• Trusts required to submit business cases to regulator ahead of forming subsidiary companies, under new proposals
  • NHS Improvement launches one month consultation
  • NHS Providers said “clear set of rules” needed to provide clarity for trusts

NHS providers must submit a business case to show setting up a wholly owned subsidiary company yields value beyond VAT savings, under new proposals from NHS Improvement.

The regulator wants to make the creation of such companies a “reportable transaction”, which could lead to non-foundation trusts’ plans being blocked if their business plans fail to satisfy national chiefs.

It comes weeks after non-clinical staff at two trusts in York and East Kent went on strike in protest at being moved into subsidiary companies.

Workers at Bolton Foundation Trust also went on strike after rejecting a pay offer lower than the government’s agreed deal for Agenda for Change staff. 

Last month NHSI asked trusts to pause their plans to establish subsidiaries ahead of the consultation being launched.

Under Labour’s National Health Service Act 2006, FTs can set up subsidiaries to deliver several services such as healthcare, pharmacy, catering, estates management, and to generate income.

Non-FTs can only establish subsidiaries to generate income.

However, NHSI wants to tighten its scrutiny of subsidiaries amid accusations from unions and politicians that the companies are merely a tool to make savings from VAT and create a “two tier workforce”. 

Following the one month consultation, NHSI will update its “transactions guidance” and outline the process for “assuring that an NHS trust subsidiary proposal is income generating.

Under the new planned process, each business case will be reviewed by a group within NHSI, comprising experts in subjects such as estates, pharmacy, and pathology.

Trusts boards will then have to confirm that the business case creates value for the trust, which stretches beyond VAT savings, and why a subsidiary structure is preferred to other organisational forms.

The NHSI group may also decide a “full review” of the business case is required, in which case a different process starts which includes meetings with trust chiefs, before a final decision is taken.

Although it would be able to block plans from non-FTs, the regulator will not have the power to stop FTs from creating subsidiaries, even if it rejects their business case.

Ian Dalton, chief executive of NHSI, said: “This will allow us to understand the reasons behind their proposals, as well as the risks and how they intend to engage their staff.”

NHS Providers, the representative body for trusts, welcomed the consultation but warned it risked setting criteria which “place the bar too high for providers to justify the legitimate need for subsidiaries”, unless the approval approach is based on a “clear set of rules to provide clarity”.

Its chief executive, Chris Hopson, said subsidiaries can be an appropriate and legitimate response to meeting challenges such as “workforce, a severe funding squeeze, and bringing health and care services together”.