Brown issues warning over NHS reform

Gordon Brown has warned that Tony Blair's plans to accelerate the Government's reforms of the public sector could result in two-tier services.

In a document published alongside the Budget, the Chancellor reopened a cabinet battle over government plans to modernise public services. The report is seen in Whitehall as drawing a "line in the sand". Some Blairites are urging the Prime Minister to launch a new round of radical reforms of the state sector.

The Chancellor has clashed with Alan Milburn over his plans for foundation hospitals. Mr Brown is worried that the new-style hospitals will seek more private patients to raise money, but the Health Secretary insists they will compete only for NHS work.

The Chancellor's discussion document says the Government must "recognise the limits of markets" and that there are circumstances when it can be "more efficient and more equitable for the public sector to fund and provide a public service".

Answering criticism from some modernisers that he is opposed to radical reform, Mr Brown accepts that moving away from "centralised, top-down decision-making in the public services offers many potential benefits".

But he warns: "Increased local flexibility in delivery must be undertaken in a disciplined way, to avoid creating unacceptable local variations in the quality of public services." Going to the heart of the row over foundation hospitals, he adds: "It is difficult to let failing hospitals go bust – individuals are entitled to expect continuous, high- quality health care wherever they may live."

Despite calls by Mr Blair and Mr Milburn for NHS patients to have greater choice, Mr Brown says: "It is important that choice is not promoted at the expense of equity or efficiency, particularly where there are market failures and capacity constraints."