VAT and the NHS: Assessing the Loophole that Unfairly Advantages Private Companies

Will Stent discusses the longstanding VAT loophole that has allowed private companies an deliberate unfair advantage in bidding for NHS contracts.

Since taking office, the Conservative government has embarked on a commitment to increase the role of private providers and private companies within the NHS. The 2012 Health and Social Care Act broke the door open to private investment. Not only that, but the Act deliberate restructured the management systems of the NHS, and in doing removed these management structures outside the view and scrutiny of parliament. Decisions and information regarding private investment and the processes of competitive bidding have therefore been taken away from the main entity of public accountability and awareness. This has allowed questionable practices and unjust systems, either resulting from deliberate decisions or as inadvertent side-effects, to continue to be exploited and unchecked.

An example of such a fundamentally unfair practice – one that has been allowed to continue, and one that is beneficial to private companies and unfair to public NHS trusts – is the way in which private firms have been able to underbid NHS trusts because of a loophole in VAT. Under current policy, private companies, as businesses, can retrieve the VAT they accumulate whilst buying medicines, effectively eliminating VAT on these purchases. The NHS is not extended this same privilege. This establishes a deliberate competitive advantage for private firms, and means they are able offer services at an apparent ‘cheaper’ price than public providers.

The evidence for this originates from the private healthcare provider Bupa, who posted the following table on their website explaining how they are able to offer chemotherapy treatment at a lower cost than the NHS – though only because of this advantageous arrangement on VAT:

The hypocrisy of having such a clear advantage in favour of private companies embodied in the Conservative’s wider policy of an internal market that is supposedly built on being ‘fair and competitive’ is obvious, and has been called-out by a number of public interest groups. Richard Murphy, policy adviser at the Tax Research UK, said:

 “For some reason the Government has decided private pharmacies can get VAT relief but have not extended it to the NHS. It is an absurd situation that has become a huge issue due to the new situation where the NHS is now an internal market.”

The existence of such unchecked bias in favour of private companies should be a surprise, as should the fact that key government officials knew of its existence and yet did not seek to address it or bring it forward for wider scrutiny. It should be further alarming that, when questioned on the existence of this fact, the Treasury refused to elaborate. But it is not. This is because of the simple reason that, since the passage of the 2012 Health and Social Care Act, government policy has been single-handedly motivated by desire and ideological commitment to privatise the NHS. If achieving this end result means deliberately undermining the NHS and creating a field biased against public providers, then it seems the government are more than willing to exploit opportunities to do so.




‘Revealed: the VAT loophole driving NHS pharmacy services into hands of private sector’, RT (15 May 2015):

Michael Gold, @radicalmic:

Jim Armitage, ‘Revealed: the VAT loophole driving NHS pharmacy services into hands of private sector’, The Independent (22 July 2014):

VAT and the NHS: Assessing the Loophole that Unfairly Advantages Private Companies