Clause that will savage the NHS

The new Health and Social Care Act allows public money to finance private hospitals. Yet it has pass

Just before the general election, Alan Milburn, the Secretary of State for Health, was forced into what the opposition gleefully declared was a "humiliating climbdown" to ensure that an important piece of legislation became law. During its passage through parliament, the section of the Health and Social Care Bill that caused the most controversy was a proposal to abolish community health councils (CHCs) and replace them with a hospital-appointed Patients' Advocacy and Liaison Service.

For months, the Health Secretary had faced down criticism, resisted lobbying and refused to compromise. In April, the bill was defeated in the House of Lords because Conservative peers rejected the abolition of CHCs. Two weeks later, on 10 May, Milburn unexpectedly announced that he was giving the CHCs a stay of execution in order to safeguard other parts of the bill. Above all, he stressed, he wanted to ensure the provision of free nursing care to older people in nursing homes.

With this apparently noble intent secured, the very next day, the bill was given Royal Assent and the Health and Social Care Act became law. But the real reasons for the government's eagerness to get the bill enacted are far less altruistic than Milburn led us to believe, and merit closer scrutiny.

If Labour were so concerned about the elderly, it could have accepted the recommendation of its own royal commission on long-term care that all nursing and personal care in residential and nursing homes should be free, as it now is in Scotland. Instead, care home residents in England and Wales must continue to pay for so-called personal or social care. And Milburn failed to mention that the new act introduces a category of "intermediate care", a halfway house for the elderly between hospital and home, in which personal care and "hotel" costs will be charged after a maximum of six weeks, thereby introducing charges in the NHS for the first time in 50 years.

Milburn's U-turn was necessary because the Health and Social Care Act is the essential "enabling mechanism" for the next round of Labour reforms of the NHS. It puts in place the legal framework necessary to implement changes announced in three significant policy documents: the NHS Plan, published in July 2000; the ground-breaking "concordat" with the Independent Healthcare Association, "For the Benefit of Patients", signed by Milburn last October; and Labour's election manifesto.

But the act itself contains the most contentious clause of all - ironically, another clause four. Clause four of the Health and Social Care Act is sweeping and vague in allowing greater private sector involvement in the delivery of healthcare. This private-public relationship pits the government against the unions in a confrontation that threatens to overshadow next month's TUC conference.

The unions with the most to lose from a bigger role for private companies in health - the GMB and Unison - have confirmed that they are deeply concerned about Labour's public-private agenda as stated in the manifesto, as well as the Health and Social Care Act. GMB officials held several meetings with ministers, and both unions claim they received repeated assurances that any future role of the private sector in providing health services would be "marginal".

Yet an analysis of the policy documents enshrined in the act reveals the potential for an unprecedented expansion of the private sector into providing public health services. Academics who have studied the small print claim it will lead to the "galloping privatisation" (as opposed to creeping privatisation, under the Tories) of the NHS.

Allyson Pollock, professor of health policy at University College London, correctly predicted that new hospitals built under the private finance initiative would not have enough beds. Now she is warning that the government's agenda will lead to the "dismantling of the NHS and American-style healthcare, with private companies providing NHS services for profit".

Although the act does not spell out the future role of the private sector in the NHS, it enables the government, if it chooses, to extend private involvement into running clinical services and taking over failing NHS hospitals. Ministers have apparently ruled out such moves, but the act itself does not. The political climate may not yet be right to privatise clinical services, but the government certainly seemed to want to keep this option open.

When the bill was being debated in the House of Lords, the Liberal Democrat peer Lord Clement-Jones tabled amendments to retain clinical services within the NHS. But Lord Hunt, acting for the government, rejected them, saying they would "inhibit the kind of developments we would like to see", prevent NHS trusts from subcontracting work to the private sector, and "circumscribe the services which public-private partnerships may provide".

A hint of what the government might allow came when the Independent Healthcare Association revealed in May that, in secret talks with Department of Health ministers and officials, it was agreed the NHS would send one million patients for private treatment over the next four years, at a cost of roughly £1.5bn.

Dr Tim Evans, an IHA director, caused further consternation when he said that the private sector could take over the management of some NHS hospitals and some staff administration. Evans was given the impression, he said, that everything "is up for grabs".

Having laid the legal foundations for radical theoretical reforms, the government is now engaged in battle with the trade unions over how far to go in practice. But the unions cannot be surprised by the government's intent to extend the role of the private sector.

The NHS Plan introduced the concept of a "concordat" and public-private partnerships. The NHS already spends £1bn each year on buying care and specialist services from hospitals, nursing homes and hospices run by private companies and charities, the report said, so: "The time has now come for the NHS to engage more constructively with the private sector."

Last autumn, the concordat was sold by politicians as a practical solution to waiting times: the NHS could use spare private health capacity, and patients would be treated sooner, at no cost. For elective care, the concordat says that NHS doctors and nurses can use spare operating theatres and facilities in private hospitals to treat more NHS patients more quickly.

For critical care, the NHS and private sector can transfer patients to and from each other, reducing the number of cancelled operations. In the newly created sector of "intermediate care" for the elderly, the NHS will work with the private and voluntary sectors to develop and provide improved preventative and rehabilitation services. Again, the Labour manifesto published in May repeated the pledge to make more use of spare capacity in the private sector in order to reduce waiting times. Most radical of all was the announcement of specially built "surgical units", managed by the NHS or the private sector.

Clause four of the Health and Social Care Act itself enables the government to form or "invest in and provide loans to" private companies, so there will be no need for the private sector even to pay for the facilities up front. This is even more controversial than the private finance initiative - under PFI, private money is used to build public hospitals, with the Treasury paying back with interest over 30 years. Under this new act, public money could be used to finance private hospitals. No wonder ministers are bracing themselves for confrontation. After their restraint during the election campaign, the unions are preparing for a fight.

The first signs of trouble emerged in June, when the Institute for Public Policy Research, said to be Tony Blair's favourite think-tank, published a report calling for greater use of private sector expertise in the management of NHS hospitals.

John Prescott warned cabinet colleagues to expect trouble at the party conference unless they toned down such provocative talk. In June, after leaks from the IPPR report suggested wholesale privatisation, Milburn gave an interview to the Times saying that the NHS is not "up for sale". Then, in July, Blair tried to mollify the unions over dinner at 10 Downing Street. However, although he secured their agreement not to disclose the menu, he failed to appease those unions whose members' jobs are most at stake. The GMB announced that it would withhold £250,000 from its planned £650,000 donation to the Labour Party this year, and for the next three years, to fund a campaign against greater involvement of the private sector in public services.

In the same week as the dinner at No 10, Milburn made a conciliatory speech to the NHS Confederation, praising the public service ethos of the NHS and claiming he was looking for a new relationship with the private sector, "not a takeover". Unison was unmoved. "We believe the private sector should not be allowed to profit from essential services," Dave Prentis, the general secretary, said in response.

The TUC has issued a General Council statement on the future of public services that is likely to set the tone of debate at the forthcoming conferences: the TUC will campaign to "rebuild the public sector ethos and harness the enthusiasm and commitment of public service workers to the need for the improvement in services. The private sector must not become central to the programme of reform." The TUC will also seek a "grown-up dialogue" with the government on the way forward.

As its first inquiry of the new parliament, the House of Commons health select committee has chosen the role of the private sector in the NHS. It will examine the NHS concordat with the private and voluntary sectors; the private finance initiative; and public-private partnerships. The first witness, on Wednesday 24 October at 4pm, in committee room 15, will be Alan Milburn. He should not expect an easy ride.

Rosie Waterhouse is a reporter for the Sunday Times