The Department of Health has refused to agree Monitor’s proposed budget for this year, setting an allocation nearly £6m lower than the healthcare regulator believes it needs.

Monitor’s latest forecast is that it will need a core running costs budget of £53.7m in 2013-14, but the department has allocated just £48m.

A paper that was set to be considered by the regulator’s board this week claims the DH’s allocation is “insufficient” to fund the significantly expanded role Monitor has been given under the 2012 Health Act.

It goes on to set out the regulator’s options for delaying recruitment and cancelling projects should it need to curb expenditure later this year. But it warns that these proposed “reductions and delays” would “undermine delivery of key strategic priorities in 2013-14, and may create a similar if not more acute problem in 2014-15 and beyond”.

Monitor is due to reforecast its 2013-14 budget in October, and the DH has refused to consider any increase in its budget before then.

The possible cuts outlined in the paper are aimed at managing Monitor’s expenditure after October, should the DH refuse to fund costs above £48m forecast at that point.

The plan includes delaying recruitment of 36 posts planned for December, including 15 in Monitor’s provider regulation team. The paper warns that freezing vacancies in provider regulation “may be a false economy”, forcing Monitor to bring in more expensive interims in 2014-15 when it has to begin regulating private sector providers.

It suggests Monitor could also save £2.2m on its budget for external consultants, by cancelling or delaying projects in areas including pricing, economics and policy.

On pricing, this would involve delays to costing analysis to help develop the 2015-16 payment by results tariff, and research into patient-level outcomes measures, long term conditions and out of hospital care. The paper states: “The pricing team’s view is that whilst projects could be delayed, this would impact severely on Monitor’s ability to deliver its business priorities and could affect delivery of statutory obligations around tariff.”

On policy, it says this would involve delaying a review of the new provider licence, which would break a commitment Monitor made to the Foundation Trust Network.

A monitor spokeswoman said: “We propose to increase our annual budget to meet the wide range of new duties we now have under the 2012 Health and Social Care Act.

“In previous years, Monitor has consistently underspent its allocated budget and this is reflected in the allocation we have received for 2013-14. The position will be discussed by Monitor’s Board tomorrow.

“Monitor is committed to ensuring our work as sector regulator protects the interests of patients and provides value for money for the taxpayer.”

Separately, the board paper gives an indication of how much the DH believes the new foundation trust “failure regime” will cost Monitor in its first year of operation. The DH has provisionally agreed an “overall financial envelope” of £100m for financing foundation trusts placed in “trust special administration” this year.

It has also allocated £10m for “contingency planning teams”, the squads of consultants sent into FTs deemed to be at risk of failure.