Sajid Javid, the Health Secretary, promised to introduce “a payment system that incentivises strong performance and delivers value for money for the public”.

A government source said: “Reintroducing payment by results in the NHS will ensure that the taxpayer-funded uplift for dealing with the electives backlogs will result in cost efficiencies whilst also incentivising strong performance.

“There will be a laser-like focus on delivering value for money for the taxpayer as we boost NHS funding and tackle the post-Covid waiting lists.” 

The new scheme will be a “blended” model under which hospitals receive a fixed tranche of funding and then a “top-up” based on their performance against targets relating to the provision of services such as hip operations.

All trusts would be set a target based on a percentage of their pre-Covid performance in the 2019-20 financial year, which would be used as a baseline.

Trusts exceeding their targets for carrying out operations and treatment under the scheme will receive “top-up” funding for the services carried out over and above their target.

The extra funding will be paid at 75 per cent of the usual rate for each procedure or treatment, which is intended to cover any extra staff and other costs involved in additional activity, while acknowledging that fixed costs such as the provision of operating theatres would not increase.

In cases in which a hospital fails to reach their target, they would lose up to 75 per cent of what they were due to receive for the operations or treatments that do not take place. NHS England has been pushing for trusts only to lose 50 per cent of the planned funding.