NHS chiefs insisted the franchise did not mean privatisation of part of the health service.

Instead, it was a way to stave off a huge subsidy from the taxpayer to Hinchingbrooke to deal with nearly £40million of historic debt.

Dr Stephen Dunn, Director of Strategy at NHS East of England, said: “Hinchingbrooke has major debts and might have had to close, or receive a large subsidy paid for by the taxpayer. Thanks to this process this is not the case.

“We have selected a cutting-edge partner with an innovative approach. This is not privatisation. Staff and assets will be protected, and the taxpayer will not be forced into bailing out Hinchingbrooke. This has to be a model for hospitals that face similar challenges nationally,” he predicted.

Ali Parsa, managing partner of Circle Healthcare, which will take over the running of the hospital on June 1 next year, said: “Circle's co-operative model offers a Big Society solution for Hinchingbrooke – liberating doctors and nurses to deliver the best services for the patients they know best.

“This is a great opportunity for a social enterprise and local clinicians to come together to lead the next chapter in the long and successful history of the NHS.

“Through this unique partnership, we will continue to provide high-quality NHS services that are free at the point of use for the people of Huntingdon.”

Dr Gerry McSorley, interim chief executive at the hospital, said: “Hinchingbrooke has not stood still while our new partner has been sought, and we are pleased that we can now start to work in partnership with Circle in making Hinchingbrooke great.

“Patients can be reassured that they will continue to receive quality NHS services from NHS staff in the hospital they know, on their doorstep. I would like to thank all the staff, volunteers and patients who have been so supportive during this process.”

Dr Paul Zollinger-Read, chief executive of NHS Cambridgeshire, which commissions services at the hospital and provides 90 per cent of its income, added: “This is a good solution for staff, patients and taxpayers. The thorough and robust tender process has secured a sound foundation from which we can continue to commission services at the hospital.”

Huntingdonshire District Council's chief executive David Monks, who chaired an independent stakeholder panel during the selection process, said today: “I am pleased that a franchise partner has been successfully found, which can help secure the future of services at Hinchingbrooke. All of the key partners have sought public engagement around this project. The independent panel, the primary care trust and the strategic health authority have all worked together to enable the public to hear about and comment on the process.”

Circle's takeover of the operation of the hospital in June is subject to approvals from the Department of Health and other regulators.

“After this approvals process, more details about Circle's proposals for the hospital can be made public,” the strategic health authority said.

“Until that time they remain commercial and in confidence, in accordance with UK and international purchasing law. However, Circle will immediately start discussing transition plans with the hospital and NHS East of England.”