Consolidating NHS charity accounts into those of trusts is a terrible idea

I have spent a lot of time recently listening to charity finance specialists talk about the concept of consolidating the accounts of NHS charities into those of NHS trusts, and they’re pretty much united in describing it as one of the worst ideas they’ve ever heard.

The first thing to say about this debate is that it looks at first glance to be an obscure point of accounting doctrine, but it actually sets a very worrying precedent that the sector must fight hard to avoid.

The second thing to say is that, as far as I can tell, consolidation seems to have only one possible positive benefit to anyone, and it’s got nothing to do with the intentions of those who dreamed it up.

The idea, due to come into force this year, is an unforeseen consequence of an obscure accounting regulation called IAS 27, which says that if a public body ‘controls’ another body, it should list all that body’s assets on its balance sheet.

It applies to NHS trusts because in most cases, they act as sole corporate trustees for their associated charities. And according to IAS 27, if you can appoint and dismiss the trustees of an organisation, you control it. Ipso facto, the assets of hospital charities belong to those hospitals, and ought to be on those balance sheets.

This sets a worrying precedent because it suggests public bodies could use charitable funds as a substitute for public funds.

In fact, it could make it appear as if approximately £2bn in charitable funding is actually Government money, and could offer plenty of scope for fiddling the books in the boardrooms of NHS hospitals.

Curiously, however, despite the fact that this rule appears to be rolling inevitably into existence, none of the parties involved seems to particularly want it: the NHS and the Treasury don’t seem to really care whether trusts consolidate or not, while the trusts themselves are almost as keenly opposed to it as the Charity Commission.

One obvious answer is for the NHS trusts to stop being sole trustees. In fact, trusts have already formed a queue asking for permission to change their governance arrangements.

The commission, however, is lukewarm on this solution, largely because, while it would solve an immediate difficulty, it wouldn’t resolve the real problem – that the Government believes charitable cash can be recorded on a public body’s balance sheet.

Notwithstanding the commission’s view, I think changes in sole trustee arrangements at NHS charities are the one real benefit to come out of this whole thing. I don’t trust NHS trust managers to act impartially as trustees of associated charities.

It’s a job that could easily require them to act against the best interests of their employers. And having a government servant running a charity could reduce public trust in it.

If a better governance structure for hospital charities is the unforeseen consequence of this unforeseen consequence, it can only be a good thing.