Chancellor Gordon Brown and the Secretary of State for Health, Alan Milburn, are at loggerheads over plans to open up Britain's pharmacy market to competition.
The final decision on how far to deregulate the £8.6bn dispensing market rests with Patricia Hewitt, Secretary of State for Trade and Industry.
She is due to make a ruling before the summer Parliamentary recess. But senior Whitehall sources revealed that the Chancellor and the Health Secretary have circulated strongly worded letters expressing opposing views.
It is understood that Mr Brown wants the Department of Trade and Industry (DTI) to open up the market to full competition. Well-placed sources said that the Chancellor is "right behind" an Office of Fair Trading (OFT) report which recommended that barriers should be removed. Published in January, the report said that deregulation should allow the supermarket giants, such as Tesco, Sainsbury's, Asda and Safeway, to dispense prescription drugs.
Mr Brown believes that allowing competition would save the Government millions. The NHS currently pays the UK's 12,250 pharmacies around £840m to dispense drugs. On top of this, the Gov- ernment subsidises remote and unprofitable pharmacies.
Mr Milburn wants to maintain the status quo and believes deregulation would threaten many small chemists.
Pharmacy lobby groups predict that the future of up to 6,000 small chemists would be in doubt if the OFT proposals were implemented in full. Boots and Lloyds Pharmacies, which control over 20 per cent of the market, would also be hard hit.
The Department for Health is worried that if people had to collect their prescriptions from supermarkets, this could disadvantage the less mobile poor and elderly.
A spokesman refused to comment on the split. Instead, he pointed to a statement issued on Wednesday by the department which said that the Government "needs to take into account wider policy objectives in responding to the OFT report".
The Cabinet split comes just one week after Ms Hewitt signalled that the OFT proposals could be watered down.
She told the House of Commons that there were "limits to markets, particularly in the delivery of health services".
A DTI spokesman said a progress report on pharmacies would be published in June, but refused to comment on a Cabinet divide.
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