Image caption Hospital bosses could face having to find more savings

A regulator has warned hospitals in England they could face having to make savings about 50% higher than those already demanded by ministers.

Monitor, which oversees NHS foundation trusts and assesses applications for foundation status, blamed factors such as greater-than-expected inflation.

It has written to local health chiefs after significantly revising its financial assumptions.

Ministers said the warning was based on Monitor's most "pessimistic" scenario.

The regulator said hospitals could have to make average savings of up to 6% or 7% a year, compared with the annual 4% set out by the previous Labour government, as part of efforts to cut £20bn from running costs.

It made its calculation based on the Department of Health's own estimates, inflation expectations set out by the Office of Budget Responsibility, and new NHS operating rules.

'Individual circumstances'

The NHS has escaped the budget cuts imposed on other government departments - but it still faced a "substantial challenge" if it was to meet the rising demand for health services at the same time as making efficiency savings, the watchdog said.

These assumptions are a reflection of the risks in the external environment - they are not a directive to make cuts Monitor

New tariff rules and payment by results guidance would also have a "material effect" on foundation trust income, the letter added.

A Monitor spokeswoman said: "The changes to the economic environment mean all trusts will need to plan accordingly and some savings will be required.

"However, we should be clear that these assumptions are a reflection of the risks in the external environment - they are not a directive to make cuts.

"Trusts will need to take account of the individual circumstances that exist within their local health economy, which could mean that they will need to take either a more optimistic or pessimistic approach than the one set out by Monitor.

"It is essential that the quality of patient services does not suffer as a result of cost-cutting measures. Monitor's assessment process includes an assessment of quality governance.

"This is to ensure that quality receives the same scrutiny as finance. If we have concerns that a trust board does not have sufficient understanding of quality, we will not authorise them as a foundation trust."

'Strong financial position'

The Department of Health, which wants all trusts to have foundation status by March 2014, said it had been clear that the NHS needed to make up to £20bn of efficiency savings by 2015 to reinvest in care.

But it said the 50% extra savings figure was based on the "more pessimistic" of two scenarios set out by the regulator.

A Department of Health spokeswoman said: "The NHS is in a strong financial position.

"We are investing an extra £11.5bn into the NHS by 2014-15. But higher costs and an ageing population mean that the NHS must meet the highest possible financial standards and find savings to reinvest into patient care.

"Monitor's assessment of 6% to 7% is its 'downside case', meaning it is more pessimistic.

"But it is right that Monitor's assessments are challenging - we want all hospitals to be able to meet Monitor's standards and show that they can provide sustainable, high quality and efficient services for their patients."