NHS: Rules preventing tax-avoiding companies from securing health care contracts scrapped

Exclusive: Ruling finds they ‘discriminate’ against offshore firms

Jim Armitage
City Editor
Monday 08 February 2016 21:01 GMT
Health chiefs have been told not to discriminate against firms that cut tax legally
Health chiefs have been told not to discriminate against firms that cut tax legally (Getty)

Health service rules that prevent tax-avoiding private companies from securing NHS contracts are being scrapped - for fear they “discriminate” against firms with Google-style arrangements.

NHS managers trying to ensure that private contractors do not use tax avoidance strategies are having their efforts overturned due to nervousness about litigation by global corporations, The Independent can reveal.

In recent years many Clinical Commissioning Groups (CCGs) – the bodies which issue contracts for local NHS services – have tried to block companies from bidding for work if they use convoluted tax structures.

But Bristol CCG is now in the process of striking out the rule, after it was questioned during the recent tender to supply children’s community services. Lawyers feared that the rule discriminates against healthcare companies who are legally avoiding tax - allowing them to sue the NHS if they do not win the contract.

The Bristol tender included a bid from Virgin Care, whose parent company is based in the tax-haven British Virgin Islands.

Hackney CCG in London is also reviewing its stance, and anti-tax avoidance campaigners fear others may follow suit in the light of Bristol’s move.

The issue is of growing importance due to the rapid growth in contracting out NHS services to the private sector. Figures show private firms have won £5.5bn of NHS clinical contracts since the 2013 implementation of the Health and Social Care Act, which stipulated that all new NHS tenders be put out to tender.

The Independent was contacted about the issue after revealing that one of the NHS’s biggest equipment suppliers, GE Healthcare, has paid very little UK tax since taking over the giant British company Nycomed Amersham 12 years ago. US-owned GE Healthcare is based in the UK but has a parent company in the Netherlands, a common tax haven.

The investigation led to calls from Shadow health secretary Heidi Alexander for a full inquiry into GE’s suitability to be a supplier to the taxpayer-funded NHS and a rigorous ban on the service dealing with tax avoiders. Many other NHS suppliers are structured using tax havens.

Clauses aimed at preventing tax avoiders from winning NHS contracts were inserted by a number of commissioning groups in response to a public petition from the 38 Degrees campaign group.

Norwich, NHS West Kent, South Devon and Torbay, Brent, Cambridgeshire and Peterborough, North Durham, Wokingham, Kernow and South Worcestershire all appear to have included in their constitutions the clause pledging to “prohibit or restrict contractors’ use of offshore jurisdictions and/or improper tax avoidance schemes… and/or exclude companies which use such jurisdictions…”

The wording was drafted on the advice of two eminent QCs, Rebecca Haynes and Stephen Cragg of Monckton Chambers and Doughty St Chambers.

A source close to Hackney CCG said it was concerned about whether the clause could be implemented and was seeking to change it.

A Bristol CCG spokesperson said in a statement: “If bidders comply with tax law and are not in breach of any obligations to pay taxes… then we should not exclude them from procurement processes as this would be discriminatory. Our solicitors have advised us that if we exclude bidders (assuming that their arrangements are lawful) we would be vulnerable to a legal challenge on the basis we are acting contrary to procurement law.”

US-owned GE Healthcare is based in the UK but has a parent company in the Netherlands, a common tax haven (Getty)

Virgin Care, which did not eventually succeed in the Bristol childcare tender, denied making a complaint about the anti-avoidance clause.

Bristol activist Dr Charlotte Paterson said: “I’m shocked and disappointed that, at this time when tax avoidance is being deemed so unacceptable, our CCG is changing its constitution in this way. Tax avoidance may be legal, but the CCG is also required to take ethical and moral issues into consideration.”

The Unite union’s national officer Colenzo Jarrett-Thorpe, said: “It’s scandalous if a CCG can’t act to prevent private companies from bidding for NHS contracts that have tax avoidance structures in place. The NHS is under massive pressure, patients and staff have a right to be furious that companies can win NHS contracts and scheme how to siphon profits out of the country into far flung tax havens.”

NHS England, which runs the health service and issued the blueprint for CCGs without the anti-avoidance clause, denied speculation that it had been advising local officials to scrap it.

Unions have for years complained that the Health and Social Care Act is a backdoor route to privatisation of the NHS. The Government counters that competition to provide services brings better value for money for the taxpayer.

Since last April, the private sector has won 37% of contracts – hardly a convincing argument either way. Some healthcare industry analysts, however, expect that percentage to get higher as major US healthcare companies seek access to the market.

Virgin Care has been one of the biggest winners from the tenders, having been awarded about £1bn of NHS contracts ranging from running GP surgeries to the £450m contract to manage all of Surrey’s community services.

Virgin Care said its ownership by a British Virgin Islands parent company does not constitute tax avoidance, pointing out that the reason it does not pay tax here is that it is lossmaking.

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