NHS Subsidiary Companies – The Next Public Sector Scandal?

There is an increasing and worrying trend in the NHS for hospital trusts to set up subsidiary companies and move groups of staff into those new entities - here is one example from Harrogate. Common targets are maintenance and some other support-type staff, but even procurement and supply chain teams are vulnerable to this idea.

While trusts are talking about the “opportunities” for these organisations to thrive by winning new business and creating their own identities, those that claim that this is the prime driver are just plain lying. This is a cost-driven exercise, with two main elements. Firstly, there are VAT benefits for the entity and therefore for the trust that owns it. It seems that the subsidiary can in effect reclaim some of the VAT it pays on its own purchases, which an NHS Trust can’t.

Secondly, while the people transferring will take their current benefits with them to the new organisation under TUPE , any new staff can be brought in on less favourable (less expensive) terms than we would see for NHS staff. Take pensions; trusts pay 14.8% of salary into the pension pot, whereas in the subsidiary, new recruits could go onto the NEST scheme which costs just 3%.

So given the financial pressure the NHS is under, we can absolutely see why this is happening. However, there are some major concerns here. For a start, if you look at the big picture, the VAT issue is not a “saving” for the taxpayer. It means more money for the Trust – but less for HMRC and the Treasury. There is no change to the overall national tax revenue.

Secondly, there are obvious dangers with a two-tier workforce in terms of motivation and cohesion in those teams, and questions about whether we want to see remuneration for these roles being driven downwards.

Thirdly, as Roy Lilley pointed out, most NHS employees feel a huge sense of pride in working for the organisation, and many go the extra mile because of their pride in working for the service – for instance, when we see weather issues as we did recently. Will they feel the same working for a non-NHS subsidiary company? And if they then supply the parent trust under a contractual mechanism, will they be saying, “yes we can work overtime given the snow crisis – but that will be another £50,000 a week please?”

And finally, the idea that these organisations will all go out and win lots of third-party work is nonsense. We won’t argue that none will win anything, but look at the history of all the public or public/private organisations that were created with a view to winning other business.

Southwest One, for instance, or the various outfits that Northamptonshire Council set up before they effectively went bust; the track record is not good.  Unite, the trade union representing many of the staff involved, has warned that the bodies “could create a Pandora’s box of dozens of Carillion-type meltdowns among NHS trusts in England”.

That might be slightly over-playing it, but this really does not seem like something that should be applauded, and it feels like potentially another public sector scandal in the making. And, as a procurement thought to conclude, if procurement is transferred into one of those new “companies”, will they feel inclined to support the national NHS procurement deals via the “future operating model?”  Or will they go out and set up their own deals that might generate more rebates or other benefits for them, as pseudo-commercial organisations in their own right?

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