A hospital trust branded as failing could be taken over by the private sector or a charity under radical plans outlined by Health Secretary Alan Milburn today.

Brighton Health Care NHS Trust is one of five in England with no stars in the government's hospital rating system.

If chief executive Stuart Welling cannot satisfy health ministers he has managed to improve the trust's performance he will lose his job and the management put out to tender.

Mr Milburn also intends to give top performing hospitals with three stars the choice of opting out of Whitehall control.

The new not-for-profit trusts would have unprecedented powers to run their own affairs and be free to set their own pay levels.

A decision on Mr Welling's future is expected imminently.

The trust says it has made dramatic improvements in the three areas where it was said to be failing.

All women referred urgently with suspected breast cancer are now seen by a consultant within two weeks, patients are no longer waiting more than 12 hours in accident and emergency after doctors decide to admit them to hospital, and outpatient waiting list numbers are continuing to fall.

A trust spokesman said: "We do not believe we are a failing hospital. We have done a considerable amount of work to make the improvements where they needed to be made.

"The issues that have affected Brighton are the same in other trusts in the South East and we are continuing to deal with the problems faced.

"Staff are doing a tremendous job in what is a difficult time."

If Mr Welling keeps his job and eventually brings the trust up to three star status, he would have the option of bringing it out of Government control.

Mr Milburn wants to allow good managers greater autonomy within the NHS to create new "foundation hospitals".

Although they would continue to be part of the NHS and subjected to national standards and external inspections, managers would otherwise be given complete independence in all other areas, including staff pay and conditions.

Mr Milburn said the NHS was Britain's "last great nationalised industry" in which patients were expected to be grateful for what they received.

He said: "That model is untenable for the 21st century. The NHS has to grow up and be part of this century rather than the last.

"The job of government should not be to run the system but to oversee it. We want greater community ownership and less state ownership, leading to greater diversity and plurality in local services.

"We now have a clear set of frameworks and standards in place, it is time to let go."

Mr Milburn said the idea came from the chief executives of the best hospitals, who told him that they wanted greater freedom.

Draft proposals are expected to be published within three months.

Dave Prentis, general secretary of Unison, dismissed Mr Milburn's plans.

He said: "What is needed is more money and investment going into the NHS and the staff who provide the services.

"The Health Secretary talks about freedom for managers. What does that freedom mean? Is it freedom to double their salaries at the patients' expense; freedom to drive down the pay and conditions of staff?"

John Edmonds, general secretary of the GMB union, said: "This shows that ministers are not prepared to listen to reason and are intent on forcing through backdoor privatisation of the NHS.

"It is staggering that at a time when the failure of rail privatisation is there for all to see the Government is intent on making the same mistake with our hospitals.

"The last thing the public wants is to see the NHS turn into a new Railtrack."

A code of conduct is being launched to stop managers responsible for "massaging" hospital waiting list figures walking into new NHS jobs.

A National Audit Office report recently showed nine NHS trusts were involved in "inappropriate adjustment" of lists.