Published: 15/08/2002, Volume III, No. 5818 Page 19

On Sunday night I managed to catch a very senior minister in the Blair government, on the phone at home and in a good mood. Such are the random opportunities of my trade, it allowed me to go through a shopping list of current issues which included the row over foundation hospitals.

Bingo! My friend had NHS views to which I will return in a moment. Indeed everyone has views about the rather arcane controversy which has divided Alan Milburn from that most dangerous and unforgiving of adversaries, Gordon Brown.

The normally discreet former health secretary Frank Dobson weighed in the other day on the chancellor's side. Peter Mandelson promptly took to the pages of the Financial Times to back the health secretary. Having talked to officials in both camps and to outside pointy-heads, as I like to call thinktankers on what Mr Dobson (I know you'll find this hard to believe) used to call 'the vacuous bollocks circuit', I can state that they all agree on the need for greater management devolution inside the NHS, for greater incentivisation and even for private capital.

After all, Dobbo backed private finance initiative hospital programmes when in Mr Milburn's chair, which puts him at odds with University College London's Professor Allyson Pollock at my old college in his Camden constituency. At the same time, he is squaring up to fight Robert Naylor, the profoundation chief exec at neighbouring University College London Hospitals trust, where they are now building a fancy PFI hospital.

The nub of the controversy is not even the right of wannabe foundation hospitals to borrow money on the open markets.After all, all sorts of publicly owned bodies borrow - colleges and universities, for example. Indeed UCL has just dropped its distinguished provost, Sir Chris Llewellyn Smith, over a£6m deficit.

Peanuts, I hear you cry!

No, the problem is whether such borrowings will be on or off the Treasury's books, its balance sheet of assets and liabilities. The new Railtrack body, Network Rail, is a not-forprofit (NFP) public interest company (PIC) which pays no dividends to shareholders. Yet my Treasury chum says of foundation hospitals: 'If they rely for their main stream of income on the public sector, they are clearly on the books.'

To underline the point, he adds: 'The only way to get off the books is private income, private patients and land sales.' That is where hospitals differ from colleges and even railways, both of which have paying customers - foreign students, for instance, in the case of colleges. Housing associations, a major NFP force for 30 years, also have income, and those houses can always be sold.

Not much of this applies to the British NHS.

In other words, NHS entrepreneurs can't have full financial freedom precisely because their NHS obligations - free at the point of use - prevent them becoming remotely self-financing. Hence the managerial cold feet reported by HSJ on 1 August, a story incidentally pinched, I think, by the Sunday Times.

Dobbo sheds no tears at this. He doesn't believe NHS patients want more choice and diversity.They want better hospitals.The NHS is not short of innovation, it is short of the machinery to transmit innovation and good practice.And when it succeeds, it is short of the cash to implement it.Dobbo says his old friend Alan's foundation strategy will mean 'the gap between the best and worst hospitals will grow'.

This is a serious point. So is chancellor Brown's. So where do we go from here?

Back to my Sunday night chat. It transpires that home secretary David Blunkett, trade and industry secretary Patricia Hewitt and minister without portfolio Charles Clarke, still in Cabinet unlike Dobbo, are all interested in NFPs and PICs for different reasons. Other countries have them; we have the Housing Corporation (which works), so why not?

My friend says that the key to their success is defining the activities for which the hospital can raise funds and then defining the liabilities for which the hospital is responsible.

'Unless you do that, It is very difficult for the Treasury to override accounting rules, ' he says.

Doubly so, in the age of Enron, one might add. The Tories are already likening Mr Brown's limited relaxation of the rules for PFI to a£100m off-books liability. The lesson? do not give up; there is a way through. Probably. l Health Service Journal 15 August 2002 19