A report by NHS Providers says wholly owned subsidiaries are a key tool for NHS trusts in enabling them to respond effectively to a range of challenges.

In a detailed briefing setting out why they are set up and the benefits they bring, it says criticisms suggesting they are being used to avoid VAT or as a backdoor to privatisation are ‘inaccurate and misleading’.

Criticisms suggesting wholly owned subsidiaries are being used to avoid VAT or as a backdoor to privatisation are ‘inaccurate and misleading’.

The report points out that trusts have been actively setting up wholly owned subsidiaries (WOS) since 2010 and - for a long time - they have been operating without controversy.

It addresses directly many of the key concerns.

Pay and pensions

There have been concerns that WOS are created to employ staff on lower wages:

• Where existing staff are transferred they retain their employment rights, terms and conditions including pension rights
• New staff may be employed under different conditions, but this often provides flexibility on pay and pensions that is attractive to staff who would otherwise be unwilling to work in the NHS.

Privatisation

Some believe that these subsidiaries are, in effect, a back-door privatisation:

• Creating a WOS is an alternative to outsourcing services to the private sector
• They are 100% owned by NHS organisations.

Tax savings

There have been concerns that WOS have been set up to avoid paying VAT.

• NHS trusts have long argued that VAT rules in key areas of their operations put them at a disadvantage compared to private organisations doing similar activities
• For example in pharmacy use of a WOS will allow trusts to make savings that can be reinvested in frontline care. This is very different to setting up a WOS solely or primarily to obtain VAT savings.

The briefing sets out how WOS have benefitted the NHS in a range of areas including estates management, outpatient pharmacy services and developing new ways of delivering care for patients.

It also highlights the practical benefits, including improved services for patients, re-investment of income back into the NHS, employment flexibility and value for money.

The deputy chief executive of NHS Providers, Saffron Cordery, said:

“It is important that people understand why NHS trusts are turning to wholly owned subsidiaries, and to address some of the misleading and inaccurate arguments that have been made over the last few weeks.

“Wholly owned subsidiaries have been around in the NHS for a long time.

Trust leaders are clear they have become a key tool to deliver the current strategic requirements expected of them.

“They are set up for many reasons which vary depending on local circumstances and needs.

“But trust leaders are clear they have become a key tool to deliver the current strategic requirements expected of them.

“And as our report shows, they have a record of delivering practical benefits for trusts, staff and patients.”