A controversial private finance initiative scheme has hit renewed trouble, with the board of one of the trusts involved rejecting a crucial merger plan.

An outline business case for the£250m scheme to build a new children's centre on a central Manchester site was approved by health secretary Alan Milburn, subject to North West regional office consulting on merger of the two trusts involved, to take effect from April 2001.

But after discussion of the consultation document at its November meeting, Manchester Children's Hospitals trust board 'reiterated' that it was 'implacably opposed to merger at this time' with Central Manchester Healthcare trust.

The board decision follows a vote to oppose the merger by nearly three-quarters of the trust's consultants in August.

Minutes seen by HSJ say: 'The board does not believe that its opposition to the merger jeopardises the PFI scheme. Indeed the progress towards a rapid merger is counter-productive for the interim provision of care for children and for the PFI project itself.'

Trust medical director Dr Garry Hambleton said: 'We were told two trusts could not form a consortium to work with the private sector.' But the trust had obtained a counsel's opinion that going ahead with two trusts was 'perfectly possible', he said.

Dr Hambleton said Manchester's children's hospitals had gained from trust status. Now the trust was 'worried that such control of our destiny as we have will be diluted'.

Another senior trust insider said the proposal to merge in April was 'frankly suicidal'. The trust had 'lost a director of nursing, a director of finance and we're haemorrhaging senior staff at an alarming rate' as a result of the Department of Health pursuing the merger, he claimed.

'Since 1995, the trust has delivered on inpatient, outpatient and financial targets every year. The trust they are proposing to merge us with has a£5m deficit.'

And trust chief executive Stuart Smalley said staff did not generally support the merger.

'However, to address the level of concern the regional office has made a firm commitment to maintaining a high profile for children's services, including budget ringfencing.'

The children's trust board decision came as a shock to North West regional office. A spokesperson initially told HSJ: 'I'm not aware of any opposition from the board. The chief executive is driving the merger.'

He later said: 'Clearly, we hear what they say.' The trust's formal response would be 'considered along with all the other responses'.

David Woodyatt, chief executive of Central Manchester Healthcare trust, said the children's trust position was 'their business'.

His trust had 'reaffirmed' its own support for the merger at its last board meeting. 'We think it makes total clinical sense and is extremely advantageous in terms of securing the best and most cost-effective PFI deal.'

Controversy also continues over the inclusion of£15m charitable donations in the outline business case for the PFI scheme.

Dr Hambleton said the charity requirement had arisen because 'health authorities in the North West said income streams would only allow them to finance to a certain level of capital'.

'If the capital sum was reduced by£15m, that was the amount they could afford.'

The North West region spokesperson denied the cash was revenue funding. It was for 'state-of-the-art equipment' and the scheme was 'not dependent on it', he said.