ANNEX A: Outline of the existing law relating to the NHS(12) Part 1 system: hospital and community health services
201.The system provided for under Part 1 of the 1977 Act (and Part 2 of the 1990 Act - discussed below) is the system under which all of the NHS, apart from family health services, is provided, including its hospitals.  The core duty is laid upon the Secretary of State (1977 Act, section 1) in extremely broad terms, supplemented by the provisions of sections 2 to 5. It is these provisions which define the Secretary of State’s overarching responsibilities to provide health services under a comprehensive health service.  They are broad powers and thus frequently the legislative source for functions which have in practice, been delegated to health service bodies such as HAs and PCTs.
202.Section 3 sets out those general services which it is the Secretary of State's duty to provide to such extent as he considers necessary to meet all reasonable requirements. Most of the services, which may be described as hospital and community health services, are included under this section.
203.Section 5(1) and (1A) impose duties on the Secretary of State to provide medical and dental services to state school pupils.  This is the basis for what is described as the school nursing service.
204.Section 2 confers wide ranging powers for the Secretary of State to provide such services as are appropriate to discharge any duty imposed on him by the Act (including his general duty under section 1), and to do any other thing whatsoever which is calculated to facilitate, or is conducive or incidental to, the discharge of such a duty.  Further miscellaneous powers relating to specific matters are conferred by section 5(2) (for example, the conduct and assistance of research and development (section 5(2)(d)).
205.Sections 8 to 18 of the 1977 Act go on to provide for the administration of the NHS.  These sections have been substantially amended since 1977, most recently by the Health Act.  As amended, they provide for the setting up of HAs (section 8), Special Health Authorities (section 11) and PCTs  (section 16A, as inserted by section 2 of the Health Act).  HAs, Special Health Authorities and PCTs are independent statutory bodies, although their membership is determined in accordance with regulations (and in the case of Special Health Authorities, the establishment order) and some of the appointments to their membership are made by the Secretary of State.  HAs and PCTs are established for territorial purposes.  Each HA is established for such area of England and Wales as set out in the establishment order made under section 8; the entire area of England and Wales is covered by HAs.  Each PCT is established for the area specified in its establishment order under section 16A(3).  Each PCT area is wholly contained within the area of a HA but there is no requirement for total coverage.  Some areas of England are covered by PCTs and the rest should be by April 2002; there are no PCTs in Wales, as the relevant provisions of the Health Act have never been brought into force in relation to Wales.  Special Health Authorities are established for specific functional purposes - they are established for the purpose of performing any functions of the Secretary of State which he may direct them to perform under section 16C.
206.Legislation allows health service functions to be exercised by health service bodies in one of two ways.  Functions are either directly conferred by the primary legislation or the person on whom they are directly conferred (either Secretary of State or a health service body) is permitted to delegate them to another health service body.
207.The Secretary of State may direct a HA or Special Health Authority to exercise his functions. He may also direct a Special Health Authority to exercise the functions of a HA or a PCT.  He thus has no power to direct health service bodies other than HAs or Special Health Authorities to exercise his functions (section 16D, formerly 13, of the 1977 Act).  A HA may direct a PCT established in their area to exercise its delegable functions (section 17A, inserted by section 12 to the Health Act: section 17A(3) lists the excepted or non-delegable functions).  The Secretary of State may direct HAs that delegable HA functions are or are not to be exercisable by PCTs, or are to be exercisable by PCTs to any specified extent (section 17A(4)).  The Secretary of State may also give directions to a HA, Special Health Authority or PCT about the exercise of any of their functions (section 17).  A HA may also give directions to a PCT about the exercise of any functions which the HA has directed the PCT to exercise (section 17B).  These directions may be given by regulations or by instrument in writing (section 18).  There is very little further prescription in primary legislation as to what the Secretary of State must do or how he must do it in relation to the provision of that part of the NHS which is not concerned with family health services.  It will be seen that this way of providing services is a great deal more flexible than the regulatory system under Part 2.
208.HAs may, in accordance with regulations and any relevant directions, delegate their functions (whether Part 1 or Part 2) to each other, or to committees or others:  see section 16 of the 1977 Act (as substituted by paragraph 9 of Schedule 4 to the Health Act).  Similar provision is made for PCTs (see section 16B of the 1977 Act as inserted by section 2(1) of the Health Act). Regulations have been made under both provisions.
209.HAs and Special Health Authorities are funded under the provisions of section 97, as substituted by paragraph 47 of Schedule 1 to the 1995 Act and amended by section 36 of the Primary Care Act, by sections 4 and 8 of the Health Act and section 1 of the HSC Act, and by section 2 of the HSC Act.  HAs are paid money in each year under section 97(1) and section 97(3).  Section 97(1) concerns the remuneration of persons providing Part 2 services and is not cash-limited (in other words the Secretary of State must pay whatever it has cost the HA, and he cannot impose a ceiling on the expenditure).  Under section 97(3) a HA is paid money not exceeding the amount allotted to them by the Secretary of State.  This amount is allotted towards meeting their “main expenditure” which includes all expenditure attributable to the performance of their Part 1 functions, and all their administrative costs.  The money paid in respect of Part 1 services is therefore ultimately cash-limited.  To enforce the cash-limits set by the Secretary of State, HAs have various financial duties imposed upon them by section 97A of the 1977 Act (as substituted by paragraph 48 of the 1995 Act and amended by paragraph 23 of Schedule 2 to the Primary Care Act).
210.PCTs are funded by HAs under section 97C of the 1977 Act, as inserted by section 3 of the Health Act and amended by section 3 of the HSC Act and amended by section 1 of the HSC Act.  There is a similar distinction between cash-limited and non-cash-limited funding.  Section 97C was amended by section 3(3) of the HSC Act so that in addition to HA allotments, the Secretary of State may make supplementary payments direct to PCTs.  PCTs are subject to a set of financial duties similar to those for HAs (see section 97D, as inserted by section 3 of the Health Act and amended by section 3 of the HSC Act).
211.Although funding for the remuneration of Part 2 practitioners is largely non cash-limited (“general Part II expenditure”), section 97(3AA) of the 1977 Act, as  inserted by section 1(2) of the HSC Act, provides that in determining a HA allotment the Secretary of State may take into account the level of the HA’s “general Part II expenditure”.  Similarly, section 97C(1A), as prospectively inserted by section 1(4) of the HSC Act, provides that in determining PCT allotments, HAs may take into account the distribution within their area of their general Part 2 expenditure.
212.The cash-based system provided by sections 97, 97A, 97C and 97D has now been supplemented by a resource-based system provided for in sections 97AA and 97E, as inserted by sections 12 and 13 of the Government Resources and Accounts Act 2000 and amended by section 1 of the HSC Act.  These provide for the Secretary of State to set an annual limit on the use of resources by each HA and for HAs to set annual limits on the resources used by each of their PCTs.