Downing Street has moved to settle cabinet feuding over public service reform.

The government is to include plans for new arms-length Foundation Hospitals in this year's Queen's Speech after the prime minister intervened in what was becoming an increasingly bitter dispute between Gordon Brown and Alan Milburn.

The Treasury had initially opposed plans which would have allowed the hospitals - which will remain within the NHS but will be independently run - to borrow money on the open-market.

Under the compromise deal, the foundation hospitals will be independent and not owned or run by the NHS.

The hospitals will also be given the power to raise capital - but only if it meets criteria laid down by a new independent watchdog.