NHS trusts in London have been warned that they will not be paid for treating extra patients if they reduce waiting lists too quickly.

In a sign of the tougher financial regime heralded by the departure of the head of the NHS, Sir Nigel Crisp, hospitals in the capital have been told to slow their work rate and turn away patients referred by GPs, unless their treatment has been approved by their primary care trust.

Sir Nigel announced he was stepping down on Tuesday after acknowledging that he had lost financial control of the NHS, which forecast a £790m overspend in January.

London trusts have been ordered to cut 5 per cent from their pay bill, by reducing the use of agency staff, and will have 3 per cent of their cash allocation for next year held back to provide a cushion for the leaner years to come.

The measures, set out in two memos seen by The Independent, indicate the urgency with which NHS managers want to curb overspending.

Hospitals in Cornwall and Manchester announced they were laying off staff and closing wards yesterday as the NHS's end of year deficit was predicted to exceed £800m. The Royal Cornwall Hospitals Trust, which is facing an £8.1m shortfall in the current financial year, said it was planning to cut 300 of its 5,000 staff. Trafford NHS Trust in Greater Manchester, which faces a £9m deficit, said it was closing the two in-patient wards at Altrincham General Hospital because of a shortage of doctors.

The memos to primary care trusts (PCTs) in London, issued from the office of John Bacon, NHS finance manager, warn trusts against "unexpected over-achievement" in their efforts to cut waiting times to a maximum of 18 weeks by 2008. "PCTs will expect trusts to co-operate in these difficult times. In particular, trusts should not assume 'referral' is 'authorisation to treat' in these circumstances. If they do so, having received a request to assist a PCT in managing workload, they should not presume payment will be made for activity that could have been delayed, without breaching maximum waiting times."

London NHS trusts account for a fifth of all NHS spending in England and include some with the largest deficits. The memo says all deficits carried over from this year must be paid off next year, and trusts without deficits will be required to deliver a minimum 1 per cent surplus to increase the financial cushion.

Professor John Appleby, chief economist at the King's Fund, the health policy think-tank, said: "What they are doing is withholding the money. The message is: spend less. This is just the experience of London but what else can they do in other parts of the country?"

He added: "It will presumably work in financial terms but the impact on the service is harder to judge. The Government wants to make progress to the 18-week waiting time target but will it be hampered?"

The Tory leader, David Cameron, went on the attack yesterday over the NHS's financial problems, and accused Tony Blair of sacking Sir Nigel.

"They've poured money into the NHS but there's an £800m deficit and the outgoing chief executive said things are getting worse not better," Mr Cameron said during Prime Minister's Questions in the Commons.

He added: "The deficit has trebled, wards are being closed and, in my constituency, mental health consultants are being sacked. If everything's going so well, why did you have to sack the chief executive?"

Mr Blair retorted: "It's very important we get the hospitals back into surplus, but let's be quite clear - if we look back over the past few years, we see the difference investment and reform has made. Waiting lists have come down by something like 400,000 under this Government. And whereas there used to be, in 1997, almost 300,000 people waiting 15 months for their operation, there's now no one waiting more than six months. The deficit is less than 1 per cent of the annual bill of the NHS. But the most important thing is that 50 per cent of the deficit is in 6 per cent of the trusts."

He added: "What we have to have is a proper system of financial transparency. We are putting a huge investment in. But it's for local hospital organisations to make sure that they balance the books ."

Altrincham: wards closed

* Campaigners threatened to take legal action yesterday after it was announced that two wards were to be closed down, ending in-patient care at a hospital, because of a funding crisis.

Trafford NHS Trust in Greater Manchester said it was closing the wards at Altrincham General Hospital to ensure "patient safety" but admitted that money and a shortage of doctors were factors. The trust's chief executive, David Cain, said: "It is not possible to continue to provide 24-hour clinical cover. Our nursing staff provide excellent care under difficult conditions, but they should expect to be supported by medical staff."

Pat Morris, of the pressure group Health in Trafford, said they would challenge the decision in the courts, adding: "There's a shortage of rehabilitation beds in Trafford ... these beds are a really important service for the community."

Martin Wakeley, director of modernisation and performance at the trust -which is £9m in debt in the current financial year - said it had been unable to fill two vacant posts for doctors and no longer had the resources or staff to offer full-time care.

"Over the course of the last few years the patients have grown in age and dependency," he explained.

About 26 beds are to be closed, with patients transferred to Trafford General.

Graham Brady, Tory MP for Altrincham, said he was "disappointed" by the announcement, but added: "Three months ago the hospital was facing being closed. On balance, what we have today is a good deal."

Terri Judd

Cornwall: 300 jobs cut

* A multimillion-pound budget shortfall has forced a health trust to cut 300 jobs, it has emerged. Royal Cornwall Hospitals Trust, which operates the county's main acute services, announced that 6 per cent of its 5,000 staff were to lose their jobs after it found itself £8.1m in the red this financial year.

"We have seen huge improvements in services but we can't make the scale of savings we need to make without it affecting staff spending," the trust's chief executive, Brian Milstead, said yesterday.

The trust, which blamed rising pay and drug budget increases for the shortfall, said it was drawing up plans for a "substantial financial recovery programme".

A spokesman added: "We are fully committed to avoiding compulsory redundancy, wherever possible, however, with the scale of savings needed, together with the reducing workload, we know that we will have no option in some areas."

He continued: "In this difficult climate, we are having to make some hard choices to ensure that the high quality of patient services are maintained and service improvements continue to be secured."

Matthew Taylor, the Liberal Democrat MP for Truro and St Austell, blamed the Government for the position, insisting the trust had previously made millions in savings while expanding services. "If government had not linked NHS funding to local wage levels, the RCH would be £10m better off and not forced to cut 300 jobs," he said.

Terri Judd