A DISTRICT council has become the first local authority in Britain to build its own hospital, in an experiment which is turning the much criticised Private Finance Initiative on its head.

Wychavon District Council, in east Worcestershire, is spending £6.7 million to build a 26-bed hospital in the Georgian market town of Pershore, population 9,000. The building will also house a GP surgery with 13 doctors.

The scheme is being funded by the proceeds of the council’s housing stock, which was sold in the 1990s. Council tax, which is the 12th lowest in the country, will not be directly used. The council is due to finish the project in September, then lease it to South Worcestershire Primary Care Trust, which is in financial difficulties and making cuts elsewhere in the region.

The trust plans to close the 19-bed cottage hospital, which has been open since 1893. Initially it will be unlikely to run the new hospital at full capacity, as it has the staff to run only 19 beds.

The Conservative council did not consult the Department of Health about the plan, but secured the support of the local Tory MP, Sir Michael Spicer. The proposal was passed unanimously by councillors.

John Grantham, an opposition Liberal Democrat councillor in the ward where the hospital will be built, said that his party was behind the scheme. He said that the council would receive a higher rate of return — 7 per cent — than the bonds in which it had previously invested the surplus money, which provided 6.25 per cent. This is the second such deal by Wychavon: the council has also built a Waitrose store and leased it to the company for 25 years. The council is considering building a second hospital in Evesham, where another community hospital is under the threat of closure.

Other councils from the North of England and the South West have expressed an interest in the idea, and have attended presentations by Wychavon council.

Jack Hegarty, the managing director of Wychavon District Council, said: “I set three principles when deciding how to use this money: firstly it has to be a regeneration project from the town, secondly it has to have community benefit and thirdly it has to be in the district — we must reinvest locally.”

He said that any profit would be used to build a leisure centre and to improve other services.

Chris Ham, Director of the Health Services Management Centre at Birmingham University, praised the “innovative” scheme. But he cautioned that the trust had to be sure that it could afford to staff the hospital in the long term.

“Often it’s been the other way round, with cash-strapped local authorities relying on the NHS to help them out, providing resources for intermediary and social care. But there is a question over whether the primary care trust will have the revenue to keep it going. Otherwise we might have a Yes Minister situation with a brand new hospital and no patients.”

Tim Davies, director of public health at South Worcestershire Primary Care Trust, said the trust expected to break even this year but was facing difficulties next year. “Pershore hospital is no safer but no more at risk than any of our other services. We can only provide the service that we can afford. The hospital that we are leasing is bigger than the one at present.”

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