Are cash-strapped hospitals walking into a trap that could cost the NHS its family silver?


Dozens of hospital trusts across the country are looking at (or already have) set up private companies in which to transfer swathes of vital NHS staff and assets. The moves are supposedly to save money through a supposed VAT loophole designed to promote outsourcing, as well as on staff pay. They are also – an aspect overlooked in the coverage to date – supposed to promote a greater focus on “commercialising” hospital assets. More of that in a bit…

“By the time people realise it’s been a catastrophe, it will be too late to undo”

Unions and staff are up in arms about the damaging impact of these subsidiary companies in creating a two tier, demoralised workforce whose goodwill and co-operation our doctors and nurses rely on every day to keep hospitals clean, safe, and well-equipped. In Wigan, Harrogate, Bradford, and Calderdale, Unison members are already close to strike action after union ballots overwhelmingly rejected the plans. Gloucestershire – where around 700 staff are affected – is also about to run an indicative ballot, Unison announced at an NHS activists conference in the county on Saturday.

Some hospital governors are deeply unhappy too – one in Gloucestershire told OurNHS, “by the time people realise it’s been a catastrophe, it will be too late to undo.”

There’s been no public consultation about any of the plans to create private NHS subsidiary companies (known as SubCo’s), it seems. In Gloucestershire, Hospital Chief Executive Deborah Lee told Stroud Labour MP David Drew that “this is not a matter for public consultation as agreed with the Gloucestershire Health Care Overview & Scrutiny Committee (HCOSC)”. However Stroud Council leader Doina Cornell, who sits on the county’s Scrutiny Committee, told OurNHS, “We’ve not been consulted. There’s been a lack of input into it from any councillors.” OurNHS asked Gloucestershire Hospitals about this apparent discrepancy – and about a number of other points in this article. They have so far declined to comment.

Cornell adds “Surely this is not the sort of thing we should be doing…. this is a high-risk project.”

“…a gambit, a pretence, an illusion and make believe…

Indeed it is high risk. Whilst staff understandably worry about pay, pensions and conditions cuts – and unions argue that any guarantees from employers are worth little given weak employment law and their stated intent to take on new starters on lower conditions – for the public, it gets more worrying still.

Many experts suspect the plans could collapse altogether, with the corporates waiting in the wings of course. Respected health commentator Roy Lilley has called the SubCo plans “a gambit, a pretence, an illusion and make believe” and on the same subject comments, “an astonishing number of Trusts are heading down Carillion Street”.

Certainly, it’s worrying that many of the SubCo plans seem to emphasise this VAT “gambit”. Gloucestershire, for example, told staff it would save £35m over 10 years (whilst the staff savings were merely “unquantifiable”) through this ruse. But the biggest similar scheme to date, UnitingCare in Cambridgeshire, collapsed spectacularly – and one of the major reasons (according to both NHS England and the National Audit Office reports) was because they signed the contract on the basis of incorrect advice about their VAT position, meaning an unexpected £5m a year was added to their costs and the arrangement collapsed.

Selling off the hospital buildings?

And – perhaps most worryingly of all – now OurNHS openDemocracy has uncovered considerable grounds for concern about what is happening to hospital buildings around the country as part of these plans. We’ve also uncovered a little noted aspect of the Health and Social Care Act 2012 that might partly explain the rush to these new schemes.

In existing SubCo’s, tens of millions of pounds of assets appear to have transferred out of the NHS. In Northumberland, Tyne and Wear for example, one of the few SubCo’s where the business case is publicly available, the plan states that £33.5m of land and buildings will be transferred from the NHS to the SubCo. But in most of the plans about to be signed off in the coming weeks and months staff appear to have been given little more than hints of asset transfer (often highly self-contradictory, see for example Gloucestershire’s leaked staff Q&A, and Airedale’s (which they’ve taken down in the last few days, but you can read the cached link here).

Neither staff or public appear to be being told anything about what hospital buildings are involved, and what this means. Whether or not asset transfers are key to the supposed VAT savings in Gloucestershire and elsewhere is one of the unanswered questions. Some of the other SubCo’s appear to anticipate noVAT savings, according to the Health Services Journal (paywall). Meanwhile, other established SubCo’s – notably Warwick and East Kent – have been set up to provide clinics and wards for private patients, OurNHS has uncovered. What is going on?

The concerns about hospital buildings come in the light of huge pressure on Trusts to sell off or commercialise parts of their estate, under both the Carter Review and the Naylor report that Theresa May endorsed last year. Those hawking schemes to encourage sell offs are impatient with the NHS holding on to their assets “like the family silver” and preventing housing developers or rival private health companies getting their hands on these ‘strategic locations’. And all the plans – as elsewhere – are clear on one thing – that there will be “new people” with “commercial expertise” running the SubCo’s – perhaps with a different attitude to the family silver?

Tax expert Richard Murphy echoes campaigners’ suspicions. Reviewing the Northumberland, Tyne and Wear SubCo business case, he told OurNHS “”Reading between the lines as to the true motive of this arrangement, it looks like a precursor to the sale to commercial third parties of the underlying buildings and the service contracts associated with them”. Whether this is the intention – or an unintended consequence, particularly the financial models don’t otherwise stack up – remains to be seen.

Sneaky legal changes post-2016?

