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NHS Foundation Trust

United Kingdom
Partner Institute: 
London School of Economics and Political Science
Survey no: 
Health Policy Issues: 
Current Process Stages
Idea Pilot Policy Paper Legislation Implementation Evaluation Change
Implemented in this survey? yes yes yes yes yes no no
Featured in half-yearly report: Health Policy Developments 1/2003


To become fully operational in April 2004, the British government seeks to pass a legislation that aims to refom the National Health Services (NHS). The NHS will be transformed into National Health Services Foundation Trusts which work independable of public companies and have the ability to retain revenues from land sales, freedom to determine their own investment plans and to raise capital funds.

Purpose of health policy or idea

The government has announced a programme for the creation of a new form of NHS organisation: namely, NHS foundation trusts. In the first instance, this new status will apply to NHS hospitals but it is intended that eventually it will be extended to Primary Care Trusts

NHS Foundation trusts will be set up as independent public interest companies. They will be within the NHS and subject to NHS inspection, but will be guaranteed, in law, freedom from the Secretary of State's powers of direction. Specific new operational freedoms will include the ability to retain revenues from land sales, freedom to determine their own investment plans and to raise capital funds, and the scope to offer additional performance related pay awards to staff. New forms of governance through Boards of Governors and Management Boards are intended to replace accountability to the centre with greater local accountability.

A comprehensive guide, A Guide to Foundation Trusts, was published by the Department of Health in December 2002. The first set of applicants for NHS Foundation Trust status - drawn from hospitals achieving the highest performance rating, 3*, in the annual performance ratings carried out by the Department of Health - will be set up in shadow form in July 2003, and will become fully operational following the passage of the appropriate legislation in April 2004.

By placing foundation trusts outside direct line management and control from the centre, ministers expect to stimulate local entrepreneurship and innovation, while local accountability will ensure that they pursue public sector values.

Main points

Main objectives

New forms of NHS organisation with greater devolved autonomy - aim to increase entrepreneurship and local accountability.

Type of incentives

NHS foundation trusts will be required to compete for service contracts from Primary Care Trust purchasers within a new activity based payments system using health related groups (i.e. an English version of DRGs).

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Characteristics of this policy

Degree of Innovation traditional rather innovative innovative
Degree of Controversy consensual neutral highly controversial
Structural or Systemic Impact marginal rather fundamental fundamental
Public Visibility very low low very high
Transferability strongly system-dependent neutral system-neutral

Political and economic background

The NHS Plan and Delivering the NHS set out an incentive structure that aims to reconcile central control (to achieve national objectives) with local autonomy (to encourage entrepreneurship and local accountability). Thus there is a strong national regulatory structure based on the National Institute for Clinical Excellence, Naional Service Frameworks and the soon-to-be-formed Commission for Health Care Audit and Inspection. But the government's approach also embodies the the concept of "earned autonomy"; that is, organisations that have established themselves as high performers are to be given greater freedom to manage their own affairs away from central control. Thus organisations that achieve 3* status in the annual performance ratings are to be given the freedom to apply for foundation trust status.

Purpose and process analysis

Current Process Stages

Idea Pilot Policy Paper Legislation Implementation Evaluation Change
Implemented in this survey? yes yes yes yes yes no no

Origins of health policy idea

Various antecedents of the idea for foundation trust status can be postulated.

The internal market reforms of 1991 established NHS Trusts. These were hospitals and other providers that were established as freestanding organisations within the NHS under the governance of a Board comprising executive and non-executive directors. They were to be given many of the same freedoms as NHS foundation trusts in relation to, for example, capital spending and employment contracts. In fact, these freedoms only materialised to a limited extent because NHS trusts were still accountable to the Secretary of State through their Boards and successive Secretaries of State intervened to restrict their freedoms when politically sensitive issues arose. The intention of the present Secretary of State to pass primary legislation to take foundation trusts outside of his control is claimed to be a mechanism to prevent future political interference.

The general context of strong central regulation and earned local freedom, i.e. earned autonomy, is one that has interested public administrators for sometime. It is an idea that can be found in different guises in many parts of health and public sector management literature. As such it may be that the influence of ideas on policy can be discerned here. The Secretary of State has set up a strategy unit under the leadership of a well known health policy academic, Professor Chris Ham. Professor Ham is associated with support for the idea of earned autonomy while outside government during the 1990s, and may well have been influential in steering the present government in this direction from his present position.

The form of governance chosen or foundation trusts is claimed to exemplify a new form of social ownership. Co-operative societies and mutual associations ( with traditions dating back to the 19th Century within the Labour movement) are cited as comparable organisations in which local people, employees and other key stakeholders in the local community will become members and therefore owners of an NHS foundation trust. Legal protections are to be put in place to ensure against privatisation.

