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Last Updated: Wednesday, 3 May 2006, 07:05 GMT 08:05 UK
MPs attack private hospital deal
Norfolk and Norwich hospital
The project is branded the 'unacceptable face of capitalism'
A private sector consortium contracted to build an NHS hospital has been branded the "unacceptable face of capitalism" by a key Commons committee.

MPs on the public accounts committee say Octagon used a refinancing deal on the Norfolk and Norwich Hospital project to boost investors' returns.

The hospital trust was left with risks of a liability of up to 257m if it needed to terminate the contract early.

Committee chairman Edward Leigh said taxpayers' money had been put at risk.

"The risk of this large liability was incurred essentially so that investors could have fatter returns," Conservative MP Mr Leigh said.

He went on: "My committee would not expect to see appearing before it another accounting officer defending what we believe to be the unacceptable face of capitalism.

"Such a face was shown by this private sector consortium in its dealings with the public sector."

The refinancing deal reduced our cost very significantly - by about 3.6m a year
David Prior
Norfolk and Norwich University Hospital NHS Trust

The Norwich and Norfolk was one of the first hospitals to see private finance initiative contracts (PFI) awarded.

Two years later Octagon refinanced the project "dramatically" increasing the rate of return to investors to more than triple the levels it predicted in its original contract bid.

Of 116m gained as a result of the financing, 82m went to Octagon and less than a third, 34m, went to the trust.

The committee said: "Through simply borrowing more, the benefits to Octagon's investors have soared on refinancing to levels which are unacceptable even for an early PFI deal."

Mr Leigh added: "It is hard to escape the conclusion that the staff managing the project were not up to the rough and tumble of negotiating refinancing proposals with the private sector".

Norfolk and Norwich Hospital Entrance
The Norfolk hospital project was one of the first PFI schemes

Octagon has so far not commented on the allegations.

David Prior, who chairs the Norfolk and Norwich University Hospital NHS Trust, told BBC Radio 4's Today programme said the report was "flawed" in many respects.

He pointed out that the trust received a reduction in annual PFI costs following the refinancing, which he said was of "big benefit".

Mr Prior said: "The PFI deal was extremely expensive for the hospital and every penny that went to Octagon and not to us I bitterly begrudge, frankly, because we need every penny we can get for our hospital.

"The fact is though, the refinancing deal reduced our cost very significantly - by about 3.6m a year."

Under PFI, public bodies pay private firms through a kind of mortgage arrangement to build, run and manage projects like building hospitals.

The flagship New Labour policy was designed to pass the risk of undertaking large-scale projects, including delays, to the private sector and thus save the taxpayer money.

But critics complain they are more costly in the long run.

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