PARLIAMENTARY DEBATE
NHS Wholly Owned Subsidiary Companies - 6 March 2018 (Commons/Westminster Hall)

I beg to move,

That this House has considered wholly-owned subsidiary companies in the NHS.

It is a pleasure to serve under your chairmanship, Mr Hollobone. I am glad to have secured this albeit brief debate on the issue of NHS wholly owned subsidiaries, and this fairly recent but rapidly developing situation spreading across the NHS. What are these companies? They are organisations set up by NHS trusts as subsidiary companies to the trust, into which a range of NHS facilities management staff are transferred. When I say facilities management staff, I mean all the porters, cleaners, catering staff, estates and maintenance staff, and others who keep our hospitals going. Those staff are an essential part of the NHS.

York Teaching Hospital is about to enter into an alternative management company for the facility staff there. Those are staff that want to work for the NHS, not least because they get the benefit of NHS terms and conditions and pensions. Does my hon. Friend agree that the loopholes in the taxation of the NHS need to be addressed so that those people can remain working for the NHS?

I most certainly do agree with my hon. Friend. We know that NHS trusts are under incredible financial pressure and are looking for ways to stretch the available funds. Some trusts have seen wholly owned subsidiaries as a way of reducing costs. Those trusts include the Gateshead Health NHS Foundation Trust, which provides excellent hospital services to many of my constituents.

The cost savings come about in two main ways: through saving VAT and by saving on staffing costs. For some, there may be a third area of income—advising other NHS trusts on going down the same path, which is one of the reasons why they are spreading across the country. In November 2017, the then Health Minister, the hon. Member for Ludlow (Mr Dunne), stated that:

“NHS Improvement is aware of 39 subsidiaries consolidated within the accounts of foundation trusts”—[Official Report, 14 November 2017; Vol. 631, c. 129.]

We know that more are being created even now.

The issue of pensions is very much at the forefront of the minds of myself and others in this House. Does the hon. Lady agree that it is essential that staff working through the front door of the NHS or the back door of the wholly owned subsidiary company must be entitled to retain their NHS pension? Any attack on the pension scheme must be wholly rejected and the trusts must all be made to understand the position on pensions when these types of actions are taking place.

I most certainly do agree, not just for pensions but also for terms and conditions.

What is the problem with these companies? First, it is that they come at a price, which for the most part is met by the staff who work for them. Secondly, the VAT saved by trusts with these companies is not new money coming into the NHS—the money that trusts save will be lost elsewhere in public services. Already, the Department of Health and Social Care has reminded trusts by letter that they should not engage in any activities that may be construed as tax avoidance, and the loophole could be closed in the future. Thirdly, the establishment of wholly owned subsidiaries leaves the services open to privatisation in the future, continuing the fragmentation of our NHS.

The North Tees and Hartlepool NHS trust set up a limited liability partnership last week. Even according to its own published material, it provides no guarantee of job protection beyond a few months and will create a situation with different employees on very different terms and conditions. Is this not all about Government cuts? Does my hon. Friend not agree that we could see even more staff transferred into this sort of arrangement in order to meet the Government’s cuts agenda?

I most certainly do agree. I think this is the start of a very worrying process, not just for facilities management stuff but potentially for other staff.

My hon. Friend is being very generous in taking interventions. Unite points out that over the past five years, more for-profit companies have won contracts to run NHS services, with the total value of contracts awarded in 2016-17 standing at a staggering £3.1 billion. Does my hon. Friend agree that the Government must compel Her Majesty’s Revenue and Customs to close this tax loophole, so that NHS trusts are not forced to consider outsourcing NHS services?

I most certainly agree that the issue is a dangerous one that needs to be looked at, and it is a very worrying one because, whatever happens, the staff who have transferred are in a very difficult position.

In the longer term, the establishment of the wholly owned subsidiaries leaves services open to privatisation in the future, continuing the fragmentation of our NHS, which is not in the long-term interests of all who use the NHS. There is no evidence that the plans will improve efficiency or productivity in the NHS. They exploit a tax loophole and seek to exploit the future workforce.

The hon. Lady and her colleagues are right to highlight the fact that the financial pressure on the NHS is the main driver for this situation. Does she agree that it is very difficult in some services to differentiate between administrators and back-office services, and frontline services? Sometimes, administrators and back-office workers are embedded in clinical teams, and this actually worsens fragmentation and makes it much more difficult to deliver high-quality patient care.

The hon. Gentleman makes an excellent point. NHS staff, whatever their job, are all part of a team that delivers a service, and they all work together. For example, the catering and cleaning staff who looked after my mum’s hospital ward when she was in hospital recently were also a part of the NHS caring process. I think that is a really important point.

