The re-birth of wholly owned subsidiaries
Are NHS subsidiaries “in or out”?
In the NHS, it's often hard to tell whether a policy is on-trend or off the table. Back in September 2018, I sat in a Foundation Trust board meeting where we were set to approve the creation of a wholly owned subsidiary (WOS). The business case was ready. But before discussions began, a note arrived: NHS Improvement (as it was then) instructed all trusts to pause plans for new subsidiaries. The meeting ended quickly.
Now, in 2025, the pendulum has swung again - subsidiaries are firmly back on the agenda. Plus ça change, plus c’est la même chose.
In a March 2025 speech to NHS leaders, Sir Jim Mackey, Chief Executive of NHS England, highlighted the renewed importance of transferring support staff into subsidiary companies. Subsidiaries are not just back - they’re being actively encouraged.
What are NHS wholly owned subsidiaries?
Subsidiary companies are not new to the NHS. The legal framework allowing NHS trusts to establish them has existed since 2006, with significant guidance issued in 2018 and again in February 2024.
These are legally separate entities, owned entirely by an NHS trust, and typically tasked with delivering services like facilities management, estates, pharmacy, or corporate functions. Their legal independence gives them greater operational and financial flexibility - while still working within the NHS family.
There have been a number of successful NHS subsidiaries which should be referred to as exemplars:
Source: Analysis of Companies House and websites by Burrum River Advisory
Why are subsidiaries back in fashion again?
Sir Jim Mackey has recently advocated them as a means to reduce costs and overspending, thereby helping to reduce the £6bn underlying deficit across the service. They also support the long-promoted but slowly adopted push toward shared services.
Why set up a subsidiary?
It takes a lot of time and effort to set up a subsidiary company and so there must be an unequivocal strategic rationale for doing so.
Lack of clear strategy direction and plans in ‘back office services’
Fragmented back office services
Difficulty in recruiting the workforce given private sector competition
Different systems and processes in each provider
Poor productivity
The picture across the NHS is fairly consistent with back office support functions struggling with limited budgets and resources which is not going to change in the short term. It’s undoubtedly far more pronounced in small providers. Furthermore, they struggle with profile; NHS Trusts are large, complex organisations where the Board’s focus is, rightly, on clinical services, so that discussions about back office service may only take place when there’s a problem.
Potential benefits of subsidiaries
Subsidiaries offer a chance to reframe and strengthen these essential functions. Done well, subsidiaries can offer:
Operational Autonomy – Trusts can streamline decision-making and service delivery without being bound by traditional NHS structures.
Focus – the subsidiary’s sole focus is the delivery of its services
Cost Savings – Subsidiaries can reclaim VAT on certain expenditures, providing financial relief to trusts.
Improved Recruitment – offering alternative employment packages can help attract staff in hard-to-fill roles, such as estates and facilities management
Career progression –offering people joining the subsidiary clearer career progression, particularly if the service if provided across an ICS.
However, success relies on strong leadership, governance and strategic clarity.
Are subsidiaries controversial?
That depends. Setting up a subsidiary involves change, hopefully a bit of innovative thinking and it affects people, specifically the people who will be working in them. It’s not a surprise therefore that the unions don’t like them as they want to protect their members. Since Jim Mackey’s speech, Unison has already written to trusts in the hope of preventing their expansion. For this reason, they probably are controversial, but these concerns need to be addressed up front in the planning stage. Some of the main concerns are:
Job Security & Pay Conditions – Employees transferred to subsidiaries may face different pay scales and pension arrangements, raising fears of reduced benefits. Unison has already written to trusts to prevent the expansion of subsidiaries.
Privatisation Fears – Critics argue that subsidiaries could pave the way for outsourcing NHS services to private providers.
Collaboration – Reaching a consensus from all providers in an ICS can be difficult.
Conditions for success – a way forward
As NHS England pushes for greater operational efficiency, the role of wholly owned subsidiaries could shift from trust-level initiatives to ICS-wide models. This could unlock significant scale benefits, financially and operationally, while preserving NHS principles – if it’s done right.
Collectively in Burrum we have advised on numerous WOS projects, one of which is moving forward to be the vehicle for an ICS. Any ICS or Trust considering setting up a new WOS or adapting an existing one should start thinking about some of the following points:
Planning: understand the guidance and business case requirements, which can be complex. We believe this is likely to change, but there is still likely to be a need to secure approvals
Corporate structure: different corporate structures have been used to date, most estates subsidiaries appear to be limited companies and some of the diagnostic subsidiaries are LLPs, but the current and future purpose of the subsidiary is likely to influence the corporate form.
Tax considerations: these need to be identified, understood and managed early in the process.
Pricing: there are different options available which need to be considered. If a subsidiary is being set up across an ICS, any pricing needs to be understood and agreed by all parties, and Service Level Agreements will be put in place
Adapt or build: an ICS will need to decide if it is expanding the remit of an existing subsidiary or setting up a new one. Again, it’s important to reach agreement on this within the ICS.
There’s a lot to think about. If you have any questions regarding NHS subsidiary companies, do get in touch with us.