OurNHS has also uncovered that a little spotted legal change seems to be driving the rush to the SubCo model of estates management. In an article written in May 2017 by SubCo advisors DAC Beachcroft (who are advising Gloucestershire amongst others), the solicitors firm describes how “the foundation trust sets up a wholly-owned subsidiary company. The estates workforce works for the company” but they go on to explain that “the outsourcing involves transferring the estate across into a wholly-owned subsidiary company.” And intriguingly, they add “These are only now possible because of recent changes in legislation that have enabled NHS foundation trusts to transfer their legal rights in operational property”.

What “recent changes in legislation” is this? OurNHS has spoken to top NHS campaigning solicitors who are unsure but have suggested it may be a change that follows on from the controversial Health and Social Care Act 2012. One little noted aspect of the Act made it easier for the NHS Foundation Trusts to sell off assets, even where those were previously protected because they were used to provide essential healthcare services (known as “Commissioner Requested Services”). There were some transitional arrangements to protect these services and the buildings used to provide them, following the 2012 Act –but these arrangements ran out in April 2016.

And certainly, the government’s attitude to these SubCo wheezes seems a little slippery. On the one hand, the government’s “NHS Providers Finance Director” Chris Young wrote an apparently strongly worded letter to Trusts last September (and seen by OurNHS), which stated that “HMRC are actively investigating the health sector in relation to tax avoidance schemes” – though perhaps with a chink of a get out clause about such schemes being “acceptable” if there are also “genuine commercial reasons”. Meanwhile numerous parliamentary questions about the SubCo’s have been met with bland indifference from ministers. Whilst some – like Labour’s health spokesman in the Lords, Phil Hunt – have suggested ministers’ relaxed demeanour means any tax savings are likely to be clawed back from the overall NHS budget, NHS insiders have also told OurNHS that their strong impression is the main NHS regulator (NHS Improvement) is quietly promoting these schemes.

So what can campaigners do?

In Gloucestershire, experienced NHS campaigners – who 6 years ago took NHS Gloucestershire to Judicial Review and reversed the planned transfer of nine local hospitals and 4000 staff to a so-called “social enterprise” company – have written today (letter here) to the local Hospital Board of Directors, who are due to agree the project on Wednesday (28 February), raising detailed questions regarding all the above issues. The campaigners warn the directors that the Trust risks being negligent with public money and assets if they rubber stamp the plan before they have clear answers to all these questions – which, campaigners point out, should be shared with the public.

So what can Trusts do?

It’s not good enough for Trusts to rely on unpublished advice from the likes of DAC Beachcroft and KPMG. Gloucestershire for example has set aside £200,000 for this advice, OurNHS has learned. And let’s not forget KPMG’s role in Carillion – a role which prompted Peter Kyle MP to tell them last week in a parliamentary Carillion investigation, “I wouldn’t trust you to do an audit of the contents of my fridge”.

Nor does it seem wise for other the twenty or so Trusts who are relying on advice from QE Facilities Ltd, a SubCo created by Queen Elizabeth Gateshead NHS Foundation Trust. As Unison’s Michael Sweetman drily told OurNHS, “they are selling this deal on the basis that they’ve found it very lucrative – for them – but it’s lucrative for them partly because they’re going around selling their consultancy on how to do it, back to other parts of the NHS.” (Did anyone say “pyramid scheme”?).

Of course Trusts are in impossible financial positions, with soaring waiting lists and problems compounded by heavy fines levied if they miss targets, and – as exposed by last week’s File on Four – an absurd government fixation on capital controls as hospitals crumbleGloucestershire is in the same financial black hole as most Trusts – and also in special measures following a recent huge accounting cock-up.

Trust Chief Executives have even taken to Twitter to defend their adoption of SubCo’s models, for example Sarah Jane Marsh, CEO of the Birmingham Women and Children’s Hospital Foundation Trust who also have a SubCo due to go live next month, commented earlier this month “It’s a real head/heart issue – but the reality is if we don’t, we will have to reduce further posts as our CIP [Cost Improvement Plan] for 18/19 is £17 million.”

But it’s not good enough for Trusts developing these plans to attempt highly risky ways to wriggle out of these constraints, remaining tight-lipped about what they could really mean. It’s not good enough for Trusts to hope that no-one’s going to weep for the procurement teams, estates managers, cleaners, safety staff and the other workers who keep the NHS show on the road – and ignore vital questions about the hospital buildings and financial models, the quality of the advice they’re getting, and the loss of accountability and control these plans entail. Given the secrecy around these models, it’s particularly unhelpful when Trust Chief Executives then blame “irresponsible” unions for causing staff anxiety with “political” opposition, as Gloucestershire’s Chief Executive Deborah Lee was spotted on camera doing last week.

Instead, all Trust CEOs should be being as outspoken about the government’s failure to fund the NHS as a few brave ones have been – and as honest about the obscure tricks the government is using to push ever more outsourcing, even as the failures of Carillion, Grenfell and PFI come home to roost.

OurNHS openDemocracy will keep investigating. Whatever the intent of Trust directors, the reality is they tend to move on to pastures new within a few years – only one of Gloucestershire’s current directors has been there for any length of time, for example.

Meanwhile local people, currently frozen out of decision making, may be left in a few years wondering how our precious hospitals were sold from out under our feet.

First published on the Our NHS website