Flexible friend or cheap date?
SubCos are back in vogue as trusts scramble to meet stiff cost-cutting targets set by NHS England. But can spinning off non-clinical services to subsidiary companies really save money and improve services — or will staff end up paying the price? Alison Moore reports.
NHS trusts have run subsidiary companies (‘SubCos’) for decades but their numbers are set to swell over the next few years, with new NHS England chief executive Sir James Mackey pushing for trusts to hive off many non-clinical functions as part of the government’s cost-cutting agenda.
But there is one crucial difference between the model already adopted by many trusts and what Mackey is proposing: he wants the new generation of SubCos to continue to employ staff on nationally-agreed Agenda for Change (AfC) pay and conditions, something most existing subsidiaries have failed to do. Will this be enough to head off union opposition and soothe managers’ qualms?
The centre of the NHS in England has blown cold and hot on subsidiaries in recent years, as one manager familiar with them points out. Mackey was keen on them when he ran NHS Improvement but interest waned when it merged with NHS England, and many managers are wondering whether this revival of interest is a permanent shift or a passing fad — particularly as NHS England itself is set to be abolished next year.
Union opposition
Any trust seeking to form a SubCo — usually to run facilities management, although some provide other services — is likely to face stiff opposition from unions. “If you’re going to set one up you’re going to struggle in the teeth of quite a firm campaign,” says MiP chief executive Jon Restell.
UNISON’s head of health Helga Pile wrote to all trusts following Mackey’s announcement, highlighting that there was already a wealth of guidance on establishing SubCos and a process trusts should follow. The union is aware of two new attempts to set up SubCos (although these have been underway since before Mackey’s appointment) at trusts in Dorset and at Newcastle—the latter run by Mackey before his secondment to NHS England earlier this year.
Guy Collis, UNISON policy officer for health, questions the evidence base for SubCos, pointing out that hopes they would be more entrepreneurial and attract other clients has not really borne fruit. Business cases frequently lack even the most basic evidence to support such claims, he adds.
Mackey was chief executive of Northumbria Health Foundation Trust when it set up a successful SubCo (see opposite). But Restell says it’s far from clear that the conditions there can be replicated in very different labour markets elsewhere.
Uncertain backdrop
The Northumbria SubCo is one of a handful to maintain AfC pay and conditions for all staff. Many others offer lower unsocial hours payments than AfC and often make far lower pension contributions. This can save them money, as can exploiting a loophole that allows trusts to reclaim VAT on purchases when using a SubCo.
But an ongoing review of public sector VAT rules by the Treasury could result in this benefit disappearing soon. “If this is taken away, what does that mean for existing SubCos?” asks Restell. “It feels to me quite an uncertain backdrop when taking decisions.”
Even if trusts continue to employ staff on AfC contracts, UNISON would still oppose the setting up of SubCos, Collis warns. The union remains concerned that any commitments made while a subsidiary is being set up might not be kept in the future.
Northumbria: a model for the future?
Northumbria Healthcare Facilities Management Ltd, a SubCo set up by Sir Jim Mackey’s former trust, Northumbria Healthcare, is one of the few to have retained Agenda for Change (AfC) terms and conditions—including access to the NHS pension scheme—for all staff.
In doing so, it may have lost some money-saving opportunities, but managing director Damon Kent (pictured) insists the company has found other ways to deliver better quality and more cost-effective services.
The SubCo—one of several at the trust—was set up in 2012 to provide estates and facilities management services and has delivered several large capital projects for the trust. It has a turnover of around £220m and employs 1,050 staff.
“From a corporate structure and governance point of view, it’s a separate business with its own board of directors and its own accounts but we are very much part of the Northumbria group,” says Kent, who is also director of estates and facilities at the trust. “We don’t have a different set of values to the trust, we follow the trust’s.”
The SubCo was set up with the intention that it should not disadvantage staff, Kent adds, particularly as many staff are in the lower AfC grades. It follows the trust’s policies in areas such as HR and uses many of the trust’s services. But having its own board means it can bring in greater estates expertise among its non-executive directors. Kent says the company is able to have a “laser sharp” focus on its services and not get distracted by other priorities.
Subcos can give managers more flexibility and agility in making decisions and delivering services, which “helps us become more innovative and more forward thinking,” Kent says. This has allowed the company to reduce risks for the trust and ‘insource’ some services, such as a manufacturing hub for textiles.
Kent insists the SubCo is not “fixated” on the VAT advantages. Like the trust itself, it has a cost improvement plan to deliver but its managers are also focused on key workforce metrics such as turnover, and patient-facing ones such as patient-led assessments of the care environment.
His advice for managers thinking about setting up a SubCo is “to make sure there is equity for all staff and you need to make sure there is a governance process, that there is a golden thread [of accountability] running through the subsidiary and the parent trust all the time.”
But some managers do see advantages in more flexible pay and pensions, allowing trusts to respond to local labour shortages, especially for specialist staff. For example, a trust located near major construction projects may find it hard to recruit people skilled in building trades at AfC pay rates, something that may become an even bigger problem as the government tries to meet its ambitious housebuilding goals.
As existing staff usually have the right retain their AfC contractual terms when transferred, SubCo managers often have to deal with groups of staff doing similar jobs but on different pay and conditions—something which seems to strike at the heart of the “one team” ethos of the NHS, says Collis, and which may also have a negative impact on morale, recruitment and retention.
Restell also points out that many of the jobs which have been moved into SubCos are disproportionately done by women and people from an ethnic minority background, resulting in still greater inequality when terms and conditions are reduced.
Supplier or partner?
The sense of disconnect between SubCos and the trust can also be important, Restell adds. With their own governance systems and a contract with their ‘owner’, SubCos could be pushed into a purely transactional ‘customer and supplier’ relationship with the NHS. This could become more marked if SubCos are set up covering several trusts — legal firm Hill Dickinson say they are currently advising “numerous” trusts on single and multi-trust models—or if SubCos pursue more contracts away from their ‘parent’ trust.
Restell points out that while some managers say that setting up a SubCo gives them more freedom and autonomy to run the organisation, they may need to work through their own feelings of being “out of the flow” and adapt to a new relationship where they will feel more like a contractor than part of the team.
“Where’s the driver here? Is it to improve services or is it just to cut costs?” asks one manager with long experience in estates and facilities. “There’s governance complexity around this”, he warns, and also questions about workforce morale and motivation: “Do they feel they are in or out of the trust?” //
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