Foundation trusts will still need state backing for private loans, according to a chief executive who lost £464m in government funding for a hospital scheme.

North Tees and Hartlepool Foundation Trust’s hospital development was the largest health project affected when the coalition government withdrew funding for capital schemes approved by the last government (news, page 12, 24 June).

Health minister Simon Burns, justifying the decision, said granting government funds to foundation trusts was “not consistent” with their independence and ability to borrow privately.

The white paper also says it wants foundation trusts to do more of their borrowing privately. This would further their independence from the Department of Health and some commentators claim potentially make it easier to move them off the state balance sheet - an additional move away from government control.

However, North Tees chief executive Alan Foster this week said he had spoken to potential private lenders and - while funding was available - he believed the government would still have to say it would back the loan if the trust could not pay.

Mr Foster said even if restrictions were lifted and foundations allowed to secure loans against their property, it was likely lenders would require government assurance. They may not be convinced the government would, if a trust defaulted, let them take over the assets, he said.

Mr Foster told HSJ he was keen to go ahead with his trust’s scheme: “We know there is capital from the private market and the major building contractors are keen, but we will still need backing from the government.”

Stephen Collinson, business development director at Ryhurst, which arranges private borrowing for foundation trusts, said some funders were wary of lending without government backing but most were willing.

Where they were wary, he said: “It is about telling them they have to get used to a different world. The government is saying they [FTs] are out there to take their own risks.”