Investigation into supply chain finance in the NHS

Department of Health & Social Care

Crown Commercial Service

REPORT

by the Comptroller
and Auditor General

Session 2021-22

29 OCTOBER 2021

HC 734

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Report by the Comptroller and Auditor General

Ordered by the House of Commons
to be printed on 28 October 2021

This report has been prepared under Section 6 of the National Audit Act 1983 for presentation to the House of Commons in accordance with Section 9 of the Act

Gareth Davies
Comptroller and Auditor General
National Audit Office

25 October 2021

Investigations

We conduct investigations to establish the underlying facts in circumstances where concerns have been raised with us, or in response to intelligence that we have gathered through our wider work.

This investigation looks at Greensill Capital (UK) Limited’s (Greensill Capital’s) role in the provision of two schemes to the NHS – firstly, supply chain finance, with particular focus on the Pharmacy Earlier Payment Scheme; and secondly, the Employer Salary Advance Scheme. The investigation also looks at Greensill Capital’s involvement and activities in the run-up to the contract award and the impact of the failure of the company in March 2021 on the NHS.

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The National Audit Office study team consisted of:

Liam Blanc, Jeremy Gostick, Rachel Kift and Lilian Ndianefo, under the direction of Matthew Rees and Robert White.

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What this investigation is about

1 This investigation examines Greensill Capital’s involvement in the provision of two schemes to the NHS – firstly, supply chain finance – with particular focus on the Pharmacy Earlier Payment Scheme to pharmacy contractors; and secondly, the Employer Salary Advance Scheme which allowed NHS employees to access their earned salaries in advance of payday. The investigation also considers the impact of the failure of Greensill Capital in March 2021 on the government, taxpayers, and NHS organisations to which it provided its services.

2 The first scheme, known as the Pharmacy Earlier Payment Scheme (PEPS) was an arrangement administered by NHS Business Services Authority (NHSBSA) and contracted to Taulia Inc (a US based company – referred to as Taulia in this report) and its subcontractor Greensill Capital. PEPS enabled pharmacy contractors in England to be reimbursed for dispensing prescriptions earlier than the normal payment timetable by accessing private capital advanced by Greensill Capital, which Greensill Capital later collected from NHSBSA. The second scheme, known as Earnd and provided through Earnd UK (a company owned by Greensill Capital), was a salary advance scheme used by some NHS trusts in England. It allowed employees to receive a proportion of their earnings before payday without paying fees.

3 The failure of Greensill Capital in March 2021 has triggered several reviews and investigations.1 On 16 April 2021 the Prime Minister commissioned Nigel Boardman to examine the development and use of supply chain finance by Greensill Capital in government.2 This report was published on 22 July 2021 and recommendations were issued shortly afterwards.3,4 The Treasury Select Committee held oral evidence sessions on 13 and 27 May 2021 and published a report on the lessons from Greensill Capital on 20 July 2021.5 The Committee of Public Accounts held its own sessions on lessons from Greensill Capital on 22 April, 13 May and 22 July 2021. Witnesses at the evidence sessions included former Prime Minister, David Cameron and Lex Greensill, founder of Greensill Capital.

4 Following the hearings by the select committees, the Comptroller and Auditor General decided to examine Greensill Capital’s involvement in supply chain finance for community pharmacies and NHS employees – given recent events and the Committee of Public Accounts’ interest in this area.

5 Our audit approach has been to review documents and conduct interviews with government officials and senior members of NHS trusts, national bodies, and suppliers. The investigation concerns processes in England only; separate administrative arrangements apply in Northern Ireland, Scotland, and Wales.

6 The report does not seek to examine and report on the value for money of using supply chain finance or the two schemes.

1 Comptroller and Auditor General, Investigation into the British Business Bank’s accreditation of Greensill Capital, Session 2021-22, HC 301, National Audit Office, July 2021, paragraph 7. Available at: www.nao.org.uk/wp-content/uploads/2021/07/Investigation-into-the-British-Business-Banks-accreditation-of-Greensill-Capital.pdf

2 Cabinet Office, Review into the Development and Use of Supply Chain Finance in Government – Terms of Reference, April 2021. Available at: www.gov.uk/government/news/review-into-the-development-and-use-of-supply-chain-finance-in-government-terms-of-reference

3 Cabinet Office, Review into the Development and Use of Supply Chain Finance (and Associated Schemes) in Government, Part 1: Report of the Facts, July 2021. Available at: assets.publishing.service.gov.uk/government/uploads/system/uploads/attachment_data/file/1018175/A_report_by_Nigel_Boardman_into_the_Development_and_Use_of_Supply_Chain_Finance__and_associated_schemes__related_to_Greensill_Capital_in_Government_-_Report_of_the_Facts.pdf

4 Cabinet Office, Review into the Development and Use of Supply Chain Finance (and Associated Schemes) in Government, Part 2: Recommendations and Suggestions, August 2021. Available at: assets.publishing.service.gov.uk/government/uploads/system/uploads/attachment_data/file/1018176/A_report_by_Nigel_Boardman_into_the_Development_and_Use_of_Supply_Chain_Finance__and_associated_schemes__related_to_Greensill_Capital_in_Government_-_Recommendations_and_Suggestions.pdf

5 HC Treasury Committee, Lessons from Greensill Capital, Sixth Report of Session 2021-22, HC 151, July 2021. Available at: https://committees.parliament.uk/work/1193/lessons-from-greensill-capital/publications/

Summary

7 Supply chain finance is a financial transaction whereby a lender finances a supplier on behalf of the customer. In this case, it allows the pharmacy (supplier) to be paid for prescriptions dispensed earlier than the NHS (customer) timescales in return for a fee or interest charge from the lender (Greensill Capital). Pharmacies paid interest and fees based on the value of their claim and the duration of financing. Similarly, for the salary advance scheme, Greensill Capital provided the employee with the salary advance on behalf of the NHS and claimed the money from the NHS following the monthly payroll run. While Greensill Capital did not charge for the salary advance scheme, some of its competitors, one of which has now taken over the Greensill Capital provision, charges both the employee and the employer.

8 The Pharmacy Earlier Payment Scheme (PEPS) was introduced by the Department of Health & Social Care (the Department) in 2013 in order to improve cashflow to community pharmacies for the reimbursement of dispensing prescriptions. The normal payment timetable for NHS Business Services Authority (NHSBSA) is to settle claims up to two months in arrears. Under PEPS, pharmacies were paid one month earlier than normal through loans provided initially by Citibank (until 2018), and then by Greensill Capital, as subcontractor to Taulia Inc (a US based company – referred to as Taulia in this report). NHSBSA’s call-off contract with Taulia, and its subcontractor Greensill, was awarded following Taulia’s appointment to a single supplier framework agreement (the Supplier Early Payment Solution) created by the Crown Commercial Service (CCS).6

9 In July 2020, under the existing NHSBSA contract, the scheme changed to providing funding to pharmacies up to two months earlier than the normal payment timetable and up to one month in advance of the current month’s dispensing of prescriptions. The failure of Greensill Capital in March 2021 resulted in the Department stepping in to instruct NHSBSA to reimburse pharmacies. It therefore made payments in advance of need, which Managing Public Money states should be “exceptional and should only be considered if a good value for money case for the Exchequer can be made”.7 NHSBSA sought and received approval from the Department and HM Treasury to make these payments, to ensure pharmacy reimbursement was not adversely affected.

