What’s the big deal about subcos?

Archive pic of the 65th NHS anniversary

Subcos have hit the headlines in 2018, but what are they? And why are unions so worried about them?

In a nutshell, subcos are attempts to outsource non-clinical NHS workers’ jobs to subsidiary companies in a move unions fear will weaken their terms and conditions. 

Unions are fighting back hard, with UNISON members in Harrogate threatening to strike and in Lancashire balloting for strike action. In Bristol, unions have successfully stopped the plans from going ahead.

Below is a feature, first published in West Country Workers, explaining more about subcos and why unions are right to oppose them.


Unions are working together across the South West to protect NHS workers under threat from being outsourced.

NHS trusts in the region are looking at transferring non-clinical jobs into subsidiary companies in the move unions fear will lead to worse terms and conditions, as well as affecting patient care by adding yet another management structure.

Despite major opposition from their own workers, Yeovil is the first trust to go, with 350 estates and facilities staff transferred into a subsidiary company (dubbed a sub by opponents) at the start of February. Other trusts in Gloucestershire, Bath and Bristol are set to follow suit.

More than a million NHS staff have their terms and conditions protected by Agenda For Change, a system agreed by employers and unions in 2004, which harmonises their pay scales across the entire NHS.

The concern is that once workers leave the NHS and are employed by subcos, their terms and conditions might change for the worse.

“The initial group transferred over won’t be employed by the NHS and so could lose their Agenda For Change terms and conditions protections,” said Helen Eccles from UNISON.

“Once staff are outside of nationally-agreed NHS contracts, things like sick pay, holiday allowance, pensions and more could come under attack. Also, new starters can be put on less favourable contracts than directly employed NHS staff.

“Some trusts have been quite open about their desire to change terms and conditions once staff are outside the NHS.”

In Gloucesteshire, which wants to transfer 900 staff, health chiefs have admitted the one would cut around £35m from its budget over ten years.

The trust says the savings would come by cutting back on VAT costs because an HMRC policy known as the “contracted out services direction” allows public organisations to claim back VAT that would be incurred when they contract services to external organisations.

Unions dispute this – in Northumberland, a health trust says there are not VAT benefits at all – and point out in September the Department of Health wrote to trusts telling them not to set up subcos for VAT avoidance purposes.

“Even if the VAT reclaim is successful, there is no net increase in public funding; the Treasury will simply have less revenue to allocate,” says Helen Eccles.

“The loss of revenue through what is essentially tax avoidance has been the topic of Parliamentary debate in recent weeks.”

Unions are also concerned about the break-up of the NHS.

“Subcos go directly against plans for joined-up health services,” said Helen Eccles. “They will make patient care worse by inserting yet another management structure.

“All parts of the NHS need to work together and in reality they do every day. Putting some staff outside the NHS defeats the message that every health employee is an essential part of the team.”

The union campaign has been supported in Gloucestershire by the Labour Party. Cllr Doina Cornell, leader of Stroud District Council, raised the issue at the county’s Health Overview and Scrutiny Committee, saying:  “Apart from the irony of the NHS trying to avoid paying the tax that funds itself, I’m very concerned that it is workers who will pay for this move with their salaries and their pensions.

“Health bosses are very keen to talk about ‘One Place’. I prefer to talk about ‘One Team’ – the people who work hard every day to keep our NHS running in the face of unprecedented Tory cuts.

“Every NHS worker, whatever they do, wherever they work, should be valued equally, so this plan to separate non-medical staff from clinical staff, is shameful and divisive.

“If non-medical staff are cut adrift from their NHS contracts, how long before the new company seeks to squeeze their terms and conditions to save money? And how long before medical staff are forced off their NHS contracts too?

“I fear we are witnessing the gradual dismantling of our NHS, which is being picked apart piece by piece by a Tory government. The NHS should be caring for patients and looking after its own staff – not embarking on tax scams.”

Unite is calling for the government to compel HMRC to close this tax loophole, the health secretary to implement a moratorium on further subcos and a review of procurement and commissioning by NHS trusts in England to establish a fair, transparent and ethical framework.

Nick Bailey, who holds the health brief for Unite in Gloucestershire, said: “The Tory agenda of outsourcing has led to the fragmentation of NHS services, serious breakdowns for services to patients and the quality of care, to the cost of patients, staff, NHS services and, ultimately, the taxpayer.

“The increasing tendency of NHS trusts to create wholly-owned subsidiaries in the form of private limited companies could lead to a flood of dozens of Carillion-type situations across England, if serious action is not taken by the government immediately.”

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