Comprehensive guide to NHS wholly owned subsidiaries

This two-part guide offers an in-depth analysis of wholly owned subsidiaries within the NHS, focusing on their strategic importance, the legal frameworks permitting them, and recent developments.

Established by NHS Trusts and Foundation Trusts (under different legal powers), these subsidiaries aim to manage services such as HR and facilities or capital projects more efficiently, striving for cost reductions and enhanced service delivery. The guide reviews the evolution of these entities, their legal basis, particularly under the National Health Service Act 2006, and the strategic shifts influenced by financial challenges and NHS England’s recent directives.

Key motivations for establishing these subsidiaries include cost savings, operational flexibility, and income generation. Browne Jacobson supports the establishment and operation of NHS subsidiaries by providing comprehensive legal services, ensuring compliance, strategic alignment, and effective stakeholder engagement. This guide underscores the necessity for a thorough understanding of the multifaceted environment in which NHS subsidiaries operate, highlighting both opportunities and challenges.

Introduction to NHS subsidiaries

NHS subsidiaries are separate legal entities created by NHS Trusts and NHS Foundation Trusts (which we refer to collectively as NHS provider trusts) to manage services such as HR, estates, facilities, and corporate services more efficiently. By operating under commercial principles, these subsidiaries aim to achieve cost savings, enhance service delivery, and reduce overall deficits, contributing positively to the NHS’s broader financial and operational goals.

Historical context and evolution

The formation of NHS subsidiaries became popular as a strategic response to financial pressures faced by NHS provider trusts, particularly between 2013 and 2018. These entities were initially seen as vehicles for achieving cost savings through VAT benefits and more flexible employment conditions. However, the rise in the formation of subsidiaries was met with resistance from unions and led to stricter regulatory guidance in 2018. The landscape began to shift again in 2024 with the introduction of more relaxed guidance, renewing interest in this organisational model.

Powers to incorporate an NHS subsidiary

It is important to note from the outset that the powers of NHS Trust and NHS Foundation Trusts to form and participate in companies differ. 

NHS Foundation Trusts: Have a much greater freedom to invest in companies under s46(5) of the National Health Service Act 2006 (NHS Act 2006). There are no restrictions on the types of activities such companies can undertake and therefore include core healthcare provision (i.e. clinical services) although following the collapse of UnitingCare Partnership in 2015 there has been limited attempts to move NHS clinical services into such vehicles.

NHS trusts: Have a much more limited power to participate in companies under paragraph 20 of Schedule 4 to the NHS Act 2006 and sections 7(2) and 7(7A) of the Health and Medicines Act 1988, which restrict such companies to income generation activities only. Current directions require such schemes to be approved by the Secretary of State and the agreed view of NHS England and DHSC was that NHS Trusts’ general powers cannot be used to set up companies for wider purposes.

Recent guidance has simplified some of the processes for NHS Trusts, encouraging a more streamlined approach to subsidiary formation, but do not change the requirement for Secretary of State approval or that business cases must demonstrate that the scheme is income generating.

Recent developments and strategic shifts

In light of ongoing financial pressures, particularly exacerbated by the pandemic, NHS England, under the direction of Sir Jim Mackey, has advocated for a renewed focus on SubCos as a means to manage and reduce corporate services budgets effectively. This strategic pivot is aimed at helping NHS provider trusts “reset” their financial structures in a sustainable manner. 

NHSE guidance

The NHSE guidance Forming or changing a subsidiary will apply. This was revised in February 2024 to bring the process for approval of subsidiaries in line with other NHSE transaction approvals processes by reintroducing thresholds for reporting and aligning review process and outcomes with those used for other transaction types.

The guidance is designed to help NHS provider trusts navigate the process of forming or materially changing subsidiaries. Its stated aim is to balance risk mitigation with the freedom for trusts to innovate and develop proposals that are likely to succeed.

Reporting requirements

The guidance introduces thresholds for reporting based on the size of the subsidiary in terms of assets, income, and the number of affected staff. Below these thresholds there will be no need to report although transactions that are novel, contentious, or have significant repercussions are reportable regardless of size. All NHS Trust income generation schemes remain reportable to DHSC regardless of size

Why establish a wholly owned subsidiary?

The motivations for establishing subsidiaries are varied but include:

• Cost savings: Leveraging tax efficiencies and  operational cost reductions.
• Operational flexibility and more focussed service delivery: Implementing commercial practices to enhance service delivery and allowing focus on the relevant services leaving the trust to focus on patient care.
• Income generation: Expanding service offerings to other organisations, generating additional revenue.
• Staffing flexibility: Attracting talent with competitive remuneration packages not bound by standard NHS pay scales. Easier recruitment to roles.

• Innovation: Allows for the introduction of innovation.
• Opportunities for joint ownership across NHS organisations: Opening up the opportunity to make costs savings by pooling services across a system

Browne Jacobson offers a full spectrum of legal services to support the establishment and operation of NHS subsidiaries. Please get in touch with our Health and care teams to discuss further.