The Lib Dems' defence of the NHS privatisation regulations doesn't stand up to scrutiny

Liberal Democrats appear to be sending out variations on a stock response when questioned on the section 75 regulations. Yet their response appears to contradict both expert legal opinion and the Lords own scrutiny committee, not to mention leading health professionals, practitioners and leading charities. The party should be clear exactly what it is doing if its peers wave through these regulations.

caroline m.jpg
Caroline Molloy
22 April 2013

As the Lords prepare to vote on the controversial NHS privatisation regulations on Wednesday, a number of Liberal Democrat peers have offered reassurances to a deeply concerned public, arguing, that their interventions have made a decisive difference. But have they? Or do these regulations still enforce ‘compulsory competition’ on the NHS?

Firstly, the Liberal Democrats have argued that the regulations do not alter the situation put in place by the last government, saying:

“These rules were put in place long before the Coalition came to power. Official guidance issued back in March 2010 stated that: “Where the commissioner decides to procure through single tender the rationale must demonstrate that there is only one capable provider to  deliver the services.”

This is misleading. As the Royal College of GPs has pointed out,

Unlike these previous guidelines, the regulations currently laid before Parliament will have statutory force.”

The  Department’s own impact assessment admits this key distinction, saying “there could be indirect costs associated with commissioners' compliance with statutory regulations instead of non-statutory rules.”

(In terms of costs, the impact assessment goes on to state that these costs are “difficult to estimate and could be negligible".  This assertion seems highly questionable. Even one extra, unwanted tender can cost an NHS provider hundreds of thousands of pounds, as well as considerable costs for the NHS commissioner).

A second (related) argument made by the Liberal Democrats, is that their hands are tied by existing procurement law, including EU law, as they argue that:

“…the problems with the regulations were down to the difficulties of ensuring that the UK abides by European law on competition and tendering…"

This is misleading. It is true that, if commissioners choose to use competition, they already need to ensure that they do not run foul of existing  procurement laws, both at EU level and as enacted in the Public Contract Regulations 2006.

However - until now – there have been various legal ways in which commissioners could avoid exposing the NHS to the full force of EU procurement law. These regulations close those options down.

David Lock QC, in formal legal opinion, states:

“These Regulations restrict the choices open to NHS commissioners because they remove the Teckal exemption [a key principle under which EU procurement regulations don’t apply to services under state control] in which contracts could have been placed with an NHS Trust without a competition. This has been an important provision which has allowed strategic commissioning by NHS commissioners from NHS Trusts without the need for a competition.”

This view is echoed by Ligia Osepciu, a procurement law specialist barrister at Monckton Chambers:

“...there is, in my view, a genuine risk that the New Regulations will be interpreted as abolishing the Teckal exemption …[as well as the understanding that] purchasing health care services from other NHS entities constitutes a form of “in­house” provision [which is not exposed to the full weight of procurement law] even where the Teckal test is not met.”      

The regulations also ignore the well-established EU legal principle of proportionality and de mimimis exemptions for smaller contracts, as they will apply to any contract, however small.

Essentially, the government’s hands are not tied by the EU nearly as much as they are suggesting.  In fact, the government is choosing to unnecessarily extend the extent to which local decision makers are constrained by EU procurement law. 

Thirdly, Lib Dems have argued that the new wording on ‘integration’ will stop commissioners being forced to use competition:

“We have also made a number of other changes in order to clarify how CCGs should decide whether or not to go out to tender. In particular the changes to regulation 2 make it clear that CCGs should consider the benefits that providing services in an integrated way can have on their quality and efficiency.”

Which sounds good. But they then go on to state:

“There may only be one provider  capable of delivering the kind of integrated service the CCG wants to secure for its patients, in which case commissioners would not be forced to put services out to tender.”

In other words, this assurance seems to admit that there is only one legal test, and that if there is more than one provider ‘capable’, commissioners must hold a competition – regardless of whether they as clinical experts, or in consultation with their local populations, think that appropriate.

There has been a renewed outcry about the impact of this broken promise. Many have highlighted the waste of precious NHS time and resources that enforced competition will involve, and the impact of fragmentation on patients. 

Fourth, the Lib Dems argue that Monitor’s powers to order competition, have been reigned in

“The new regulations state very clearly that “Monitor may not direct a relevant body [a CCG of the NHS Commissioning Body] to hold a competitive tender for a contract for the provision of health care services for the purpose of the NHS… This makes it absolutely clear that CCGs cannot be forced to go out to competitive tender.”

