Sections 12 and 13: National Health Service - Health Authorities and Primary Care Trusts

65. Health Authorities, Special Health Authorities and Primary Care Trusts are established by the Secretary of State under sections 8, 11 and 16A of the National Health Service Act 1977 ("the 1977 Act") (section 16A was inserted by section 2 of the Health Act 1999) to administer the National Health Service and to perform functions under that Act. They are funded almost entirely by payments made directly by the Secretary of State, or, in the case of Primary Care Trusts, by Health Authorities.

66. To enable the Secretary of State to ensure that he does not exceed the resources voted by Parliament for a particular year it will be necessary for him to control the use of resources by Health Authorities, Special Health Authorities and Primary Care Trusts. Section 12 therefore provides for the Secretary of State to set a resource limit for each Health Authority and Special Health Authority, and section 13 provides for Health Authorities to set resource limits for Primary Care Trusts.

67. The existing statutory provisions dealing with the public funding of Health Authorities and Special Health Authorities are sections 97 and 97A of the 1977 Act, as inserted by paragraphs 47 and 48 of Schedule 1 to the Health Authorities Act 1995, and amended by section 36 of, and paragraph 23 of Schedule 2 to, the National Health Service (Primary Care) Act 1997 and section 4 of the Health Act 1999. These sections provide for a cash based allocation and control system. Health Authorities are paid money in each year by the Secretary of State under section 97(1) and (3); Special Health Authorities are paid under section 97(4) which is broadly similar to section 97(3). Section 97(1) concerns the remuneration of persons providing services under Part II of the 1977 Act (for example, General Medical Practitioners). Unless such remuneration is excepted from section 97(1), it is not cash-limited. The Secretary of State is under a duty to pay each Health Authority the cost of such remuneration, and cannot impose a ceiling on such expenditure. This provision is unaffected by the Bill. Section 97(3), however, provides that the Secretary of State must pay to each Health Authority money not exceeding the amount allotted to it by the Secretary of State. This amount is allotted towards meeting an authority's "main expenditure" (defined in paragraph 2 of Schedule 12A to the 1977 Act, as inserted by section 4 of the Health Act 1999) which, in the case of a Health Authority, includes all expenditure attributable to the performance of their functions in relation to the provision of hospital-based and community health services, all their administrative costs, the costs of drugs attributed to them by the Secretary of State and certain other expenditure. The amount allotted constitutes a limit on the cash which may be spent by the authority. To enforce the cash limits set by the Secretary of State, section 97A provides that each authority is under a duty to ensure that their expenditure does not exceed the aggregate of the amount allotted and certain other income received during the year.

68. The Health Act 1999 inserts new provisions into the 1977 Act which provide for the establishment and operation of Primary Care Trusts. Each Primary Care Trust will be established for an area contained within the area of a Health Authority. The existing statutory provisions dealing with the public funding of Primary Care Trusts mirror those for Health Authorities - sections 97C and 97D as inserted by section 3 of the Health Act 1999. Under section 97C, each year the Health Authority must pay each of its Primary Care Trusts (a) the cost of "general Part II expenditure" incurred by the trust (ie subject to certain exceptions, the remuneration of persons providing Part II services) and (b) money not exceeding the amount allotted by the authority for that year towards meeting "main expenditure". Under section 97D the Primary Care Trust has a statutory duty to ensure that their expenditure does not exceed the aggregate of the amount allotted and certain other income received during that year.

69. Sections 12 and 13 insert two new sections into the 1977 Act (sections 97AA and 97E). These new sections provide for the setting of "resource limits" for every Health Authority, Special Health Authority and Primary Care Trust in addition to the existing cash limits.

70. Section 97AA concerns resource limits for Health Authorities and Special Health Authorities. Subsection (1) imposes a duty on every Health Authority or Special Health Authority to ensure that their use of resources in a financial year does not exceed the "resource limit" set for them by the Secretary of State. This limit can be altered during the year (subsection (6)).

71. Subsections (2) to (4) of the new section 97AA are concerned with what is or is not to be taken into account for the purposes of determining whether an authority has remained within its resource limit for a particular year.

72. In particular subsection (2) ensures that the use of resources for the purpose of "general Part II expenditure", ie the cash expenditure on remuneration of persons providing Part II services, is not taken into account. This expenditure is not cash limited and will not therefore be subject to any resource limit. Subsection (3) enables the Secretary of State to give directions defining the categories of resources and uses of resources that are to be taken into account when considering whether or not an authority has met its duty under subsection (1). In particular paragraph (b) enables the Secretary of State to provide that certain uses of resources may be attributed to a Health Authority to reflect the payments for drugs that have been apportioned to the authority under paragraph 3 of Schedule 12A to the 1977 Act (as inserted by section 4 of the Health Act 1999). Subsection (4) applies section 97A(6) to (8) of the 1977 Act in relation to the duty under subsection (1) and so ensures that funds held by Health Authorities or Special Health Authorities as charitable trustees or obtained by their fund raising activities are outside the scope of the duty.

