Blair warned of biggest revolt yet on NHS reform

Tony Blair's plans to reform the National Health Service ran into trouble yesterday amid criticism from Labour MPs and tensions between senior cabinet ministers.

Gordon Brown, the Chancellor, gave only lukewarm support for legislation proposed by Alan Milburn, the Health Secretary, to set up foundation hospitals with more money and freedom from Whitehall control. Supporters of the plans accused Mr Brown of tacitly encouraging a Labour backbench rebellion next Wednesday, when the Bill has its second reading.

In another twist, the Tories warned that they might not ride to Mr Blair's rescue in the vote even though they support foundation hospitals in principle. With more than 100 Labour MPs opposing the plans, the Prime Minister could face a humiliating defeat if the Tories voted against them.

After Mr Blair mounted a staunch defence of the plans at the weekly meeting of Labour MPs, George Mudie, a former deputy chief whip, said: "This is going to be the hottest issue in Parliament since Iraq, with maybe even a bigger revolt."

Roger Berry, MP for Kingswood, told the meeting: "We need them [foundation hospitals] like a hole in the head. They were not in our manifesto. They are a distraction."

Mr Brown is believed to share the fears of Labour MPs that the plans could result in a two-tier NHS. Giving evidence to the Commons Treasury Select Committee, he refused to be drawn on whether other hospitals would suffer because they would not have the fund-raising powers available to foundation hospitals. "I am not going to get into this," he said.

The Chancellor insisted he backed the plans but added: "I don't know how many hospitals will become foundation hospitals. The hospitals cannot borrow off the balance sheet. Therefore the additional investment that hospitals make, whether foundation hospitals or not foundation hospitals, has got to be kept within the NHS budget."

The Prime Minister's official spokesman said later that all cabinet ministers would be expected to support the plans under the rule of collective responsibility.

Mr Blair told his MPs that he was not picking a fight with them over foundation hospitals.

In a keynote speech, Mr Milburn sought to reassure Labour doubters before next week's crunch vote. He told the Social Market Foundation think-tank: "NHS foundation trusts will be NHS hospitals. They will be fully part of the NHS but with greater freedom to run their own affairs."

The Health Secretary insisted: "Those who claim this is privatisation or a step in that direction – through the front door, through the back door or through the side door – are simply wrong." Mr Milburn sought to answer the "two-tier" allegation by promising to bring forward plans, including extra financial support, to help every NHS hospital to become a foundation trust over the next four to five years. He said an "equity guarantee" in the Bill would ensure that the trusts remained part of the NHS providing services to patients according to NHS principles – "care for free, based on need, not ability to pay".

He added: "There will be payment by results but NHS foundation trusts cannot make a profit or pay a dividend. There will be a legal lock on their NHS assets ensuring their continued use for NHS patients and the proportion of the income NHS foundation trusts can earn from private patients will be capped at current levels."

But Mr Milburn failed to pacify his critics. Frank Dobson, his predecessor as Health Secretary, said: "The whole approach of foundation hospitals is to introduce competition between hospitals – setting hospital against hospital."