This is deeply misleading. Whilst Monitor may not be able to demand tendering, the regulations appear to still give this power to the courts, if necessary. Indeed, that is surely one of the central purposes of moving existing guidelines onto a statutory footing.

David Lock QC’s formal legal opinion says:

 “On the face of things, [this particular revision] appears to suggest that an NHS commissioner… cannot be compelled to hold a competitive tenderHowever that would be a misreading of the effect of Regulation 5. All that [the new] Regulation 15(2) provides is that this is a sanction that Monitor may not impose.… there is a real possibility that the commissioner could be subject to a Judicial Review claim and the court would be entitled to quash the Regulation 5 decision of the commissioner. In effect, the High Court could order the commissioner to re-take the Regulation 5 decision and thus, in effect, order the services to be opened up to competition.”

Also, there is no guarantee that Monitor can’t demand some form of competition – including equally or even more damaging forms, such as Any Qualified Provider. During the passage of the Act, Ministers repeatedly emphasised the distinction between ‘Any Qualified Provider’ and ‘a competitive tender’. 

Even if Monitor cannot specifically demand a ‘competitive tender’ it can rip up any arrangements deemed to be anti-competitive and put in place unspecified measures to ‘remedy’ it[1].

Monitor’s Chief Executive, David Bennett, has offered reassurance that Monitor will not “enforce [the regulations] in a way that leaves commissioners spending all their time running competitive processes because they’re terrified they’re going to get into trouble if they don’t.”

But as the BMA observes:

“In the future, Monitor may change its mind on the interpretation of its duty, and Ministerial assurances could be overridden. It is important for these assurances to be credibly written into the regulations.”

Respected health writer Roy Lilley has pointed out we should be sceptical of such reassurances from someone who has repeatedly extolled the virtues of competition.

Similarly reassuring interpretations have been put forward by the Department of Health, who stated:

“…the burden of proof would be on Monitor not commissioners, to demonstrate that the commissioning of an integrated service was anti-competitive and, if so, that it was not in the interests of patients”.

In response to this, the House of Lords Merits of Statutory Instruments committee commented: “That, however, is not immediately apparent from the Regulations.”

Monitor also has a time unlimited power to strike down arrangements it judges to be ‘anti-competitive’, at any point in the contract. Far from protecting commissioners from legal challenge, these regulations merely make it easier for the prevention and striking down of any NHS arrangements perceived as ‘anti-competitive’. In such circumstances it is hard to foresee a commissioner being prepared to take the risk of having their contracts ripped up, at huge financial cost, if they fail to use competition.

Finally, Liberal Democrats have argued that guidance will improve matters:

“…the crucial issue will be the guidance given to CCGs that will sit alongside the regulations and make their responsibilities absolutely clear… I will continue to play close attention to the guidance to make sure that the clarity we have achieved in these new regulations is followed through to the guidance.”

It is the regulations themselves that are legally binding and will prevail. No amount of guidance will help if the laws take power away from commissioners and put it in the hands of private providers, courts and regulators. 

The reassurances offered by the Lib Dems do not address the core issues. These regulations will lead to greater fragmentation for patients, and unsustainable expense and bureaucracy for the NHS. They are strongly opposed by patients, the medical professions, campaigners, and charities. They do not have any electoral mandate and they break the promises of Ministers, who told commissioners that:

“It will be for commissioners, not the Secretary of State, and not regulators -  to decide how and when and how competition should be used”

 “…there is nothing in this Bill which promotes or permits the transfer of NHS activities to the private sector”.

And who told the Lords that:

“Clinicians will be free to commission services in the way they consider best. We intend to make it clear that commissioners will have a full range of options and that they will be under no legal obligation to create new markets, particularly where competition would not be effective in driving high standards and value for patients. This will be made absolutely clear through secondary legislation and supporting guidance as a result of the Bill.”

The secondary regulations in fact do quite the opposite, they make absolutely clear that NHS services will be open to competition in all but the most rare cases where only one provider is deemed capable of delivering the services. This will impose enormous costs on the NHS. Lib Dem peers should consider the long term impact for their party of voting through these damaging regulations which have no democratic mandate whatsoever.



[1] Regulation 14 gives Monitor retains sweeping powers to “declare that an arrangement for the provision of health care services for the purposes of the NHS is ineffective”. Under Regulation 15(1) it can also “put in place measures for the purpose of preventing failures to comply” and “otherwise remedy a failure to comply” with any part of these Regulations.

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