MS won't take this lying down
Their NHS cash cow is far too big a revenue stream to lose.
All power to Leeds but I feel that once MS get their big guns out and start arm twisting in Whitehall it will come to nowt.
But if a properly hardened Linux can be made viable then brilliant and all those naysayers (it seems that many have posted here) will be proven wrong.
My only doubt is the LTS point. I think the NHS needs at least 10 years of support out of a distro. AFAIK, Ubuntu LTS does not give you that. AFAIK (and I am willing to be proved wrong) only RedHat and SUSE do that.
If by making their own distro they can get the 10 years of support then brilliant but anyone who has been around Linux long enough will know that distros come and with all the best will and intentions die after a few years because the people responsible give up or move onto other things. If by paying a company money for support the longevity of the distro can be secured then brilliant.
But as I said at the start of this post, watch out for the MS bully boy tactics.