[A-List] UK state: unhealthy accumulation

["Michael Keaney" <michael.keaney@xxxxxx>]

Brown wins battle with Milburn over borrowing for foundation hospitals

Patrick Wintour, chief political correspondent
Tuesday October 8, 2002
The Guardian

The chancellor Gordon Brown appears to have won an ideological battle with
the health secretary Alan Milburn over the rights of his proposed foundation
hospitals to borrow capital on the open market - and off the government
balance sheet.

Tony Blair brokered the outlines of a deal between the two cabinet ministers
after the clash broke into the open at the Labour conference in Bournemouth.
At a meeting yesterday afternoon at Downing Street both sides were ordered
to stop briefing against each other.

After the meeting, the Treasury and the Department of Health declined to
comment. However, one government source said: "To the extent there was a
division, it has been resolved that foundation hospital borrowing will not
be off balance sheet. That issue has been resolved and settled".

Another source said: "This proposal seemed to represent some kind of
crossing of the Rubicon for Gordon. He was not going to have it, or let a
two-tier system in health start".

In face of the Treasury opposition, Mr Milburn has been forced to abandon a
special conference with potential foundation hospital applicants designed to
set out their detailed powers and freedoms to borrow. The conference, due
this week, has been postponed until the end of the month.

Mr Milburn's aides fear that tight restrictions on the foundation hospitals'
ability to borrow is likely to reduce the number of hospitals applying for
foundation status. Only hospitals that have secured three-star status will
be entitled to apply.

On one level the row between Mr Milburn and Mr Brown is over the relatively
narrow issue of the rights of public bodies to borrow on the open market
without the borrowing appearing on the government balance sheet. The
Treasury traditionally has opposed off balance sheet borrowing, even though
advocates of the reform point out that exceptions have been made in the case
of Network Rail, housing associations, regional airports, London Underground
and other public interest companies.

But the dispute has broadened into two competing views of the role of the
public sector. The Treasury fears that privileged foundation hospitals could
increase inequality in health care and create a two-tier system, too high a
price to pay for greater local flexibility and higher rewards.

Mr Brown and his advisers are equally concerned about the precedent that
might be set in education.

On the issue of the hospitals' borrowing powers, Mr Brown argued that the
debt could never be regarded as private. The only means of serving the debt
would be through introducing private shareholders or through servicing any
debt from income from private patients.

The Treasury is, however, willing to let the foundation hospitals be given
other freedoms, including guaranteed three-year income.

The Treasury's chief economic adviser Ed Balls will this week seek to dispel
any suggestion that the Treasury is still trying to control the public
services from the centre by backing a pamphlet entitled The New Localism,
published by the New Local Government Network.

It has been co-written by Dan Corry, once special adviser to Stephen Byers,
the former cabinet minister, and will call for new freedoms for local
government, including the right to borrow and raise funds, in return for
proven high performance.