The government this week set the stage for more providers to enter the healthcare market and spelled out the future of primary care trusts.

Building on progress: public services is the first of six papers to be published by the prime minister's strategy unit. Among the recommendations is that the government should make it easier for a wider range of providers to deliver healthcare, and increasingly seek to separate commissioners from providers.

It adds that 'a more explicit separation of commissioner and provider does not mean in-house provision is not possible, but that it should be provided through an arm's-length operation'.

HSJ understands that the government considers in-house provision by PCTs as acceptable, as long as it operates in a separate wing from the commissioning one.

But providers should be able to compete on a 'fair basis', according to the document: 'Where an incumbent provider enjoys a privileged position, short-term corrective measures may be necessary.'

The government is also understood to support measures such as paying new providers above tariff to encourage more entrants to the market, since incumbent providers are no longer paying off capital costs.

However National Association of Primary Care chair Dr James Kingsland said PCTs should stay away from provision: 'The only question is, why do they want to do that when there is a lot of opportunity to commission? They shouldn't get into the single provision. It should be by default. They shouldn't be setting up provider arms.'

Dr Kingsland said he was 'all for the level playing field', but that 'nobody should have a contract that guarantees volume'.

NHS Alliance chair Dr Michael Dixon said PCTs might want to keep some services where they are less likely to get good providers, such as mental disability. 'No-one should devolve services as a matter of dogma.'

But he added PCTs should not have long-term arm's-length operations. 'Simply having an arm's-length provider function for PCTs in the long run is not sustainable,' he said.