Banks, supermarkets and telesales companies will face stiff competition for staff from the NHS, Tony Blair warned yesterday.

Banks, supermarkets and telesales companies will face stiff competition for staff from the NHS, Tony Blair warned yesterday.

Young people deciding on a career and trained nurses tempted by non-medical jobs will find the health services offering a more attractive package, the Prime Minister said.

He dangled the carrots of more flexible working and a pay boost worth up to £1,000 linked to housing costs to encourage nurses who have left for other jobs to return to the NHS. And he pledged to change the health service culture to make it more appealing to nurses with domestic commitments and to help those in areas of the country, especially the south, where housing costs were highest.

The initiatives reflect the urgency ministers attach to getting more nurses into the NHS as soon as possible to boost capacity. Many hospitals have beds and operating theatres available and surgeons waiting to operate, but a shortage of nurses is the main factor preventing more patients from being treated.

Mr Blair, speaking to a conference of Chief Nursing Officers in Brighton, said: "The NHS has to be seen to be a good and attractive employer if it is to recruit and retain staff. Helping staff to square home and work responsibilities is not just socially responsible it is an economic necessity.

"In an era of near full employment, public sector employers are in competition for skilled staff. They have to match the flexible approach of the banks, supermarkets, telesales companies and best hospitals."

The Government has set a target of recruiting an extra 20,000 nurses within five years and nurses need three years of training. Most of the 20,000 will have to be lured from other jobs, the private sector or out of retirement back into the NHS, or recruited from overseas.

A new agency, NHS Professionals, is to be set up to rival the private nursing agencies that supply hospitals with casual labour; it will allow nurses to take control of their working hours.

Nurses who work for the new agency will qualify for holiday pay and be members of the NHS pension scheme giving NHS Professionals an advantage over rival private agencies. Ministers hope that it will also help to save the £350m a year currently spent by the NHS on agency fees.

Initially, the new agency will start in 15 health authority areas where recruitment problems are greatest, including London, Bristol and Birmingham, but it will later be rolled out across the country.

A pay supplement of up to £1,000 will be offered to nurses in areas where the cost of living is highest to help with accommodation costs. The supplement will be worth a minimum of £600 in London, rising to £1,000 for senior nurses, and will average £500 in areas outside London such as Bristol, Swindon and Oxford.

The Royal College of Nursing said the initiative was "a sensible step forward," but Christine Hancock, its general secretary added: "We have concerns that these cost of living payments will merely shift the problem from area to area. What we really need to see is good basic pay for all nurses."

Edward Davey, the Liberal Democrats' London spokesman, said: "London's NHS is being crippled by a nursing shortage. We needed a major boost for London's nurses, not this inadequate gimmick."

* The Government reported yesterday that spending on nurses, midwives and health visitors hired as casual staff through private agencies increased by almost a quarter in 1999-2000 to a record £361m. Spending on casual staff has risen by more than three and a half times since 1991-92.