Leading City lenders today accused the government of reneging on a promise to legislate this year to protect their assets if foundation hospitals go bankrupt.
Heads of companies that lend more than £500m a year to the NHS called for an urgent meeting with Alan Johnson, the health secretary, to avert a crisis that could cause chaos across the financial system.

They said NHS foundation hospitals enjoy independence from Whitehall control on condition that the Treasury will not bail them out if they become insolvent

Leasing companies, which provide the trusts with scanners, IT systems, medical equipment and buildings fear they could be in a double bind if a foundation crashes. Their loans would not be guaranteed, but they would be unable to repossess buildings or equipment because the government has assured patients that hospital services would not be interrupted if a trust collapsed.
In that event the lenders would be secondary creditors and more exposed than on equivalent deals with the private sector.

The big leasing companies became anxious towards the end of 2005 when University College foundation hospital in London delayed paying its bills for several months during a cash flow problem. The trust has since strengthened its finances, but retains the second highest financial risk rating on a scale set by Monitor, the foundation trust regulator.

The leasing companies are concerned that all foundation trusts are entering a period of higher risk as competition between hospitals intensifies, creating winners and losers in the race to attract patients.

Stephen Sklaroff, director general of the Finance and Leasing Association, asked Mr Johnson for a meeting "on the urgent need for secondary legislation on the winding up of foundation hospital trusts."

He told the health secretary: "Health ministers promised the leasing industry in autumn 2006 that regulations would be placed before parliament during 2007. We have now heard from your officials that this will not happen ... You will understand why association members active in the NHS market are deeply frustrated at the lack of legislation."

Mr Sklaroff told the Guardian: "We have been in discussion with the Department of Health since early 2004 on the urgent need for an insolvency regime for foundation hospital trusts ... Hearing of yet another postponement is bad news for the NHS."

The Treasury's comprehensive spending review - due this month - is expected to reduce the rate of growth in NHS spending, encouraging trusts to rely more on asset finance. But this might not be forthcoming if the companies did not get a clear legal framework. "The government needs to create one urgently," Mr Sklaroff said.

Industry sources suggested that ministers might be dragging their feet on legislation for fear of adding credence to the notion that foundation trusts are in danger of bankruptcy.

A Department of Health spokesperson said: "We are currently looking at how we can develop an insolvency regime for NHS foundation trusts that treats creditors fairly while prioritising the continuity of NHS services.

"We had hoped to have one in place this year, but following discussions with the independent regulator we have decided that it is better to develop a system after we have had the opportunity to take in a the views of a wide range of stakeholders.

"There is absolutely no need to rush insolvency regulations. NHS foundation trusts are well managed and high-performing NHS organisations and there is currently no prospect whatsoever of any of them going insolvent."



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