The denial came after reports that the Treasury had sanctioned a multi- million pound "creative accounting" exercise allowing health trusts and authorities to postpone ward closures and cuts in services by going into the red this financial year.
This would prevent problems this winter ahead of the pounds 1.2bn that will be handed over to NHS trusts in April as part of the Chancellor Gordon Brown's Budget.
The rules are contained in a letter from Colin Reeve, the director of finance and performance at the NHS Executive, to all trusts and copied to the Treasury, it was reported.
But a Department of Health spokesman said: "This is an old story. This is not a leaked memo. It is a financial director-ate letter which went out from Colin Reeve to all financial directors within the NHS.
"We were not allowing trusts to go into the red. It is a complete misunderstanding of the document.
"We expect all trusts to eliminate their deficits. Only in a small minority of cases where there has been serious financial problems has there been any leeway - problems in the sense of meeting their basic duties to the public."
A cash-strapped health authority's decision temporarily to close in- patient services at two West Country cottage hospitals to save money was ruled unlawful and blocked by the High Court yesterday.
In what is being seen as a test case which could affect other health authorities, a judge ruled that North and East Devon Health Authority "erred in law" in failing to appreciate at an early stage that the closure proposals had triggered a duty to consult the public. The judge said that the duty arose last April, when it was clear the threatened closures of Winsford and Lynton hospitals was under consideration.
Health chiefs did not formally decide to go ahead with the closures until June and then said that there would be no formal consultations with the Community Health Council, or the public, because the cuts had to be made as an emergency measure to save pounds 215,000.
Mr Justice Moses said this was an error which had "tainted" the closure decisions.Reuse content