It will, however, give the green light to a new independent sector treatment centre (ISTC) in Cumbria and Lancashire.

Mr Johnson also confirmed a two-thirds cuts in NHS targets.

The company which lost out - Atos Origin - was due to provide diagnostic services to the NHS in both the North West and South West.

Speaking to the health service select committee, Mr Johnson said: “They have failed to meet certain conditions within the contracts within an acceptable time frame.”

Spreading innovation

However, the health secretary said ISTCs had been an “important part” of the government NHS reforms, and had “contributed to the spread of innovation and best practice”.

The new service in the north of England will provide around 11,000 procedures a year for NHS patients, including general surgery and orthopaedics.

Mr Johnson said he expected to approve more similar schemes in the coming months.

“They would have to meet the local needs of patients, and offer value for money for the tax payer,” he said.

“Where they meet the tests we will bring in ISTCs, where they are inefficient and not according to contract, we will end those contracts.”

But Mr Johnson said there would not be a third wave of ISTC contracts imposed by central government.

Instead, local bodies would decide if they wanted any more ISTCs in their area, he said.

The centres have proved controversial amid accusations they “cream off” easy operations for maximum profit, leaving difficult cases to the NHS.

Last week, a report by the Healthcare Commission criticised the lack of quality data from ISTCs, which meant their work can not easily be compared with that in the NHS.

Targets

Confirming that centrally-imposed NHS targets would be slashed, Mr Johnson admitted they could distract health workers from important issues.

He said: “You don’t need to have that kind of blunt instrument from the top.

“It’s part of this looking up to Whitehall rather than looking out to their patients problem.”

Mr Johnson also rejected calls to implement the full pay award for nurses in England.

Earlier this year, the government announced it would be staging a 2.5% pay rise for NHS workers, with a 1.5% pay rise in April followed by a further 1% in November, making an annual average of around 1.9%.

However, devolved administrations in Northern Ireland, Wales and Scotland have now agreed to pay the rise in full in one go.

Both the Royal College of Midwives and the Royal College of Nursing (RCN) are considering industrial action.

Dr Peter Carter, general secretary of the RCN, said: “Our campaign for pay justice for nurses is based on a very simple principle - one nursing family, one pay deal.”