Taxpayers could end up picking up the bill for costs incurred by contractors if the Treasury refuse to approve plans for Birmingham's £559 million 'super hospital', it was claimed last night.

A letter leaked to The Birmingham Post, which confirms the Department of Health regard the project as being "clearly viable", states it will compensate the private sector partner for any costs if the project does not get the go-ahead.

A decision over University Hospital Birmingham NHS Trust's had been expected in March 2005, and from this month it now faces mounting building costs of £1.5 million a week.

Enabling works have already begun on the Edgbaston site including a new car park, with hundreds of workmen preparing areas for major construction work.

The letter, dated March 3, states that University Hospital Birmingham NHS Foundation Trust's (UHB) full business case for their Private Finance Initiative (PFI) scheme has been approved.

It is now believed to be in the hands of the Treasury, although it is not yet known when an announcement over the project's future will be made.

A senior trust official confirmed that if the new hospital is not approved "the bill will ultimately be picked up by the tax payer, that's what the letter implies".

The scheme, which if given the go ahead, will give Birmingham its first new hospital in 70 years and expand the current Queen Elizabeth Hospital site to create a 1,249 bed acute facility.

However, according to the letter, if the Government opt not to approve a viable project any "bid costs" will be met by the project's private sector partner - as set out in Sir Malcolm Bates' review of the PFI system.

It states: "In broad terms Bates states that should the public sector not proceed with a viable project, compensation will be payable to cover the costs incurred by the private sector.

"Given that the department has approved the full business case for this project, our view is that your project is clearly viable and the provisions of Bates applies."

The letter, written by a senior Department of Health official, is a boost to the trust which hopes a final decision over its future will be made soon.