THE government last month cleared a hugely controversial 8.5% price rise in the VHI premiums of 1.5 million customers despite the knowledge that the company was on course to report record profits of close to 80m for the two-year period leading up to next February.

The revelation has led to claims this weekend of a "hidden agenda" to fatten up VHI for privatisation, regardless of the increased expense for policy holders.

Official documentation, seen by this newspaper, reveal for the first time that the company submitted to the government a forecast for its financial performance for the next five years, alongside its formal application for the price increase. This documentation showed the VHI was on course to report record profits of up to 45m for its financial year ending February 2004.

Questions are also being asked by observers in academia as to the true nature of VHI's profitability. According to the company's annual report, published last month, the VHI's operating profit was more than twice the reported profit figure of 33.8m.

Under a controversial accounting policy, the company placed 35m as a special provision against anticipated future losses.

Although company sources have strongly defended this move as highly prudent, the policy of making large provisions is controversial and has led to questions as to whether the government would have been able to justify sanctioning a price increase to a company that had recorded a surplus of almost 70m in just one year.

It is understood a number of academics who examined the recent results pointed to a note made by the company's auditors in relation to the accounts, which did not appear in previous results. The auditors, Deloitte & Touche, did not qualify the accounts but did take the unusual step of drawing attention to the provision.

The Labour party deputy leader and health spokeswoman Liz McManus yesterday claimed that the revelations of the massive projected VHI profits confirmed the government's "hidden agenda". She said that over the past four years, the government had sanctioned VHI price increases of around 48% ? a multiple of the consumer price index and even outstripping health inflation.

"This confirms the government's hidden agenda, that it is fattening up the VHI for privatisation without any form of public debate, " she said.

The company has claimed that its surpluses are being directed towards boosting its financial reserves, which are currently below industry solvency norms.

However, critics have pointed out that the company would need to bring its reserves into line with those of its competitors in advance of any privatisation move and that this is the company's real agenda.