While there is a clear set of national antecedents, it is likely that international experience has also played a role in the proposals for foundation trusts. Ministers have visited Sweden and other Nordic countries where local, democratic ownership of health care organisations is strong and may well have based their plans on these models as well.

Approach of idea

The approach of the idea is described as:

Stakeholder positions

The government has issued a policy paper A Guide to Foundation Trusts (Department of Health, December 2002). A legislative timetable has been set. The first 12 or so foundation trusts are expected to be set up in shadow form in April 2003 and to become fully operational in April 2004.

The policy has both supporters and critics, both within and outside government. The Secretary of State and the Prime Minister are known to be strong supporters, while the Chancellor of the Exchequer is less supportive. He is reported to be concerned, inter alia, with the fact that the public sector will be required to underwrite foundation trust financial performance without any control over trust behaviour.

Within the traditional Labour movement (which includes the previous Secretary of State, Frank Dobson) there is also opposition to the idea on the grounds that it will disadvantage non-foundation trust hospitals, and lead to a two tier system. For example, it is claimed that foundation trusts will be able to offer better salaries and conditions of service to staff and, in a period of severe nursing shortages, this will have a detrimental effect on hospitals losing staff.

At present the House of Commons Select Committee on Health is examining the policy. They have the power to issue a report and recommendations, to which the government will be required to respond, but their recommendations are not binding on the government. At the moment, it appears that the policy will move ahead despite some opposition.

Influences in policy making and legislation

Primary legislation is necessary for certain parts of the proposal (e.g.moving foundation trusts outside the Secretary of State's control) and is currently underway. It is difficult to say how far the proposal will be modified in the process. My own view is that there has already been some significant modification in the proposals from the time they were first announced by the government to the position as set out in A Guide to NHS Foundation Trusts, (December 2002). In particular, I believe that the earlier proposals emphasised the autonomy for entrepreneurial behaviour (i.e. analogies with firms in markets) whereas the latest version place far more emphasis on local accountability and governance with, for example, proposals for 30 strong Stakeholder Councils.

Adoption and implementation

Implementation of foundation trust status will be undertaken by the Board of Governors and the Management Board of the hospitals concerned. Each trust will have a Board of Governors elected from patient and public membership and from employees, together with nominated members from partner organisations (e.g. primary care trusts, universities with teaching and training functions).The main function of the Board of Governors will be to work with the Management Board to set strategic direction and to ensure that the foundation trust acts in an appropriate manner. The Management Board will comprise a Chief executive, a Finance Director and at least two other executive directors, and a non-executive chair and non-executive directors who will constitute at least one third of its total membership.

As with other NHS developments, the implementation process will no doubt be assisted by various parts of the Department of Health and the relevant Strategic Health authority. Collaborative working with those Primary Care Trusts that contract with the trust for services will also be important.

I see no major obstacles to the implementation of this policy. The major uncertainties relate to the ways in which foundation trusts will perform: will they enjoy the managerial freedom promised? Will the requirements of local accountability conflict with the quest for entrepreneurial behaviour?

Will their financial and clinical performance improve? Will they have a deleterious impact on other parts of the health economy, as critics argue? These questions will only be answered by a programme of evaluation of foundation trusts as they start to operate.

Monitoring and evaluation

The NHS has a well developed research and development programme. The Policy Research Division within the Department of Health and the newly established Service Development and Organisation Research Programme ( which is part of the national R&D programme) regularly commission evaluations of emerging programmes, usually undertaken by academic research centres. It is likely that foundation trusts will be evaluated in some way as part of these programmes, but I am not aware of any specific plans at the moment. Whether these types of evaluations actually lead to changes in policy is less clear.

Review mechanisms

Final evaluation (external)

Dimensions of evaluation


Expected outcome

It is difficult to be definitive about whether or not this policy will achieve its objectives. My own view is that greater local autonomy is desirable in terms of greater efficiency and better decision making. Local initiative has a history of being stifled by central command and control in the NHS. Managers are obsessed with managing upwards rather than managing downwards. To this extent, I believe that the reforms are in the right direction.

My concern is about whether local autonomy will actually be offered in a centralised system that, because it is tax funded, is answerable to Parliament through the Secretary of State. The existence of political accountability led to excessive intervention in the internal market and may do the same in relation to foundation trusts, despite the planned safeguards. The elaborate mechanisms for local accountability may also stifle local entrepreneurship.

On the other hand, I recognise the need for local responsiveness and the need to avoid the emergence of inequalities. There will clearly be trade-offs. Ultimately, whether or not foundation trusts improve performance - and in what dimensions - will be an empirical question that will only be answerable by careful evaluation.


Sources of Information

Department of Health, A Guide to Foundation Trusts, December 2002

Suggested citation for this online article

. "NHS Foundation Trust". Health Policy Monitor, 01. Available at