The health secretary has said he is "determined" to continue cutting costs in the NHS.

John Reid's comments came as the Department of Health detailed its plans to overhaul its "arms length bodies" (ALBs).

Ministers have said they are determined to rationalise the 42 separate ALBs which employ more than 22,000 staff.

It is expected the changes will free up £500 million for frontline services by 2007/08.

The number of bodies will be reduced to 20 despite the sector assuming new functions under statutes approved by parliament.

"Even with these new functions, which bring new costs, I will set the 2005/06 budget for the ALB sector so that it costs about £100 million a year less to run than in 2003/04," said Reid.

"A further £200 million a year will become available for redistribution to the frontline by the end of 2006/07 and again in 2007/08.

"This will inevitably mean significant changes in the organisation, staffing, financing and governance of the ALB sector."

Reid said the changes "must now be delivered".

Savings will come from merging bodies, sharing back office services and moving to cheaper locations.

"There is a tendency for all organisations to undergo 'mission creep' and take on extra functions," added Reid.

"The ALB review is about slimming down the sector to the essentials and doing those essentials more effectively.

"That is why I am expecting major savings for redistribution to the frontline from those central services in the ALB sector."

In 2003/04 management costs were 3.7 per cent of net NHS expenditure compared with five per cent in 1997/98.

"We will keep those costs under control," vowed the heath secretary.

"The ALB change programme will help us to do that by ensuring that the local NHS gets better value for money from central services, a contained regulatory and inspection system and fewer demands from the centre.

"I am determined to secure the changes set out in this framework document within the timescales described."