Trusts and health authorities with higher than average management costs will be targeted in the government's latest drive against 'NHS bureaucracy'.

Health minister Alan Milburn has announced that pounds80m will be cut from NHS management costs in 1998-99.

The savings come on top of the pounds100m being saved from 'NHS red tape' this financial year and will be made up of:

pounds7m cuts in Department of Health running costs;

pounds12m cuts in HA management costs;

pounds36m cuts in trust management costs;

pounds25m cuts in GP fundholder management allowances.

The money will be redirected towards meeting the cancer waiting times set out in the government's white paper, The New NHS: modern, dependable.

The latest savings target was cautiously welcomed by NHS Confederation chief executive Stephen Thornton, who said: 'This seems relatively modest when compared with the pounds1bn they were talking about at the time of the white paper. It should be achievable.'

Mr Thornton welcomed the 'attempt to cut head office costs, however modest' and the inclusion of fundholder savings for the first time.

But he expressed 'anxiety' about the pounds36m trust savings target and said he hoped this would not 'trigger another round of mergers just for the sake of it'.

Mr Milburn's announcement was less well received by Rhidian Morris, chair of the National Association of Fundholding Practices, who said fundholders would 'cope' with a 10 per cent cut in their management allowances but added: 'The government is going to require a great deal of co-operation from primary care to make its reforms work, and I do not think this is a very sensible way of getting that co-operation.'

Peter Garland, NHS Executive deputy director of finance and performance, has issued guidance to trusts and HAs saying cuts will be achieved by targeting organisations with 'proportionately higher management costs'. But the definition of trust and HA management costs is being revised.

Trusts will be able to exclude a number of management activities, including tackling the year 2000 computer problem and recovering the cost of treating road traffic accident victims from insurance companies.

HAs will be able to exclude the costs of primary care and commissioning group pilots, the year 2000 problem, prescribing advisers and public health professionals and new work to beat NHS fraud.

Regional offices are expected to agree individual savings targets with HAs and trusts, taking these factors into account, by the end of the month.

Karen Caines, director of the Institute of Health Services Management, said: 'This is a government that wants various things done, so suddenly they are made exempt.

'But what about core NHS work? Or all the quality monitoring and waiting list work it wants done, which will take good management?

'There might well be room for cuts at the top end, but it is about time the government sat down and tried to measure management costs against what is actually achieved, instead of just going for more cost savings.'