In recent years there has been a rise in the number of spin-off companies within the NHS, which can be described as a form of back-door privatisation.
There have been a growing number of reports of cash-strapped hospital trusts announcing plans to develop private companies to employ non-clinical staff.
Many of these trusts are going ahead with their plans despite considerable opposition from employees and unions. In August 2018, NHS Improvement announced a consultation of the process, which resulted in a decision in November 2018 to use its powers to have greater control over a decision to form a company.
Why is it happening?
Trusts have been enthusiastic about this approach as a way to save money and reduce deficits. There are two ways money can be saved:
- through the VAT system - a private company working for the NHS is covered by different tax rules and can claim back any VAT it is charged from the Government;
- and, by changing the pay and conditions of staff - the companies will not be obliged to employ new staff on NHS pay and conditions but will instead be able to offer very much worse terms of employment.
In August 2018, NHS Improvement waded into the arena and announced a consultation over the setting up of subsidiary companies by foundation trusts, in particular. In November 2018, NHS Improvement announced that NHSI would have to look-over a business case for the formation of a subsidiary company and then decide whether to give approval; NHSI could stop a subsidiary company being formed if it thinks it is a risky plan.
Long-term protection removed for lowest paid staff
The staff involved in these new companies include porters, administration staff, catering and maintenance staff, already some of the lowest paid in the NHS.
Unison has highlighted several drawbacks for staff in these new companies: long-term protection of pay and pensions for those transferring to new companies is weak, plus new staff will be employed on less favourable contracts with no access to the NHS Pension Scheme.
Unison also notes that it has an impact on staff that transfer: "all it takes is one change to the way the company operates and existing staff could find themselves at risk too. And once such companies have been set up it is far easier for trusts to transfer other non-clinical staff and services in future."
In an article in The Guardian, Sara Gorton, Unison's head of health, said: “There’s a worrying rash of NHS trust-owned subsidiary companies spreading across England. This outsourcing by stealth throws up huge concerns. Most significantly it creates a two-tier workforce, where new staff are far worse off in terms of wages, sick pay and pensions… It is nonsense that there is an active tax incentive for organisations to treat staff in administrative and support functions as second class employees.”
Subsidiaries might not reduce deficits
The accounts of some of these subsidiary companies throw into question whether the setting up of a subsidiary company is actually a valid response to reduce a deficit. A look at King’s College Hospital Trust and its subsidiary KFM, reveals just how complicated and even absurd the whole situation can become between a trust and its subsidiary. In 2017/2018 King’s College Hospital Trust had one of the largest deficits reported of £132 million and in 2018/2019 it was expected to rise to £146 million. In 2016 it set up the wholly-owned subsidiary company KFM and transferred around 60 employees.
Details from King’s College Hospital Trust accounts for 2017/2018 reveal that it recorded nearly £10 million in income from KFM. The income was from the sale of equipment to KFM, including scanners, however, the £9.9 million KFM used to buy the equipment was obtained via a loan from King’s College Hospital Trust, itself.
KFM only has contracts with the trust and charges the trust £97 million a year for these services. KFM also charges the trust for use of the equipment that it has just bought off the trust. Furthermore, KFM is financially dependent on the trust, with King’s College Hospital Trust having agreed to a “revolving loan facility” with KFM of £30 million. This is due to be repaid in full in March 2027 and interest is paid at the Bank of England base rate plus 2%.
Accountability and conflict of interest issues
The KFM/King’s College Hospital trust situation also highlights issues around accountability and conflict of interest with the subsidiary companies; until recently several board members of KFM were also finance directors of the trust.
In February 2018, the HSJ reported that a director of Essentia, spun-off from Guy's and St Thomas' FT in 2013, had a “clear potential conflict of interest” as the director was also its estates director.
Many providers already have subsidiaries
In February 2018, research conducted by the HSJ found more than 3,000 estates and facilities staff are already employed by eight subsidiaries set-up and owned by trusts. The majority have been transferred from the parent trust. The journalists also found that trusts had plans that could see a further 8,000 transfer to subsidiaries.
In total, HSJ's analysis identified 19 providers that have already set-up a subsidiary company to manage their estate, plus another 16 that have told staff they are considering the move. Since then, some trusts have abandoned plans and others have gone ahead. An updated list of subsidiaries can be found here.
Companies formed under the radar
These companies have been developing under the radar for some time now; Guy's and St Thomas' FT spun out the company Essentia in 2013 to run its estates and facilities, Gateshead Healthcare NHS Trust set up QE Facilities in April 2014 and Northumberland, Tyne & Wear (NTW) NHS Foundation Trust's NTW Solutions was incorporated in November 2016, according to Companies House.
Other companies set up some time ago include NTW Solutions Ltd set up by Northumberland, Tyne & Wear Foundation Trust in April 2017, with around 530 staff; Barnsley Hospital NHS Trust Barnsley Facilities Ltd, set up on 1 September 2017 to incorporate its staff in the areas of procurement, estates, facilities, security and resilience and health, safety and fire services; and AGH Solutions Ltd, set-up in February 2018 by Airedale NHS Foundation Trust to cover many services at Keighley Hospital.
More recent attempts at setting up spin-off companies have attracted opposition from staff and unions. In some cases, successful campaigns have led to a change of heart by the hospital trust, in others, the trusts have gone ahead despite opposition.
Frimley Health Foundation Trust halts plans
In November 2019, plans for around 1,000 support staff at Frimley Health Foundation Trust’s three hospitals – Frimley Park, Heatherwood and Wexham Park – to be transferred out of the NHS into a new wholly-owned subsidiary (WOS) were halted by the threat of a planned coordinated 48-hour strike by all three major unions.
