Five things to know about NHS SubCos in 2025 and why they should be resisted

What is an NHS SubCo?

An NHS wholly-owned subsidiary company (SubCo) is a private company, set up by an NHS Foundation Trust (FT) or, less often, by an NHS Trust to which they can transfer in-house support services and staff, plus associated equipment and property, such as hospitals and land.  Most trusts that have created SubCos have been in financial difficulties due to the underfunding of the NHS and have seen SubCos as a way to make savings and/or to generate income from new sources. The use of SubCos declined to some extent from 2018 following a series of effective strikes and the introduction of a stricter approval process from NHS Improvement. 

1. Why are SubCos back on the agenda?

In April the new transitional Chief Exec of NHS England (NHSE), Jim Mackey,told all NHS trusts that they should normally transfer support services and staff to SubCos (or expand the scope of existing subsidiaries) in order to reduce costs.

2. SubCos and a two tier workforce?

Until now, one of the main ways that SubCos have cut costs is by paying staff less. NHS staff who are moved to SubCos may retain their Agenda for Change (AfC) terms and conditions on transfer, but these terms are not guaranteed beyond this point. Once outside the NHS, employees lose bargaining power as they cannot call on staff in the parent trust for support in industrial action: they now have different employers.

SubCo staff who have not come via the NHS (so-called ‘new starters’) have generally been employed on poorer, non-AfC terms and conditions. However, in pushing for new SubCos, Jim Mackey is saying that only those SubCos employing staff on NHS terms and conditions should be supported by NHSE as it’s wrong to use subsidiaries “to extract benefits for trusts through the terms and conditions of poorly paid staff”. Instead, SubCos should use other ways of making savings, such as through Value Added Tax (VAT) refunds.

3. SubCos and VAT​ savings?

SubCos have also cut costs by the use of a tax loophole allowing a parent Trust to reclaim VAT if they buy goods and services from outside the NHS – at least until Trusts were warned that this use of SubCos was a form of tax evasion. The loophole is still available, but the considerable savings it allows must now be downplayed as merely a chance ‘by-product’ of a SubCo’s creation. However, the Treasury has been consulting on new VAT arrangements and it’s thought that the favoured model for these is likely to leave those Trusts with SubCos worse off in future.  Jim Mackey seems strangely unaware that one way or another, VAT refunds shouldn’t be relied on as a way for SubCos to cut costs – but perhaps he has other plans up his sleeve. 

4. SubCos and the disposal of assets

SubCos allow publicly owned assets, like property, plant and equipment to be transferred out of the NHS. SubCos’ senior managers and Board members are likely to come from the private sector so that a subsidiary can be managed on commercial lines rather than according to the ethos of the NHS. This is especially worrying in the face of current pressure on Trusts to sell off so-called ‘surplus’ land and buildings, as SubCos have the ability to dispose of assets transferred from the NHS.  In fact, according to the political economist Richard Murphy, analysis of one FT’s business case for a SubCo only made sense if the true motive was for the eventual sale of buildings and associated service contracts to commercial third parties.

5. Attracting finance

Besides the ability to dispose of assets, SubCos provide a way of accessing funding, equity, borrowing and other external investment, while allowing a parent trust to be isolated from any financial risk. As NHSE itself has noted, especially where whole-site hospitals have been transferred into a subsidiary, there’s the potential for finance to be raised against a SubCo’s assets, risking their transfer to a third party. In the context of the NHS’s current financial crisis, Trusts may come under pressure, e.g. from venture capitalists, to sell all or some of their shares in a SubCo, especially where a Trust is in deficit. 

Conclusion

The creation of SubCos has long been seen as a ‘back door’ way of privatising the NHS and fragmenting its workforce.  What’s new is Mackey’s direction to all Trusts to set up SubCos in order to cut costs, while his proposal – relying largely on VAT refunds to do so – doesn’t hold water. Rather, we could be facing the use of SubCos to dispose of NHS assets or to raise capital.  Given that SubCos can impose poorer pay, terms and conditions on staff as well as plunder NHS assets, we need renewed vigilance to stop their resurgence.

Also see our Resisting SubCos section

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What you can do

• If you work for a Trust that’s considering setting up a SubCo, make sure you belong to a union, preferably the one that is most active within the Trust.
• Find out what local trades unions know about the SubCo, what action they are taking and what support they want.
• Find out what local campaign groups are doing and how to become involved – or set up a local group if there isn’t one already.
• If not already in the public domain, request the Trust’s Business Case and Impact Assessment for the SubCo to find out, for example, which assets are to be transferred and what guarantees will be in place to stop the SubCo or its assets from being sold.
• If a Trust proposes to create a two-tier workforce, demand to see the SubCo’s Equalities Policy and how it addresses the issue of different payment for the same work.
• If the Trust is reluctant to provide information, send a Freedom of Information request (go to the Trust’s website and find its page giving information on who to write to).
• Hold a public meeting to spread information and gain support. Make sure you get local press coverage.
• Write to your local MP or visit them in their surgery.

Useful resources

• A forthcoming photographic exhibition “How come we didn’t know about NHS SubCos” will soon be available for borrowing to show in your local library, union branch, community centre or at a public meeting.  Contact [email protected] for more details. For a full report on the research informing the exhibition, see here.
• UNISON have provided a useful ‘bargaining guide’ with information on how to challenge SubCo plans, questions to ask, and how to organise to win.
• UNISON’s SubCos – a briefing on NHSE guidance (March 2025) points to key criteria identified by NHSE that Trusts must satisfy and which may also be useful for campaigners in preparing a challenge.
• See also our more detailed article on the new push for NHS SubCos.