Richard New, business rates specialist reviews the case of Derby Teaching Hospitals NHS Foundation Trust and 16 Others v Derby City Council and 44 Others [Charity Commission as Intervener].
The NHS Trusts’ challenge
Judgment has been handed down in a landmark case for NHS Trusts. Seventeen Trusts took forty-five councils to the High Court, contending that the councils were wrong in not affording the Trusts the same business rates treatment as charities.
There have been several high profile court cases concerning the operation of charitable reliefs but none so polarising as this one. If the Trusts had been successful, then the local authorities would have had to refund total monies in excess of £2bn. Public purse vs public purse, but obviously with both parties under different pressures and demands.
A registered charity that uses a property wholly or mainly for charitable purposes qualifies for a mandatory 80 per cent exemption on its business rates bill, with the local authority having the discretion to award the further 20 per cent. The “wholly or mainly” test refers to the physical extent of use of the premises rather than whether the purpose is wholly or mainly charitable.
The Trusts argued that (1) they were charities (2) their premises were wholly or mainly used for charitable purposes, so they should obtain 80 per cent relief from their business rates bills. Although the Trusts had never applied for charitable status through the Charities Commission, the Trusts stated that the advancement of health and saving of lives were plainly for the public benefit and therefore they should be constituted as charities.
The councils disputed this on the grounds that the Trusts were part of a large NHS network which fulfilled a governmental rather than charitable purpose. Charities have a distinct status in law and public finances had been arranged on the basis that the Trusts would not qualify as charities.
Mr Justice Morgan interrogated the evidence and came down in support of the councils. The legislation surrounding charities dictates that the charity must be “established for charitable purposes only”. The drafting of the National Health Service Act 2006 (which authorised the Trusts) was left deliberately wide so that the Trusts could undertake functions which it thought expedient or necessary. These functions need not be exclusively charitable.
Although this ruling follows a strong sense of logic and has been endorsed by the Charities Commission (which is keen to preserve charities’ unique status), the amount of money at stake means that an appeal looks inevitable. There is a chance that the Government will intervene once it has certain other pressing matters out of the way, but the likelihood is that it may be a couple of years before we obtain a final decision on this claim.