• Government must “level the playing field” for mutuals that wish to provide acute services, says DH sponsored review
  • Seven hospital trusts that piloted increased staff ownership found barriers to mutualisation including VAT and corporation tax liabilities
  • Estimated productivity savings dwarfed by £20m VAT payments

The government should “level the playing field” for mutual organisations that want to provide acute services alongside trusts and foundation trusts, a Department of Health sponsored study has said.

A panel of senior policy figures, which supervised a pilot project which saw seven acute providers explore the benefits and challenges of becoming staff owned mutuals, has urged the government to explore options to remove barriers to staff ownership, including VAT liabilities.

The Mutuals in Health pathfinder initiative, jointly sponsored by the Department of Health and the Cabinet Office, concluded that there is “little prospect” of a large trust adopting the mutual model unless major technical barriers are addressed.

Under current legislation, independent providers of healthcare cannot reclaim VAT on contracted out services. Unlike trusts and FTs, they must also pay corporation tax.

The panel, which included King’s Fund chief executive Professor Chris Ham, DH deputy director Claire Stoneham, and NHS England director of commissioning support strategy Bob Ricketts, said: “The pathfinder programme has made clear that there is little prospect of a large trust or foundation trust adopting the mutual model unless the major technical barriers identified in this report are addressed.

“Her Majesty’s government should explore the steps required to level the playing field for mutuals by minimising the impact of those barriers, in particular: VAT, corporation tax, access to capital and the use and ownership of assets.”

It added: “[The] government should establish a clear and robust national policy position on mutuals within health and care, and take steps to ensure this is communicated effectively across the system.”

Each provider that signed up to become part of the pathfinders programme was allocated a share of a £1m pot to procure consultancy services to help run their pilot schemes.

The pathfinder sites

  • Cheshire and Wirral Partnership Foundation Trust
  • Liverpool Heart and Chest Hospital Foundation Trust
  • Moorfields Eye Hospital Foundation Trust
  • Oxleas Foundation Trust
  • Surrey and Sussex Healthcare Trust
  • Tameside Hospital Foundation Trust
  • University Hospitals of Leicester Trust

Norfolk and Norwich University Hospitals FT, and Norfolk and Suffolk FT withdrew earlier this year

The providers concluded that a mutual model could bring about productivity savings through a decrease in agency staff, reductions in staff sickness and a decrease in error rates.

The panel’s final report, published last week, said these savings could amount to between £500,000 and £9.1m per trust.

However, the savings figures were not broken down by trust, nor did they show how much the savings could be worth as a proportion of a trust’s turnover.

The pathfinder sites’ cost-benefit analyses also found that any productivity savings would be outweighed by increased VAT liabilities that would emerge from spinning out of the NHS.

The report said: “Pathfinders quoted figures of up to £20m as the possible VAT liability they would face should they spin out of the NHS as a mutual organisation.”

Across almost all the organisations staff raised concerns about any potential departure from NHS terms and conditions, and fears that winning contracts would be much harder as a non-NHS body, the panel said.

The report said: “It is also worth noting that continued access to the NHS pension scheme was seen as absolutely vital, and therefore it would be essential to maintain the current regulations that allow for this.”

The panel also included:

  • John Lewis Partnership chair Sir Charlie Mayfield;
  • Ralph Coulbeck, director of strategy at the NHS Trust Development Authority;
  • Monitor’s director for independent provider Richard Peden;
  • Bromley Healthcare chief executive Jonathan Lewis; and
  • Tim Decamp, head of the mutuals programme at the Cabinet Office.