The Health and Social Care (Community Health and Standards) Act 2003

The Health and Social Care (Community Health and Standards) Act 2003 received royal assent on 20 November 2003. The act provided for the establishment of NHS foundation trusts (a new form of NHS organisation with greater freedoms) and a new independent regulator, which would be responsible for authorising foundation trusts and monitoring their compliance with authorisation terms. The proposals were strongly opposed, however, by both unions and backbench Labour MPs, who argued that the reforms could create a ‘two-tier’ system of health care, and that resources would be channelled to these new organisations at the expense of those in greater need. The rebellion against the legislation was so strong that the government relied on Scottish MPs (whose constituents would not be affected by the reform due to the devolution of health to the Scottish Parliament), to get the legislation through Parliament.

In addition to the introduction of foundation trusts, the 2003 act also provided for the establishment of the new Commission of Healthcare Audit and Inspection (CHAI) and the new Commission for Social Care Inspection (CSCI). Both inspectorates were established as independent, non-departmental bodies. The act abolished the National Care Standards Commission and the Commission for Health Improvement (CHI).

The act imposed a duty of quality on all NHS bodies (whether commissioners or providers) and provided for the standards to be taken into account by NHS bodies in discharging the quality duty and by CHAI in reviewing the provision of health care.

Foundation trusts

NHS foundation trusts were independent organisations that were not subject to direction from the secretary of state for health. Instead, the legislation provided for an independent regulator (later known as Monitor) to monitor their performance. While foundation trusts were still part of the NHS, they had greater financial freedoms, ie they could retain surpluses, were able to borrow funding for capital investment from more sources and had greater flexibility with regard to remuneration.

Foundation hospitals (as they were first known) were intended to ‘reflect the spirit of public sector enterprise that [the Labour government’s] plans are designed to unleash’. The objective was to give high performing trusts greater freedom and for the new foundation trusts to use their freedoms to bring about benefits to patients (Department of Health, 2002). The first 10 foundation trusts were established on 1 April 2004.

The act established NHS foundation trusts (FTs) as public benefit corporations with the purpose of providing health care to the NHS and set out minimal requirements for the constitution, governance and membership of FTs. Each FT would be required to have members representing staff and the public from their local area, with patients living outside the area also potentially eligible for membership.  The act required each FT to have a board of governors comprising elected representatives from the list of members and specifically appointed individuals, with patient and public members required to be in the majority on the board of governors. Additionally, there had to be at least three members of staff, one member appointed by a primary care trust and one appointed by a local authority. If the corporation included a medical or dental school, university representation was also required.

In addition to the board of governors, each FT was required to have a board of directors (executive and non-executive) to be responsible for the day-to-day management of the organisation on behalf of the public benefit corporation. One of the directors was required to be a registered medical practitioner or dentist and another was required to be a registered nurse or midwife.

The chief executive was appointed and removed by the non-executive directors, and the chairman and other non-executive directors were appointed or removed by the board of governors. However, NHS trusts could retain their leadership when transitioning to FT status.

FTs would be required by the act to make annual reports to the independent regulator. Reports must include information on steps taken to secure public/patient membership that was representative of the population and any other information required by the regulator. The FT was also required to provide annual forward business plans to the regulator and to present annual accounts, auditors’ reports and annual reports to the board of governors at a public meeting.

Authorisation process

In order for NHS trusts to become NHS FTs they had to make an application with the support of the secretary of state for health in a process set out by the act. The power to authorise applications was given to the independent regulator, which determined whether the application could proceed, taking into consideration the applicant’s financial position and any reports or recommendations relating to the applicant issued by CHAI. A trust could not be authorised as an FT unless it had sought the views of individuals living in the proposed public and patient constituency areas, the relevant local authority and the trust’s patients’ forum.

The act allowed the secretary of state to give loans, public dividend capital, grants or other payments to FTs. The secretary of state was also able to guarantee payments due under private finance initiative (PFI) agreements entered into by NHS foundation trusts. The regulator would be able to set a code to determine the total borrowing limit for an FT.

