The Government is to force hospitals to compete for patients by giving people on waiting lists the right to shop around for treatment at NHS and commercial hospitals.

Alan Milburn, the Secretary of State for Health, said yesterday he would inject "consumer disciplines" into the health service. The Tories are likely to accuse him of a U-turn and bringing back the "internal market" abolished by Labour.

Mr Milburn will announce today that more than 100,000 patients waiting more than six months for treatment can have an operation at any hospital here or on the Continent that can do it quicker. The wider use of commercial hospitals to treat NHS patients will anger the trade unions.

The shake-up will mean that hospitals with long waiting times lose money, since payments from GPs will be transferred to the hospitals that treat patients from other areas.

The scheme, to be financed from the extra £1bn allocated to the NHS by Gordon Brown last week, will start next summer on a trial basis. Patients will get help with travel costs and, if necessary, for relatives to stay in hotels while they are treated.

The plan will be phased in nationally over three years. By 2005, all patients should be able to choose which hospital they want when they visit their GPs, whose computer will tell them about waiting times in this country and in Europe.

Mr Milburn will outline his plans to introduce "real choice" for NHS patients in a Commons statement setting out his spending plans. He will say the only choice people get at present is whether to "go private". He told The Independent last night: "This is a huge sea change in how the NHS is run.

"It is about giving real power to patients, so the only person who is making decisions about treatment is not the hospital, the doctor or the manager but the patient," he said. "It will be not just a powerful means of empowering patients but of driving improved performance in hospitals."

"The more operations that are being done in hospitals, the more money those hospitals will get. There will be a positive incentive on the hospitals to improve their performance." Letting patients shop around would help to identify hospitals that performed poorly, he said. Inspectors and, possibly, new management teams could then be sent in to "turn them round".

Mr Milburn admitted that some patients might prefer to wait longer so they could be treated locally. "People will have a trade-off. They will be able to choose to wait longer and stay local; or travel further and get a shorter wait. That is why it is absolutely crucial that we continue to lever up standards in every hospital."

Asked if the move would mean bringing "market forces" into the NHS, Mr Milburn replied: "It is the introduction of consumer disciplines. The NHS is there to serve patients. Why should a patient served by a poorly performing, long-wait hospital suffer?" He insisted his plans were "light years away" from the internal market brought in by the Tories and scrapped by Labour after it won power in 1997.

He said: "It singularly and disastrously failed. The money was supposed to follow the patient; instead, the patient ended up following the contract. There was no choice for patients; there was some choice for some GPs who ended up referring their patients to the local monopoly NHS provider."

The Health Secretary said that "naked competition" between hospitals was never going to deliver an improved health service because in many areas there was only one hospital. "You have to have a whole raft of reforms in place to ratchet up standards," he said.

At present, there are 277,000 people who have been on NHS waiting lists for more than six months. Under today's plan, more than 100,000 of them will be given the right to shop around next year.