The health secretary, Patricia Hewitt, today staked her political reputation on turning around the NHS financial crisis by next year as figures revealed the overall deficit has more than doubled in the last year to £512m.

The debt for 2005/06 is more than twice as large as the £221m deficit in 2004/05.

However, the government was keen to point out that the NHS figures have improved over the last six months.

In October the overall deficit was £620m. This has now fallen by £110m, after ministers put pressure on trusts to address the problem.

But the unaudited accounts exclude the country's 40 foundation trusts, some of which have also experienced significant deficits this year.

Unveiling the end-of-year accounts, Ms Hewitt gave the NHS a tight deadline for restoring the NHS to overall financial health while insisting there would be "no trade-off between high-quality patient care and actions to improve financial management".

Ms Hewitt has set a March 2007 deadline for eradicating the deficits.

However, those facing the most extreme overspends are not expected to completely recover in that time because it could jeopardize patient care.

It will be left to other NHS trusts to correct the problem by spending less than their budget allocation.

Asked if she would resign as health secretary if the target was missed, Ms Hewitt said: "By the end of March next year, we will return the NHS as a whole to financial balance, and of course I will be held account for that."

Ms Hewitt made a statement in the House of Commons this afternoon which played down the scale of the financial crisis, pointing out it represented just under 1% of the £66.6bn NHS budget, and disputed claims of widespread redundancies by trusts struggling to balance the books.

But a joint report by the National Audit Office and the Audit Commission published today warned that new policies introduced as part of NHS reforms could see the debt spiral further, putting Ms Hewitt's pledge to eliminate overall debt by next year in doubt.

The report casts doubt on whether the figures issued today by Ms Hewitt will prove to an accurate assessment of the scale of the problem once the accounts are verified.

"Looking forward, developments which may increase risks to financial balance in 2005-06 and beyond include the extension of payment by results and the start of a new and major wave of mergers and rationalisation of primary care trusts and strategic health authorities," the report noted.

Ms Hewitt remained upbeat about the prospect for financial health next year, telling MPs corrective action to address deficits would preclude "wholesale redundancies" across the NHS.

But at a press conference earlier in the day she said compulsory redundancies may take place but would be kept "to a minimum".

The deficits would be addressed through efficiency, a reduction in the use of expensive agency staff, and freezing staff posts. Compulsory redundancies would be kept "to a minimum", she said.

The net financial balance figure of £512m masks the fact that the gross deficit is £1.227bn, which was offset by underspending worth £765m.

The biggest share of underspend was made by the country's 10 strategic health authorities, which have reined back money earmarked for workforce education and training.

However, the acting NHS chief executive, Ian Carruthers, admitted there was no simple solution to tackling the deficits, and no link between NHS reforms and the amount of money NHS trusts were spending.

The financial deficit was "a blot on the landscape", he said.

"We need to keep it in perspective. It is substantially less than the £620m of six months ago and proof that debt is not endemic through the NHS.

"Reform is not the reason for the overspend or the reported job losses, it is the solution," he added

"The reforms are uncovering problems hidden for years and provide incentives to ensure the NHS can return to financial balance."

He added: "It is imperative we now focus on returning the NHS to balance those organisations facing the biggest financial challenges."

The state of NHS finances shows a strong north-south divide, with trusts in the south and east of England facing the largest deficits.

The shadow health secretary, Andrew Lansley, said there was a "growing gap" between hard-working frontline staff and a leadership deficit at the top.

Without £500m of cuts by health authorities - mainly in training - the deficit would have exceeded £1bn, he said.

The leading healthcare union warned that the short period of time given to NHS trusts to restore financial balance could damage services. Karen Jennings, Unison's head of health ,urged Ms Hewitt to "reconsider" the length of time permitted for trusts to clear their deficits, to allow more time for trusts to come to terms with the "constant barrage" of government reforms.

"Insisting on a one-year turnaround will lead to a knee-jerk reaction resulting in more services being cut, wards closed and jobs lost," she said. "Payment by results, the private finance initiative and the constant fog of reform are all fuelling NHS deficits.

"When you add in the £4bn that the independent treatment centres (ISTC's) programme will cost over the next five we have a recipe for disaster