73. Subsection (5) applies the direction-making power in section 97A(3) to the duty under subsection (1). This enables the Secretary of State to give directions to a Health Authority or a Special Health Authority to secure that the authority complies with the duty imposed on them by subsection (1). Such directions might for instance mirror the current directions under section 97A(3) that require authorities to approve annual income and expenditure financial budgets for cash limited expenditure, and to monitor actual financial performance against these budgets on a monthly basis.

74. Subsection (7) ensures that a reference to the "use of resources" in section 97AA is to be interpreted in the same way as such references are to be interpreted in the Bill (section 27 of the Act and paragraph 115 of these Explanatory Notes).

75. Section 97E puts in place arrangements for Primary Care Trusts that mirror those that section 97AA puts in place for Health Authorities and Special Health Authorities. Subsection (1) of section 97E provides that it is the duty of every Primary Care Trust to ensure that it does not exceed the resource limit set for it by the Trust's Health Authority; the limit can be varied under subsection (4). As with Health Authorities -

- use of resources for the purposes of "general Part II expenditure" is excluded (subsection (2));

- the Secretary of State will be able to direct as to the categories of resources or uses of resources that are or are not to be taken into account (subsection (3));

- charitable funds and other property held on trust are excluded (subsection (5));

- the Secretary of State will be able to direct Primary Care Trusts to secure that they comply with the duty under subsection (1) (subsection (6)).

76. Subsection (2) of both sections 12 and 13 provide that in applying the new sections of the 1977 Act to Wales for each reference to the Secretary of State there shall be substituted a reference to the National Assembly for Wales.

Section 14: National Health Service - summarised accounts

77. This section will enable the Treasury to exempt NHS bodies from preparing summarised accounts if the Treasury (after consultation with the C&AG or, in relation to NHS bodies in Wales, the National Assembly for Wales and the Auditor General for Wales) considers that the relevant accounting information is included in either a departmental resource account or WGA. NHS trusts, Health Authorities, Special Health Authorities and Primary Care Trusts must prepare annual accounts for each financial year under section 98(2) of the National Health Service Act 1977. These accounts are then summarised under section 98(4) of the National Health Service Act 1977, audited by the C&AG and laid before Parliament or, in relation to NHS bodies in Wales, audited by the Auditor General for Wales and laid before the National Assembly for Wales. Once resource accounts and WGA are provided to Parliament the summarised accounts will become unnecessary. As regards England this provision ensures that Parliament need not be provided with two sets of accounts for the NHS.

Section 15: National Assembly for Wales - Finance

78. This section empowers the Secretary of State to make changes to sections 81 (Statement by the Secretary of State of estimated payments etc), 85 (Expenditure by National Assembly) and 86 (Statement by National Assembly of proposed expenditure etc) of the Government of Wales Act 1998 in order to ensure that the National Assembly for Wales' budgetary processes can change from a cash to a resource basis in line with the accounts and budget of the UK Government also changing from a cash to a resources basis.

79. The power is exercisable by order and will be made by statutory instrument. Before the Secretary of State can exercise a power he will need to consult the National Assembly insofar as he is changing section 81. He will be required to obtain the Assembly's agreement before he can change sections 85 and 86. The Secretary of State is required to lay a draft of any order before both Houses of Parliament for their approval before it can be made. The Secretary of State can make appropriate incidental or transitional provision in the Order.

Section 16: Public-Private Partnerships - expenditure

80. This section provides statutory authority for the Treasury to incur expenditure in respect of the establishment of a new body for the purpose of carrying on public-private partnership business and investment in and other financial provision for that body.

81. Subsection (1) provides authority for the Treasury to incur expenditure that may be required in order to establish a body for the purpose of carrying on public- private partnership business. The subsection authorises the Treasury to make a wide range of investments in that body by the acquisition of assets, securities and rights; in addition to company shares, the provision includes debt securities, options and subscriptions for shares. The subsection also authorises expenditure for other financial provision to be made in respect of the body and it is implicit that this may be made on terms and conditions.

