The foundation trust challenge

28 March 2022

GGI principal consultant Peter Allanson asks whether the Health and Care Bill represents an existential threat to NHS foundation trusts

When the sun shines, seeds grow. In the heady optimism of the early 2000s the seedlings of academy trust and NHS foundation trusts were shone upon and watered and grew. In the case of foundation trusts more than 150 grew and flowered and most survived – if only just in some cases. The current Health and Care Bill, trudging its way through the quagmire of parliamentary process puts aspects of foundation trust status under threat. But is an existential threat?

Perhaps a good starting point is to remind ourselves what foundation trusts were set up to do and with what benefits. The 2006 NHS Act sets them up as ‘public benefit corporations’ and then leaves you to work out for yourself what that means.

A foundation trust must have a constitution because it is not the ‘servant or agent of the Crown or …enjoying any status, immunity or privilege of the Crown…’.

Furthermore, on establishment a foundation trust is given its property and assets valued and designated as ‘public dividend capital’ (PDC). This is, in effect, the public’s investment in the foundation trust and, as a long-term loan, is interest bearing and repayable.

The real meaning of all of this is that having set the foundation trust up as an individually constituted body it is then free to generate income from the NHS and from private patients up to a limit and retain the surplus to service its PDC and invest in the future.

It is also able to borrow money and raise capital by other means (though not, as one foundation trust found out, by anything the Treasury defines as adding to the public sector borrowing requirement). In fact the 2006 goes so far as to say: “a foundation trust may do anything which appears to it to be necessary or expedient for the purpose of or in connection with its functions”. Very nice, thank you.

As we know, fine words butter no parsnips and the sector has faced similar challenges to the rest of the NHS and there are relatively few that have really prospered – even some members of the Shelford group, set up as the equivalent of the Russell group of universities, have been unable to avoid serious financial and performance problems. But is the answer to take away some FT privileges and realign them to the system as a whole? Will the gains outweigh the losses?

There is a school of thought that cutting foundation trusts down to size will help the NHS as a whole to perform better. The concern must be that the changes take away but do not replace with any compensating responsibilities, finance or powers.

On the face of it, the two main changes that foundation trusts will face seem unexceptional – they will not necessarily retain control over their capital spending. Their spending must in future not exceed local limits set by NHS England in either capital or revenue terms – and NHS England can limit the capital spend of individual foundation trusts if it thinks this is necessary. The spending of the local system as a whole is what will be assessed. Secondly, there will be a requirement for foundation trusts to “…enter into arrangements for the carrying out on such terms as the NHS foundation trust considers appropriate, of any of its functions jointly with any other person.”

Some will of course find themselves leading providers or more in their local systems and all will remain committed to local health improvement, but the essential incentive offered by being able to reap what they have sown to benefit their communities is now not within their direct control. Some will see this as a distinct loss of influence, power and autonomy.

The shift of these tectonic plates has the potential to shake the system. Particularly for a district general hospital-sized foundation trust it remains to be seen whether the other benefits of being an FT outweigh the disadvantages of loss of autonomy.

Mergers and acquisitions are being simplified for the whole sector. But the ongoing cost of members, governors, the burden of PDC and other repayments while the financial and operating climate remains difficult should not be underestimated. It seems unlikely that more foundation trusts will be created and there may even be some that find ways to retreat from the status.

The Bill gives the Secretary of State a number of powers previously held by regulators and others. Be careful what you wish for.

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Meet the author: Peter Allanson

Principal Consultant

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Prepared by GGI Development and Research LLP for the Good Governance Institute.

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