The NS Interview - Alan Milburn

The Health Secretary is determined to press on with easing central control over the NHS. But is the

Alan Milburn's office looks on to the Treasury, on the opposite side of Whitehall. It matters, because relations between the man in charge of our health and the man in charge of our money are decidedly scratchy. The latest contretemps has been triggered by a disagreement on a policy that both the Prime Minister and the Health Secretary regard as an integral part of the government's huge investment and reform programme.

Milburn wants to devolve power to our better-performing hospitals, turning them into what will be called "foundation hospitals". They will operate outside the clutches of Whitehall. Gordon Brown is said to be cool on the idea. Still, as he outlined the biggest spending spree in a generation, pouring billions of pounds into the education system and the health service, Brown chanted the mantra "investment and reform".

While education took the spotlight in the comprehensive spending review on 15 July, health is the biggest beneficiary overall. Brown had already announced a £40bn increase for the NHS in April's Budget. The pressure is on Milburn to deliver, perhaps more than on anyone else. He has to increase capacity, cut waiting times and take on the health service's vested interests.

Milburn's nostalgia for the founding principles of the NHS is selective. "Whatever great gains there were - and there were many - in the 1948 settlement on health, what happened was that the local voice got lost and the national voice took over. Ours was a peculiarly British solution. You've got to change the way the service is organised. We live in a different world. Here is a straightforward choice for the centre left. Either we say what we need is a bit of tinkering around the edges but actually the big change will be brought by the money, or else we say what we've got to do is to fundamentally change the culture of the organisation. The best way passionately to support the NHS is to change it."

The buzz phrase among new Labour policy wonks is "earned autonomy". Plans for specialist schools and city academies, and now foundation hospitals, come under this heading. When, in May, Milburn announced plans for this new type of super hospital, he was criticised for "initiativitis". It was said that he had succumbed to another loopy scheme from those nerdy policy chaps who brought us the frogmarch to the cashpoints and the charge for emptying rubbish bins. Some say the project bears more than a passing resemblance to the internal market in healthcare introduced by Kenneth Clarke more than a decade ago. Even one of Tony Blair's "blue skies thinkers", Adair Turner, the former head of the CBI, expressed misgivings. He suggested that the crisis of capacity in the NHS should be sorted out before giving hospitals yet another new structure. His advice hasn't been taken.

The most potent fear expressed by some, including Milburn's predecessor Frank Dobson, is that the scheme would create a two-tier health service. The best doctors and nurses would inevitably gravitate towards hospitals that have freedom to manage their own affairs, to spend their own money, to reinvest proceeds from land sales and to give staff local pay incentives.

In a few days, Milburn will announce his latest review of hospital performance across the country. Those that get a three-star rating will be eligible to apply for foundation status. So far, only four have qualified, and there are likely to be only a few more. However, once up and running, the new "centres of excellence" would have an immense impact. "What we're looking at defining," says Milburn, "is a new legal body that will still be part of the NHS family, still subject to the principle of need and not ability to pay, but that will represent a redefinition of what the NHS is all about. It doesn't have to be a state-run, nationalised, monopoly organisation."

For Milburn, the dividing line is clear. Public funding of the health service is an inviolable principle, but the private sector can be involved in building projects and in providing certain services.

As for private healthcare, Milburn avoids taking a moral position, but his tone points in one direction. Most people who pay for treatment do so, he says, to buy shorter waiting times. They're not particularly wealthy, just needy. "I want to solve that dilemma for them. I want to make the NHS competitive in those terms. The biggest worry for the private sector is that we achieve what we set out in the NHS plan." In other words, if all goes well, private health schemes will wither away.

Foundation hospitals are part of that route map. Civil servants are looking at what kind of legislation could turn these hospitals into public interest companies - not-for-profit enterprises protected from takeover by private sector firms.

The Treasury has already lodged queries and objections. Some in Whitehall smell a rat. "This isn't an argument about the minutiae of the legal basis for foundation hospitals," says one official. There is some genuine policy dispute (Brown is said to be less worried about devolving power than about giving these hospitals a new status in law). But most of it is personal. The Chancellor and Health Secretary are not best buddies.

Milburn is sanguine. He is confident that the big boss is behind him. "What people can't say is that we must accompany investment with reform, and then, when the tough choices are faced on reform, say 'Oh no, we're not going down that route'. I'm afraid the reform is at least as important as the investment. And our only danger as a government now, with big increases in funding going into education and health in particular, is that we are not as bold on the reform as we are on the investment."

Is the Treasury sceptical, I ask, about his pet project? "Maybe," he replies, before making it clear that it has been agreed across government. He names Patricia Hewitt, the Trade and Industry Secretary, as a particular enthusiast. As for Blair: "I know from the discussions I've had with the Prime Minister that he thinks NHS foundation hospitals are an important part of the jigsaw that's being assembled for a different style of health service."

Milburn says he wants legislation as soon as possible. The idea is that the chosen few hospitals go into "shadow" working mode next April, and then are given full autonomy by the end of 2003. The timing is tight. But will they happen, come what may? "Of course they will happen."

Milburn is carefully refashioning his image. A minister who wears his Blairite badge with pride (there aren't too many of them in the cabinet), he none the less admits the errors of the first term. As an opposition MP in the mid-1990s, he came to prominence by making himself available for any old soundbite attacking the Tories. He took that culture into government. He accepts that "politicians get into most trouble, and maybe this government has got into most trouble, when things that we have said don't always accord with everyone's individual experience".

He now swears that he is a reformed character. What is needed now is "candid, grown-up conversation with the public, fewer screaming, day-to-day media wars and more focus on the long term". The practice still appears somewhat different. People around Milburn complain that, while they are under instruction inside the department to cut down on the number of "superfluous" press releases, they're still bombarded with demands from Downing Street's voracious media machine for something to be put on their "grid".

Wednesdays tend to be the problem days, when Blair's officials like to give him something positive to say about the NHS. When there is a big health announcement, there is still tension about who does it. Milburn is said by others in Whitehall to be quite happy to defer to the Prime Minister, but not so keen when the Chancellor tries to steal his thunder.

Still, Milburn has decided to appear less often in the media, but to speak bluntly when he does. He believes that he and his colleagues should remember, the next time they hit a media squall, how life was for previous Labour governments, with ministers up all night, shoring up numbers in the voting lobby.

"Too often, our majority and our mandate haven't been translated into a sense of confidence and boldness that, in my view, are necessary if you are to transform this country. For 20 years ,we've sat outside government and our only desire was to be in government. Why? Not to sit in an office in Whitehall, but to change the country. That's what you're here for. You only get one chance in life. And you only get one chance in politics."

And when it comes to courage and once-in-a-lifetime chances, I tentatively venture, what price Brown giving the thumbs-up this autumn to membership of the euro? Here, Milburn's newfound candour wanes, but he does offer coded advice to his friend across the road. He surmises that an increasing number of voters will have a good impression of the euro once they return from their summer holidays. The government, Milburn reminds me, is in favour, in principle, of joining the currency (always subject to the five economic tests), and he himself is "strongly so". And lest we forget, people voted Labour in to make courageous changes.