Subsidiary companies (Sub Co), spun off from the NHS, are back in favour as part of the effort to save money in the NHS. Sir Jim MacKey, NHS England’s transition CEO, told a recent meeting of health leaders that all NHS trusts should transfer support staff to wholly-owned subsidiary companies to reduce costs.
Sources told HSJ that the government wanted faster productivity improvement in the NHS, which is now more pressing due to increased defence spending and the global economic environment.
What are SubCos, and how do they work?
Often referred to as ‘back-door privatisation,’ Sub-Cos came to prominence from 2013 to 2017, when a flurry of these companies was set up by NHS trusts enthusiastic about this approach to saving money and reducing deficits.
This approach can save a trust money in two ways: through the VAT system, as 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, as the companies will not be obliged to employ new staff on NHS pay and conditions but will instead be able to offer much worse terms of employment, including reduced pension contributions.
When Sub Cos emerged, the trusts faced vehement opposition from employees and unions. They warned that long-term protection of pay and pensions for those transferring to new companies was weak, and it was possible to employ new staff on less favourable contracts without access to the NHS Pension Scheme.
Negative impact and opposition
At the time, Unison highlighted these drawbacks for staff in these new companies, many of whom were already among the lowest paid in the NHS, including porters, administration staff, catering staff, and maintenance staff.
Unison also noted that it impacts staff who 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 the future.”
An investigation of Sub Cos by HSJ in 2023 showed that the unions’ fears had been valid. The investigation found that trusts regularly denied staff employed by their wholly owned subsidiary companies access to the NHS pension and provided them with significantly less generous schemes. Thousands of Sub-Co staff are enrolled into schemes to which employers contribute as little as 3% of their salary; the NHS pension has an employer contribution of just over 20%. The NHS pension offers an index-linked pension related to average career earnings, whereas many Sub-Co schemes depend on investment returns.
It wasn’t just the pensions that were worse. The investigation found that some trusts were paying SubCo staff less than the lowest Agenda for Change rate. Other payments were also lower, including uplift payments for unsocial hours at evenings and weekends and maternity and sick pay rates than those enjoyed by directly employed NHS staff.
Opposition from unions, including strike action, successfully led to plans for several schemes for SubCos being scrapped, including schemes for subsidiaries in Frimley and Bradford. But many went ahead despite opposition.
Changes to the trusts’ guidance in November 2018 meant that all proposals for subsidiary companies from NHS trusts and foundation trusts had to be reviewed by NHS Improvement (now NHS England) and assessed for viability, dampening the trusts’ enthusiasm for setting them up. This hurdle has been reduced considerably, however, by a change in guidance in February 2024, which is much more hands-off and means that not all plans have to be reviewed by and given the go-ahead by NHS England.
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