Gordon Brown appears to have secured a victory over the Alan Milburn over the rights of foundation hospitals to borrow money on the open market.

A government source has told the Guardian: "To the extent there was a division, it has been resolved that foundation hospital borrowing will not be off balance sheet. That issue has been resolved and settled."

Ed Balls, the chancellor's chief economic adviser, will this week support a new pamphlet entitled The New Localism.

Co-written by Dan Corry, a former special adviser to Stephen Byers, the pamphlet seeks to rebuff any suggestion that the Treasury is attempting to control public services from the centre by calling for new freedoms for local government, including the right to borrow and raise funds in return for high performance.