PRIME Minister Tony Blair and Health Secretary Alan Milburn were last night desperately trying to head off a rebellion by Labour MPs over plans to establish foundation hospitals.

Half-a-dozen of the 130 MPs who signed a House of Commons motion opposing the proposals are from the party's North-East heartland.

Mr Blair warned the rebels that they would be making a "mistake of historic proportions" if they vote against the Government plans.

The pair mounted a robust defence ahead of today's key Commons vote on the proposals, which would see top performing hospitals freed from Whitehall control and allowed to borrow money.

Critics claim this would create a two-tier health service, with foundation hospitals attracting more patients and funding as well as being able to offer higher pay for staff.

Their view was backed by the House of Commons' Health Committee which today publishes a report warning that non-foundation hospitals could find themselves starved of funds.

But the Government insists that all hospitals could achieve foundation status within five years.

However, with the Liberal Democrats promising to vote against the Government and the Tories undecided, the Prime Minister faces the real prospect of a disastrous defeat.

Mr Blair and Mr Milburn both spelt out a warning message to the rebels that unless the Government was able to put in place its reforms, the Tories would eventually carve up the health service.

Darlington MP Mr Milburn said Labour had failed in its attempts to reform the NHS and council housing in the 1970s, leaving them vulnerable to attack from the Conservatives.

"Backing away from reform of the NHS will leave it wide open to the Tory policy of cuts and charges that would surely lead to its abandonment. It would be in my view a profound political mistake," he said.

Mr Blair later said higher taxes alone would not improve the health service.

"This is of absolutely crucial importance to our success as a Government and a party. For those who believe in public services, reform is fundamental to their future.

"To turn our backs on it would be a collective mistake of historic proportions."

Mr Milburn has announced an extra £200m to help all hospitals achieve foundation status.

The motion opposing the plans was signed by North East MPs John Cummings, Kevan Jones, Gerry Steinberg, Ronnie Campbell, Frank Cook, Bill Etherington and Joyce Quin.

Mr Steinberg, MP for Durham City, said nothing had persuaded him to back the Government. "I think it's wrong to set one hospital against another where they can poach staff and work on their own," he said.

"The Government has to re-think its plans because we are going down the wrong road of bringing in market forces."

He argued "half the problem" with the health service was the excessive power wielded by consultants. The MP claimed they undertook private work at the expensive of NHS patients.

But Joan Rogers, whose North Tees and Hartlepool Trust would be among the first wave of foundation hospitals, believes it could harness local energies.

She said that the trust would be allowed to build on "excellent" local support and do more to tailor services to meet local needs.

Dr Bill Ryder, a consultant anaesthetist at the Queen Elizabeth Hospital in Gateshead, said: "The basic idea is sound but we would like it to be piloted in a few trusts to see if it works."