82. Subsection (2) precludes the Treasury from investing in or making other financial provision for more than one body (subject to the flexibility allowed by the definition for this purpose of "body" in subsection 17(7)). The subsection also requires the investment and other financial provision to be made in connection with public-private partnership business which is carried on by the body or which is to be carried on by it, so that there must be a link between the investment or other provision and such business. The intended recipient body is currently known as Partnerships UK.

Section 17: Public-Private Partnerships - interpretation

83. Section 17 describes what is meant by "public private partnership business" in section 16 and defines the term " body" for the purpose of that clause.

84. Subsection (1) defines "public-private partnership business" as participation in public-private partnerships as an investor or as a consultant or in any other way. The breadth of this definition reflects the variety of forms which public-private partnerships and private finance initiatives may take and the potentially varied ways in which the body may become involved and participate.

85. Subsection (2) gives specific examples of what is meant by the carrying on of public-private partnership business. Such business includes the provision of advisory services (for example, on procurement or project management) or financial services (for example, advice on raising finance or on share capital and corporate structures) and such services may be provided in connection with a specific public-private partnership or in connection with such partnerships generally. Under subsection (2)(a) the services may be provided to the public or private sectors and by virtue of subsection (2)(b) it does not matter whether they are provided on terms or conditions as to payment or consideration or any other matter. This means, for example, that the body may provide services under contract or may act as a joint venture participant. This also makes it clear that the Treasury may under section 16 invest in the body or make other financial provision for it, even though the body receives payments or other resources from carrying on its public-private partnership business.

86. Subsection (3) together with subsections (4) and (5) defines what is meant by "public-private partnerships". This term also is widely defined to include any projects and undertakings for which the resources are provided by both public bodies and private persons.

87. The meaning of "resources" is explained in subsection (4) and includes financial funding and forms of resources and investment other than money such as assets of any description, professional skills and any other kind of commercial resource. This would for example include other facilities or forms of financial resource that may not be included within the term "funds". The explanation of the term "resources" is non-exhaustive. The reference to projects and undertakings taken with the requirement for resources to be contributed by both public bodies and private persons means that simple purchase contracts, for example, are not envisaged as involving public private partnerships.

88. Subsection (5) provides that the term "public body" means, for the purposes of this particular clause, a government department or other body exercising public functions.

89. The effect of subsection (6) is that the body in respect of which the Treasury may incur expenditure under section 16, for the purposes of investment or other financial provision, may carry on public-private partnership business outside the United Kingdom.

90. Subsection (7) explains the meaning of the references in section 16 to a "body". This term is defined by subsection (7)(a) to include a group of bodies and so covers a group of companies. Subsection (7)(b) includes a partnership and, for example, a contractual joint venture. Subsection (7)(c) provides for a reference to "body" to include a body which is substantially the same as, or which is a successor to, another body (which may or may not continue to exist). For example, a partnership may be dissolved and a new partnership formed or a company may be incorporated to succeed to the business (including certain rights and liabilities) undertaken by a partnership or contractual joint venture.

Section 18: Public-Private Partnerships - investment: limit

91. Subsection (1) sets a limit of £400 million on the amount of outstanding expenditure which the Treasury may incur under subsection 16(1)(b) and (c). Subsection (2) explains what is meant by the term "outstanding expenditure". For investments it is the amount paid in respect of the acquisition of those which have not been disposed of; for loans, it is the amount outstanding at any time in respect of the principal sum lent; and for guarantees it is the total of the sums paid in fulfilment of any guarantees, less any amounts reimbursed to the Treasury. If there is any outstanding expenditure that is not covered by these valuation provisions, the Treasury must make arrangements for their valuation. Subsections (3) and (4) enable the Treasury to substitute a new limit for the amount of outstanding expenditure by order and the order must be made by a statutory instrument which is approved by resolution of each House of Parliament.

Section 19: Public-Private Partnerships - expenditure: supplementary

92. Subsection (1) provides for money required for the expenditure that may be incurred by the Treasury under section 16 to be provided by Parliament.

93. Subsection (2) provides an exception to subsection (1) in the case of guarantees. Money required for the purpose of fulfilling guarantees is to be charged on and issued from the Consolidated Fund without further Parliamentary authority.

Section 20: Public-Private Partnerships - investment by devolved administrations

94. This section enables each of the devolved administrations, that is, the Scottish Ministers, the Northern Ireland departments and the National Assembly for Wales, to invest in the body mentioned in section 16 which is currently known as Partnerships UK PLC. Subsection (1) confers this power.

