The business leader who convinced Gordon Brown to pour more than £40bn into the NHS has issued a scathing rebuke over the government's failure to deliver genuinely radical improvements to patient care.

In his first open criticism over the handling of the record investment in the health service, Sir Derek Wanless blamed generous increases in pay for doctors and nurses for the financial crisis now facing many hospitals. His attack came as the official responsible for implementing the pay deals prepared to leave the Department of Health, just a month after the departure of its chief executive Sir Nigel Crisp.

Wanless, a former head of NatWest who wrote a groundbreaking health report for Brown in 2002, told The Observer: 'The government decided to pay people a lot more than was in the assumptions made in the report. Like night follows day, the money's not there to be spent on the other things.'

'What they've finished up with now is using all the money - actually, slightly more than all the money - and they're not doing some of the things that were actually crucial: prevention, and productivity of the health services.'

The hint from Wanless that they have used 'slightly more than all the money' appears to confirm fears that virtually all the extra growth money earmarked for the next two years has already been taken up by pay, inflationary pressures and extra pensions provision. The budget will have risen from £46bn in 2002/03 to nearly £90bn next year. But the fact that far more money than was initially planned for had gone into staff costs meant that 'crucial' investment in care was shortchanged, he added.

Wanless's report was used as the blueprint for the largest investment in the NHS since its creation, with its annual budget set to reach £100bn by 2008.

The most senior official involved in the negotiations over doctors' pay this weekend became the latest casualty in the funding row. Andrew Foster, the workforce director, will leave the Department of Health in June.

Foster implemented the pay contract for specialists and GPs, as well as the Agenda for Change deal for nurses. The agreements are now being investigated by the Audit Commission . The consultant contract went £90m over budget last year, and the Agenda for Change went £70m over budget. The GPs' contract has cost £300m more than was expected since it was brought in two years ago.

But the fall-out from the NHS's £800m debts means that central budgets for child and flu vaccination programmes are likely to be cut. It will also hit plans to improve the country's preparedness to deal with major incidents such as bird flu or terrorist attacks.