Milburn fuels row with Treasury over reform of hospitals

Alan Milburn, the Secretary of State for Health, hit back hard yesterday over criticism of his plans for NHS foundation hospitals as he warned that "all options are open" in radical reform of the health service.

As Tony Blair offered his support, Mr Milburn made an impassioned defence of the proposals, which would give greater freedoms to the best performing hospitals, and declared that record investment had to be accompanied by a realisation across Government that "you can't run the NHS from Whitehall".

His remarks came just a day after Gordon Brown, the Chancellor, stressed that foundation hospitals would have to remain "fully within the NHS" to counter claims that they would lead to privatisation by the back door.

Treasury aides went further, emphasising that the powers to allow the new hospitals to borrow money from private markets would have to fall within spending limits already set out in this year's Budget.

Critics within the Department of Health and Downing Street of the Chancellor's approach argue that giving the best performers in the NHS much greater autonomy means that the Treasury should "let go" and allow much greater freedom for raising extra finances.

Mr Milburn insisted there was common ground across Government but stressed that the latest "implementation blueprint" for the 10-year NHS plan made clear that ministers would "explore options" for borrowing by foundation hospitals. Delivering the NHS Plan, the document agreed by the Treasury and Department of Health in the summer, states: "We will explore options to increase freedoms to access finance for capital investment under a prudential borrowing regime."

After an Institute of Public Policy Research fringe meeting on the subject yesterday, Mr Milburn said: "It's there in the NHS plan document. We are exploring options. That is the position. All options are open."

The Prime Minister made clear his personal backing for the idea in his main speech to the conference, strongly supporting the principle of foundation hospitals and arguing that it was time to devolve more power in health and education. "[We] require an end to the one-size-fits-all mass production public services. Why shouldn't our best hospitals be free to develop their services within the NHS as foundation hospitals?" he said.

In a clear signal of Downing Street support for Mr Milburn, Mr Blair's spokesman said that the precise details of the borrowing status of foundation hospitals had not been decided. "We are going to set up these foundation hospitals. Exactly how is being brought to a detailed policy. This policy is being sorted," he said.

The Treasury is keen to limit any extra borrowing because it fears over-ambitious foundation trusts could get into trouble if they end up with debts they cannot repay, leaving the taxpayer to pick up the bill. It is also determined that nothing should be done to undermine its own tight fiscal record and does not want give trusts the incentive to treat more private patients to raise more cash.

Backers of Mr Brown argue that the NHS plan refers only to a borrowing regime for foundation hospitals that follows similar principles to those outlined for the best-performing local councils. Just as the best councils will only be allowed to borrow within Treasury spending limits, so will their NHS counterparts, they claim.

But Mr Milburn, in a speech to the IPPR meeting, declared that genuine autonomy for the high performers in the NHS was the only way to ensure extra funds would result in improved services. "I passionately believe that it is right to create NHS foundation hospitals," he said. "These are NHS hospitals, part of the NHS, based on need and not ability to pay, but with the governance of that hospital held by the local community, not by ministers in Whitehall.

"I believe if we get the balance right between national standards and local autonomy, that is when you make these resources deliver. So let's have none of this talk of privatisation or a two-tier healthcare system. What it's about is a change in how we run the NHS. Having had the courage to put money in to invest, we now have to have the courage to change things and reform. Change is a hard thing. But this is not the time to be timid, it's the time to be bold. Unless you change the NHS, you stand every chance of losing the NHS."

Peter Mandelson, the former secretary of state for Northern Ireland, underlined his support for the principle of foundation hospitals in a separate fringe meeting, saying devolution of services was essential for delivery, and admitting the Government had suffered from "targetitis" in its first term.