An agreement was secured over the weekend by UNISON, which represents the majority of porters, security guards, cleaners and catering staff employed by the Trust. The Trust gave a commitment not to continue with its existing plans while other options are pursued, including possible ways to keep the staff employed within the NHS. In view of this UNISON agreed to take no further action for the time being.
The other two unions, Unite, with 90 of its members at the Trust working in estates’ management, equipment maintenance, catering, portering, procurement and security having voted 92% for strike action, and the GMB which had “drawn a line in the sand” against the plans, went ahead with their action and public protests on November 18-19.
Bradford Teaching Hospitals FT
In August 2019, the staff at Bradford Teaching Hospitals Foundation Trusts went on strike for two weeks in a campaign against the transfer of around 300 staff to a subsidiary on 1 October 2019, known as Bradford Healthcare Facilities Management Ltd. The action began in July 2019, with a week of industrial action from support staff, including porters, security and catering staff. In late August, the union, Unison, called off the planned indefinite strike, following constructive talks with the hospital's management. The transfer of staff was postponed until February 2020, then in November 2019 Mel Pickup, the new chief executive at Bradford Teaching Hospitals Foundation Trust, confirmed that the FT would not go ahead with plans to establish a subsidiary.
East Kent Hospitals University Foundation Trust
The trust established a wholly-owned subsidiary, 2gether Support Solutions Limited, as a property facilities management company in May 2018. The subsidiary started trading on 1 August 2018 providing ancillary services (including cleaning, portering and catering). The subsidiary has about 920 employees.
No staff consultation at Yeovil Hospital
At Yeovil District Hospital, the decision was made in 2017 to set-up a spin-off company to employ 360 support staff; the company, known as Simply Serve, was set up in July 2017. A month-long consultation process was reported to have taken place, with a final decision taken at a meeting on 20 December 2017.
A Unison representative reported that they were not allowed to speak at the December meeting and Unison has reported that the hospital board has refused to consult with staff representatives. The hospital management says that the new company will "mirror" NHS terms and conditions, including pay settlements, for a minimum of five years. The 360 support staff were transferred to Simply Serve on 1 February 2018.
Gloucestershire goes ahead despite opposition
In October 2017, Gloucestershire Hospitals NHS Foundation Trust announced plans to create a new subsidiary company to deal with non-clinical support staff as part of a plan to deal with its £47 million maintenance backlog. This would involve an estimated 900 hospital staff in Gloucestershire being transferred to a separate commercial company.
The trust is in financial special measures and needed to reduce an annual budget deficit of more than £14 million. The trust believes that the new company would save around £35 million over ten years, through "improved utilisation, better performance management and VAT recovery."
A campaign took place in Gloucestershire against the trust's plans for the transfer of around 750 staff; this was dealt a blow in March 2018 when the board of the trust confirmed that staff would be transferred 1 April 2018. Unison, Unite the Union and the Royal College of Nursing issued a joint statement noting that "the Board of the Trust has ignored the views of the 900 staff who signed the petition specifically opposing the plan, and the fifteen-page consultation response which was submitted by all three unions outlining in detail the reasons for our opposition."
Subsidiary goes ahead in York despite strike action
Plans to set up a subsidiary at the York Teaching Hospitals Trust met opposition from unions. In September 2018, Unite staff at the Trust announced a strike for 48 hours from 27 to 29 September 2018; 92% of almost 200 members voting in favour of strike action over the trust’s plan to create a subsidiary company. York University Hospitals Trust, however, went ahead with setting up a limited liability partnership between York Teaching Hospitals Foundation Trust and Northumbria Healthcare Facilities Management Ltd, known as York Teaching Hospitals Facilities Management LLP. This began operating in October 2018 and now has around 710 staff, most transferred from the foundation trust.
Wrightington, Wigan & Leigh plans halted
The Wrightington, Wigan & Leigh NHS Foundation Trust planned to move 900 staff in estates and facilities, including porters, cleaners, caterers, transport workers and switchboard operators, to the new subsidiary firm, WWL Solutions.
Opposition to the move was substantial, including the unions, MPs and councillors. A strike of those affected by the move began the morning of 27 June 2018 and continued for five days.
Despite the industrial action, the board made the decision to go ahead with the subsidiary company on the afternoon of 27 June 2018. However, Wigan council intervened and brokered a deal, whereby an increase in investment of £2 million by the council in social care would reduce the demands on the hospital trust. The hospital trust then agreed to reverse its plans for the subsidiary company.
Royal United Bath puts the idea on hold
In Bath, the Royal United Bath Hospital Trust was investigating setting up a subsidiary company that would be wholly owned by the Royal United Hospitals Bath NHS Foundation Trust to employ about 500 of its support staff such as porters, catering staff, administration staff and tradespeople. In this case, the trust in Bath is reported to be currently engaging with staff over the plans. In March 2018, Unison reported that the idea was on hold.
Idea abandoned in Bristol
In January 2018, Southmead Hospital in Bristol part of North Bristol Trust announced that it was considering setting up a spin-off company to employ the non-clinical staff in the hospital trust in an effort to save money. However, following a campaign by the unions and other campaign groups, plus a backlash from the staff themselves, the trust has dropped the plans.
Staff, unions and politicians were very concerned about the plans. Workers at Southmead Hospital told the Bristol Post “the move would be ‘NHS privatisation by the back door’,” and Bristol South MP Karin Smyth, told the paper that “taking the jobs outside the NHS would mean people working at the hospital would end up being paid less with worse conditions.”
The plans in Bristol would have affected all non-clinical staff currently employed by the North Bristol NHS Trust, which includes Southmead hospital. The board had reportedly paid £12,000 for a feasibility study.