The government has pulled back from plans to stimulate a market for private sector lending to foundation trusts, under which they would have been cut off from all finance other than commercial loans.

Proposed changes to the Health Bill, being voted on this week in the Commons, would retain the health secretary’s power to provide injections of investment, or “public dividend capital”, to foundation trusts in financial distress.

They would also give the regulator Monitor the power to allow foundation trusts to raise their prices above the nationally set “tariff” for NHS services, if they can demonstrate it is impossible for them to deliver efficient services at usual tariff rates.

The bill originally proposed to remove both the statutory borrowing limits imposed on foundations, and the capacity of the health secretary to provide them with finance other than loans on commercial terms.

The DH envisaged this would lead to the development of a commercial market for FT loans within “a few years”, which would “free FTs to invest in innovation and develop services more flexibly whilst being exposed to commercial rigour on lending”.

But DH guidance accompanying the bill amendments states the health secretary will now “retain power to provide financial assistance to FTs in ‘distress’, including power to provide loans or injections of public dividend capital”.

Robert McGough, a partner at law firm Beachcroft, said the new clauses “wound back” the government’s commitment to cut foundation trusts off from funding other than commercial loans.

He said, if foundations were still able to receive state assistance, “where is the impetus for them to go out and get funding from the private sector?”

The new amendments would also enable foundations to ask Monitor for permission to raise prices above national tariff. The DH insisted any price hike would “not constitute a ‘bailout’”, but would be based on “strong economic arguments to modify price where commissioners’ requirements were otherwise uneconomic to provide”.

NHS Confederation deputy chief executive David Stout said: “On the face of it, all that’s doing is transferring the [financial] problem from providers to commissioners. Unless commissioners are similarly recompensed, all that will lead to is commissioners having to make different rationing decisions elsewhere in the system.”

The amendments, which detail the government’s proposed “failure regime” for financially unsustainable foundation trusts, had been keenly awaited by private lenders, who needed to know how much security they would have if a borrower was dissolved after financial collapse.

Under the proposed regime, Monitor would have the power to transfer a trust’s property and debts to another foundation trust, or to the health secretary. The DH said this improved the position of creditors “compared to the government’s previous proposals”, and meant creditors “would be entitled to be repaid in full, either by the unsustainable FT (or its successor)”.

But lawyers and lenders said the wording of the amendment left it unclear whether the government would definitely underwrite an unsustainable foundation trust’s debts.

Bevan Brittan partner David Owens said: “It says the regulator Monitor may make an order dissolving the trust and transferring the assets and liabilities. The wording isn’t entirely clear about whether if you do one, you have to do the other.”

Tony Bosley, a director in the healthcare team at Barclays Corporate, agreed there was a “little bit of nervousness” from the bank’s lawyers about the way the wording had been drafted.

He said: “I suspect the [finance] sector will take the view that this [amendment] does enable people to increase their exposure to FTs, but I don’t think it goes far enough to allow [private lending] to replace the [DH’s] foundation trust financing facility.”

A DH spokesman said debts could “only be transferred to the state in exceptional circumstances where this offered the best value for money in securing continued access to NHS services and subject to the secretary of state’s right of veto”.

KPMG director Matthew Custance said the amendment “still looks like a guarantee, but they want to exhaust all options before actually paying”.

However, Foundation Trust Network chief executive Sue Slipman said the amendment did not “resolve the question of where creditors come in the batting order”, because debts would only be transferred in exceptional circumstances.

“This is clearly an admission that there is no simple solution, and that’s why they’ve opened up [the possibility of] continued access to public capital,” she said.

The DH spokesman added that foundation trust borrowing limits would still be removed but that Monitor would be able to “set conditions on financial risk which would restrict borrowing”.

The DH was due to publish a revised impact assessment relating to the Health Bill today.