One of the major problems with the creation of these wholly owned companies is that they lead to a two-tier workforce in which often the lowest paid staff, such as domestics and security guards, are on worse terms and conditions than other staff. Does my hon. Friend agree that that represents a race to the bottom and is not just bad for those moved over to the new companies but bad for the NHS overall?

I most certainly do agree, and I will expand on that point shortly.

I want to speak about the impact on staff—some of the same staff we have all been praising in recent days for turning up to work in the snow and coping when we have the only too frequent crises. They are an integral part of the NHS team, as the hon. Member for Central Suffolk and North Ipswich (Dr Poulter) said, making it possible for nursing and medical staff and other allied health professionals to do their bit in caring for patients.

On transfer to a wholly owned subsidiary company, staff already employed by the trust will be transferred on their existing terms and conditions. That is, on “Agenda for Change” terms and conditions and pay rates, negotiated nationally and checked to ensure equal pay for work of equal value. They will retain their membership of the NHS pension scheme and a set of decent terms and conditions applying to all NHS staff. The main way that trusts can make savings through these companies is by employing new staff on different, and worse, terms and conditions.

On the point made by my hon. Friend the Member for Stockton North (Alex Cunningham) about North Tees and Hartlepool Solutions, as the LLP is called, does my hon. Friend agree that its immediate intention to introduce worse terms for new starters sets a dangerous precedent?

I very much agree. It is a very dangerous precedent that does not respect the rights of those staff.

Further to that point, is my hon. Friend aware that the question and answer document produced by the North Tees and Hartlepool NHS Foundation Trust says that NHS staff transferred into the new company can expect a pay rise this year, but nothing is guaranteed in the future? They are already seeing their future conditions eroded, unless the new company awards them the pay rise they will get under the current system.

That is absolutely correct, and I have raised with my local trust the potential move away from NHS pay rises.

The main way trusts can make savings is by employing the new staff on worse terms and conditions, which means lower pay rates, less holiday, inferior sickness schemes and no access to the NHS pension scheme. As colleagues said, even transferred staff may be moved on to the worse terms and conditions over time. Trusts are doing that to the lowest-paid workers, who are essential to keeping our hospitals going.

Does my hon. Friend agree that doctors and clinicians should prescribe only medicines that have a strong evidence base and have been shown to be effective in trials? On that basis, does she agree that wholly owned subsidiaries for the treatment of illness would be ineffective?

I certainly agree that this is the wrong medicine for the NHS’s problems, which, as hon. Members said, derive from the pressure on NHS finances and the underfunding of the NHS.

The last time there was a segmentation of facilities management, we saw the rise of MRSA and other communicable diseases, so the evidence shows that this is a bad move.

That is a very valid point, and it must be considered carefully.

We are creating divisions between staff in the facilities management companies and other NHS staff by introducing a two-tier workforce, which health service unions such as Unison—my union—have worked hard to move away from. The setting up of these wholly owned subsidiaries is a retrograde step. It insults and undervalues the staff who do essential but less visible jobs in the NHS. It deprives them of the pension scheme that their colleagues have access to and exposes trusts to equal pay claims. Equally important, it risks breaking up our NHS—perhaps not today, but in the near future.

I have been looking at the health press in preparing for this debate, and I have seen that there are plenty of companies out there willing to advise on setting up NHS subsidiary companies and look at the benefits of such companies. There are no such advantages. There is no reason why NHS staff working together cannot produce a better NHS. Indeed, they are doing so all over the country. We need to stop this trend of establishing wholly owned subsidiaries in the NHS. We must respect all our hospital staff and prevent the fragmentation and privatisation of our NHS.

It is a pleasure to serve under your chairmanship, as always, Mr Hollobone. It is also good to see a number of Members from across the House in the Chamber to debate this important issue. I congratulate the hon. Member for Blaydon (Liz Twist) on securing this debate. I am pleased to be able to join her in discussing an issue that is of concern and interest to many in the House.

I understand that Gateshead Health NHS Foundation Trust established its wholly owned subsidiary company, QE Facilities, in 2014 to provide estates, building and engineering services to the trust and cleaning services to the new emergency care centre building. QE Facilities is a separate legal entity, which operates along commercial lines. It has separate governance arrangements and the ability to employ its own staff and deliver services to other organisations on a commercial basis. As the hon. Lady said, a number of staff from the Queen Elizabeth Hospital in Gateshead transferred under TUPE rules to the new organisation in December 2014. I will respond to her points.

A number of hon. Members raised the concern that what happened amounts to privatisation, but I must point out that the legislation enabling NHS organisations to create subsidiaries of this sort was put in place by the Labour Government in 2006. If it is privatisation, it is privatisation enabled by Labour legislation, and I do not think that is the way Ministers described it to the House at the time. The subsidiaries are also 100% owned by the trust, so they are within the NHS family.

