Monitor, the health regulator has released its review of whether there is a level playing field for all bodies who provide health services to the public. One of their conclusions is that the ability of only public sector health providers to reclaim VAT under the contracted-out services rules is a distorting factor giving them a cost advantage over other providers.

The review cites examples where other types of provider (private or charitable sector) have lost contracts to public providers because of the rules allowing VAT refunds to public providers on contracted-out services. However, and ironically, public sector providers are not supposed to qualify for refunds under these rules where such VAT refunds would significantly distort competition.

Monitor's conclusions are that the Government should:

  • review whether certain public sector providers remain eligible for VAT refunds in these circumstances
  • report on the case for extending VAT refunds to some charitable NHS-funded health care providers by the Budget in 2014.

This raises some important questions:

  • If the aim is to create a truly level playing field, why restrict this to certain charitable providers of care? Why not extend it to all bodies providing such services, whatever the nature of those bodies?
  • Is the Government able to extend these rules or are its hands tied? They are dervied from EU rules intended for the public sector only - indeed there are a variety of pseudo-public sector bodies who also fall outside these rules, who would have valid claims to be included within any such extension if one were possible. 
  • By including charitable providers within these rules, might they also need to become subject to other public sector-type requirements, such as procurement rules?

If these issues prove too difficult, the Government may be inclined to concentrate on only the first recommendation and level the playing field by strictly enforcing the current restrictions - resulting in higher VAT receipts for the Treasury and correspondingly greater funding requirements for public sector providers.