10 Between 2019 and 2021, Greensill Capital actively marketed a salary advance scheme called ‘Earnd’ to NHS trust employers and other central government bodies, as a free service that would allow employees to draw down a proportion of their earnings before payday. Greensill Capital told employers that the service was free as part of its corporate social responsibility agenda, and it sought to secure the NHS as a customer before commercialising Earnd in the private sector. Some NHS trusts contracted directly with Greensill Capital because the service was free and appeared to align with initiatives to support employees’ financial wellbeing, and a small proportion of employees used the service in these NHS trusts. The failure of Greensill Capital in March resulted in some NHS trusts ceasing to offer salary advances, and others switching to offer a paid service available from an alternative provider.

Key findings

Supply chain finance for community pharmacies

11 The government did not undertake a separate procurement exercise for the original PEPS, which ran for five years, as the operation of the scheme was awarded to Citibank under a pre-existing contract with the Government Banking Service. Citibank had pitched the idea of introducing a supply chain finance scheme to government in 2011, and Lex Greensill participated as a senior employee of Citibank. The original PEPS was awarded to Citibank under an existing contract with the Government Banking Service and ran from April 2013 until 2018 (paragraph 2.13).

12 Lex Greensill advised the government on supply chain finance from 2012 to March 2017 and also founded Greensill Capital, which was a subcontractor to Taulia as part of its November 2017 bid to provide supply chain finance services to the public sector. Greensill Capital was incorporated in June 2012. Lex Greensill was a government adviser for supply chain finance in the Cabinet Office between 2012 and 2015. He continued to provide market and pricing advice to government on supply chain finance. He attended a key meeting in March 2017 which considered the setting up of a government framework agreement for supply chain finance. Following this meeting, CCS told us it engaged with market participants to inform the strategy for the framework and tendered for a supplier early payment solutions framework in November 2017. CCS also told us that it first became aware that Greensill Capital had been appointed as a subcontractor to Taulia when Taulia submitted its bid, and that it did not consider Lex Greensill’s previous engagement with government sufficient grounds under the regulations to reject Taulia’s bid. We have seen no evidence that there was any discussion of a potential conflict of interest in relation to Greensill Capital being appointed as a subcontractor for supply chain finance services, about which Lex Greensill had earlier provided advice (paragraphs 1.8, 2.12, 2.16 and 2.21).

13 There is no evidence that the predicted benefits and savings from introducing supply chain finance into pharmacy reimbursement processes in 2013 were realised. The Department’s business case was approved by HM Treasury in December 2012. Based on advice provided by Lex Greensill, the Department assumed that the NHS could achieve savings of £100 million per year in pharmaceutical supplies through supply chain finance. The Department is unable to provide evidence of realised benefits (paragraphs 2.6, 2.8, 2.9 and 2.17 to 2.19).

14 Greensill Capital supported Taulia’s bid by providing supply chain financing for pharmacies, and by acting as Taulia’s financial guarantor during the framework procurement, while Lex Greensill also intervened to support Taulia’s legal correspondence when its bid was initially considered to have failed during the 2018 framework procurement process. Lex Greensill wrote to complain and threaten legal action when assessors excluded Taulia’s bid on the grounds that it did not reach the minimum quality threshold score on a criterion about growth in the number of contracts and value of transactions. CCS rejected engagement with Lex Greensill on the grounds that it was inappropriate during a live procurement. CCS allowed for a standard 10-day standstill period to allow for challenges to the outcome of the process. No challenges were forthcoming and Taulia was eventually appointed as the sole supplier on the Supplier Early Payment Solutions framework (paragraphs 2.21 to 2.23 and Appendix Two).

15 The 2018 framework agreement related to two Supplier Early Payment Solutions – supply chain financing (which became PEPS) and ‘dynamic discounting’ which was used by local authorities. The selection of the successful bidder relied finally upon a price auction which attached a weighting to dynamic discounting that was almost double the weighting for the supply chain finance element. CCS expected £888 million combined transaction value through the framework in 2018-19, comprising PEPS spend of £828 million and £60 million of local authority dynamic discounting spend (a ratio of 93:7 in favour of PEPS). Despite the higher transaction value for supply chain finance the weighting applied to bids in the eAuction was 65:35 in favour of the dynamic discounting scheme, to incentivise bidders to offer the scheme to local authorities via the framework. At this final stage other criteria played no further role in the supplier selection (paragraphs 2.20, 2.22, 2.23 and Appendix Two).

16 Taulia’s, and its subcontractor Greensill Capital’s, price for the supply chain finance offering was higher than Citibank’s bid, but its dynamic discounting charge was lower, resulting in Taulia winning the eAuction. The expected increase in new business for dynamic discounting never materialised. A cumulative transaction value of £3.32 billion of pharmacy loans passed through the framework during its lifetime (this represented a monthly capital requirement for the finance provider of about £144 million). CCS told us this was broadly in line with its expectations at the launch of the framework. Dynamic discounting used by local authorities, through the CCS framework, did not meet CCS’s expectations and totalled £6.5 million (paragraphs 2.22, 2.23 and Appendix Two).

17 The anticipated levels of participation by community pharmacies in the scheme did not materialise. CCS and the Department estimated that 60% to 80% of pharmacies would enrol in PEPS by 2022-23. Fourteen percent of pharmacies participated in the scheme when Taulia and its subcontractor, Greensill Capital, took over PEPS in July 2018, and this remained broadly flat until June 2020. CCS charged a levy for the use of the framework to cover its operating costs and NHSBSA was also paid a share to cover development and administration costs. Taulia shared its fees with Greensill. CCS told us that the total charge incurred by participating pharmacies remained at the same level as under the previous scheme (paragraphs 2.18, 2.28 and Figures 5 and 6).

18 NHSBSA amended PEPS within the existing arrangements from July 2020 at the request of the Department. This amendment allowed pharmacies to obtain funds at the beginning of the month, prior to dispensing, thereby introducing a higher risk to the lender in the event of a pharmacy failing. The Department changed PEPS under the existing NHSBSA call-off contract in July 2020, providing access to loans with a duration of up to 60 days, which were issued up to one month before dispensing activity. The lender bore the additional risk of a pharmacy borrowing money at the start of the month but ceasing to trade before dispensing prescriptions in the month ahead. Following the change, participation increased by more than one-third and by March 2021 around one-fifth (2,170) of the community pharmacies in England were participants. The Department did not produce a business case for this change to PEPS because it considered that there were no taxpayer implications associated with the change to risk (paragraphs 2.25 to 2.28).

19 The combination of the collapse of Greensill Capital, and the need for government to step in to pay pharmacies, resulted in the Department making payments in advance of need under exceptional circumstances. NHSBSA learned that Greensill Capital could not fund the March 2021 payment to pharmacies and informed the Department. The Department instructed NHSBSA to make payments relating to predicted dispensing activity – resulting in payments being made to pharmacy contractors for prescriptions up to 30 days before dispensing. This is only permitted in exceptional circumstances under HM Treasury guidance set out in Managing Public Money. HM Treasury provided approval for these monthly payments, which resulted in an increase in cash requirements of £144 million. This represents an annual expense of around £144,000 based on current borrowing rates. Due to low participation and current low interest rates, the cost to taxpayers was minimal (paragraph 2.29 and Appendix Two).

20 No other finance provider was willing to take on the risks that Greensill Capital had assumed in its role as subcontractor, and the contract with Taulia was terminated by NHSBSA in June 2021 on instructions from the Department. Taulia was unable to find an alternative subcontractor willing to cover the risk of a pharmacy going bust after it had received payment for medicines yet to be dispensed (paragraph 2.30).

21 The Department intends to introduce a revised payment timetable for all pharmacies in November 2021, which will reduce the normal payment timetable by 20 days. Since March 2021 NHSBSA has continue to pre-fund pharmacies that were opted into PEPS. The last such payment will be made in October 2021, and from November 2021 pharmacies will start transitioning to a revised payment timetable that requires pharmacies to submit claims electronically by the 5th of the following month, in order to be reimbursed by NHSBSA in four working days (paragraph 2.31).

