The prime minister has brokered a compromise deal between Alan Milburn and Gordon Brown over hospital funding.

The chancellor and the health secretary have for weeks been in disagreement over the Department of Health's plans to allow new foundation hospitals to raise cash from the private sector.

Under the compromise plan, a fund within the Department of Health will be set up from which hospitals will be able to bid for funds.

The FT says the row highlights the faultlines in New Labour's philosophy between Blair and Brown.

The paper quotes a senior Blair aide as saying: "This is not some itsy bitsy debate about detail. This is about what the health service and health care system looks like in the next decade and beyond."