Hopes for a new hospital in Watford have received a set back after the health trust covering the town revised down its financial prospects for the year.

Papers released by West Hertfordshire Hospitals NHS Trust this week show it operated at a deficit in December and will be applying for a loan from the Department of Health later this year.

The financial issues do not bode well for the trust’s bid for foundation status, which is important for its participation in the Watford health campus project.

However, the trust’s new chief executive, Samantha Jones, said the December deficit had been expected and the trust expects to break even for this financial year.

She said: “The trust was expecting its income to be lower in December due to the Christmas and New Year period. This is the usual seasonal pattern. The trust has generated a surplus over the past few years and expects to break even this year.

“There has been a historical cash shortfall going back several years and the Strategic Health Authority and the Department of Health have supported our plans to address this shortfall.

“An application for a loan to address these historical issues will be made to the DoH at the end of March.

“The foundation trust application is progressing and we are continuing to work with Watford Borough Council on the health campus. The trust is fully committed to continuing to deliver excellent patient care, while facing the challenge of achieving a healthy financial position in these difficult economic times.”

The trust’s most recent financial report said in December the trust had a deficit of £1.6million.

The report said the trust had hoped to make a £3.1million surplus by the end of the financial year but was now aiming to break even.

The hospital trust’s financial plan for the next year cites its objective as to “be financially sound”.

Under a section describing the risks for the next year the report said: “Failure to deliver against the plan will jeopardise the trust’s financial reputation and foundation application”.

Foundation status gives hospitals more independence and financial flexibility. It is seen as important to the health campus as it will give the West Hertfordshire Hospitals NHS Trust more scope to finance the new facilities the project has promised.

The urgent need for new facilities in the town has been underlined this year as Watford General Hospital has had to set up temporary wards as it treats more patients than it has capacity for.

This week Watford mayor Dorothy Thornhill said: “I am not panicking yet.

“I am meeting the chief executive soon and it will be on the agenda, let’s see what the reason is.

“We have been one of the better trusts over the last few years and have gone from struggling to more secure.”

Mayor Thornhill said she was keen to find out if the financial issues were “a blip” or related to national funding; in which case she said the Government would need to be lobbied. She added that even if the trust did not manage to get its foundation status, improvements could still be made at the hospital over the coming years.

Mayor Thornhill added: “There is stuff they can do without foundation status, I think we will still see positive things happening.”