Salary advance schemes for NHS employees

22 Employer Salary Advance Schemes (ESAS, or salary advance schemes) are not regulated by the Financial Conduct Authority (FCA). These salary advance schemes are digital services that link an employer payroll process to an employee smartphone app to offer advances of accrued earnings from a finance provider before payday. They do not usually involve the provision of credit or other credit-related regulated activities and are not regulated by the FCA. In July 2020 the FCA published a statement setting out its views on the benefits and risks of salary advance schemes and how to mitigate these risks. In February 2021, the FCA published a report by Chris Woolard that recommended that scheme providers and employers develop a code of good practice for salary advance schemes. The FCA told us it planned no further interventions for the sector (Appendix Three).

23 The salary advance scheme was actively marketed to NHS trusts by Greensill Capital. From October 2019, Greensill Capital marketed its salary advance scheme, Earnd, to NHS trusts at zero cost to employers or employees. Representatives of Greensill Capital often attended NHS group meetings of trust leadership and senior management to pitch the service. Greensill Capital explained that providing a free alternative to high-cost loans for NHS employees was an act of corporate social responsibility (paragraphs 3.11 to 3.15).

24 Greensill Capital considered that a track record for Earnd with NHS employers would convince private sector employers to engage on a commercial basis. Greensill Capital also proposed other supply chain finance solutions to NHS trusts, but we are not aware of any NHS trusts that took this forward (paragraphs 3.16 and 3.17).

25 NHS trusts told us that they implemented the scheme on the basis that it would improve financial wellbeing for employees. We identified seven NHS trusts that implemented Earnd. These NHS trusts thought that salary advance schemes could help support employees’ financial wellbeing. Greensill Capital’s free service made it more attractive than alternatives and some said it was not their policy to charge employees for access to their salary (paragraphs 3.7, 3.14 and 3.30).

26 There was limited employee uptake of the schemes in the NHS trusts we spoke to. Our sample of NHS trusts indicated that between 1.3% and 10% of staff have used salary advance schemes; active users typically drew down between £25 and £84 per transaction; and the most common number of transactions per active user was two to five per month (paragraph 3.25 and Figure 9).

27 The Department’s policy is that individual NHS trusts are responsible for deciding whether or not to offer salary advance schemes to their employees. The Department told us that its policy position on salary advance schemes is that their use is a matter for individual NHS trusts and for that reason it would not provide advice or guidance to NHS trusts on the schemes. The Department also stated that NHS trusts were best placed to decide how different pay flexibilities, such as salary advance schemes, fit with their overall reward strategies (paragraphs 3.9 and 3.10).

28 Government advised departments not to implement salary advance schemes, but this advice was not cascaded to the Department’s arm’s-length bodies (ALBs). Guidance issued by Civil Service Human Resources in December 2020 to accounting officers reminded them that novel financing arrangements, including salary advance schemes, required caution, and needed departmental accounting officer and HM Treasury approvals. We have seen evidence that some departments declined approaches by Greensill Capital to subscribe to its salary advance scheme, but it appears they may not all have cascaded this information to their ALBs. The Department told us that, owing to an oversight, it cascaded guidance to its ALBs only recently. It also told us that as NHS trusts are not ALBs of the Department it would not be normal practice to disseminate this advice to the NHS (paragraphs 3.31 to 3.33).

29 The failure of Greensill Capital resulted in some NHS trusts switching to a paid for salary advance scheme. When Greensill Capital failed in March 2021, the Earnd UK business (formerly FreeUp Finance Limited) ceased to operate. Wagestream, an existing market participant, which provides various wellbeing services (including Earned Wage Access, also known as salary advance) acquired Earnd Australia, along with global trademarks and intellectual property and the rights to approach Earnd’s customers in the UK. Wagestream charges for its services – typically an implementation sum or annual software fee to the employer, as well as £1.75 per transaction which is either subsidised by the employer or paid by the employee. Some NHS trusts have switched to this provider, thereby incurring costs where previously they received the service for free (paragraphs 1.14, 3.34 and 3.35).

6 We have described advance payments to pharmacies as loans as this is more widely understood than the terms ‘receivables’ and ‘account receivable discounts’ suggested by Taulia and Citibank respectively.

7 HM Treasury, Managing Public Money, June 2021, paragraph A4.8.5.

Part One

Introduction

1.1 This section provides a timeline of key events and identifies the relevant organisations.

Timeline

1.2 Figure 1 contains a timeline of key events relevant to this investigation and shows that Lex Greensill first advised government on supply chain finance 10 years ago and was appointed as a subcontractor to deliver the Pharmacy Earlier Payments Scheme (PEPS) in 2018. The timeline for Earnd spans a period of around 18 months. Appendix Two contains a more detailed timeline for the establishment of the Supplier Early Payment Solutions framework agreement.

Organisations relevant to this investigation

1.3 This investigation refers to some NHS trusts that implemented salary advance schemes. It also refers to various organisations including government departments, arm’s-length bodies, and companies, as shown in Figure 2, and described below.

Government departments and arm’s-length bodies

1.4 The Department of Health & Social Care (the Department) is responsible for health and social care and has overall oversight of NHS national bodies responsible for administering the scheme – including NHS Business Services Authority (NHSBSA) and other national bodies responsible for regulating NHS trusts. Monitor is the economic regulator for foundation trusts, the NHS Trust Development Authority oversees NHS trusts, and NHS Improvement (NHSI) is the umbrella body that oversees all NHS trusts, given it incorporates both of these statutory bodies. NHSI has been folded into NHS England (NHSE) in terms of its management structure and together both are referred to as NHSE&I.

1.5 NHSBSA is an arm’s-length body of the Department that delivers a range of services to the NHS in England and manages more than £35 billion of expenditure annually. NHSBSA reports that as a delivery organisation it is responsible for enacting the policy decisions of government. Amongst a range of platforms and services provided in support of the NHS and wider health and care system, it processes prescriptions, maintains the drug tariff, and collects data from invoices submitted by pharmacy contractors that are then used by the Department to run the medicines margin surveys which pays for NHS pharmaceutical services. NHSBSA also has responsibilities for paying NHS pensions and managing the commercial contract for the centralised Electronic Staff Record on behalf of most NHS employers in England.

1.6 The Cabinet Office is the government department responsible for central oversight of a range of commercial functions in government, including public procurement policy and the Crown Commercial Service (CCS). CCS is a trading fund and an executive agency of the Cabinet Office, which helps organisations across the public sector to purchase goods and services. In the year ended 31 March 2021, CCS’s total income was £132.7 million, and expenditure was £76.9 million, delivering a surplus before other operating costs of £55.8 million (42%).

1.7 HM Treasury is the central finance department of government. It is the sponsor department for the Financial Conduct Authority (FCA). The FCA is responsible for regulation of consumer credit firms and authorisation of firms undertaking regulated activities.

Companies

1.8 Greensill Capital (UK) Limited was incorporated on 2 July 2012 and was part of a group of companies founded by Lex Greensill to provide supply chain finance. Other group companies include Greensill Capital (UK) Limited (company registration 08126173); Greensill Capital Management Company (UK) Limited (8037769); and Earnd (UK) Limited (11391391). Earnd (UK) Limited (Earnd) was founded on 31 May 2018 and acquired by Greensill Capital in October 2019 as part of its entry into the salary advance scheme market. Greensill Capital appointed administrators on 8 March 2021.

1.9 Taulia Inc is a US company headquartered in San Francisco and founded in 2009. It provides technology to support supply chain finance solutions. It was appointed by NHSBSA in 2018 to deliver PEPS via a call-off contract under the CCS framework agreement, for which Greensill Capital was its guarantor and key subcontractor, as the party providing funding for purchase of the pharmacy early payments.

