In 2002, Health Secretary Alan Milburn introduced the idea of foundation trusts, with the first ten announced in 2004. Foundation trusts provided more managerial and financial freedom than NHS trusts. They represented a significant change in the way in which hospital services are managed and provided in the NHS. The Tavistock and Portman began the intense and challenging application process to become a foundation trust. It successfully became the Tavistock and Portman NHS Foundation Trust in 2006, one of the first mental health trusts to do so.

Under foundation trusts, the functions of hospital administration became more specialised. Reporting lines changed too. Finances were answerable to Monitor, clinical practice to the CQC. Budgets increasingly belonged to individual trusts. National budgets diminished and became fragmented.

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