L.

Resolved in the affirmative, and amendment agreed to accordingly.

18 Nov 2003 : Column 1868

4.1 p.m.

Clause 14 [Authorised services]:

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