NHS regulator raises bar on creation of wholly owned subsidiaries

27 Nov 18

NHS Improvement guidance on wholly owned subsidiaries places “unwelcome extra administrative burden” on trusts, according to sector bodies.

The health regulator will now have the final say on whether subsidiary proposals can be implemented and has put forward a raft of measures that trusts must meet before setting up subsidiary companies.

It had been reviewing policy on wholly owned subsidiaries amid concerns that they do not represent value for money.

But NHS Providers’ said that the new guidance “sets the bar too high”.

Deputy chief executive Saffron Cordery said: “We are concerned that the level of detail and the steps outlined in the new review process go a long way beyond what is normally expected of trusts and what is required for other transactions and commercial activities.”

NHS Improvement published an addendum on subsidiaries on 23 November following a consultation. It requires trusts to submit business cases to an NHS Improvement review panel to receive a ‘traffic light’ rating.

Business cases with high financial risk will be rated ‘red’, while low-risk proposals will receive a ‘green’ rating.

Where a trust attempts to set up a subsidiary in the face of a poor risk rating, the regulator would “use its regulatory powers and step in,” an NHS Improvement spokesperson told PF.

“This framework strikes a balance between assuring us and respecting NHS freedoms and the ability of the NHS to innovate”.

But Cordery said the requirement for business cases “introduces an unwelcome extra administrative burden into the sector”. She added there was a “danger” trusts would scrap their subsidiary plans in favour of “less preferable alternatives”.

Wholly owned subsidiaries are private companies established and owned by NHS trusts and often used to provide facilities management and other support functions.

Unions have long claimed subsidiaries are a means of avoiding tax and cutting the pay and pensions of new staff, but supporters say they allow trusts to attract staff via adjustable terms and conditions.

Unison said the guidance was a good start but more needed to be done.

Sarah Gorton, Unison’s head of health, said: “While there is now a requirement for trusts to report any plans for subsidiary companies, the guidance fails to ensure such plans are truly transparent and made public from the outset.

“Unison will be making full use of this guidance in our scrutiny of any future trust plans to set up subsidiaries.”

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