There have been concerns that wholly owned subsidiaries are created to employ staff on lower wages. Where existing staff are transferred from a trust to a wholly owned subsidiary they will retain their current employment rights, terms and conditions, including pension rights under the current Transfer of Undertakings (Protection of Employment) Regulations (TUPE). Although new staff may be employed under different conditions, many trusts also offer existing NHS packages to new staff as well. Existing NHS staff on Agenda for Change contracts may, in some cases, also be offered a choice of whether to take up the new conditions offered by the subsidiary and in many cases they do so. Staff will be consulted about the transfer to the new subsidiary and should they refuse to transferred under TUPE they can submit a formal objection.
Some have implied that because wholly owned subsidiaries can offer different terms and conditions to those negotiated under the NHS Agenda for Change contract trusts are using wholly owned subsidiaries as a means of degrading NHS terms and conditions. Trust leaders, on the contrary, argue that wholly owned subsidiaries provide a much needed flexibility to attract staff who would otherwise be unwilling to work in the NHS.
There are a wide range of different ways in which this flexibility has been used with examples including:
- offering higher salaries than would be allowed under standard NHS terms to attract staff with specialist skills in areas of shortage
- offering bonuses for personal and corporate performance
- sttracting younger employees by offering a different mix of salary and pension benefits, recognising that some younger employees would prefer to take the higher pension contributions as salary. This enables the NHS to compete with private sector employers working directly in the same field, e.g. in estates and facilities management.
Some believe that these subsidiaries are back-door privatisation. However rather than privatisation through the backdoor, creating a wholly owned subsidiary is an alternative to outsourcing services to the private sector.
Some believe that these subsidiaries are back-door privatisation. However rather than privatisation through the backdoor, creating a wholly owned subsidiary is an alternative to outsourcing services to the private sector. They are separate legal entities but they are 100% owned by NHS organisations and it is often the case that trust board members also sit on the subsidiary board. Many wholly owned subsidiaries continue to use the NHS logo and staff employed by the subsidiary are often treated as one directorate within the trust.
Trusts tell us that unless they can recruit staff in specialist areas like estates and facilities management through a wholly owned subsidiary that the only realistic and viable alternative is to outsource. Different trusts take different views on the pros and cons of outsourcing services and those who wish to retain these services in house are clear that wholly owned subsidiaries are a key tool to do so.
Financial and tax savings
There have been concerns that trusts are setting up wholly owned subsidiary to save money and avoid paying VAT. NHS trusts have long argued that VAT rules in certain key areas of their operations disadvantage them compared to similar organisations operating in the private sector. So, in some areas (e.g. pharmacy – see below) use of a wholly owned subsidiary will enable a trust to make VAT savings and enable these savings to be reinvested in frontline care.
This is, however, completely different to a trust setting up a wholly owned subsidiary solely or primarily to obtain VAT savings. In line with the Department of Health and Social Care and other guidance, trusts would not look to create a wholly owned subsidiary for the primary purpose of avoiding tax or use this as a key driver for exploring the use of this organisational form.