The health secretary, Alan Milburn, today unveiled radical plans to allow the private sector, charities and universities to take over management of England's failing hospitals.
In a fundamental shake-up of the NHS, top performing hospitals will be "liberated" from Whitehall. Managers of these hospitals will be able to set up not-for-profit companies with an annual cash-for-performance contract and no further management from central government.
At those hospitals persistently failing to raise standards, the management would be franchised but the assets would remain within public ownership.
Opening a keynote speech heralding a shift of power from Whitehall to the NHS frontline, Mr Milburn stressed: "This is not privatisation in any way, shape or form."
"The franchise could go not just to another public sector health organisation but in time to a not-for-profit body such as a university or a charity or to some other external management team," he said.
The plans are part of Mr Milburn's vision of earned autonomy and mark a contentious commitment to a stronger relationship between the NHS and the private sector.
But the health secretary's plans faced immediate condemnation from unions and the Labour backbench.
David Hinchliffe, chairman of the influential House of Commons health select committee, criticised moves to give private managers "franchises" to take over failing hospitals as "incredibly worrying".
Mr Hinchliffe added: "I am finding it increasingly difficult to differentiate between my own government's health policies and those of the previous Conservative government.
Mr Milburn also said good managers could be given greater freedom in the NHS to create "foundation hospitals".
The hospitals would still be subject to national standards and external inspections and the proposal could be extended to primary care trusts - the GP-led groups set up to take control of 75% of the NHS budget.
Mr Milburn said the idea had come from the chief executives of the best hospitals, who told him that they wanted greater freedom than that proposed under the earned autonomy programme set out in the NHS national plan.
In the speech to the New Health Network in London, he said the NHS today had "never had more enemies".
Last September, new league tables of hospital performance awarding stars to NHS trusts gave 35 hospitals a top three-star rating.
Mr Milburn said: "The first wave of three-star hospitals will be able to establish joint venture companies, get automatic access to capital resources and be subject to less monitoring and inspection."
But the health secretary acknowledged: "There is no single silver bullet that can deliver these changes. A service designed around the needs of patients has to hand over more power directly to them.
"Our reforms are about redefining what we mean by the NHS. Changing it from a monolithic, centrally-run monopoly provider to a values-based system where different health care providers - in the public, private and voluntary sectors - provide comprehensive services to NHS patients." Mr Milburn explained.
Some will see this as a very controversial step. No other country in Europe, including those with a strong centre-left tradition would blink an eyelid at these plans.
But Dave Prentis, general secretary of Unison, urged Mr Milburn to "hold his nerve" and stick to the NHS plan.
"It is not good for patient care to break up the NHS - you just need to look at the state of the railways to see that.
GMB union general secretary John Edmonds also attacked the plans, saying the public did not want to see the NHS become a "new Railtrack".
Mr Edmonds said: "This shows that ministers are not prepared to listen to reason and are intent on forcing through backdoor privatisation of the NHS."
Dr Ian Bogle, chairman of the British Medical Association, said: "If the standards in all hospital trusts can be raised to the level of the best then this is good news for patients.
"However, there are certain features of the current NHS that we would wish to see preserved. The drive for high quality, national and uniform standards of care and external monitoring should continue. National terms and conditions for doctors should be safeguarded.
"We will seek reassurances that patient care is improved and the quality gap is not widened any further. We will be seeking urgent clarification on these points raised," Dr Bogle said.
Dr Beverly Malone, general secretary of the Royal College of Nursing was also critical: "Alan Milburn is announcing what appears to be a 'pick and mix' approach to running the NHS in which it will be unclear who is in charge and accountable."
Dr Liam Fox, the shadow health secretary, said: "The secretary of state has delivered a speech full of gobbledegook. This is a panic response to No 10's orders to try and recapture the agenda on public services.
"The headlines generated are good, but the detail is far more sketchy, and seems ill thought-out and based upon a 'here's one I made earlier' approach.
"The secretary of state intends to give managers more freedom to manage. Most managers would interpret this as meaning the freedom to borrow on financial markets, the ability to set pay and working conditions, the freedom to contract out services, and the ability to decide upon a strategy."
