Blair orders ministers to stop public squabbling over hospital spending

Tony Blair has ordered Gordon Brown and Alan Milburn to stop their public squabbling over the Secretary of State for Health's plans to free high-performing hospitals from Treasury spending controls.

The Prime Minister is irritated that their simmering dispute erupted during the Labour Party conference in Blackpool this week, and has told both ministers that their differences must be resolved in private.

The row has become seen as a power struggle between two potential rivals to succeed Mr Blair as Prime Minister. Some Labour modernisers have been promoting Mr Milburn as a "stop Brown" candidate in a future Labour leadership race, although the Chancellor is widely seen as the clear front-runner. "This is really about the first manoeuvrings in the battle for the succession," said one senior Labour figure.

A Downing Street source said: "This is doing damage. The differences between them are small, but it has been built up by their allies into a big trial of strength. Instead of talking to newspapers, people should sort it out quietly."

Mr Blair is worried that cabinet unity and discipline have broken down over Mr Milburn's plans to allow hospitals that win foundation status to borrow money on the financial markets. But the Chancellor is adamant that the hospitals' borrowing must be within the department's budget ceiling in order to maintain financial discipline. He is worried the NHS could lose vital assets if a hospital ran into cash problems.

Despite Mr Blair's plea, relayed through his aides, there is little sign of the dispute cooling down. Allies of Mr Milburn portrayed the Chancellor as a block on radical reform, a charge he denies. In turn, Treasury aides accused Mr Milburn of moving towards the backdoor privatisation of the NHS. The Prime Minister steered a middle course between the two sides in a press conference on Thursday, saying the issue had not been resolved.

Some advisers believe Mr Brown should relax outdated Treasury spending rules to help the Government inject private-sector disciplines into public services. Some Blair aides are worried that if he backs his Chancellor, he will be accused of dodging the difficult decisions he highlighted in his conference speech. "He is not going to say 'be bold' one day and then run away the next," one close ally said.