1.10 Citibank is a financial institution headquartered in the US with international operations. Citibank provided supply chain finance for the pharmacy payment scheme between 2013 and 2018.

1.11 Sopra Steria is a French IT services company with a turnover of €4.3 billion (£3.7 billion) in 2020. In the first half of 2021 it generated 18% of group revenue in the UK and reported 8.7% operating profit margin. Sopra Steria is the largest shareholder in two companies that worked with Greensill Capital in relation to Earnd (identified in the following two paragraphs below). The UK government is also a shareholder of both.

1.12 NHS Shared Business Services Limited (NHS SBS) (Company Number 05280446), is a joint venture between the Department and Sopra Steria that was incorporated on 8 November 2004. Sopra Steria Limited holds 5,502 shares (50% plus one share) and the Secretary of State for Health owns 5,501 shares (50% less one share).8 The Department is represented on the board of NHS SBS by a nominated company director. NHS SBS is the largest provider of payroll services to NHS trusts. In the year ended 31 December 2020, NHS SBS reported turnover of £83.2 million and operating profit of £9.5 million (11% profit margin).

1.13 Shared Services Connected Limited (SSCL) (Company Number 08460577) was incorporated on 25 March 2013. Sopra Steria holds 75% of the shares and the government holds 25%. The government is represented on the board of SSCL by a nominated company director. SSCL provides human resources, payroll and administration for government departments. In the year ended 31 December 2020, SSCL reported turnover of £219.3 million and operating profit of £26.8 million (12% profit margin). The National Audit Office has reported on the government’s shared services strategy and referred to SSCL in its 2016 report.9

1.14 Wagestream Limited (Company Number 11173225) provides financial services to its customers including budgeting and Earned Wage Access (or salary advance). The company entered the market in 2018 and lists a number of NHS employers on its website as customers. The company has raised capital from financial charities, impact funds and venture capital investors and reported net assets of £0.5 million at 31 December 2020. Its turnover is not available due to its size and, therefore, reporting exemptions. On 22 March 2021, after the appointment of Greensill Capital’s administrators, Wagestream Limited acquired Earnd Australia – the original ‘Earnd’ business. It also paid £86,000 for the rights to use Earnd trademarks and intellectual property globally, including the UK, through the Earnd UK business, which was separately created through the acquisition by Greensill Capital of a UK provider – FreeUp Finance Limited. The deal also meant Wagestream was, along with any other provider, eligible to discuss its services with NHS trusts previously using the Earnd UK service.

8 Originally this was a 50:50 joint venture between Xansa Limited and the Department. Following a series of mergers, Sopra Steria Limited became the commercial partner. On 1 January 2012, one additional share was issued to Sopra Steria Limited for a consideration of £3,600 (equivalent to a valuation of £39.6 million for 100% of the share capital of the company, before new money).

9 Comptroller and Auditor General, Shared Service Centres, 2016-17, HC 16, National Audit Office, May 2016. Available at: www.nao.org.uk/wp-content/uploads/2016/05/Shared-services-centres.pdf

Part Two

Supply chain finance for community pharmacies

2.1 This section sets out why and how government introduced supply chain finance into the process for reimbursing community pharmacies for dispensing NHS prescriptions in England in 2013. It also outlines how government established a framework agreement to deliver supply chain finance in 2018; made significant changes in 2020; and what happened when Greensill Capital failed in 2021.

The role of community pharmacies in the dispensing and reimbursement process for NHS prescriptions in England

2.2 Community pharmacies provide services to the NHS via the Community Pharmacy Contractual Framework (CPCF or Contractual Framework) – the subject of negotiations between the Department of Health & Social Care (the Department), NHS England & Improvement (NHSE&I), and the Pharmaceutical Services Negotiating Committee (PSNC), which represents pharmacies.10 The number of community pharmacies in England increased by 10% between 2008-09 and 2018-19 to 11,539, and then declined by 3% to 11,236 by May 2021.11 The PSNC estimated that NHS income represents 85% to 95% of turnover for a typical pharmacy.12

2.3 In 2019-20 the Contractual Framework included fees and allowances of £1.792 billion (paid by NHS England) and a medicine margin of £800 million (paid by clinical commissioning groups as part of drug costs). The margin is the difference between the purchase price paid by pharmacies for the items they dispense and the amount that they are reimbursed by NHS Business Services Authority (NHSBSA) and is reassessed annually using survey techniques. According to a Cost of Service Inquiry report produced by PricewaterhouseCoopers in July 2011, the target medicine margin was £500 million in 2009-10.13

2.4 NHSBSA is responsible for processing prescriptions and calculates the reimbursement due to community pharmacies for their dispensing activities, determined by the Drug Tariff. In 2020-21, NHSBSA processed more than 1 billion prescription items with a total price of £8.4 billion.

2.5 Around 90% of NHS prescription items are dispensed to patients who are exempt from charges. Pharmacies receive payment for all dispensed medicines through reimbursements by NHSBSA. All prescriptions dispensed during a particular month are submitted by the 5th of the following month. This equates to around 40 million prescription forms per month. NHSBSA takes 30 days to process, price and calculate the reimbursements due to each individual pharmacy and provides initial reimbursement for their NHS prescriptions.

2.6 Due to the time needed by NHSBSA to process all prescriptions, there is a time lag between pharmacy contractors purchasing and dispensing medicines to fulfil NHS prescriptions and the NHS reimbursing them for the dispensed medicines (see Figure 3). For example, for prescriptions which pharmacy contractors dispense in January, they receive an advance payment on, or around, 1 March. This advance payment is based on the average item value for prescriptions dispensed in December multiplied by the number of items dispensed in January. The true reimbursement for January’s prescriptions is known at the end of March, when January’s Drug Tariff prices are used. The difference between what was paid as an advance payment and what is the true reimbursement, is paid (or subtracted) from the payment made on, or around, 1 April (this is known as the reconciliation payment). Prior to 2013, NHSBSA made advance payment to pharmacies of 80% of what was estimated to be due for January at the beginning of March, plus a reconciling payment at the beginning of April representing the balance of what was owed for January. This meant that pharmacies required working capital to fund the remaining 20% that they owed to wholesale suppliers for a further month. Since 2013, the advance payment issued by NHSBSA has been set at 100%.

Introduction of a supply chain finance scheme for community pharmacies

What is supply chain finance?

2.7 Supply chain finance is a financial transaction whereby a lender finances a supplier on behalf of the customer. In this case, it allows the pharmacy (supplier) to be paid for prescriptions dispensed earlier than the NHS (customer) timescales, in return for a fee or interest charge from the lender (Greensill Capital).

Rationale for introduction of supply chain finance into the pharmacy sector

2.8 In 2012, the Department finalised a two-part business case for changes to pharmacy payments. The first part was to increase the advance payment to pharmacies from 80% to 100% of estimated prescribing activity. According to the business case this “would remove the working capital requirement (currently estimated at £14.5m) and, subject to agreement, this element can then be removed from pharmacy remuneration”. The second part of the business case was to introduce a voluntary supply chain finance scheme, using a private sector partner.

2.9 The Department considered that the introduction of supply chain finance could enable suppliers to secure earlier settlement discounts from their wholesalers, which would be reflected in the medicine margin survey and thereby deliver savings to the NHS. The Department noted that any such savings could not be directly differentiated from the impact of other procurement activity. Nevertheless, the Department’s business case targeted annual savings of £100 million in pharmacy margins through early payment settlements with drug manufacturers, based on advice supplied by Lex Greensill in his capacity as government adviser. The Department told us that it is unable to quantify the savings from early payment scheme to pharmacies. HM Treasury remained unconvinced that there was market failure or that government needed to be involved but approved the business case in December 2012.