It is right that the board of the Queen Elizabeth Hospital was able to use the powers enacted by the previous Labour Government. It did so because creating a subsidiary is, in its view, the most effective and efficient way of maintaining the trust’s hospital estate, which includes several new buildings. Again, that is consistent with the previous Labour Government’s approach, which was to allow local trusts to determine the best manner of managing their own estates.

I do not care which Government provided the enabling legislation. Surely the Minister agrees that the intention was never to undermine the working terms and conditions of people within the NHS just to enable trusts to cut the amount of money they need to spend?

I will happily address that. The hon. Member for Bradford South (Judith Cummins) also made that point and said that this is about exploitation. The hon. Member for Stockton North (Alex Cunningham) may not care whether the legislation was introduced by a Labour Government; I was merely drawing hon. Members’ attention to the fact that when the legislation was passed it was not described as privatisation. It is obviously a leap to describe the legislation as enabling privatisation when the subsidiaries are wholly owned by the NHS.

I am grateful to the Minister for giving way again. The North Tees and Hartlepool NHS Foundation Trust said in its question and answer document that such an organisation could be taken over by another organisation—in other words, it could be privatised. This is one step along the way to the potential privatisation of all those services.

The trust has stressed that the organisation remains in public ownership. Let me deal with the hon. Gentleman’s substantive point—it was also raised by the hon. Member for Bradford South— that this is about exploitation. I discussed that point with the trust ahead of the debate.

Previously, the trust had difficulty in attracting and retaining quality maintenance staff because the salaries paid in the local market were about £19,000 per annum. Under the subsidiary company, multi-skilled craftspeople are employed at about £25,000 per annum, plus a performance bonus, attracting better-qualified staff and ending retention issues, in exchange for the fact that they do not have access to the NHS pension.

I will happily give way to the hon. Lady in due course.

That is not about exploitation; it is about empowering members of staff. They get higher pay in the short term in return for a less generous pension. The hon. Member for Stockton North might disagree—

Will the Minister give way?

I signalled that I will give way to the hon. Member for Blaydon. She called the debate, so she should go first.

It is not accurate to say that this is simply about exploiting people if their base salary is increasing from £19,000 to £25,000, as it is in that trust. One can look at the wider bundled package of benefits and total remuneration, but one cannot describe a salary increase of £6,000 as exploitation.

The Minister is raising an issue of great concern to me, which I have discussed with the chief executive of the foundation trust, so this is not coming as news to him. If we move away from a structured pay system and give additional salary payments over and above allowed recruitment and retention bonuses, we are laying the trust or the organisation open to the claim that they are not providing equal pay for work of equal value. A huge amount of work went into creating “Agenda for Change” to avoid exactly that problem and to address recruitment and retention.

The hon. Lady is ignoring the fact that that already happens in the NHS, for existing trust staff: some staff opt out of the NHS pension, and not all the staff who TUPE-ed across in this arrangement were in the NHS pension. Once again, those on the Labour Benches want to deny the choice and options that apply to NHS staff.

I thank the Minister for giving way, because he has heard me twice now, but I welcome the opportunity. Does he not agree that the difference between then and now is that NHS trusts now are being forced down the path of wholly owned subsidiary companies because of financial constraints? It is not good enough for the Government simply to stand by and watch that happen.

Again, that is a complete misrepresentation. The trust itself has pointed to the benefits of the arrangement. Let me give a concrete example of how the arrangement is delivering to the trust savings in the interests of patients.

Under the previous delivery system, local pathology samples were sometimes lost and delayed—that is not in the interests of patients. The QEF brought in a revised system of procuring all sample containers and issuing those to GPs across the region before delivering samples to the hospital pathology laboratory hubs within four hours. The trust forecasts that that will deliver significant benefits—indeed, other trusts are interested in the services. By operating on a more commercial model, therefore, not only has the trust improved how it deals with samples and prevented those samples from being lost as in the past, but it has put in place a system that is better for patients and attractive to GPs in other trusts who now want to contract the services.

The Minister is slightly at odds about the point being made. The point is not how it is open to the trust to procure the best clinical services but how, later, through a company, staff might be re-employed on a lower salary. Clearly, trusts already have flexibility through “Agenda for Change” to start people on a higher pay point, but I wondered more generally whether my hon. Friend supports national pay bargaining and “Agenda for Change”.

The Chancellor made his support for the “Agenda for Change” programme clear in the Budget. My hon. Friend is aware of the commitment that the Chancellor made to fund that outwith the spending review 2015 process. That is a matter of record and one my hon. Friend is well aware of. The point being made, however, is that the flexibilities are popular with staff within the trust. Again, that is not simply a matter of me saying that; it is reflected in the staff survey of those working at the trust.