95. Subsection (2)(a) makes it clear that the power to invest is available to each of the devolved administrations despite the existence in force of any enactment which would otherwise limit their activities to matters relating to a particular Part (i.e. Scotland or Northern Ireland) or area (i.e. Wales) of the United Kingdom. This issue arises because the body mentioned in section 16 may operate throughout the United Kingdom and abroad. Subsection (2)(b) makes it clear that the power to invest under subsection (1) is in addition to any investment power which each of the devolved administrations may have apart for that subsection.

96. Subsection (3)(a) provides that the devolved administrations may under this section invest in the same class of shares as must be issued to the Treasury under the body's articles of association. This means that the devolved administrations will hold the same class of shares as the Treasury. By virtue of subsection (3)(b) they may also make such other forms of investment, such as, for example, investment in debt securities, as the Treasury may by order specify.

97. Subsection (4) contains details of the order-making power mentioned in subsection (3)(b). By virtue of subsection (4)(a) an order may apply to one or more of the devolved administrations and by virtue of subsection (4)(b) it may permit different investments for the different devolved administrations. Subsections (4)(c) and (d) provide that an order will be made by statutory instrument subject to the negative resolution procedure.

Section 21: Value Added Tax

98. This section enables the Treasury to lay down the method of accounting for VAT in departmental accounts and the treatment of the VAT element of receipts.

99. The intention of subsection (2)(a) is to enable departments to account for VAT according to accepted accounting practice (currently set out in Statement of Standard Accounting Practice 5). The accounting policy to be followed will be set out in the Resource Accounting Manual.

100. Subsection (2)(b) will enable the Treasury to exempt the VAT element of receipts from the normal requirement that receipts are paid into the Consolidated Fund.

Section 22: Power to alter timetable

101. This section enables the Treasury to alter, subject to consultation with the C&AG and Parliamentary approval, the timetable for the production, audit and laying of resource accounts and accounts covered by section 7 of the Act.

102. The current statutory timetable gives the Treasury until 31 January in the year after that to which the accounts relate to lay accounts before Parliament. For resource accounts the Treasury intends to operate a tighter administrative timetable that will require accounts to be laid before Parliament by the end of October in the year after that to which the accounts relate. For accounts prepared under the predecessor of section 7 of this Act it is already common practice to lay accounts prior to the summer recess in the year after that to which the accounts relate. Therefore, it is possible that in the future the Treasury may wish to shorten the statutory timetable in order to encourage quicker completion of accounts and this section will enable this to be done.

Section 23: Treasury directions

103. This section provides that any direction given by the Treasury under either this Act or the Exchequer and Audit Departments Act 1921 can be revoked or amended by the issue of a new direction. This power is necessary to enable new or amended accounts directions to be issued as and when changed accounting requirements make this necessary.

Section 24: Advisory board

104. The purpose of this section is to put in place the process that the Treasury must adopt in order to demonstrate that any departures from generally accepted accounting practice contained in the guidance it issues for the preparation of resource accounts or WGA are justified by the public sector context.

105. Subsection (1) requires the Treasury to consult an advisory board containing people with appropriate experience of financial reporting principles and standards before issuing such guidance. Subsection (2) requires the Treasury to consult the Comptroller and Auditor General before selecting the members of the advisory board. These requirements are already fulfilled by the Financial Reporting Advisory Board.

106. Subsections (3) and (4) require the advisory board to prepare a report on its work during the year which the Treasury must lay before Parliament. The report may deal with any additional matters that the board considers appropriate such as departures from generally accepted accounting practice.

Section 25: Examinations by the C&AG

107. This section provides for a number of issues related to examinations by the C&AG.

108. Subsection (2) requires the C&AG to report to the House of Commons where he changes the extent or character of any of his audits under sections 6, 7 or 11 of this Act. This reproduces, in modernised form, the provisions of section 1(4) of the Exchequer and Audit Departments Act 1921.

109. Subsection (3) makes clear that any examinations undertaken by the C&AG under sections 6, 7 or 11 of this Act are carried out on behalf of the House of Commons.

110. Subsections (4) and (5) provide that the C&AG has the same rights of access where he is the appointed auditor of other bodies (these will mainly be non-departmental public bodies) as he has under section 8(1) when he audits departments.

111. Subsections (6) and (7) enable the Treasury to provide by order that a non-departmental public body should be audited by the C&AG, even if the C&AG is currently prevented by statute from auditing the non-departmental public body concerned. An order could remove the restrictions in the statute setting up the non-departmental public body that prevents the C&AG from being appointed auditor. It is not the Government's intention to make use of these provisions to make the C&AG the auditor of non-departmental public bodies that are audited by the Auditor Generals of the devolved administrations.