Participation of pharmacies in supply chain finance schemes between 2013 and 2021

2.10 Between April 2013, when the Pharmacy Earlier Payments Scheme (PEPS) was first introduced, and March 2021 when Greensill Capital collapsed, community pharmacies in England were able to opt into a supply chain finance scheme. Figure 4 shows how the number of participating pharmacies and the average monthly value per pharmacy has changed since 2013. In 2020-21 the average monthly value of supply chain finance paid by Greensill Capital was £117 million, approximately £63,500 per pharmacy.

2.11 The distribution of participating pharmacies in 2021 shows that ‘medium sized multiples’ represent 48% of participants, whereas independents and small chains (of one to five pharmacies) were less involved (see Figure 5).

The setting up and operation of the Pharmacy Earlier Payment and Estimated Earlier Pharmacy Payment Schemes

The 2013 Pharmacy Earlier Payment Scheme

2.12 Citibank approached the Cabinet Office about the opportunities for using supply chain finance in government, including the NHS, on several occasions in 2010 and 2011. Lex Greensill was central to this pitch as a Citibank employee (at managing director level). Citibank told us that the approaches were unsuccessful. Lex Greensill left Citibank in 2011 and was appointed as supply chain finance adviser to government in November 2011. The government subsequently renewed its interest in supply chain finance and the NHSBSA board considered the use of supply chain finance in July 2012.

2.13 The government did not undertake a separate procurement for the PEPS, as the service would be provided from April 2013 through Citibank’s existing sterling money transmission contract with the Government Banking Service. The agreement expired in March 2016 but was twice extended as the government considered what it should do next.

2.14 Following submission of valid claims by pharmacies, the 2013 PEPS made payments to pharmacies in two tranches. Depending on the date when pharmacies submitted their claims, payments were made either after eight days, or after 12 days compared with the normal payment cycle of 30 days, with pharmacies paying interest on the value of their claim over the 22 days of credit (see Figure 6) or 18 days of credit for the latter tranche. The number of pharmacies participating in PEPS stood at 1,615 (14% of all pharmacies) by the time the Citibank contract ended in June 2018.

The 2018 Supplier Early Payment Solutions framework agreement

2.15 This section summarises key aspects of the appointment of Taulia and Greensill, as contractor and subcontractor respectively, for the continued provision of supply chain finance from April 2018 through the new Supplier Early Payment Solutions framework set up by the Crown Commercial Service (CCS). Appendix Two contains more details about the timeline of events.

Case for continuation of the PEPS through supply chain financing

2.16 At a meeting in March 2017, attended by the permanent secretary of the Cabinet Office, the government chief commercial officer, the crown representative for banking, the Department’s director of group financial management, and Lex Greensill, it was agreed that CCS would create a framework agreement to be used by the whole public sector for supply chain finance, focusing initially on ensuring continuity for the existing PEPS scheme. Lex Greensill advised CCS about the market for supply chain finance and the maximum price that suppliers would be able to charge under the framework agreement. CCS told us that it communicated the maximum price to all suppliers and engaged with numerous other market participants to inform its approach to the market as is standard practice in public procurement. Lex Greensill played no further part in the approach to the procurement.

2.17 The business case outlined the role that supply chain finance could play in government’s payment policy and the ambitions to pay suppliers faster, particularly small and medium-sized enterprises (SMEs). It was noted in the business case that the 2013 pharmacy scheme had not proved particularly successful in encouraging pharmacies categorised as SMEs to participate. The business case for the 2017 scheme emphasised that the scheme would be particularly beneficial for SMEs and would increase SME provision of pharmacy services. Government prompt payment policy was updated subsequently in November 2018 to state that the government commitment is to pay 90% of undisputed and valid invoices from SMEs within five days. Figure 5 shows to what extent SMEs have taken part in the schemes.

2.18 The business case predicted that the total value of transactions via the framework agreement would reach £5.5 billion by 2022-23. Over this period, CCS estimated that the proportion of pharmacy payments made through the scheme would increase from around 10% to 60%, starting from a base of £828 million. CCS considered its estimate to be more realistic than the 80% participation rate estimated by the Department.

2.19 CCS, as a trading fund, is required to be self-funding. It derives its income through levies on suppliers in proportion to the value of the business transacted through its frameworks. The framework also introduced a payment for NHSBSA, of equivalent value to the CCS levy. The total charged by CCS and NHSBSA was set such that the charge on pharmacies was no higher relative to the 2013 scheme. Over the three years that the scheme ran from 2018, the framework generated £280,000 of income for CCS.

Structure of the framework

2.20 The CCS framework consisted of two types of Supplier Early Payment Solutions, both to be provided by the same provider:

‘supply chain finance’. The framework supplier would pay suppliers participating in a relevant scheme (in this case pharmacies) slightly less than the value of their invoice to reflect payment being made earlier than the contracted term. The public sector buyer would subsequently pay the framework supplier 100% of the invoice value; and

‘dynamic discounting’ schemes used in local government which allowed local authorities to pay certain invoices earlier in return for a discount. Local authorities were already operating such schemes. CCS’ market engagement indicated that there were good prospects for growth in this area. The supplier would provide the technological solution but would not be involved in financing.

Selection of Taulia (and its subcontractor Greensill Capital) as supplier for the Supplier Early Payment Solutions framework agreement

2.21 Three companies bid to be the framework supplier. One was discarded on failure to meet minimum quality grounds, leaving Citibank and Taulia. CCS’s commercial finance accountant’s evaluation of Taulia’s Dun & Bradstreet score and a review of its accounts required it to nominate a financial guarantor. Taulia nominated Greensill Capital, which was identified as Taulia’s key subcontractor in its bid. CCS’s assessors initially excluded Taulia from the bidding in January 2018 in line with the published evaluation criteria, as they were concerned about what Taulia said in its bid response about its ability to grow the number of businesses involved in the scheme. Taulia, and Greensill Capital in its role as an identified key subcontractor, protested to CCS. Following a review, and having sought legal advice, CCS asked both bidders to clarify their responses and appointed a new assessment panel, which reinstated Taulia in the competition.

2.22 At the time of preparing its final business case, CCS expected £888 million combined transaction value through the framework in 2018-19, comprising supply chain finance (including PEPS) spend of £828 million and £60 million of dynamic discounting spend (a ratio of 93:7 in favour of supply chain finance). The supplier bids were initially assessed on their quality. Those who met or exceeded minimum quality thresholds were then invited to a price auction weighted 65:35 in favour of dynamic discounting (a weighting to dynamic discounting that was almost double the weighting for supply chain finance). CCS told us that while it was possible to set the maximum charge that a supplier would pay through supply chain finance, it was not possible to do so under dynamic discounting without impacting the growth that CCS foresaw.

2.23 Citibank offered a lower charge to pharmacies for the operation of the supply chain finance, but this was offset by Taulia’s lower charge for operation of the dynamic discounting scheme (see Appendix Two for details). Following the standard 10-day standstill period to allow for challenges to the procurement process, during which none were forthcoming, CCS appointed Taulia to the framework in March 2018, and NHSBSA placed a call-off contract under the framework for the delivery of PEPS in April 2018. Although the dynamic discounting scheme was given significantly more weight in the evaluation of bids, only around £6.5 million has been spent to date through that part of the framework, compared with £3.32 billion through PEPS. CCS told us that the weighting in the evaluation of bids was because its market engagement indicated that there was an opportunity for growth in dynamic discounting from the wider public sector.

