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Editor’s blog Thursday 16 December 2010: FTs really are losing powers

TAXPAYER INVESTMENT IN FTs (6.24-6.28) – “The Government currently holds an investment stake of £24 billion in foundation trusts and NHS trusts, in the form of public dividend capital and loans; Regulating healthcare providers asked how this investment should be overseen in future, and whether there should be a role for regulation.

“The Government has decided to introduce clearer mechanisms to safeguard the taxpayer interest in FTs without artificially constraining their operational freedom. In future, the management of the Department of Health’s investment stake in FTs will be undertaken through an operationally independent banking function.

“This will align the risk to the investment with the management of that risk, and ensure that investment management and lending decisions are made in line with commercial principles and informed by specialist knowledge and expertise.

"In future, the new banking function will also be responsible for managing new public lending to FTs – a role that the Department has managed in the past through its existing FT Financing Facility and finance directorate. To ensure that this is managed transparently and without restricting FTs’ operations, the Bill will:
• repeal the Secretary of State’s power to give grants or subsidies to FTs; in future, only repayable loans made on commercial principles will be permitted. Under government finance rules, loans can only be given when due diligence demonstrates affordability, so in future the Department will not have powers to lend to FTs in special administration; and
• require the Department to consult on and publish the principles by which loans will be made; and make clear that the Department will only make loans where there is a reasonable expectation that loans will be repaid in line with the terms of the loan. Conditions on new or existing debt could include rules to constrain borrowing beyond levels that would present an unacceptable risk to repayment.

“The Bill will also make a related financial change on the provision of information by FTs. As public sector organisations, FTs’ spending already has to be managed within the Department’s budget for the NHS. For effective financial planning, the Department needs regular information about FTs’ forecast spending. Currently Monitor collects this from FTs as a by-product of its other functions, and shares it with the Department on a voluntary basis. In future, since Monitor will not be gathering routine information from FTs in the same way, the Bill will provide power for the Department to collect it directly. This will correct a flaw in the current legislation, and ensure the Department can secure the financial information necessary for managing within its expenditure limits, and other information required to discharge its duties to report on public bodies.

“Due to changes in government accounting rules, the Secretary of State will need accounting information from FTs to consolidate into the Department’s accounts and to discharge his responsibilities to Parliament and HM Treasury in reporting and managing resources against financial and other controls. At present, the Secretary of State does not have the powers necessary to discharge this obligation. The Bill will remedy this situation; in future, the Secretary of State will have power to define accounting and reporting requirements for FTs.”