Time to recognise the legitimate role of wholly owned subsidiaries in the NHS
17 October 2018
- NHS Improvement has began a consultation on proposed changes to the way wholly owned subsidiary companies set up by trusts are reported and approved. The consultation will close on 16 November and will be published in December 2018.
- Their proposed framework will require any trust that wants to establish a subsidiary company to provide a business case to NHS Improvement.
- Whilst they undertake this consultation, NHS Improvement have asked trusts to pause their plans to establish any new wholly owned subsidiary companies.
'Misleading' claims about privatisation and tax avoidance continue to undermine the legitimate and appropriate use of wholly owned subsidiaries (WOS) in the NHS, says the membership body which represents all NHS trusts in England.
The defence of WOS comes as NHS Improvement, opens a consultation on its proposals to oversee and regulate the creation of subsidiaries in the NHS.
NHS Providers, which represents all 227 acute, mental health, community and ambulance trusts,welcomes the consultation as an acknowledgement that trusts can consider WOS as a legitimate option to deliver services safely and more efficiently, help drive innovation and keep services within the NHS family.
It also welcomes the clear statement in the consultation that WOS have been operating largely without concerns since 2010.
NHS Providers welcomes the consultation as an acknowledgement that trusts can consider WOS as a legitimate option to deliver services safely and more efficiently, help drive innovation and keep services within the NHS family.
However, NHS Providers argues that any mandated NHS Improvement approval approach on the creation of WOS must be based on a clear set of rules to provide clarity for those trusts that wish to create appropriate subsidiaries. Without this, the consultation risks setting criteria which place the bar too high for providers to justify the legitimate need for WOS.
This process must also ensure that trusts who have been asked to pause their plans for WOS aren't required to start again from scratch as a result of any recommendations as this would be an unnecessary waste of public money.
Under the proposals outlined, NHS providers must produce evidence that there is a business case for a WOS which demonstrates value beyond potential VAT savings.
NHS Providers has consistently argued that WOS in the NHS are set up for many reasons. These can include generating additional income to support patient services, managing estates more strategically, and running pharmacy services more efficiently.
- WOS have enabled trusts to attract people with scarce and valuable skills who would otherwise stay in the private sector and be unwilling to work for the NHS. They have helped trusts to retain staff through adjustable terms and conditions or by being able to offer a flexible and competitive salary and benefits package.
- Setting up a WOS can bring some tax advantages but trusts are clear that they can not use WOS solely for VAT gains, in line with official guidance. We are pleased to see that no attempt has been made to remove these advantages which other routes, including outsourcing, can use as a source of competitive advantage over NHS providers.
- WOS in the NHS are 100% owned by NHS organisations. They are not privatised entities but entities which are fully owned by NHS trusts. Trusts are very clear that the alternative to the use of WOS is outsourcing to the private sector.
- Wholly owned subsidiaries enable trusts to reinvest savings back into the NHS to improve patient care, income which would otherwise flow to the private sector.
- Some trusts are setting up subsidiaries to take over some elements of their back office operations, such as estates and catering and provide a more cost effective and efficient service and then offer that service to other pubic sector organisations.
WOS in the NHS are set up for many reasons. These can include generating additional income to support patient services, managing estates more strategically, and running pharmacy services more efficiently.
The chief executive of NHS Providers, Chris Hopson said:
"Wholly owned subsidiaries in the NHS are not new. Following legislation passed by a Labour government in 2006, trusts throughout the country have established and run WOS successfully for many years without controversy. There are many reasons why a trust may choose this path. They have never just been about making savings on VAT.
"This NHS Improvement consultation is helpful.
"It clearly acknowledges that trusts can and should have the option to set up these entities when there is a proven need. We must ensure any regulation or oversight of the creation of subsidiaries is proportionate and takes into account the circumstances of individual providers. We are pleased that NHS Improvement will review the process after a year but trusts must have a full role in any such review.
"We must ensure any regulation or oversight of the creation of subsidiaries is proportionate and takes into account the circumstances of individual providers."Chief Executive
"Trusts are now operating under huge pressure. Alongside a severe funding squeeze, they have had to contend with workforce shortages and challenges keeping the staff they need within the NHS. Trusts are also working hard to develop new ways of working and bringing health and care services together to improve how and where patients access the care they need.
"Wholly owned subsidiaries can be an appropriate and legitimate response to meeting these challenges. They are proven in delivering practical benefits for trusts, staff and patients, driving innovation and creating efficiencies.
"Misleading claims that these entities are about privatisation and tax avoidance overlook the sound business case behind subsidiaries which can help keep services, and staff within the NHS."