BOSSES at a cash-strapped hospital trust have hinted that the Government may have to wipe out potentially huge debts in the long run.

Officials at South Tees Hospitals NHS Trust, which runs the 1,000-bed James Cook University Hospital in Middlesbrough and the smaller Friarage Hospital in Northallerton North Yorkshire, have been trying to claw back a £10m overspend in the last financial year.

Yesterday, members of the South Tees trust board were told that the cost-reduction plan is on course and officials believe that the trust will finish about £9m in the red, rather than the £13m which had been forecast.

Next year, the trust will try to cut costs by another £10m by continuing with a tough cost-reduction programme, which includes a freeze on all non-essential recruitment as part of efforts to make a five per cent reduction in staffing costs.

But board members have been warned the trust could still end up with cumulative debts of £32m, because of so-called "brokerage" loans from the County Durham and Tees Valley Strategic Health Authority.

The authority has already stepped in with a £12m loan to tide the Teesside trust over its current cash problems and it is likely to do so again.

Trust officials believe that over three years, that figure could rise to £32m.

Wendy Hull, director of finance for the South Tees Trust, said: "If, at that stage, a lot of trusts are in the same position, then clearly there would have to be some discussion nationally about how to take it further."

Part of the reason for the financial crisis has been the expansion of James Cook hospital in recent years, combined with a shortfall in expected funding.