FINANCE: A North East trust has received approval from the Treasury and Monitor to buy out its private finance initiative contract with a local authority loan – the first time such a deal has occurred in the NHS.

Northumbria Healthcare Foundation Trust will terminate the PFI contract which paid for the construction of Hexham General Hospital by borrowing £114.2m from Northumberland County Council.

The trust says it will save around £3.5m a year by ending its contract with the PFI company, Hexham General Hospital SPC, and agreeing new repayment terms with the council.

Northumberland County Council is making the funds available by using the powers it has as a local authority to borrow from the Public Works Loan Board.

Hexham general hospital

The trust says it will save £3.5m a year by ending the contract

Commenting on the deal, Northumbria Healthcare chief executive Jim Mackey said: “We are delighted that we are able to progress this agreement, which delivers real value for taxpayers and helps save millions of pounds which will be reinvested directly in patient care.”

Dave Ledger, deputy leader of Northumberland County Council, said the announcement represented “good value” for local residents because it would “reduce overall borrowing costs and release resources to support frontline health and social care services across the county”.

Last week the trust announced a separate £25m loan had been agreed with the council to fund a new hospital for Berwick-upon-Tweed. Both loans will be repaid over 25 years.

When the idea to buy out the PFI contract via a council loan was first mooted two years ago, the council said the deal would have to involve “clear commitments” from the trust to protect existing services and invest in new ones.

However a trust spokeswoman told HSJ that while the council was seeking to improve the healthcare of people in Northumberland, no overriding service conditions has been placed on the trust in relation to the loan.

The trust has served Hexham General Hospital SPC with a voluntary termination notice, but is still to finalise the terms of the buy out with the company.