Relief for councils as NHS trusts lose High Court bid to claim £1.5bn charities reduction on business rates

A group of 17 NHS foundation trusts have failed to persuade a High Court judge that they are charities and so eligible for substantial reductions on the non-domestic rates payable on the properties they occupy.

In Derby Teaching Hospitals NHS Foundation Trust & Ors v Derby City Council & Ors [2019] EWHC 3436 (Ch) the claimants asserted that the relevant properties, mostly hospitals, were wholly or mainly used for charitable purposes (whether of that charity or of that and other charities).

They argued that they therefore met the requirements of sections 43(5) and 43(6) of the Local Government Finance Act 1988 and were only liable for 1/5 of the rates otherwise due.

The defendants, 45 rating authorities in whose areas the 17 claimants occupied relevant properties, denied that the NHS trusts were charities, and that the relevant properties were wholly or mainly used for charitable purposes.

The case before Mr Justice Morgan concerned the preliminary issue of whether the NHS foundation trusts were charities.

The judge said that in the case of the lead claimant, Derby Teaching Hospitals NHS Foundation Trust, alone, it claimed to recover in excess of £17m in respect of the period of six years prior to its claim.

“Plainly, if a foundation trust can rely on section 43(6) of the 1988 Act and if every foundation trust in the country were to claim repayment of the rates it had paid in the last six years, the sums involved would be very significant,” Mr Justice Morgan said.

Finding for the defendants, the judge concluded that a foundation trust is not established for charitable purposes only and so is not a charity within the meaning of section 67(10) of the Local Government Finance Act 1988 or section 1(1)(a) of the Charities Act 2011. A foundation trust is therefore not a charity for the purposes of section 43(6) of the 1988 Act.

Responding to the decision by the High Court, a spokesperson for the Local Government Association said: “Today’s ruling is good news for councils and the local services our communities rely on across the country.

“Councils, supported by the LGA, are pleased this common-sense decision will not see them having to pay NHS Trusts and Foundation Trusts £1.5bn in unfounded backdated business rates relief nor see them eligible for 80% relief going forward.

“Business rates, alongside council tax, are an extremely important source of income for local government so this would have huge implications for residents and the vital local services they rely on.”