11 October 2002
The ongoing row between the chancellor and Alan Milburn had spilled into the public domain, forcing the prime minister to step in. He brokered a deal this week that saw Milburn accept Brown's key demand that any borrowing by the elite group of hospitals would remain on the government's balance sheet.
But there is something for both men in the arrangement. The trusts will be able to set their own borrowing limits but these must be approved by a new independent regulator. The total of all foundation trusts' loans must not exceed a level set by the Department of Health.
The row over the trusts' freedoms has been fractious. The fact that Milburn postponed a seminar, planned for October 8 and 9, at which he was due to unveil his department's latest thinking on foundation trusts, demonstrated that his plans were being re-examined at the highest levels. Indeed, Department of Health officials admit the seminar was delayed because of the row with the Treasury.
Foundation trusts represent the health secretary's latest move to devolve power from Whitehall to local health organisations in England. The new trusts will be autonomous, not-for-profit providers of acute care.
Brown is suspicious of the trusts' freedoms – Milburn planned to give them flexibility on staff pay and full control over the proceeds of asset sales, and had promised to explore ways for them to borrow for capital investment.
The chancellor feared the plans would create a two-tier system, where the best trusts would get better by luring away staff from other NHS organisations with higher wages.
He was also concerned that if the trusts were allowed to borrow on the open market, the Treasury could be forced to bail out those that default.
The row surfaced at the Labour conference last week as Brown insisted foundation trusts should be 'fully' part of the NHS, while Milburn insisted the reforms were imminent.
Blair decided enough was enough. The prime minister called in his ministers this week to hammer out a compromise. Blair, who only last week told his party that they must be bold in reforming public services, supports Milburn's devolution programme but would not publicly slap down his chancellor.
According to a Downing Street statement on October 9, a new regulator will set an upper limit for each trust's borrowing based on their assets and income. Loans can come from public or private sources.
The DoH will transfer from its departmental spending limits to a ringfenced fund a sum of money equal to the projected borrowing.
This will enable the DoH to control the level of borrowing, and the Treasury to service any debt on which foundation trusts have defaulted and keep the spending on balance sheet.
At this week's Conservative Party conference, shadow health secretary Liam Fox said a future Tory government would take Labour's proposals a step further by giving trusts even greater freedoms. The government will hope to capitalise on this by insisting that its foundation trusts will remain in the NHS while Conservative plans would mean privatisation.
It will reinforce this by giving each trust an operating licence specifying that their primary purpose is to serve NHS patients.
The DoH confirmed this week that it was planning to hold the postponed seminar later this month. Subject to legislation, which will be included in the Queen's Speech, the first foundation trusts should be up and running in April 2004.
But how will the health service react? In the past, senior trust managers told Public Finance that they could not see any point in applying for foundation trust status unless they were allowed to borrow freely on the open market.
This compromise agreement would at least allow them to borrow, but this freedom could be limited.
Potential foundation trusts will wait to hear more detail before they commit themselves to the initiative.
PFoct2002
