Independent review of governance of NHS endowments: Health Secretary statement

Deputy Presiding Officer, I am grateful for the opportunity to provide an update to Members on the Independent Review of Governance of NHS Endowment Funds.

In 2019, the then Cabinet Secretary for Health and Sport commissioned the Review to consider and provide recommendations on changes that could be enacted to strengthen governance arrangements for NHS endowment funds.

The Review is being published today and in my statement I will summarise the key findings and recommendations, alongside of course our next steps.

Before I do, it is important to provide some context, both on the need for the Review and for the resulting recommendations.

In terms of background, members will be aware that NHS endowment funds are charities. There are sixteen such NHS-linked charities in Scotland, each registered with OSCR, the charity regulator.

The underlying legislation is contained within the National Health Service (Scotland) Act 1978.

This gives power to a Health Board “to accept, hold and administer any property on trust for purposes relating to any service which it is their function to make arrangements for, administer or provide, or to their functions with respect to research”.

Each charity is therefore a trust and, in line with the 1978 Act, the charity trustee of each NHS-linked charity is the related NHS Health Board, acting as a single corporate trustee.

This means that board members of the NHS Board also act as trustees of the related charity.

The decision to commission the Review, as members will remember, was prompted by a report from OSCR in February 2019, following their inquiry on the use of endowment funds by NHS Tayside.

OSCR found that while charitable assets were used only for the purposes of the charity – which are the same as those of the Health Board – there was inadequate separation of the interests of the charity and of the NHS Board in the decision making.

OSCR considered this an issue inherent in the structure of the charities – with Health Boards as corporate trustees – and recommended a review of the governance arrangements of the endowment funds and also of the 1978 Act in this respect.

Before I turn to the findings and recommendations of the Review, let me place on record my sincere thanks to the Chair, Julie Hutchison, to the project team, to the reference group and the specialist subgroups, and to all those involved, for the time and care that has gone into this Review.

I would also like to pick up on the point made by the Chair of the Review – more of a reflection, rather than a recommendation.  

And in her words, she says: ‘This report shines a light on a particular group of charities in Scotland which deserve to be better known.’

The is reflected in comments from one donor, who observed that people may not know that they can raise and donate funds to a local NHS charity, and that beneficiaries may not know that charitable funds have provided something from which they have benefitted.

This Review considers governance arrangements and in doing so, it highlights the importance of the work of these charities and provides us with very helpful recommendations to support that work in the future.

I now turn to the findings and recommendations.

The Review found – as did OSCR  – that an ‘inherent conflict of interest’ exists in the structure of the funds.

First and foremost, this is seen in the dual role of NHS Board members, who are also officers of the corporate trustee of the related NHS charity.

In these dual roles, they are required to make decisions both on how to direct charitable funds, and on managing Board finances in order to deliver the required services and to meet the statutory requirement of financial break-even at year end.

Let me be clear, it was not the finding of OSCR or indeed of the Review that there was widespread issues in the decisions being made on use of the charitable funds.

Rather, it is the case, as reflected in their findings, that the current situation puts Health Boards in a difficult position and open to criticism when making spending decisions on behalf of the NHS charities.

It is also the case that under the current legislation, the statutory purpose of the Health Board and the related charity are the same.

As a result, the same item of expenditure could validly be incurred by the Health Board or by the related NHS charity.

While there is no legal requirement to do so, to address this overlap, Health Boards have themselves established practices to separate out core spending and non-core spending.

That is, those items to be publicly funded by the Health Board and enhancements to be funded by the linked charities.

However, there is no legally binding governing document for these NHS Charities.

It is this lack of separation between the Health Boards and the related NHS charity that needs to be addressed.

The Review makes a number of recommendations – 28 in total –  to do this and to improve the overall governance arrangements of these NHS charities.

The most significant of the recommendations is replacing the existing corporate trustee with a charitable board which would comprise an independent chair and a majority of independent members.

This means a chair and a majority of members that are not drawn from the executive or non-executive membership of the related NHS Board.

The Review also recommends publicly available and legally governing documents for each endowment fund and the introduction of limited liability for board members of the endowment funds.

It makes further, related recommendations on recruitment and training of trustees and on communication, including ongoing interactions between the Health Board and the charity.

Deputy Presiding Officer, I will turn to our response to those recommendations and how we will take forward the recommendations in this Review. 

I accept the recommendations of the Review absolutely in principle, but there is some work to be done on precisely how we take forward these recommendations to ensure appropriate consultation, to ensure no unintended consequences, of course, and to support our NHS Boards through implementation.

The legislation governing the NHS charities dates back to the 1970s.

As the Review rightly sets out, times have moved on, and so must we.

There are significant sums held in these funds. It is not just the money that we must protect, but, of course, the intent behind those funds.

Since their establishment, many people have donated to these funds.

Often friends and family members of loved ones who have received care from the related Health Board, or indeed the recipients of that care themselves.

They have donated in order to ‘give back’, to support the people and services that supported them in their hour of need, and to improve the experience for others in the future.

This has never been more true than now, with unprecedented levels of donations to NHS charities seen throughout the course of the pandemic.

As the Chair of the Review reflects, these charities are ‘uniquely placed to play a creative and much-needed role in supporting how we cope with and recover from COVID-19’.

Trustees are required to consider the interests of the charity  separately and distinctly from those of the  Health Board.

I fully accept that we need to ensure that structures and governance arrangements safeguard endowment funds and support those responsible to act in the best interests of the charities at all times.

I also accept that the current legislation simply does not adequately provide for this, and that taking forward the recommendations from the Review –  to separate the people and the purpose of the charity –  would address the inherent conflict of interest that I have spoken about extensively in this statement.

As the Review sets out, the creation of an independent board would provide trustees whose focus is no longer split between the Health Board and the charity, and allow the charity to shape its own strategy, of course linked, yet separate, to that of the Health Board.

Fully adopting the recommendations will require legislative change and it will first require the precise mechanism for that change to be determined. It will also involve significant work for our Health Boards.

This will not be necessarily the quickest process but of course we will ensure it goes forward with pace. It will require consultation with stakeholders, including OSCR and, indeed NHS Boards and, of course, those who donate to our NHS charities.

It will also require support for our NHS Boards in taking forward this change when it comes.

Deputy Presiding Officer, while changes will take time, I want to emphasise to Members today my commitment to improving the governance structures and frameworks for our NHS charities.

I will urgently explore what can be done now, before legislation is hopefully passed by this Parliament. What more can be done at this stage to improve governance and accountability on these important matters.

This is a commitment that is shared and that we will progress with our NHS Boards and with OSCR.