A scathing analysis of the case for a leading private finance initiative project has concluded that it will deliver poorer service and cost more than a publicly funded scheme.

But the report on successive business cases for Dryburn Hospital in Durham has been rejected by North Durham Healthcare trust.

Chief executive Bill Worth said the report for Unison by Declan Gaffney, a researcher at University College London's school of public research and noted opponent of PFI, 'just gets things wrong'.

The report claims the PFI hospital will cost£22m more than a publicly funded model over the 30-year life of a contract between the former North Durham Acute Hospitals trust and private consortium Consort Healthcare.

Even when risk transfer to the private sector is taken into account, the report claims the comparison favours public funding by£4.5m.

Mr Gaffney says this forced the trust to extend the comparison of the two models to 60 years, at which point the cost of PFI and public finance are 'comparable' in the 1997 full business case.

But Mr Worth said the trust had followed national guidance in its analysis. 'The two options delivered substantially the same value for money and the private option could deliver faster - contractors started on site the day after contracts were signed,' he said.

The report says the trust now faces a£5m gap between its current and projected capital costs.

It claims that the money will be found by cutting staff costs from 64 per cent of the trust's budget to 47 per cent, with most of the cuts falling on nursing staff.

The report argues that this means the trust will be able to open only 360 of the new hospital's 454 beds. But Mr Worth said the research had misunderstood the trust's staffing plans, which assume a 75 per cent occupancy rate for the new hospital.

'If occupancy goes up or down, then we will look at that. That is normal NHS work,' he said.

The trust is now planning to write to staff and local MPs to counter the 'unsettling' effect of the report's claims.

Downsizing for the 21st Century says the PFI project had its origins in a 1991 review of acute services, that ended in plans to close two acute hospitals, including Dryburn, and centralise services in a 900-bed district general hospital on a greenfield site. The hospital now under construction is designed to act as an acute facility, backed by community services.

The report says its capacity is planned on three assumptions - 1996-97 caseload, faster patient discharge and more day surgery - all of which may prove unrealistic.

'The PFI is extremely expensive, it fails to demonstrate extra efficiency and it demands reductions in budgets for clinical services,' Mr Gaffney concludes.

'On the trust's own account, this does not represent value for money in comparison with public sector procurement.'

The NHS Executive said it would not have approved the business case if it did not represent the best deal for taxpayers.

Downsizing for the 21st Century: Unison health group, 1 Mabledon Place, London WC1H 1AJ.