112. Subsections (8) and (9) enable the Treasury to provide by order for section 8(1) to apply to documents, in addition to those already provided for by section 8(2), of a specified description or which are held or controlled by a body of a specified kind or in specified circumstances. The intention behind this provision is to enable additional rights of access to documents and bodies for the purpose of auditing departmental accounts to be granted to the C&AG where it is agreed that this should be done.

113. Subsection (10) provides that any orders made under subsections (6) or (8) would be made by statutory instrument subject to affirmative resolution of both Houses of Parliament. The Treasury are required to consult the C&AG before making an order under subsections (6) or (8).

Section 26: Reports by the C&AG

114. This section provides an additional safeguard for Parliament that the C&AG's reports on accounts provided for in the Bill will be available to it in a timely manner by giving the C&AG an independent power to lay his reports if the Treasury fails to do so within the times set out in the Act. This section is a modernised and extended re-enactment of section 32 of the Exchequer and Audit Departments Act 1866 which is therefore repealed.

Section 27: Interpretation of use of resources

115. This section defines a use of resources as covering their expenditure, consumption or reduction in value. This definition encompasses the costs of depreciation of assets and the using up of inventories as well as the expenditure of cash resources.

Section 28: Interpretation of financial year

116. References in the Act to "financial year" are defined by this section as being the 12 months ending with 31 March. This is the standard definition of "financial year" and represents no change from previous practice.

Section 29: Amendments and repeals

117. This section gives effect to the minor and consequential amendments contained in Schedule 1 of the Bill and the repeals contained in Schedule 2 of the Bill. See paragraphs 122-139 for details of these schedules.

Section 30: Commencement

118. It is intended, subject to Parliamentary approval of the move to resource estimates, to move from the present cash based system to RAB at the beginning of the financial year 2001-2002. This section gives the Treasury powers to bring the preceding provisions of the Bill, except those relating to clauses 16 to 20, into force by order.

119. The section also enables the Treasury to make transitional provisions to ensure a smooth changeover from the cash system to RAB. For example, under the timetable envisioned, the last departmental appropriation accounts will be laid before Parliament during the winter of 2001-2002 and it will be necessary to ensure that the necessary power to prepare, audit and lay these accounts are still available.

120. Subsections (3) to (5) enable the Treasury, by statutory instrument subject to the negative resolution procedure, to require bodies (other than those in Scotland) to provide the information required for WGA without formally including the body within the scope of the audited and published accounts. In the case of the National Assembly for Wales, subsection (5) requires the Treasury to consult the National Assembly before specifying a body that comes under the National Assembly's jurisdiction. They also enable the Treasury to require another department to pilot the necessary consolidation procedures for public corporations or local authorities to prepare for the extension of scope of WGA from central government to the whole of the public sector. This will enable the Treasury to take the phased approach described in paragraph 51. The plan is to prepare and publish audited accounts for central government as the first stage. The subsection will then enable the Treasury to require public corporations and local authority bodies to prepare "dry-run" information prior to the formal extension of the coverage of audited and published accounts to the whole of the public sector and for departments to consolidate this, in order to test the systems and procedures required.

Section 31: Short title

121. This section gives the short title of the Bill. This is the title by which the Bill will usually be referred to.

Schedule 1: Minor and consequential amendments

Amendments to the Exchequer and Audit Departments Act 1866

122. There are a substantial number of very minor amendments to this Act (mostly removing obsolete references to the Bank of Ireland). The more substantial changes are:

• Paragraph 5 - the number of minor amendments needed to section 13 (procedures for making payments for standing services out of the Consolidated Fund) were such that it was decided to replace the entire section.

• Paragraph 7 - the number of minor amendments needed to section 15 (procedures for making payments for sums authorised by Parliament out of the Consolidated Fund) were such that it was decided to replace the entire section. The only substantive change (as opposed to a modernisation of the wording) is the requirement in subsection (6) that the Treasury shall send to the C&AG a daily statement specifying the services on account of which issues were made. This change reflects what has been the actual practice for a number of years.

• Paragraph 8 - this amends section 18 to retain the Treasury's power to determine at what banks departments may keep money while repealing obsolete provisions relating to individuals keeping public money in their own personal accounts.

• Paragraph 11 - this clarifies the continuing application of section 34. The repeal (in 1921) of section 33 had left it unclear which accounts were covered by section 34. The amendment in paragraph 11 makes clear that the only accounts covered by section 34 are those prepared under section 3 of the Exchequer and Audit Departments Act 1921.

• Paragraph 13 - this repeals sections 39 and 41-44 of the Act that are now obsolete. These describe the arrangements for the audit and control of amounts of public money held in officials' private accounts.