A HEFTY defeat was inflicted on the Government last night as its funding of the public services turned ugly at the Labour Party conference.

Delegates in Blackpool voted by 67 per cent to 33 per cent in favour of an independent review of the Government's flagship Private Finance Initiative (PFI) policy, which unions say is creeping privatisation of services.

It was only the second conference defeat Tony Blair has suffered since he became party leader in 1994, and will put greater pressure on him, as in today's speech he is expected to say that PFI schemes have to be speeded up - not slowed down.

During the debate on whether there should be a moratorium of PFI schemes while they are evaluated, Chief Secretary to the Treasury Paul Boateng was slow hand-clapped by the audience - including senior union leader. Some delegates shouted "rubbish" and "sit down" and some booed as Mr Boateng, under the watchful gaze of his boss Chancellor of the Exchequer Gordon Brown, defended the policy.

The sight of a senior minister being heckled at a carefully-managed conference is extremely unusual these days.

PFI is a major part of the New Labour agenda. It was devised by the Conservatives a decade ago and opposed by Labour. Since it was elected in 1997, Labour has taken it up with gusto and Mr Blair, and Health Secretary Alan Milburn, points to this country's biggest ever hospital building programme as justification.

The unions say that PFI is creeping privatisation of services such as the NHS and that, in the long run, it is tying the tax-payer to a huge mortgage. Hospitals such as the University Hospital of North Durham, in Durham City, have been built by private companies and are run by private companies, with the NHS paying those companies an annual fee.

Mick Rix, of the rail union ASLEF, told the conference: ''The taxpayer is being ripped off - hospitals which do not work today, which we will be paying for in over 30 years' time. The public can see that we are mortgaging our future basically to make the fat cats fatter.''

GMB general secretary John Edmonds said: ''It is vital that by the time of next year's conference the issue of PFI has been resolved once and for all.

''This is public money, it should go on education and patient care, and not into the pockets of the city institutions.''

But Mr Boateng argued that PFI was crucial if the Government was to deliver its promised improvements. Arguing against the moratorium, he said: ''We cannot put that delivery on hold or even pause while we take a deep breath.''

Earlier in the day, Deputy Leader John Prescott had gone out of his way to make an impassioned appeal on behalf of PFI. He said: "The biggest moratorium was 18 years of Tory Government. A moratorium on new hospitals, a moratorium on new schools, a moratorium on modern transport."

Warning that £16bn worth of contracts were at risk, he asked: "Do you really want a freeze on all that? Is that what the party really wants? I don't think so.

How PFI projects have fared in the N-E...

THE HOSPITAL

The £97m University Hospital of North Durham, which replaced Dryburn hospital last year, has been embroiled in controversy since it first opened.

It was built by a consortium of private companies, but critics claim it will cost the Government more in the long-term than if it had provided the capital itself.

The hospital, which was built with fewer beds than Dryburn, has struggled to cope with rising demands. Bed shortages, combined with patients blocking beds because of a lack of care home facilities, has led to operations being cancelled.

Opponents claim that beds are lost under PFI because schemes end up being tailored to the profit requirement of big companies rather than public needs. However, defenders of the hospital say its problems have nothing to do with PFI and everything to do with the planning process which led to it being built so small.

THE SCHOOLS

The biggest single primary school building scheme undertaken by North Yorkshire County Council was completed this year.

The £25m project to build four replacement primary schools began five years ago and was the council's first PFI scheme.

A separate company, Concordat North Yorkshire, was formed to oversee the project. Council departments of education, legal services, financial services, building design and management were represented in Concordat.

The schools were Ripon Cathedral Church of England Primary, Kirby Hill CE Primary, near Boroughbridge, Brotherton and Byram Community Primary and Barlby Community Primary, near Selby. They were seen as trailblazers as it was believed to be the first PFI school project of its kind in the country.

THE ROADS

One of the early examples of PFI was the £43m scheme to widen a six-mile section of the A19 on Teesside. It was completed almost a year ahead of schedule in August 1998.

The Norton to Parkway improvement scheme was one of the biggest road contracts in the North-East at the time. Widening the road to three lanes on both carriageways was a joint venture between the private companies Amey, Sir Robert McAlpine and Taylor Woodrow.

Autolink has responsibility for maintaining the road and is paid by the Highways Agency for every vehicle which uses the A19 between Dishforth, North Yorkshire, and the Tyne Tunnel.

Vehicles are counted using loops installed in the road surface, known as shadow tolls.

THE FIRE STATION

Work on a £6m PFI fire station at Clifton, on the York outer ring road, was finished in May this year, and the deal also meant the creation of a firefighter training school.

The station was built because crews were struggling to meet response times in villages to the north of York.

The scheme was one of the first private finance initiatives in the country and was designated a flagship scheme by the Government. The training school at Easingwold replaces the outdated buildings at Ripon fire station, where training for the county's 700 firefighters has been provided.