The principal purpose of an FT would be to provide goods and services for the health service in England. FTs, however, would be able to enter into other, non-health care related activities for the purpose of generating income to be used for the health service in England, such as charging for accommodation or services. The regulator would be able to require FTs as part of their authorisation to provide specific services and powers to restrict the provision of private health care. The regulator was required by the act to impose a cap on the total level of income derived from the provision of services to private patients. For FTs that were NHS trusts in the financial year ending 31 March 2003, the cap would restrict the FT to the proportion of total income received from private patients in that year. 

The increased autonomy given to FTs as part of the act also included the power to borrow money and gave FTs investment powers. However, each FT would be required to exercise its functions efficiently, effectively and economically, with the independent regulator able to intervene if an FT was found to be in breach of obligations under the act or the terms of its authorisation. This intervention would consist of the regulator issuing a warning notice that would require directors or the board of governors to act or cease acting in a particular way. Furthermore, the regulator could remove or suspend any or all of the directors and members of the board of governors. In the case of financial difficulty, the regulator would also have powers to intervene by requiring an FT’s board of directors to make a proposal for a voluntary arrangement with creditors. In circumstances where an FT had failed to comply with warning notices or had failed to implement a voluntary arrangement where requested to do so by the independent regulator, the secretary of state was given powers to by the act to dissolve an FT by order.

The act outlined a mechanism for mergers between two FTs or between an NHS FT and an NHS trust. In such circumstances the trusts would be able to make a joint application to the regulator for authorisation as a new FT. If the merger involved an NHS trust, secretary of state’s approval would be required.

Independent regulator of NHS foundation trusts (later known as Monitor)

The act set out that the independent regulator would consist of up to five members appointed by the secretary of state, including a chairman and deputy, and allowed the regulator to appoint staff on its own terms and conditions (following consultation with the minister for the Civil Service). The regulator was required to make an annual report of the way it had exercised its functions and to prepare a summary of accounts for NHS foundation trusts for each financial year.

Commission of Healthcare Audit and Inspection (CHAI)

The act gave CHAI the function of encouraging improvement in the NHS. CHAI would be able to give information or advice to NHS bodies or those providing care funded by the NHS. CHAI was required to consider:

  • the availability of and access to health care provided by or for NHS bodies
  • the quality and effectiveness of health care provided by or for NHS bodies
  • the economy and efficiency of health care provided by or for NHS bodies
  • the need to safeguard and promote the rights and welfare of children
  • the availability and quality of information provided to the public about health care.

CHAI was able to publish data on the performance of NHS bodies and providers of health care across NHS bodies, undertake annual reviews and award performance ratings. The reviews could focus on service specific or general health care issues. In cases of failure, CHAI would be required to report to the secretary of state. CHAI also had powers to make recommendations in relation to special measures to improve care. The act made CHAI responsible for undertaking studies relating to efficiency and effectiveness for all NHS bodies except for special health authorities and foundation trusts. The act also gave CHAI the responsibility for the regulation of independent hospitals, clinics and medical agencies. These bodies were required to be registered under the Care Standards Act 2000. The registration authority (CHAI) would periodically inspect registered establishments and had powers to cancel registration.

Commission for Social Care Inspection (CSCI)

The act placed a duty on the CSCI to encourage improvement in the provision of local authority social services in England with a particular focus on availability, access, quality, effectiveness, management, economy, efficiency and safeguarding children. CSCI was also required to consider the provision of information to the public.

CSCI was required to undertake an annual review of social services provided by every local authority, including those services which the authority commissioned rather than provided directly. CSCI would consider how well a local authority was undertaking its functions and would award a rating. In cases of failure, CSCI was required to recommend measures to the secretary of state.

CSCI was given concurrent powers with the Audit Commission to carry out studies relating to efficiency and effectiveness. Both bodies were required to cooperate and CSCI would focus more specifically on social services reviews whereas the Audit Commission would focus on a wider range of local authority functions.

The act also gave CSCI the responsibility for the regulation of children’s homes, residential and nursing homes, residential family centres, domiciliary care agencies and fostering agencies. The registration authority (CSCI) would periodically inspect registered establishments and had powers to cancel registration.


The act also made provision for the secretary of state to make regulations about the handling of complaints. It was envisioned that CHAI would predominantly be involved in the second stage of the complaints procedure. Similarly, CSCI would have a role in the second stage of complaints regarding local authority social services. In both cases, complaints should be addressed to the relevant NHS or local authority body in the first instance.