The compromise agreement between the Treasury and the Department of Health
on the financial freedom for foundation hospitals is a major step towards
relaxing the grip of Whitehall on public services. The hospitals will be
public interest, not-for-profit companies limited by guarantee, fully
independent from Whitehall control. They will be governed by a stakeholder
council made up of representatives of local communities and NHS staff. They
will not be accountable to the Department of Health.

Foundation hospitals will own and manage their own assets, retain all
surpluses, and decide HR policy. Their operating licence will specify that
their primary purpose is serving NHS patients and performance will be
overseen by an independent regulator. To ensure that public interest is
maintained, they will not be able to dispose of their assets.

The foundation hospital model is set to be at the leading edge of the
Government’s wider reform programme for the public services. With financial
and managerial freedom they will provide a new alternative to centrally led
provision on the one hand and shareholder-led for profit providers on the
other. The new model is directly in line with the call by the New Local
Government Network for ‘a new localism’ with more power delegated to the
frontline. The development will be closely watched by councils and other
public bodies who will wish to avoid any mistakes made by the pioneers. The
first hospitals will go live in April 2004.

Foundation status will only be available to the best performing hospitals,
who secure a three star rating in the annual assessment. The principle of
reward for the best performers is likely to be followed when the model is
extended to the wider public service. Arrangements are already in place to
group councils into separate performance categories, so the first building
block for introducing the new model into local government is already in
place.