I think it may be helpful to begin by reiterating the Government's aim in developing Monitor's role as an economic regulator for the healthcare sector, which is to improve outcomes for patients and make best use of NHS resources by ensuring that the regulated market operates effectively and by strengthening incentives.

It is important to stress that Monitor's role and its functions are specifically designed to protect the interests of patients from the unrestrained operation of market forces in healthcare. This is because the Government recognises that the equilibrium mechanisms which operate in a normally-functioning market—such as the balancing of supply and demand through competitively-determined prices—would not safeguard patients' interests in the absence of robust regulation. It is because the Government expressly rejects the assertion that an unregulated free market in healthcare will improve patient care that the Government's policy is to establish a regulated market, overseen by an economic regulator. The Health and Social Care Bill makes clear that Monitor must only promote competition where appropriate, and that it should regulate where necessary.

Monitor's overarching duty would be to protect and promote patients' interests. Monitor would be expected to fulfil this duty in carrying out its regulatory functions, which would include:

licensing providers of NHS services;
regulating prices; and
imposing additional regulation, where necessary, to secure continued access to services in the absence of alternative providers.
In addition, Monitor would continue to perform some of its existing functions in relation to Foundation Trusts, including its function in authorising Foundation Trusts, which would be particularly important during transition, and as the registrar of Foundation Trusts.

The Committee asked for clarification as to the estimated costs of these functions.

The Government's estimate of Monitor's future annual budget was set out in the impact assessment published alongside the Bill and quoted a figure of £72 million, by 2015-16.

This figure includes funding for Monitor's residual functions in relation to Foundation Trusts, which cost c£17 million in 2010-11.

The £72 million figure is derived from a range of benchmark estimates, which, in turn, were based on the costs of other economic regulators, their staff numbers and the average cost per whole time equivalent member of staff.

The benchmarks included data from the Dutch Healthcare Regulator. This organisation undertakes a similar role as Monitor would, albeit in a different country. After undertaking this analysis, the upper limit for the annual costs was considered to be £130 million, as my Rt Hon friend the Minister of State for Health said to the Public Bill Committee on 15 March.

The Department of Health has continued to refine these estimates since the impact assessment was published. On 8 February, we provided a written answer to a parliamentary question from the Hon Member for Easington, which estimated a range of c£50 million-c£70 million, over the next 10 years.

Work on estimating Monitor's future running costs will remain ongoing in 2011 and we would be able to provide further refinements of our estimates in due course. In the meantime, the impact assessment we have published alongside the Bill sets out how the costs of implementing the reforms would be far outweighed by the benefits to patients and taxpayers.

The Committee also requested further information about Monitor's role in promoting competition in relation to commissioning of NHS services.

First and foremost, Monitor's duty would be to protect and promote patients' interests. Monitor's role in promoting competition would be a means to that end, not an end in itself, as the Bill makes clear (Clause 52(1)).

Our vision is that commissioners would decide how best to improve services and increase choice for their patients, including how best to utilise competition as a means to that end. Procurement would be transparent and non-discriminatory and patients would choose their preferred provider, wherever possible, with money following patients' choices.

The purpose of competition law is to protect consumer interests, which in its application to the health care sector means protecting patients' interests. Monitor would have concurrent powers (with the Office of Fair Trading) to apply competition law, within the healthcare sector, to address restrictions on choice and competition that acted against patients' interests. The Health and Social Care Bill does not extend competition law; it merely creates concurrent jurisdiction between OFT and Monitor. This would be consistent with Monitor's overarching duties and the role of competition as a means to an end, not an end in itself.

Competition law would apply to the actions of "undertakings", which would include the activities of NHS Foundation Trusts and other types of organisation providing services within a market. However, case law suggests commissioners of NHS services, including GP consortia, would not be considered "undertakings", for the purposes of competition law, in relation to their purchasing activities. That is why we have proposed powers in the Bill to introduce regulations on commissioners of NHS services, which would provide appropriate protections for patients and taxpayers' interests and an effective mechanism for enforcement. This mechanism would be important, for example, in ensuring compliance with the national tariff as a fixed price.

Our aim is to ensure that commissioning processes are transparent and non-discriminatory such that NHS services are commissioned from the best providers and patients are given choice wherever possible. Our proposed approach would involve setting out clear requirements on commissioners in the form of regulations, which would be legally binding and independently enforceable.

We have amended the Bill to clarify that the scope of these regulations would be limited to requirements as to due process, managing conflicts of interest and prohibiting anticompetitive conduct that acted against patients' interests. We do not intend to introduce requirements on commissioners to promote competition for competition's sake, or for Monitor to have power to impose compulsory competitive tendering requirements on commissioners, and the amendments we have made to the Bill make this clear (see Clause 63 and 64, as amended).

We have also made amendments to clarify our proposals for Monitor's investigative and enforcement powers, which would underpin these regulations. In summary, Monitor would have power to investigate potential breaches of the regulations, either on its own initiative or in response to complaints. Monitor would be able to require commissioners to take action to prevent or remedy a breach of the regulations, including, potentially, by setting-aside a contract where due process had not been followed. However, Monitor would have no power to impose fines on commissioners, as was discussed by the Committee.

In this way, our proposed approach would build on the existing system of Principles and Rules for Cooperation and Competition, which would provide a starting point for the regulations, and the role of the Cooperation and Competition Panel in investigating potential breaches. However, we would bring forward detailed proposals on the scope of these regulations, for consultation, in due course.

In the meantime, I trust that this letter will address the points raised by the Committee and clarifies our proposal that Monitor's role in promoting competition would be a means to an end, not an end itself. Monitor's overarching duty would be to protect and promote patients' interests, as the Bill makes clear.

Rt Hon Andrew Lansley CBE