FINANCE: The Treasury is expected to issue advice to regulator Monitor “shortly” on the first ever attempt by a foundation trust to use local authority borrowing to refinance its private finance initiative contracts.

The FT regulator’s compliance board committee last month considered a request by Northumbria Healthcare FT for an extension of its borrowing limit, to allow it to draw down a £120m loan from Northumberland County Council.

The loan would be used to cover the repayment of the trust’s PFI debts, and the upfront costs of terminating the contracts.

However, a spokeswoman for the regulator told HSJ that its decision had been deferred to take into account Treasury advice on the value for money of the transaction.

“As the scheme is considered ‘novel, contentious and repercussive’ under HM Treasury’s Managing Public Money guidance, the Department of Health undertook a public purse VFM analysis of the scheme,” she said. The DH had shared this analysis with Treasury officials, who would advise Treasury ministers on “both the VFM of the scheme and the extent to which it may be repercussive”.

She added: “We expect to receive HMT advice shortly.”

The compliance board has delegated the in-principle decision to Monitor interim chief executive David Bennett, who will take into account “the committee’s discussions and further information” received from the Treasury.

As HSJ reported when it broke news of the Northumbria deal earlier this year, the cost of PFI deals compared to government borrowing has increased since the financial crisis. However, the Treasury has rejected calls to increase public borrowing to pay directly for projects like hospital rebuilds, saying this could interfere with its plans for cutting the UK deficit.

However, councils can access public funding through their powers to borrow large sums from the Public Works Loan Board.

Tony Travers, director of British government at the London School of Economics, told HSJ in February that the Northumbria plan was a “creative scheme” but if used “systemically” by trusts could lead to a big increase in public sector borrowing.

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