NHS trusts told to stop using subsidiary firms to save money

NHS hospital trusts have been told to stop setting up private companies and transferring staff into them, a move that has provoked strong criticism from health unions and Labour.

NHS Improvement, which regulates the health service’s finances, has ordered England’s 240 trusts to “pause” controversial plans to create any more of the subsidiary companies.

Around 35 trusts have already set up a “subco”, and moved non-medical staff into them, or said they intend to do so. Unions have criticised the trend as a damaging move by trusts to save money which risked leading to a “two-tier” NHS workforce in which some staff were paid less than others, despite doing the same job.

NHS Improvement disclosed the surprise shift in policy in its latest weekly communication to trusts posted on its website. It said: “Please pause any current plans to create new subsidiaries or change existing subsidiaries.”

Growing numbers of NHS trusts – at least 16 so far – have been creating “subcos” in order to save money because, while health service provider trusts are liable for VAT, privately owned firms that supply services to the NHS are not.

“Saving money has been the sole motive for outsourcing jobs to private companies. Cash-strapped trusts have seen it as an opportunity for solving their financial woes. But they didn’t anticipate the outrage among staff, including porters, cleaners and those in catering, who want to stay in the NHS,” said Sara Gorton, head of health at Unison.

It is unclear how long the temporary halt in the rollout of such firms will last. But the regulator indicated that no more should be created until it has consulted on the issue next month and then drawn up new guidance.

The growing number of “subcos” has prompted angry opposition. Strikes are planned at both York university teaching hospital and East Kent hospitals university trusts in protest at their plans to establish one.

Last week Tees, Esk and Wear Valleys NHS foundation trust scrapped plans to transfer 600 of its staff into a private firm, which it would control, called Tees, Esk and Wear Valleys Estates FM Limited, after Unison threatened legal action to stop it.

And in July the Wrightington, Wigan and Leigh foundation trust abandoned plans to move 900 personnel into a new private firm called WWL Solutions.

Jonathan Ashworth, the shadow health secretary, hailed a “victory” against a policy he said made no sense for NHS trusts.

“These companies undermine national pay and terms and conditions in the NHS and create a two-tier workforce. Potentially thousands of NHS staff would see their jobs effectively privatised and their terms and conditions put at risk,” he said.

Colenzo Jarrett-Thorpe, a national officer for health at the union Unite, warned that the spread of subcos “could lead to a flood of dozens of Carillion-type situations across England”. Unite is urging HMRC to change the VAT rules to remove the incentive for NHS trusts to set up such outfits.