Lord Hunt: Undermining the Agenda for Change

Source: NHE May/June 2018

Lord Philip Hunt, Labour’s shadow spokesperson for health and social care, discusses the damage that wholly-owned subsidiary (WOS) companies are inflicting on the NHS, and how they’re undermining the Agenda for Change pay scales.

Growing moves by NHS foundation trusts to create WOS companies to run a large range of services is running into fierce opposition amongst unions and many MPs.

Whilst the trusts claim it is being done to improve efficiency, its real purpose is designed to avoid VAT payments and reduce the living standards and pensions of thousands of staff who will be affected.

Whilst staff transferred to the companies from the NHS can retain their existing terms and conditions, they will cease to be NHS employees. New staff will not be employed on NHS terms and conditions; and shockingly, the NHS Pensions Scheme is not being made available to them.

Even staff who transfer under existing NHS terms face an insecure future. They may come under pressure to transfer from the NHS to the WOS pay and pensions scheme which, overall, will offer less than the NHS.

Worryingly, for such a big step, some NHS foundation trusts are engaging in only limited consultation with staff and putting a minimum amount of detail in the public domain. The refusal to publish business cases because of so-called commercial confidentiality has been used as a smokescreen to restrict debate.

What services are being transferred?

A large number of non-clinical services are being transferred, including estates, facilities, catering and hotel services. Nearly 40 WOSs have been established by NHS foundation trusts so far, but Unison has identified many more in the pipeline.

Some foundation trusts, to their credit, do not want to go down this route. However, they are then at risk of being penalised by regulators.

Impact on staff

Research by Unison has shown that, overall, the terms and conditions offered to new staff employed by WOS companies are appreciably worse than the national Agenda for Change rates enjoyed by NHS staff.

The contrast between the employer contribution on pensions is particularly worrying. The typical WOS scheme of 3% employer contribution hardly compares to the NHS employer contribution of 14.38%. It’s a similar picture with annual leave and unsocial hours payments.

As new staff become an ever-larger proportion of the WOS complement, staff  who did transfer from the NHS will become a minority and will be vulnerable to pressure to transfer to the WOS scheme. The lower-paid staff will be particularly affected.

The sight of high-paid managers, who enjoy one of the best  pensions  schemes  in the country, overseeing the introduction of much poorer pension schemes for low-paid workers is difficult to contemplate.

VAT issues

Whilst NHS trusts pay VAT on supplies and services, VAT can only be claimed back on a small subset of goods and services because NHS patients are not charged for treatment. This contrasts with local authorities who are entitled to VAT refunds for non-business activities.

Previous Conservative administrations have encouraged government departments and the NHS to contract out services to the private sector which would have traditionally been performed in-house. Because many of these services would be subject to VAT, the scale of the non-reclaimable VAT could act as a disincentive to contracting-out.

As a result, it was decided to compensate government departments and health authorities by a direct refund mechanism, provided for in the VAT Act 1994. Under this provision, the Treasury issues a ‘Contracting Out Direction’ which lists both the government departments and health authorities that are eligible to claim refunds of VAT, and the services on which VAT can be refunded.

Whether it was ever envisaged that this would apply to wholly-owned companies providing services to its parent organisation is an open question. Some NHS foundation trusts have reached agreements with companies like Lloyds or Boots to provide community pharmacies in hospitals where they share the VAT gain, but the setting-up of wholly-owned companies takes this a step further.

In their proposals for WOS schemes, foundation trusts argue that the benefits include easier recruitment of key staff and flexibilities around the workforce terms and conditions. However, it is the VAT savings which come fastest.

The payments of VAT refunds to the NHS reached £2.3bn in 2016-17, compared to £1.6bn in 2010-11. Ironically, it is doubtful if the NHS overall gets any benefit at all. HMRC has stated that VAT refunds provided for in section 41(3) of the VAT Act 1994 are met from public expenditure.

In a written answer on 14 November 2017, Lord Bates, the Treasury spokesman, stated that “budgets for the NHS are set net of recoverable VAT and therefore take account of payments under section 41 of the VAT Act 1994.”

Unison research has shown that millions of pounds are being spent on outside consultants to advise on these outsourcing schemes. This is a scandalous waste of public money and, in avoiding VAT payments, public bodies are showing scant regard for their overriding public responsibilities.


Apart from the ethics of a public body using considerable time and resources to reduce their VAT payments, with no benefit at all to overall NHS budgets, the more worrying aspect is the likely impact on staff. Whether by design or not, thousands of staff will be denied NHS employment and decent terms and conditions.

Long term, this is a blatant attempt to undermine national pay bargaining, with Agenda for Change being increasingly confined to clinical staff only. This is a fundamental attack on the terms and conditions of many lower-paid workers and will be resisted to the full in Parliament.


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