Doctors' and nurses' leaders reacted angrily today as it was confirmed that the NHS underspent by £510m last year as a result of stringent cuts imposed by the health secretary, Patricia Hewitt.

The NHS in England made a surplus of £510m in 2006-07, compared to a deficit of £547m in the previous year, according to figures published by the Department of Health.

The figures have reignited criticism of the government's management of the NHS, with healthcare unions saying the surplus is proof that costcutting in the NHS has gone too far.

Healthcare managers also cast doubt on the real value of the surplus, noting that more than a fifth (22%) of NHS trusts were in debt to the tune of £911m.

Faced with projected deficits for the second year running, NHS trusts were put under pressure by ministers to economise by closing wards, laying off staff and delaying patients' operations until the start of the new financial year.

The British Medical Association said the cuts imposed to bring the NHS back into balance had been "excessive".

Dr Jonathan Fielden, chairman of the BMA's consultants' committee said: "While the NHS may be in credit today, the journey to balance the books has wreaked havoc on the NHS and is a return to boom and bust health economics."

Mike Jackson, senior national officer for Unison, which represents 450,000 NHS workers, said: "The £510m underspend shows that staff and patients have been put through an unnecessary year of pain, job losses and cuts. The government's knee jerk reaction to the deficits last year has led to 20,000 job losses and damaged morale and patient services."

Unison and the Royal College of Nursing are both preparing to hold ballots on industrial action over the delayed payment of this year's pay award for nurses, which they say reduces their 2.5% settlement to a 1.9% increase.

The general secretary of the RCN, Dr Peter Carter, said the surplus showed that "the job losses, services cuts and economies that were imposed as a short-sighted reaction to deficits were so aggressive, widespread and deep that they actually resulted in a damaging underspend across the entire NHS."

Dr Carter added: "Taxpayers' money that should have been invested in frontline services may well now be sitting idle in bank accounts. Stop-go economics is no way to run the NHS. So ministers have to learn the lessons from the serious errors that have brought us to this point."

He also called on ministers to use the surplus to pay nurses their full pay award, rather than stage the increase and risk the threat of major industrial action.

The health secretary, Patricia Hewitt, who had promised to quit if the health service recorded another deficit after two years in the red, denied that the surplus had been achieved at the cost of patient care and job losses.

She said: "If we hadn't taken decisive action to deal with the overspending, the NHS deficit would have doubled again this year. Instead, the NHS has a fairer and more transparent financial system than ever before. The minority of overspenders know they have to put their own house in order instead of expecting strategic health authorities to bail them out."

David Nicholson, chief executive of the NHS, added: "Last year the NHS recorded a deficit of £547m which was clearly unacceptable - and if we'd not acted to stop this, patient services would have suffered."

But Gill Morgan, chief executive of the NHS Confederation that represents over 90% of NHS trusts, said the NHS needed to build up a larger surplus if it was to operate efficiently.

She said: "It makes managerial good sense to budget to deliver a small surplus. If you don't have money in the bank, you can't respond to emergencies or plan for improvements and you end up living hand-to-mouth. "We also need to get the size of this surplus into perspective. £500m is less than half of one per cent of the entire NHS budget and so actually allows for a very small amount of flexibility in NHS organisations' budgets. Other organisations outside of health actually plan for much larger reserves and so it is prudent for the NHS to do the same."