Magazine article Public Finance

Room for More Trust

Magazine article Public Finance

Room for More Trust

Article excerpt

Do you want a new maternity unit in your local hospital? Would you like to develop a regional centre of excellence for orthopaedic surgery?

Many trusts have seen foundation trust status as one way to achieve such aims. But beware - 'all that glisters is not gold' - the flexibility to borrow and invest to achieve is not all it seems.

Developing acute areas of expertise could lead to a healthy, strong and locally orientated NHS secondary sector. The 2003 Health and Social Care Act, the primary legislation that created foundation trusts, contains the potential for locally defined capital investment.

But foundation trusts form a key part of the conflict between the Gordon Brown 'consolidators' and the Tony Blair/Alan Milburn 'modernisers'. The result of this clash is stalemate. Its impact - no real local decision-making flexibility. This conflict has left the foundation trust initiative tainted with the atmosphere of 'false localism'. It has only served to hold up true devolution of financial management.

It was only just before Easter that Monitor, the regulator of foundation trusts, finally released details of the prudential borrowing limits for foundation trust hospitals. This simply confirms the festering tensions.

The chancellor was surely caught out by the unintended consequences of the legislation that created the trusts. Realising that their ability to invest or borrow externally could affect the Treasury's ability to effectively manage money supply growth resulted in an attempt to restrict borrowing flexibility through the regulatory regime.

For example, the Prudential Code's gearing ratio for foundation trusts is too restrictive. Hence, borrowing limits have simply been set too low. As they stand, they will serve only to prohibit local capital investment schemes of any magnitude. This is particularly the case for larger NHS trusts that have developed as a result of Private Finance Initiative schemes and, as a consequence, have small asset bases.

Monitor's currently defined role has therefore made it just another of the footballs being kicked back and forth in the government spat. A combination of the deficit in specialist financial experience and the impact of foundation trusts' borrowing on the UK money supply has given the chancellor the upper hand.

Despite the good intentions, Monitor has become just another 'quango' of central government control. It needs to truly demonstrate its independence and act more as a regulator of standards and practices.

One such standard is the increased challenge of financial management that comes with foundation trust status. Executives must assume the responsibility of managing financial surpluses or deficits. …

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