Published: 01/04/2004, Volume II4, No. 5899 Page 4

The independent regulator has criticised the quality of non-executive directors among the first 12 foundation applications he has assessed.

Bill Moyes said non-executive directors needed a clearer understanding of their corporate responsibility to scrutinise trusts, and needed to be better able to challenge their management teams.

Overall, he praised the quality of the applications from the first cohort of trusts.

Mr Moyes suggested that a number of trusts given foundation status this week were comparable with firms listed in the FTSE 250.

But he expressed fears that the quality of the work carried out by some non-executive director teams fell below the standards expected of public limited companies. And he said the observation applied to all the current foundation applicants.

Mr Moyes told HSJ: 'They [should] understand that they have to be able to challenge the management team - it is not good enough to simply and blindly accept what they are being told by the chief executive or the finance director. And some non-executives also have to understand that they are not there to manage the trust either. It is a concern.'

Of the two trusts which this week announced that they would defer their applications, Mr Moyes said there had been weakness in their financial projections in 'years three to five' - the period from 2006-07 onwards when payment by results will be unleashed in full.

Admitting he had been far tougher on examining trusts' finances than either the NHS or the Department of Health expected, Mr Moyes said: 'There was a level of optimism in the trusts' forecasts.My job was to ask what plans they had, should life not turn out as rosy as they hoped.'

He stressed that the trusts rejected this week will be free to join applicants in the July or October cohorts.

Mr Moyes has also given an indication of the private sector borrowing foundations could support. Financial modelling conducted by his team indicated it could reach£300m-£350m for the original 25 trusts in the first (April and July) wave.

The assessment comes four months after the DoH published a formula allowing trusts to calculate the borrowing they could support. It was derided by many financial directors as excessively complex and unworkable. But Mr Moyes said he has 'revised' the model which underpins the prudential borrowing code to which foundations will be subjected.

His version will be based on the cost of servicing debt and a trust's income. But it will ensure private banks will lend money without 'harbouring the expectation' that the government will ultimately underwrite the debts if the foundation trust becomes insolvent.

Critics of the foundation policy have also expressed concern over the potential for the board of governors to be dominated by extremist groups, including those opposed to the policy.

Mr Moyes said under the legislation he had the powers to remove individual governors or the entire board - but only when the trust was failing to meet the terms of its operating licence.

'This is not a question of seeing that there are four flat-earthers, or four communists or four members of the [British National Party] and attempting to remove them. We will only move if the trust is failing and that may be because [the Healthcare Commission] has found that patient care is not up to the required standard or the trust is in financial trouble.'