Trusts in the Mutuals in Health pathfinder scheme have concluded that legislation, tax regimes and a lack of staff support present major barriers to their becoming staff owned organisations.

  • Trusts involved in Mutuals in Health programme pinpoint legal barriers to full mutualisation
  • Some trusts back “FT plus” model to increase staff governance
  • VAT increases seen as a major hurdle to more employee ownership

However, four trusts participating in the Department of Health and Cabinet Office backed scheme have endorsed a reform of the foundation trust model – dubbed “FT plus” – as a means of achieving greater staff engagement.

Most of the seven pathfinder trusts (see box, below) said VAT would pose a significant obstacle to mutualisation. NHS providers are exempt from paying the tax on contracted out services, but health providers that “spin out” from the NHS would need to pay unless there is a change in the law.

University Hospitals of Leicester Trust, which aims to consider “whole trust mutualisation” in the long term, said that under current rules it would have to pay £19m in irrecoverable VAT every year.

The trust’s report said: “VAT and corporation tax significantly increases cost base for [creating a] whole trust mutual… UHL currently benefits from the preferential VAT treatment on contracted out services. This means that current service against which VAT is currently reclaimed will no longer attract this preferential treatment.”

Another pathfinder, Moorfields Eye Hospital FT, told HSJ that it would consider spinning out if changes in the law were made.

A trust spokeswoman said: “If some major barriers were addressed, including legal barriers that currently prevent NHS hospitals from spinning out of the NHS, and issues relating to VAT, corporation tax, pensions and borrowing, then becoming a mutual is something the trust would consider, [but] we would not consider such a move without staff support.”

The pathfinder trusts

The Mutuals in Health pathfinders are:

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

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

Four of the trusts backed the “FT plus” approach, which would require legal changes to the FT model aimed at empowering staff. These were:

  • Surrey and Sussex Healthcare Trust;
  • Liverpool Heart and Chest FT;
  • Oxleas FT; and
  • University Hospitals of Leicester Trust.

The report by Oxleas FT said: “A preferred model would be an evolution of the current FT structure, building from the proposed FT governance structures and increasing staff voice and engagement and accountability to patients.”

However, Liverpool Heart and Chest’s report said the model would require legislation to increase the number of staff governors on the council of governors, alongside changes in the way regulators intervene in organisations.

Staff concerns about job security were also highlighted in the trusts’ research as a barrier to mutualisation.

Liverpool Heart and Chest reported: “Staff and union representatives that have been engaged by the pathfinder organisations have generally been resistant to the idea of spinning out services into a public service mutual.

“Understandably they are concerned about job security and the terms and conditions of their employment. However, perhaps more importantly, it is because many do not see a pressing need for change.”

Matt Dykes, senior policy officer at the national union centre TUC, which alongside Unison has funded separate research by the campaign group False Economy into the pathfinder trusts’ findings, said: “The published reports to date tend to show that there’s not a huge appetite among NHS staff for these spin outs. We believe that any move towards mutualism has to be bottom-up.

“There’s clearly a lot that can be done in terms of improving employee engagement, but that’s just good management really. We still don’t understand why there needs to be a structural change to achieve good employee engagement.”

Each of the trusts that successfully applied to take part in the scheme had been given approximately £100,000 each by the DH and the Cabinet Office to investigate the options around increased staff ownership in their organisations.

A DH spokeswoman said: “The aim of the pathfinder programme is to explore the benefits and barriers of the mutual model and ways in which staff can engage in the work of their organisations to improve care for patients.”

A Cabinet Office spokesman added: “Mutuals are delivering high quality public services at lower costs to taxpayers. We already have 45 public service mutuals delivering community healthcare across the country, transforming the quality of patient care through a more engaged and empowered workforce.”