Alan Milburn will today announce a tier of top hospitals will be given freedom from Whitehall to run their own affairs including setting pay levels.

In a speech to the New Health Network he will say that successful NHS managers will be allowed to create "foundation hospitals". Failing hospitals could be taken over by charities or the private sector.

In an interview with the Times, Milburn describes the NHS as the "last great nationalised industry, a model which is "untenable".