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NHS trust's plight highlights dangers of spiralling debt

Auditors' report blames PFI debts and accounting rules for contributing to technically bankrupt hospital

NHS hospital and primary care trusts are in danger of falling into serious debt, with little hope of getting out of it without significant financial support, according to the Audit Commission.

A public interest report for the Audit Commission by auditors PricewaterhouseCoopers (PwC) on the Queen Elizabeth Hospital in Woolwich found that the trust was already nearly £20m in debt and forecast the deficit to increase to £99.8m by 2009. The trust was regarded as a flagship model when it opened four years ago under the private finance initiative (PFI) scheme.

PwC said the trust's position had been exacerbated by the PFI deal, saying that the high fixed costs of that deal were ìa principal cause of the trust's current financial difficultiesî.

PwC warned that under resource accounting and budgeting funding rules, whereby deficits are taken off the next year's cash allocation to ensure they are paid back, the trust's cumulative deficit would continue to increase. Currently the Queen Elizabeth hospital must pay back £15m annually to PFI firms.

The trust's chief executive John Pelly said that in ìtraditional commercial termsî, it was insolvent.

ìI think the Department of Health should look carefully at the way in which this resource accounting and budgeting scheme works, because it isn't logical as far as I can tell,î he said.

Earlier this month, health secretary Patricia Hewitt said that ìturnaround teamsî of management consultants would be sent into struggling NHS organisations to resolve their financial difficulties, which have contributed to a forecast £623m deficit across England.

A Department of Health spokeswoman described the problems as ìan individual matter for the trustî.

ìThe vast majority of trusts are in balance and are managing their finances well,î she added.

30th September 2008

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