2.24 NHSBSA told us that it soon realised that while Taulia’s technology complied with the bidding requirements, it was not suited to NHSBSA’s needs, and that Taulia therefore functioned only to communicate with eligible pharmacies regarding enrolment in the PEPS programme, including the provision of an informational website, and to provide some programme management. NHSBSA provided payment instructions directly to Greensill Capital, who in turn financed the payments to community pharmacies. Greensill was settled by NHSBSA under the contract arrangements when the obligation for payment was due.

Changes to the scheme from July 2020

2.25 In July 2020 PEPS was changed significantly to provide financing to pharmacies before their dispensing activity for the month, based on their prior 12 months’ activity. This provided financing for a period of up to 60 days. The July 2020 PEPS was often referred to by the administering body (NHSBSA) as the Estimated Earlier Pharmacy Payments Scheme (EEPPS) to differentiate it from the 2013 PEPS and to reflect that the early payments were estimated. The change was made within the existing contract and no Departmental business case was produced to support the change. The Department told us that Greensill Capital had initially proposed such arrangements soon after the call-off contract commenced. The Department stated that there were no taxpayer considerations attached to this change to the scheme because it related to transactions between independent businesses. The Department told us that as there was no funding required from it, there was no further business case required.

2.26 Figure 6 shows the comparison between the standard method of reimbursing prescriptions, which has been used for more than 80% of pharmacies throughout the period covered in this report, and the arrangements for participants in the PEPS and EEPPS schemes and illustrative costs.

2.27 The earlier access to cash lengthened the duration of financing from 22 to 60 days, and therefore increased interest and charges paid by participating pharmacies. The arrangement introduced a risk to the lender that a pharmacy might obtain a loan at the start of a month, but cease trading, and thereby not perform the dispensing activity in the month ahead, such that it would not be eligible for reimbursement to cover the value of the loan. Therefore, in addition to the standard provisions of the CCS contract, NHSBSA required Greensill Capital to provide a parent company guarantee to mitigate this risk. It was not clear that consideration was given to the risk of Greensill Capital itself failing. NHSBSA indicated to us that it was considered internally but the financial risk was not perceived to be material, as Greensill did not receive taxpayers’ funds in advance of making payments to pharmacies. The Department considered that Taulia and Greensill should have understood and assessed the risk for themselves. This guarantee lapsed when Greensill Capital did indeed fail. We understand that the actual loss associated with this risk is only around £5,000. However, the combined effect of the introduction of EEPPS and the failure of Greensill Capital placed the Department in a position of making payments in advance of need, which Managing Public Money states should be “exceptional, and should only be considered if a good value for money case for the Exchequer can be made”.14 HM Treasury approval was sought and obtained for the payment to pharmacies to be made in advance.

2.28 Following the change in July 2020, the number of pharmacies participating in EEPPS increased by more than one third and by March 2021 around one fifth (2,170) of the community pharmacies in England were participants. Nevertheless, participation was much lower than CCS’s original expectations (see Figure 7). CCS told us that the overall charges, including its levy, paid by pharmacies who opted into PEPS (the aggregation of amounts paid to Taulia, Greensill Capital, CCS and NHSBSA) were no more than pharmacies paid when the scheme was run by Citibank.

Consequences for government and pharmacies of the failure of Greensill Capital in March 2021

2.29 On 1 March 2021, NHSBSA learned that Greensill Capital might be unable to fully fund that month’s payments to pharmacies. This was confirmed by direct contact with Lex Greensill. On the instructions of the Department, NHSBSA took emergency action to make direct payments to all pharmacies within the scheme and processed total payments of £144 million directly from government funds. Approval for this course of action was sought and received from the Department and HM Treasury. NHSBSA told us that these actions ensured that cash flow for pharmacies was not affected by the collapse of Greensill Capital. NHSBSA has halted new applications to the scheme, while continuing it for pharmacies already enrolled. The annual interest expense for government of this working capital requirement is around £144,000.15 The Department told us it believed that if it had not intervened, a significant number of PEPS pharmacy contractors could have had financial difficulties and potentially gone out of business. This could have led to a deterioration of access to NHS pharmaceutical services in certain areas of the country.

2.30 Following the failure of Greensill Capital, CCS suspended the framework and told Taulia to source a replacement subcontractor, which it was unable to do. Following legal advice and instructions from the Department, NHSBSA terminated the PEPS contract in June 2021. CCS told us that Taulia was suspended from the Supplier Early Payment Solutions framework but remained contractually responsible for the call-off contract with NHSBSA until 30 June 2021. The Department is planning to wind down the current scheme and has announced a 12-month transition arrangement that will start on 1 November 2021 for PEPS pharmacy contractors.16

2.31 From November 2021 (for October 2021 prescriptions), a new advance payment timetable will be available to pharmacy contractors. This will allow contractors to access their advance payment approximately 20 days earlier in comparison to the normal payment timetable.17 Under this new arrangement, a pharmacy must submit its claim electronically by the 5th day following the end of the month, in order for NHSBSA to issue payments four working days later.18 The payment will comprise an advance payment of 100% of the claimed dispensing value from the prior month plus a reconciling payment for activities two months earlier. For example, claims for dispensing activities covering 1 January – 31 January 2022, submitted by 5 February will be paid by NHSBSA on 10 February, alongside a reconciling payment for December. Pharmacies that do not submit their claims by the 5th day will be subject to a separate reimbursement timetable. The new payment timetable will be available to non-PEPS pharmacy contractors from November (for October prescriptions); and PEPS pharmacy contractors from December (for November prescriptions). The transitional arrangement applies to PEPS participant pharmacies until April 2022 (for March 2022 prescriptions).

10 Department of Health & Social Care, The Community Pharmacy Contractual Framework for 2019/20 to 2023/24: supporting delivery for the NHS Long Term Plan, July 2019. Available at: www.gov.uk/government/publications/community-pharmacy-contractual-framework-2019-to-2024

11 Data for pharmacy contractors in May 2021.

12 Note: this represents a per-pharmacy average of £159,000 fees and allowances and £71,000 medicine margin, based on 11,236 pharmacies in May 2021.

13 PwC, Cost of Service Inquiry for Community Pharmacy, June 2011. Available at: https://psnc.org.uk/wp-content/uploads/2021/09/COSI-Report-FINAL.pdf

14 HM Treasury, Managing Public Money, June 2021. Available at: www.gov.uk/government/publications/managing-public-money.

15 Calculation: £144,000,000 *0.001.

16 Department for Health & Social Care, Pharmacy Earlier Payment Scheme announcement, 26 August 2021. Available at: www.nhsbsa.nhs.uk/pharmacy-earlier-payment-scheme-peps-announcement-dhsc-26-august-2021

17 See Figure 3 and Figure 6.

18 NHS Business Services Authority, Drug Tariff Part I, August 2021. Available at: www.nhsbsa.nhs.uk/sites/default/files/2021-08/Drug%20Tariff%20Part%20I%20September%202021%2026082021.pdf

Part Three

Salary advance schemes for NHS staff

3.1 This section sets out how Greensill Capital contracted with NHS trust employers to provide employees with early access to their monthly salary, and what happened when Greensill Capital failed.

3.2 Appendix Three contains relevant information about consumer credit innovation and regulation.

How employer salary advance schemes (ESAS) work

3.3 Salary advance schemes allow employees to access some of the pay they have accrued ahead of their regular payday. These services are generally available to an employee if their employer has first partnered with a provider.

3.4 Employees download a smartphone app and accept the provider’s terms and conditions to use the service. The app may be provided by the employer’s existing payroll provider or the scheme operator. The app is updated daily to show accrued earnings and how much can be withdrawn. Schemes may apply to monthly salaries and completed shift work. Accrued earnings for a shift are added to the amount available to draw down early, subject to payroll processing timescales.

