Hospitals may need to make efficiency savings around 50 per cent higher than health chiefs have demanded, says the independent foundation trust regulator, Monitor.

It has warned of a "substantial challenge" in trying to meet the Coalition's efficiency drive, saying hospitals may need savings of some six per cent a year for foundation trust status, against four per cent outlined by the Department of Health. The Government is trying to convert all hospital trusts into foundation trusts by 2014 in a bid to cut £20bn across the NHS by 2015.

David Stout, deputy chief executive of the NHS Confederation, said: "With the best will in the world, to take seven per cent out of a cost-base whether you are a hospital, a local authority, or a private company, year-on-year would be challenging.

A DoH spokeswoman said: "Monitor's assessment of six to seven per cent is its 'downside case'... But it is right that Monitor's assessments are challenging. We want all hospitals to be able to meet Monitor's standards."