Ministers and officials were warned Mid Staffordshire had a precarious business model and had breached its MRSA target by two thirds just eight months before it was authorised as a foundation trust.

Health secretary Andy Burnham gave approval for the trust to apply for foundation status when he was a health minister in June 2007.

A memo prepared for Mr Burnham by Department of Health officials recommended making the then Mid Staffordshire General Hospitals trust a foundation, but said its “business model is marginal in that it does not appear to generate the level of surplus that would stand up to risk assessment”. It added: “However, there is a strong ‘can-do’ attitude at the trust.”

The memo was published by the DH on the day Parliament rose for summer recess, alongside other documents prepared by and for DH officials in their assessment of the trust in May and June 2007.

One lists the trust’s merits and demerits before concluding: “Taken together it adds up to a less than convincing case that makes the application difficult to support.”

Another shows the trust was breaching its MRSA target by two thirds in 2006-07 and had shown “little improvement” over previous years.

An independent “due diligence” report dated May 2007 said the trust had increased its profit margin by 30 per cent per year from 2003-04 to 2006-07 by raising its income by more than 10 per cent a year while holding pay bill increases at 6.6 per cent by cutting staff levels.

The report shows that between 2004-05 and 2006-07 the trust saved £13.1m on “workforce reductions” - equivalent to 19 per cent of its pay bill.