3.5 Salary advance schemes typically set a limit on the percentage of gross or estimated net pay that can be accessed early. Employees can obtain advances for different amounts on multiple occasions every month. The employer deducts these advances from the payroll and repays the provider the total advanced each month. Providers may also bundle other services such as retailer discounts and other financial services.

Pay and financial wellbeing in the NHS

3.6 The NHS in England employed more than 1.3 million people in March 2021, and in the year ended 31 March 2021 the average annual earnings per person was £34,846.19 Figure 8 on pages shows the headcount and average pay by grade and role of NHS staff in England.

3.7 NHS England has published a guide for financial wellbeing, including seven steps to ensure employees’ financial resilience.20 This recommends a diverse approach and provides links to a range of support services available to employees encountering financial difficulties. The seven steps were adopted directly from a note published by the Money and Health Policy Institute, an independent charity, and it includes a reference to short term loans and larger credit facilities via payrolls, allowing lower interest rates and fees/charges.21

3.8 Staff are employed by individual NHS bodies around the country. There were 217 NHS trusts as of July 2021, most of which are the direct employers for the staff engaged in their activities. Some NHS trusts are part of regional groups, which may coordinate or share services such as payroll, human resources, finance, and administration.

Department policy on salary advance schemes

3.9 The Department of Health & Social Care’s (the Department’s) view is that the use of these schemes is a matter for individual NHS trusts and for that reason it would not normally provide advice or guidance to NHS trusts on the schemes. The Department also stated that NHS trusts were best placed to decide how different pay flexibilities, such as salary advance schemes, fit with their overall reward strategies. The Department told us that the December 2020 letter was not cascaded to its arm’s-length bodies (ALBs) until recently, and that this had been an oversight. The Department also stated that it did not believe any of its ALBs had introduced the salary advance scheme for their own employees.

3.10 The Department told us that NHS trusts were independent legal entities and not Departmental ALBs. Its view was that it would not be normal practice to disseminate advice aimed at government departments and ALBs to the NHS, as NHS finance and human resources arrangements (such as requiring HM Treasury sign off, for example) differ when compared with central government arrangements.

How Greensill Capital approached NHS employers

Business case and procurement

3.11 Greensill Capital approached NHS trusts directly and via regional networks from late 2019. Several NHS trusts agreed to keep each other informed of progress with Greensill Capital and share relevant working papers.

3.12 Greensill Capital offered Earnd as a free service for both employees and employers in the NHS. This was successful in attracting some NHS trusts to prefer Greensill Capital in place of alternative providers who levied charges for salary advance or charged interest on conventional loans by third party providers. Some NHS trusts said it was not their policy to charge employees for access to earnings.

3.13 Greensill Capital supplied presentations and marketing materials which focused on the challenges of low pay and financial wellbeing. It told NHS trusts that providing the service for free to the NHS was part of its corporate social responsibility agenda.

3.14 Greensill Capital’s approach coincided with NHS trusts’ own research into salary advance scheme providers in the context of staff financial wellbeing and employee benefits. NHS trust working papers also showed that employers considered the service could provide additional benefits, including reductions in agency bills, increased take up of additional shifts, and improved recruitment and retention.

3.15 NHS trusts said they contracted directly with Greensill Capital and that there was no requirement to undertake a public tender because Greensill Capital was providing the service for free, and therefore the offer did not pass relevant tendering thresholds.

3.16 Subsequent to the failure of Greensill Capital, disclosure indicated that the commercial rationale for providing these services to the NHS (without profit) was to create critical mass to enable Earnd to sell to corporate entities, to generate revenues and to provide cross-selling opportunities to the wider Greensill group.

3.17 Greensill Capital also distributed marketing materials and held discussions to solicit interest in supply chain finance solutions relating to individual NHS trusts’ procurement activity with commercial suppliers, but none of the NHS trusts we spoke to indicated that this had been progressed.

Technical integration

3.18 Earnd was offered as a standalone smartphone app, and also via the MySBSPay employee app developed by NHS SBS. Greensill Capital contracted with NHS SBS for it to implement Earnd within MySBSPay and agreed to pay NHS SBS £5 per active user per year, in order that NHS SBS could generate a commercial return on its upfront investment of £97,000. At the time of Greensill Capital’s failure, revenue of approximately £2,500 had accrued to NHS SBS from this agreement although no money was actually received.

3.19 NHSBSA told us that one NHS trust had asked it to develop an application programming interface (API) to enable NHS employees using the Earnd UK scheme to validate their personal details stored on the centralised Electronic Staff Record. NHSBSA told us that it recovered its development costs from Greensill Capital. The API was live between January and February 2021 and was used 117 times. Between February and June 2021 there were more than 5,500 equivalent requests by NHS employees eligible to use Wagestream.

Operational phase

3.20 A major London NHS trust was one of the first NHS trusts to agree a pilot of Greensill Capital’s Earnd product in 2020, and other NHS trusts began exploring the product during the year. By 2021, several NHS trusts were in trials or operational with Earnd (Figure 9).

3.21 We spoke to eight NHS trusts about their experience of implementing salary advance schemes. Seven of these NHS trusts had implemented the Earnd UK scheme, and one had implemented Wagestream before the failure of Greensill Capital. Our findings cover the following aspects of these schemes, and the data we have collected are set out in Figure 9:

limitations and safeguards;

monitoring employee patterns of use;

potential benefits to employers; and

potential benefits to employees.

Limitations and safeguards

3.22 NHS trusts introduced drawdown caps for employees of 20% to 40% of gross or net salary. One NHS trust also included restrictions on the times that employees could access Earnd, excluding evenings and weekends.

3.23 Two NHS trusts told us that during the operation of the scheme, one or more departing employees drew down a salary advance in excess of the amount due to them at the month end. One of the NHS trusts told us that this risk had been identified at the contract stage and formally allocated to Greensill Capital. The other NHS trust told us that its policy was to pursue former employees in the event of overpayment, but that Greensill Capital had settled the amount as an ex-gratia payment. We understand that the individual sums were each a few hundred pounds and there was no loss to the taxpayer.

Monitoring employee patterns of use

3.24 Greensill Capital provided management information to NHS trust employers about the numbers of users of Earnd, frequency of use and average amounts advanced.

3.25 Our sample of NHS trusts indicated that the active users of the salary advance scheme ranged from 1.3% to 10% of employees by NHS trust. On average, active users drew down between £25 and £84, and the most common number of transactions per active user was two to five times per month (see Figure 9).

3.26 One NHS trust implemented Wagestream before the failure of Greensill. Management information supplied to this trust showed that 10% of its employees had registered for that service and growth had been steady. Employees were permitted to access 40% of their net pay at a charge of £1.75 each time. The NHS trust is also charged a five figure sum each year for the service. The average amount of salary accessed for each transaction at this NHS trust is £84 and the number of transactions each month per active user was 6.

3.27 A presentation by Earnd to three NHS trusts indicated that all pay bands were represented in the user base, Band 2 staff represented one third of the users and Bands 2 to 4 combined represented 59% of all users.

3.28 Frequent advances by active users of small amounts were commonplace, but given our limited evidence base we could not infer from this a risk of employee dependency on these products. We found no evidence that the potential benefits of these schemes to employers had been realised.

Potential benefits to employees

3.29 Greensill Capital’s presentations to customers routinely contained positive quotations from users and indicated that salary advances were applied to a variety of expenses, including day-to-day expenses and unexpected bills.

Potential benefits to employers

3.30 NHS trusts told us about a range of potential benefits for employers offering salary advances. These included potential reductions in staffing agency costs, increased take-up of additional shifts and potential improvements in recruitment, motivation, and retention. Given the limited rates of employee adoption of the schemes and short period of operation of Earnd, there is no evidence that these potential benefits have been realised in the NHS trusts we interviewed.

