Speaking at the annual NHS medical directors' conference in London last week, Mr Nicholson described the approaching funding crisis as 'absolutely unprecedented' and '10 times bigger' than the financial challenges of 2004 and 2005, when trusts had to overcome £1 billion in deficits.

'There is some evidence but it is sketchy about whether this can be done on a system-wide basis,' Mr Nicholson said.

'We cannot find anywhere else in the world where it has been done in this way. So it is a big challenge.'

The NHS Confederation estimates that efficiency savings of up to £20 billion will need to be found between 2011 and 2014 to maintain existing services, if the NHS no longer receives any growth in funding.

DoH director of improvement and efficiency, Jim Easton, also admitted at the conference that evidence that driving up quality could save the NHS's finances was 'at best mixed' and 'small-scale'.

'We have a partial evidence base which we can use to form judgment,' he said.

'But it would be quite wrong to say the task we engaged in will be built on definitive, crystal clear, irrefutable evidence. We are trying to do something new and difficult.'