It was true that the hospitals infrastructure needed significant investment. Even the Tory administration prior to Blairs new Labour recognised that. Which party was it, do you think, that introduced the PFI scheme in the first place? Yep, Tory.
What you can blame the new Labour administration for, along with their civil servant bureaucrats in the DoH and the consultants hired by the bucketload was an enthusiastic embrace of a scheme that took capital expenditure of the balance sheet - without properly negotiating the terms, and now thats come back to bite us in the ass with a vengeance.
As to too many big hospitals, not enough community hospitals, thats more a clinical and logistics argument rather than primarily one about costs. It is true, from a clinical perspective, that centralisation of specialist services makes the most sense, and the same logic applies to A&E and probably maternity.
Costs also matter however - this is illustrated in London in particular, where you have duplication of a host of hospital services in hospitals maybe only 6 miles apart, essentially serving the same community. It would make far greater clinical sense to rationalise and centralise at least some of the more acute and specialised services, but local people and staff will not necessarily see that.
Convalescence and elderly care hospices etc would be better smaller and more widely distributed throughout the community.