The government response to Greensill Capital’s approaches to other public service employers

3.31 Following approaches by Greensill Capital in relation to salary advance schemes to the Ministry of Justice, a letter regarding salary advances was issued by Civil Service Human Resources, HM Treasury and Cabinet Office to the accounting officers of departments and their arm’s-length bodies in December 2020. The letter said departmental accounting officers must sign off any new type of finance agreement, and final approval by HM Treasury was required. The letter urged consideration of available options including existing payroll arrangements, before launching salary advances. HM Treasury told us that it had not received any requests for approvals of salary advance schemes.

3.32 The Department told us that it received the December 2020 letter and officials considered that the letter applied to the Department and its ALBs operating within the civil service pay framework. The Department added that the matter was discussed internally, and it was decided that on the basis that the Department had no intention of introducing such a scheme, no further action was necessary.

3.33 Sopra Steria has indicated that, based on its experience of introducing the Greensill Capital salary advance scheme by NHS SBS, it also sought to do the same for those government bodies for whom Shared Services Connected Limited (SSCL) was the shared service provider, as it thought the service might be helpful for other public service employers. SSCL tabled an agenda item at the November 2020 government departments’ customer board meeting seeking approval to speak to departments about a salary advance scheme that it was pursuing in partnership with Greensill Capital. Approval was withheld by the customer board and the initiative was halted, given the departmental feedback.

The failure of Greensill Capital in March 2021

3.34 According to the administrator’s statement of unsecured creditors for Earnd, two NHS bodies were listed with a total claim of £21,429. This indicates that taxpayer exposure to the failed venture was minimal.

3.35 Following the failure of Greensill Capital and Earnd UK, two NHS trusts said they discontinued salary advance schemes completely. One NHS trust said it has allowed interim access for active users to Wagestream and agreed to reimburse fees pending a procurement. Another NHS trust replaced Earnd UK with Wagestream and staff are charged per transaction. One NHS trust is contemplating the integration of Wagestream to offer the service to shift workers.

19 NHS staff – headcount in February 2021. Source: NHS Digital workforce statistics for February 2021.

20 NHS England, 7 Steps to ensure employee’s financial resilience. Available at: www.england.nhs.uk/supporting-our-nhs-people/how-to-guides/financial-wellbeing/7-steps-employees-financial-resilience/

21 Money and Mental Health Institute, Best Practice Checklist: Employers, May 2018. Available at: www.moneyandmentalhealth.org/wp-content/uploads/2018/05/Best-practice-checklist-Employers.pdf

Appendix One

Our investigative approach

Scope

1 We conducted an investigation into Greensill Capital’s provision of supply chain finance to community pharmacies and wage advance schemes for NHS employees between June and September 2021.

Methods

2 In examining these issues, we drew on a variety of evidence sources – including consulting information held on the Companies House website. We held discussions and obtained supporting documentation from the Department of Health & Social Care (the Department), Crown Commercial Service (CCS), NHS Business Services Authority (NHSBSA), NHS Shared Business Services Limited (NHS SBS) and NHS trusts. We received evidence from the Financial Conduct Authority (FCA). We also received evidence from Taulia Inc, Citibank, Sopra Steria and Lex Greensill.

3 How we selected the case studies for Appendix Three:

There is no definitive list of NHS trusts which used salary advance schemes or Greensill Capital’s Earnd (the focus of our investigation on the salary advance scheme). Therefore, it is not possible to select a sample of such NHS trusts on a statistical basis. We considered that surveying all NHS trusts to obtain these data would be disproportionately resource-intensive and impractical.

We therefore selected our case studies on a judgemental basis from the set of NHS trusts we identified from web searches and our wider audit work as having subscribed to the Earnd app. In selecting our sample, we sought to ensure a good geographical spread of NHS trusts from across the country.

4 We engaged with key individuals from eight NHS trusts, NHSBSA and NHS SBS to establish facts surrounding how the service was introduced to the organisations, and the procurement and approval processes undertaken in awarding the relevant contracts.

5 We reviewed business cases submitted to NHS trusts’ leadership, monitoring reports, and statistical information on activities and staff usage of the salary advance scheme.

Appendix Two

Events leading to the Crown Commercial Service (CCS) appointing Taulia Inc to the Supplier Early Payment Solution framework

1 Figure 10 sets out the timeline for the creation of the framework agreement following approval of the final business case.

Appendix Three

Consumer credit innovation and regulation

Financial Conduct Authority (FCA) and the Woolard Review

1 FCA regulation does not apply to most salary advance schemes because they do not meet the definition of credit under relevant legislation (although there are a variety of ways the schemes could be structured). However, individual providers may be subject to authorisation or registration depending on their activities.

2 In July 2020 the FCA published a statement setting out its views of the risks and benefits of salary advance schemes, and what employers and employees should consider when using them. The FCA said that salary advance schemes are commonly promoted as an alternative to high-cost credit and have a broadly similar economic effect.

3 The FCA commissioned its then Chief Executive, Chris Woolard, to undertake a review of change and innovation in the unsecured credit market in 2020, which examined salary advance schemes and Buy Now Pay Later (BNPL) products. The FCA contacted a number of salary advance scheme providers as part of its information gathering for the review. In December 2020 Lex Greensill met with Chris Woolard and his team and indicated to them that Greensill Capital was supplying the Earnd product to NHS employees at a loss, and that Earnd users tended to make repeated use of the scheme for small advances of around £30 once a week on average.

4 In February 2021, the FCA published the Woolard Review. The review noted that the salary advance schemes market was predominantly found in the hospitality, retail and healthcare markets and was still in a stage of relative infancy. It stated that salary advances could result in some users experiencing a shortfall in income at the end of the month, leading to the risk of persistent use of the product, escalating charges or driving consumers to use mainstream or potentially high-cost credit to ‘bridge the gap’.

5 The review identified the importance of providers and employers monitoring usage and proactively engaging with employees when there are indications they are in financial difficulty, and the need for greater clarity over who has ultimate responsibility for monitoring and supporting individual employees who may be in financial difficulty. It recommended that the FCA and government should encourage salary advance scheme providers and major employers to draw up a code of good practice. It said that given the size and scale of the market, it would be disproportionate to introduce a bespoke regulatory regime at that time.

6 The FCA told us in July 2021 that it presently had no future plan for interventions for the sector in response to the Woolard Review and its findings.

Potential benefits, risks and mitigations of salary advance schemes

7 Figure 11 contains a summary of potential benefits, risks and mitigations for salary advance schemes based on the FCA statement, our discussions with NHS trusts, and our understanding of the service provided by Greensill Capital.

Difficulty of comparing fees and charges

8 The evidence that we have obtained from NHS trusts suggested active users of Earnd UK drew down small amounts of money regularly at no charge. Seven of the NHS trusts offered Earnd UK, and one NHS trust used Wagestream, a chargeable service. Similar patterns of use were evident between the free and chargeable service.

9 The FCA said that the most common usage pattern was three salary advances per monthly pay cycle, and a typical sum advanced was £75. The FCA told us that it is difficult to apply a comparison in respect of unsecured credit products because salary advance scheme providers do not apply an interest rate. However, the FCA indicated that if a hypothetical scheme operator charged a £3 transaction fee for a £50 drawdown in the final week of a monthly pay cycle, the equivalent annual percentage rate for a short-term loan would be a very high rate of interest, similar to that charged by high-cost credit firms.

10 Figure 12 provides an indication of the implied annual percentage rates of interest for repeated advances of £50 and a transaction fee of £1.50 for a hypothetical salary advance scheme. It shows how the implied cost of finance increases with repeated use closer to the month end.

Glossary

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