Widespread financial difficulties in the NHS will worsen and patient care will suffer over the coming years unless the Government steps in to help hospitals facing funding failures, an independent report warned today.

A study by the King's Fund, an independent think tank, said that despite record levels of funding, more than a quarter of England's NHS Trusts are in deficit.

Patricia Hewitt, the Health Secretary, has admitted that the NHS is on course to run a deficit of £620 million this year, after receiving £76 billion in funding.

But the King's Fund's warning contrasted sharply with the annual report of the NHS chief executive, Sir Nigel Crisp, published today. Sir Nigel says that action is being taken to tackle the deficits, and he congratulates the health service on falling waiting lists and improvements in health services.

Dr Keith Palmer, the author of the King's Fund report, a former banker and a non-executive director of Guy’s and St Thomas’ NHS Trust, said that the financial state of Britain's hospitals was likely to deteriorate further unless the Government created a "distress regime" for those struggling to balance their books.

"Parts of the NHS are already experiencing large deficits despite unprecedented increases in funding - and we expect that deficits will increase at some NHS Trusts when the reforms begin to bite in earnest," he said.

"We urgently need a financial distress regime to address the causes of deficits and reduce the likelihood of failure occurring," said Dr Palmer, who said that failing hospitals should lose control over their budgets and be placed in the hands of independent administrators.

In its own report released today, the NHS acknowledged that Britain's hospitals were likely to end the financial year in deficit but said the organisation was aiming to limit the deficit to £200 million by sending in "turnaround teams" of accountants and managers to advise the worst affected trusts.

"Any deficit is unacceptable as it damages both the ability to plan, and the reputation of the NHS," wrote Sir Nigel in his report. He pointed out that last year's gross deficit of £760 million was supplied by just 5 per cent of NHS Trusts.

Elsewhere in his report, Sir Nigel wrote that the NHS was preventing more early deaths from cancer, coronary heart disease and suicide than ever and that patients were enjoying "more choice and involvement in their own care".

Sir Nigel also celebrated the reduction in hospital waiting lists - there are half a million fewer patients on NHS waiting lists than there were in 2000 - saying waiting times will come down to a maximum of six months by the end of the year.

The report did not address the fact that hospitals facing large deficits this year have been ordered to delay operations to save money - a trend that the Health Secretary acknowledged today was "very worrying".

"It is very worrying I think for patients who are being told that their local hospital has got a deficit and therefore cannot do operations as fast as they would like to be able to," Ms Hewitt told GMTV.

Yesterday, Ms Hewitt told the House of Commons Health Select Committee that, in specific circumstances, it would "make sense" to slow down health services to manage financial difficulties, but she insisted that six months' waiting would be the maximum.

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