11 July 2003
The Department of Health is in talks to develop a bond market to allow foundation trusts to raise capital, Public Finance has learnt.
A source at the department said there had already been initial discussions with Rothschild, the investment bank.
Officials are understood to be keen to press ahead with developing a market as a way of bending some of the financial restrictions placed on the trusts by the Treasury.
Under the proposed rules, the trusts will be restricted to borrowing within their departmental expenditure limits and under a prudential code, thus keeping any borrowing strictly within the public sector.
But a bond market, sources claim, may persuade the Treasury to relax some of its restrictions. As government-backed organisations, trusts would be given a high credit rating and could attract substantial investment.
More significantly, bonds may also be more politically palatable than current investment options such as the Private Finance Initiative as investors would not have an equity or controlling share. More of the electorate, not just businesses, would be able to invest and the scheme could run along similar lines to the one used to fund improvements to the New York subway.
'It would be very different but much more straightforward than the Private Finance Initiative,' an official told Public Finance. 'It wouldn't lead to a situation where investors are able to pull out like Atkins [at Southwark council], as it's not one where they will have an equity hold.'
The official added that with just a small number of trusts – 25 to 29 – expected to begin operating in April 2004 it would allow the department to begin work on constructing a market.
PFjul2003
