Health secretary Alan Milburn has started bargaining for more money for the NHS ahead of this year s government-wide review of spending - but warned that any funds will be closely tied to performance targets.

Mr Milburn made his case for a big increase in NHS spending in a speech at the Institute for Public Policy Research just before Christmas. There is no reason why a combination of a growing economy and a close focus on priorities should not allow continuing improvements in the NHS for the future, he said, criticising the boom and bust funding of the past.

He said prime minister Tony Blair wanted large real-term increases and there should be another big three years increase in the next government spending review , dubbed SR2000.

But he warned: We're determined to get more out from the growing amount we put in, and said investment must be accompanied by radical reform.

Mr Milburn called on the service to focus on patients, not providers, and meet higher expectations by keeping pace with advances in medical technology.

The reform message was reinforced by planning guidance issued to the NHS over the holiday period. It says the performance management by the NHS Executive's regional offices is moving to a whole-systems approach .

It was also reinforced in a statement accompanying the details of HA allocations for the coming year . The 99 HAs in England will share£34bn, which the Department of Health said was an average increase after inflation of 4.2 per cent.

In the statement, Mr Milburn made it clear these resources are for modernising health services.

NHS Confederation policy director Nigel Edwards said it was clear Mr Milburn was turning his attention to the next comprehensive spending review in his speech.

Although his bargaining stance was good news , Mr Edwards said there was no guarantee that any increase would be above the general level of economic growth.

It may not be as rapid as people might want and it is reliant on the economy continuing to grow .

The planning guidance, Planning for Health and Health Care , sets out a system of checks on spending priorities, including health improvement programmes and service and financial frameworks.

Regional offices will negotiate a range of targets with individual HA's and work closely with the local health community to ensure plans will achieve national objectives and local priorities.

Quarterly monitoring of a range of detailed information will help regional offices to assess NHS activity and financial performance against plan .

NHS finance directors gave the allocations announcement a cautious welcome.

Healthcare Financial Management Association chair Barry Eliott described it as a generous allocation but said it left HAs little room for manouevre once government priorities had been met.

The amount available for HAs to deal with cost pressures next year is smaller than the headline figures would suggest.

But Mr Edwards said: My reading of the allocations is that they are not as closely tied to targets for the modernisation fund as before.

Planning for Health and Health Care.

www.doh.gov.uk/coinh.htm