Huge NHS bail-out for London trusts

All 31 primary care trusts have backed the proposals which will wipe debt worth millions off the balance sheets of failing hospitals.

The move will begin in the new year after all trust boards gave their approval.

NHS chiefs say the debt-clearing scheme will ensure all patients across the capital benefit from much-needed service reforms.

Critics warn it will be seen as a "reward" for bad management and that cash for improvements will be diverted away from patients in a bid to balance the books.

The financial health of the NHS in London has improved dramatically during the past few years with most trusts now in the black.

But six hospital trusts are still defined as "financially challenged" with another four - and one PCT - unlikely to be debt-free by 2011.

Figures reveal that capital's health debt will reach £579 million unless urgent action is taken. Under the joint action plan, PCT chiefs will invest a proportion of their own existing cash resources in a collective fund during the next two years.

Only the five trusts still repaying debts will be exempt. Each will be levied at a rate of 1.3 per cent which means trusts with the healthiest finances will pay more than others.

Controversially, the "pot" will also contain £304 million of surplus funding held by NHS London.

This would normally have been returned to PCTs to spend on patient care, but now this money and the levy will be used to clear the debts of ailing trusts.

NHS London finance chief Paul Baumann said the decision by the 31 PCTs was "good news" for Londoners.

He added: "PCTs should be congratulated for the decisive action they are taking. PCTs are the main drivers for change, spending 90 per cent of the NHS budget on local health services, GPs and hospital services.

"With all PCTs taking a unified approach, we can wipe the capital's historic debt."