The government has axed the "NHS university", an organisation set up last year to improve the skills of the health service's 1.3 million employees.

However health minister Lord Warner said the university would "expire" because the term had "passed its sell-by date".

In a sweeping announcement, Warner said that other organisations, such as the NHS Modernisation Agency, will also go.

The number of "arm's length bodies" linked to the department will fall from 38 to 20, saving £500 million a year by 2007/08.

Meanwhile, doctors leaders have warned that the health service will endure hospital closures caused by the government's plans to extend patient choice.

The British Medical Association said hospitals that did not attract enough patients would be bankrupted under the system of payment by results.

The Which? group also attacked choice yesterday as "meaningless" if it meant choosing between two bad schools or hospitals.

But in a major boost to NHS staff the Agenda for Change pay deal comes into force today.