Written by Francesca Best, Ex Officio Member and MT18 Co-Chair.

There is a scandal in our Nation Health Service, and it’s not one that often grabs the front cover of The Guardian. It probably sounds boring. Most likely, you’ve never heard of it before. But the expansion of wholly owned subsidiary companies is a scandal in our NHS and it is a warning sign of where things are heading.

What is a Wholly Owned Subsidiary Company? According to the official jargon, these companies are an organisational and governance form that NHS providers can legally adopt to manage part of their organisation. Some claim that these companies are not new to the NHS; they are legal under legislation introduced in 2006 under the last Labour government. They allow the non-clinical staff that support NHS hospitals, like portering and catering staff, to be transferred from NHS Trusts into their subsidiary companies. These staff members remain in the same office or building doing the same job, but are now employed by the subsidiary. So what’s the problem? Well it starts with budget cuts.

NHS trusts are under massive financial pressures. Hence, it’s no surprise that they are looking for ways to reduce costs. Subsidiary companies provide savings in two ways: by saving on staffing costs and through VAT savings. Money can also be made for a trust that advises other NHS trusts to pursue the same path, which in part explains their rapid growth. Hundreds of thousands of taxpayers’ pounds are also being spent on professional advisors, such as lawyers and accountants.

Who loses out under these savings? Mostly staff. According to Unison, current NHS staff that are transferred over to these companies will retain their existing conditions, but those who join the subsidiary company at a later stage could face less favourable working terms. Changes to basic salaries and pensions, overtime rates and entitlements, annual leave, sick pay, maternity pay and antisocial hours payments can affect all new staff. And these changes aren’t just theoretical; new staff are already being enrolled in the government’s basic workplace pension scheme (the National Employment Savings Trust) rather than the NHS pension scheme. While NHS trusts put 14.8% of an employees earnings into their pension, subsidiary companies contribute only 3%. The creation of a two-tier NHS system is underway. Unite has previously warned that this “could create a Pandora’s box of dozens of Carillion-type meltdowns among NHS trusts in England.” Over recent months, these changes have led to non-clinical staff in York, East Kent and Greater Manchester going on strike to protest being transferred into subsidiary companies.

Now to the second half of the money saving: VAT. The VAT saved by trusts is not new money coming into the NHS, but instead, represent a loss to the Exchequer and therefore a further burden on public finance. The Department of Health has already warned these bodies against engaging in any activities that may be construed as tax avoidance. The financial conduct of these subsidiary companies is under less scrutiny than NHS services, creating an environment more susceptible to fraud and abuse. For instance, Arch, a Northumberland based local authority subsidiary, was found to have purchased it’s own chief executive’s house and paid for a taxi driver to be flown into France to ferry their delegates around.

Subsidiary companies fit into a bigger picture of what is happening to our NHS. There is no denying that wholly owned subsidiary companies leave services open to greater privatisation in the future. This is already happening at a rapid pace. Unite has stated that, over the past five years, more and more for-profit companies have won contracts for NHS services. In the 2016-17 period the total value of contracts awarded stood at £3.1 billion.

This isn’t a new problem; successive governments have wanted to distance themselves from NHS delivery. That has led to the creation of legally independent bodies (Foundation Trusts) that are now setting up these subsidiary companies. Contrary to the official NHS line, there is no evidence that these companies will improve efficiency or productivity in the NHS. They exploit a tax loophole and seek to exploit the future workforce. Wholly owned subsidiary companies are opening the front door to privatisation and it is up to Labour to shut it.

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