TONY BLAIR yesterday signalled that foundation hospitals are going to be the way ahead for the National Health Service.

The hospitals are the big idea of Health Secretary and Darlington MP Alan Milburn, who last night at the conference took part in a question and answer session with delegates about the future of the NHS.

Mr Blair's endorsement of the scheme will be seen in some quarters as a victory for Mr Milburn over Gordon Brown, Chancellor of the Exchequer.

Mr Brown is apparently opposed to the scheme because it will give hospitals the power to raise money from private sources.

But in his conference speech yesterday, Mr Blair asked: "Why shouldn't our best hospitals be free to develop their services within the NHS as foundation hospitals?"

Mr Milburn outlined his idea for a new type of semi-independent NHS hospital in May.

In a speech to hospital managers, he said the new organisations were to be known as foundation hospitals.

The foundation hospitals, which could be running as early as 2004, will be free-standing legal entities with the freedom to improve services without government interference.

For the first time since the NHS was formed in 1948, the new type of hospital will not be subject to performance management by officials in Whitehall.

Instead, foundation hospitals would be held to account by performance contracts with NHS organisations and regular inspection.

Mr Milburn believes foundation hospitals will improve services by using extra freedoms denied to non-foundation hospitals.

This will include discretion about how they spend income from the state and how they reinvest proceeds from land sales.

Crucially, the new hospitals will be able to give staff local pay incentives.

Hospitals in south Durham, Northallerton, York, Sunderland and Newcastle could qualify to become foundation hospitals.

The Health Secretary has said foundation hospitals would not be run for profit and have nothing to do with privatisation. Mr Milburn has said that the plan to set up foundation trusts run by a board, including representatives of staff and local authorities, has its roots in the co-operative movement.

Pay boost for nurses 'on the way'

At a fringe meeting yesterday, Mr Milburn said that negotiations on nurses' pay, which have been going on for three years, are nearing completion.

The Agenda for Change proposals are expected to involve an overhaul of nurses' pay grades, to reward those who take up more responsibilities and to end the situation where senior staff have to leave the wards and go into management in order to increase their wages.

He said: "We need a system that allows people to be paid for the work they are doing, not the badge they are wearing."

He indicated that he wanted the deal to be accompanied by improvements to childcare facilities, greater flexibility in working hours and help with accommodation, in order to persuade trained nurses to remain in the profession for longer.