NHS trusts may hand their private finance initiative hospitals over to specially created charities to avoid reporting PFI debts on their balance sheets, HSJ has learned.

The controversial plans would involve trusts ceding control of the hospitals to a third party.

They follow the Treasury's decision to adopt new international accountancy rules from next April which will see up to£16bn of debt added to NHS balance sheets as PFI liabilities are made transparent.

The Department of Health is concerned that adopting the rules could put NHS trusts in deficit. It has estimated an otherwise financially healthy trust may take 10 years to recover from the change.

Innovative structures

Greg McIntosh, a director of accountants KPMG, said some trusts were looking at "innovative structures" that would allow them to avoid accounting for PFI liabilities on balance sheets.

The options being explored centre on the so-called "residual" of the PFI deal - the value of the hospital building or asset at the end of the PFI contract, typically 30 years.

Under the new international financial reporting standards, PFI assets and their associated debts must come onto an NHS balance sheet if the NHS body is in control of the building and will own it at the end of the contract.

Mr McIntosh said: "It's very difficult to get around the control test. So the only way is to give up control of the residual. Some trusts are looking at setting up a special vehicle to perhaps dispose of the asset to a charitable trust."

He said KPMG did not necessarily endorse such a structure, but was aware several NHS bodies were exploring the possibility. The step could be difficult legally as statute implies that NHS estates should be owned by NHS trusts.

Off the balance sheet

Ernst & Young partner Amin Mawji was also aware that NHS organisations were seeking advice on using charities to avoid bringing PFIs onto their balance sheet. "The difficulty is that they change the economic substance of what you have," he said. "But if the trust is willing to forego the financial benefits of retaining the residual value, then it can achieve an off balance sheet treatment."

But Mr Mawji said that these discussions were "premature" as the DH and foundation trust regulator Monitor were yet to issue guidance as to how or whether the accountancy change would affect the way NHS bodies were rated.

The proposal has met criticism from those concerned at the prospect of trusts not controlling their hospitals. Public accounts committee member Richard Bacon MP (Con) said: "If this is done purely to dodge the new rules it could create all kinds of undesirable and unintended consequences. PFI has always been a funny kind of ownership, but the asset is supposed to come back to the taxpayer at the end of the contract."

Unison head of health Karen Jennings said: "These hospitals have been paid for by the taxpayer and should be owned by the NHS and accountable to the public."

NHS Confederation policy director Nigel Edwards said: "It would be odd for the trusts not to have control over the hospital. The purpose of the accounting rules are to make it clear who is responsible for these buildings, not to subvert the rules with a workaround."

True independence

For the strategy to work, auditors and the Charity Commission would need to be satisfied that the charity was truly independent and not just an NHS trust subsidiary.

Last year the Charity Commission rejected an application for a charity set up to help Salisbury foundation trust circumvent its cap on private patient income.

Monitor chief operating officer Stephen Hay said the regulator may give a foundation trust moving a PFI onto its balance sheet a more adverse risk rating. That could change the amount the trust could borrow under the regulator's prudential borrowing code. It will consult on possible changes to its risk ratings and borrowing code this year.

Mr Hay said it saw the rule as changing accounting methods rather than the amount of cash a foundation had.

Trusts have conflicting advice on whether putting PFIs on the balance sheet would make them liable to a 3.5 per cent capital charge.

A DH spokeswoman said the department was not aware of plans to set up charities. She said: "Such a move would raise a number of technical and legal issues which would have to be carefully considered."

See Trusts survey the wreckage as PFI hospitals begin to crumble