Department of Health gives £1bn Barts and Royal London PFI hospital go-ahead after agreeing cost-cutting measures.

The Department of Health has finally given the go-ahead for the redevelopment of the £1bn Barts and Royal London PFI hospitals.

The DoH and the Treasury gave the green light after agreeing a number of cost-cutting measures with Barts and The London NHS Trust and contractor Skanska that will reduce Skanska's annual fee from £117m to £97m.

Approval for the scheme comes more than two months after health secretary Patricia Hewitt put it on hold just before the new year.

As part of the agreement, Skanska will manage the new buildings for 35 years, not 30 as initially planned. It has also reduced costs by negotiating a lower cost of borrowing to fund the projects.

The trust will defer a decision on whether to fit out a floor at Barts and two floors at the Royal London until the scheme is more advanced.

A grant will also be made towards state-of-the-art medical equipment from the St Bartholomew's and the Royal London Charitable Foundation.

John Ashworth, chairman of Barts and the London NHS Trust, said: "Given the considerable costs of further delay, the trust board has decided to agree to measures aimed at reducing the annual unitary charge to enable this long-awaited scheme to begin, although the evidence continues to support our original projections.

"What matters to the people of east London is that the scheme has been approved and will be implemented in full as long as projections for growth in the population of east London prove correct. We are extremely grateful to the Charitable Foundation for their generous support, which has enabled us to secure this deal."