The financial crisis gripping the NHS is deepening and hitting patient services, with operations cancelled, appointments deferred and wards closed, according to two reports published today.

NHS managers are struggling to reduce ballooning deficits that have swelled to £1.2bn. Managers have been freezing jobs, cancelling training and cutting up to 4,000 posts, the Royal College of Nursing says.

A separate survey of NHS chief executives found three-quarters believe patient care is suffering as a result of cuts that are imposed to balance the books.

Almost two-thirds said they had been forced to close wards to bring their finances under control and nearly half said they had postponed building work.

The questionnaire survey by the Health Service Journal was sent to more than 500 chief executives, of whom 117 replied. More than one in three (37 per cent) said they were heading for a deficit by the end of the financial year.

The findings came after ministers announced yesterday that a further 18 hospitals had been approved to apply to become NHS foundation trusts, which enjoy greater financial freedoms.

However, the RCN said the financial crisis in the NHS was deepening and foundation trusts were hardest hit, with more than half overspent.

Government figures published before Christmas showed NHS trusts were heading for an overall deficit of £620m, half the figure calculated by the RCN.

Barbara Tassa, chair of the RCN public policy committee, said: "Patients are suffering and nursing posts are being lost because of the deficits crisis in the NHS and this is unacceptable.

"The Government has repeatedly said that action taken by trusts to balance their books would not affect patient services. This is now clearly not the case.

"We are seeing a situation which is deteriorating. We have real concerns about the stability of NHS finances, especially in view of the roll-out of reforms such as patient choice and payment by results."

NHS chief executives blamed the Government for the high level of debt, saying inflexible targets on cutting waiting times, costly pay awards for consultants and GPs and the growing use of the private sector had put the NHS in jeopardy.

The NHS Confederation, which represents trusts and health authorities, said deficits were falling as measures taken to cut costs, such as shutting wards, began to take effect. Gill Morgan, chief executive, said: "It is worse at the moment because of the Government's highly ambitious programme [to cut waiting lists and modernise services].

"In many places, the NHS tried to run faster but you can only run faster for so long. There was pressure on pay and higher activity. Now people are taking action to bring the deficits down. What you are seeing in terms of shut wards are the symptoms of efforts to achieve financial balance.

"It will get better financially [towards the end of the financial year] but it will get worse for patients."

A health department spokesman said: "We simply don't recognise the picture being painted. Improving financial management does not mean compromising care. The needs of patients are always paramount. Across the country, patients know their local NHS has new buildings, equipment, more doctors and nurses and faster access to care."

Andrew Lansley, the shadow Health Secretary, said: "Patricia Hewitt has been in denial over the consequences of NHS financial deficits, any problems she has blamed on local decision-making. It is time for her to take responsibility for the consequence of the Government's polices."

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