Bizarre VAT loophole means NHS Trusts are encouraged to hive off internal pharmacies to companies - putting the public service ethos at risk.
Half of NHS trusts have outsourced their outpatient pharmacies to save tax, according to NHS figures – with unions warning that it undermines staff pay and conditions.
A report in the Pharmaceutical Journal highlights figures from the most recent ‘Pharmacy and Medicines Optimisation Benchmarking Project’ report, showing that 50% of the 106 NHS trusts that supplied data have a ‘subsidiary’ outpatient pharmacy.
A third (34%) of trusts had outsourced the service to a commercial firm, with 16% having created a ‘wholly owned subsidiary’ (WOS) pharmacy.
Under the current law, NHS Trusts have to pay VAT on their medicines. However, VAT can be avoided for Trusts’ outpatient pharmacies by “enter[ing] into a contract with a third-party pharmacy company” – with these “qualifying goods” being exempt from VAT.
Helga Pile, deputy head of health at Unison, told The Pharmaceutical Journal that outsourcing outpatient services “creates major concerns about quality and accountability.”
“The reality is that staff working for these companies will often be earning significantly less than colleagues who are employed directly by the NHS,” she said.
As Patients4NHS have noted: “This loophole has been the main stimulus for some NHS Trusts to set up subsidiaries, although there have been attempts by the NHS Improvement, and the Treasury, to clamp down on the use of SubCos for tax avoidance purposes, saying that any VAT savings made should always be merely a by-product of setting up a SubCo…
“Where SubCos clearly make savings is with the employment of new members of staff – in almost all cases they will not be on the same terms and conditions or have the same pension arrangements as the staff they work alongside who have been moved from the NHS.”
In 2019 Betsi Cadwaladr and Cardiff and Vale health boards announced plans to privatise pharmacies in their hospitals.
The union Unison said healthcare workers spoke of their shock at the attempt to ‘undermine the public service ethos of the Welsh National Health Service.’
Betsi Cadwaladr said it wanted to reduce costs and save on tax and claims it does not have enough staff to dispense medication to the standard it would like. However, Unison questioned how the private sector would improve the quality of services with less money.
Josiah Mortimer is Editor of Left Foot Forward. Follow him on Twitter.
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