I will happily take interventions, but first I will finish this point, addressing the previous issue. The recent staff survey was extremely positive: 86% felt part of the Gateshead Health NHS Foundation Trust group. Furthermore, the figure for those with a positive response to the level of pay was 15% higher than the NHS comparator. The idea that the arrangement is exploiting people when the staff survey shows them to be 15% more approving than in other areas is again not a fair representation of the case.

In the short time remaining, I would like to move the Minister on to the issue of accountability for public money. Following a freedom of information request, in the case of Yeovil we understand that the benefit to the trust is several million pounds-worth of income, which is a lack of income from the Treasury—I have written to the Minister about this and I will be grateful for an answer. Is the Government’s position that they would be happy to forgo the expected income to the Treasury so that those companies can be set up to undercut wages?

As I set out in my reply to the hon. Lady, the Department has been clear that setting up a subsidiary is not a vehicle to avoid VAT—that is not acceptable. In the autumn, we sent out guidance to make that clear. As a former Treasury Minister myself, I assure her that Treasury Ministers would take a very close interest if they felt that an abuse of VAT was taking place.

The reality is that commissioners and regulators are responsible for ensuring that NHS providers act in the best interests of patients and taxpayers. We would expect providers to work closely with their employees in any developments.

Will the Minister give way?

I am conscious of the time, but I am very keen to take an intervention from the hon. Gentleman.

The Minister is being very generous. Clearly there is a substantial difference of view here, but would he agree that given that public money is involved, it is very much in the public interest that the business plans that the trusts are producing for the wholly owned subsidiaries are published and public, so that they can be scrutinised? In the case of the Airedale trust in my constituency, we discovered that 60% of the savings on purchasing are in VAT. Those figures should be in the public domain, so people can see what is being done with public money in their interests.

The slightly puzzling issue here is that the savings accrued from the subsidiaries are for the benefit of the local health economy, of the trust. This is a subsidiary company 100% owned by its host trust. The more efficient the subsidiary is, the better it is at dealing with things such as its pathology—not only do we avoid samples being lost, but we run a more efficient system in a more commercial manner, which brings more money into the healthcare economy and gives the flexibility to compete effectively in the local job market for maintenance staff and others.

The benefits of those arrangements accrue to the trust that owns 100% of the subsidiary. That is why, under legislation of the previous Labour Government—correctly in my view, but clearly not in the view of the Labour Members—the local trust is empowered to empower in turn the local members of staff. That is then reflected in the staff survey, which shows a more favourable result in this trust.

I am grateful to the Minister, who has been generous with his time, but does he not acknowledge that the failing finances of the NHS are forcing trusts down that route? I am meeting the Minister next week to talk about York Teaching Hospital’s failed finances. That is the driver of the changes and, therefore, the fundamental issue still has to be addressed.

I do not know whether we are moving away from the subject to a wider debate about finance, but the Chancellor’s Budget settlement makes the Government’s finance commitment clear. The fact is that the issue of subsidiary companies is about using the resources of the NHS in the most efficient manner. That is the view not just of the Government and of the previous Labour Government, but of the trust itself. It is delivering a better outcome for patients and delivering savings—I repeat, the savings accrued go to the benefit of the trust that owns 100% of the subsidiary. It is a shame that those on the Labour Benches seem to want to deprive staff of choice and opportunity. Staff are benefiting, and that is reflected in the staff survey.

I hope that in responding to the debate I have allayed a number of the concerns of the hon. Member for Blaydon about the setting up of subsidiary companies by trusts. I am sorry that there is such concern about the legislation put on the statute book by the previous Labour Government and that it is being deemed to be a form of privatisation.

Does the Minister think it is fair for one of two different people in an organisation to receive a defined benefit pension scheme with a 50% contribution and the other to get 3% into a defined contribution scheme worth a fraction of the other in pension terms?

Within the NHS as a whole—nothing to do with subsidiaries—there is a range of treatment of staff on pensions. First, there are the legacy pension arrangements for staff in previous schemes and, secondly, people opt out of existing pension arrangements in the NHS. Again, it is a complete mischaracterisation of this debate on subsidiaries to suggest that there are differences. The point, however, is that there are also differences in pay, as has come out of this debate: the maintenance staff for whom the trust is paying a premium can be paid so because of the subsidiary.

I thank the Minister for giving way—the only way I can get a response in is by intervening. I have a few separate points. First, on the Labour legislation, is it not strange that the subsidiary companies have only started to appear in this form since 2014? As my colleagues said, that is a reflection of the fact that we have a shortfall in funding for the NHS. Secondly, I want to mention the path lab example the Minister gave. As I said in my speech, there is no reason why existing NHS staff in the NHS trust cannot make the improvements—they do all the time—

Motion lapsed (Standing Order No. 10(6)).