• NHS trusts have lost out on a potential windfall of £1.5bn after a tax battle with councils
  • A high court judge has ruled they should not be classified as charities

A group of NHS trusts have lost a high court battle with local authorities over their business rates.

NHS trusts have lost out on a potential windfall of £1.5bn after a judge ruled they should not be classified as charities.

At the high court this morning, Mr Justice Morgan delivered judgement on a case brought by University Hospitals of Derby and Burton Foundation Trust and 16 other NHS providers, against 45 councils.

The case had examined whether an NHS provider could be classified as a charity under the Local Government Finance Act 1988, which would have given them a significant discount on local business rates.

If successful, the trusts would have been eligible for tax rebates dating back to 2010.

At a directions’ hearing in 2018, court papers suggested that if the claim was successful, and rebates were claimed by NHS providers, it could cost local authorities around £1.5bn. This is because they would need to repay 80 per cent of the rates received over six years. There would also have been an ongoing recurrent benefit to NHS trusts.

The case has drawn criticism from some quarters, because although the NHS could have benefitted from charitable status, there would have been no net benefit to the public purse.

In the judgment, Justice Morgan noted that the drafting style of the NHS Act 2006 in relation to FTs was not with a view to ensuring “that their purposes were narrowly stated so that they would be exclusively charitable purposes.”

He added: “Instead the drafting style adopted appears to be have been to define the functions of a foundation trust in wide terms; hence, the use of words like “any purposes”, “related to”, and “in connection with.

“The result of the above reasoning is that a foundation trust is not established for charitable purposes only and so is not a charity within the meaning of section 67 (10) of the 1988 Act or section 1 (1)(a) of the 2011 Act.”

He said the trusts would have until 24 February to appeal the decision.

 A spokesman for the Local Government Association said “Today’s ruling is good news for councils and the local services our communities rely on across the country.

“Councils, supported by the LGA, are pleased this common-sense decision will not see them having to pay NHS trusts and foundation trusts £1.5 billion in unfounded backdated business rates relief nor see them eligible for 80 per cent relief going forward.

“Business rates, alongside council tax, are an extremely important source of income for local government so this would have huge implications for residents and the vital local services they rely on.”

Analysis of government data by real estate adviser Altus Group ahead of the trial showed that NHS providers in England and Wales will pay £408m in business rates for 2019-20, a rise of £122m since a rates revaluation came into effect in 2017.

HSJ has contacted University Hospitals of Derby and Burton Foundation Trust for comment.