The true size of the NHS deficit was five times larger last year than the £547 million admitted by the Government, Conservatives have claimed.
Shadow health secretary Andrew Lansley said the real £2.7 billion deficit was being hidden by technical changes in Department of Health accounts, and said the full scale of the shortfalls would mean cuts in frontline services.
But the Conservative claims were dismissed as "nonsense" by the Department of Health, which pointed out that the £547 million figure was independently audited.
The Tory challenge to the figures is based on the accounting distinction between "near-cash" - spending on pay, procurement and other items which actually see money change hands - and "non-cash" - items, such as claims for negligence, on which any cash payment will only come years in the future.
The Department recorded a £580 million deficit in 2005-06 - including the £547 million deficit in the NHS.
But Conservative research suggested that the Department's actual near-cash expenditure of £74.3 billion, as revealed in official papers, was £2.7 billion higher than the £71.6 billion resource limit for the year set by the Treasury.
The scale of the disparity was hidden by a large underspend in the Department's "non-cash" budget, said Mr Lansley. And he claimed that this underspend was mainly due to a decision by the NHS Litigation Authority the previous year to reduce its estimate of the rate of inflation needed to cover clinical negligence claims from 6% to 2.2%.
This change was worth £1.9 billion in 2004-05 and is likely to account for the bulk of the £2.7 billion in 2005-06, said Mr Lansley.
A Department of Health spokesman said: "This is not a cut in expenditure or a masked deficit. It does not affect the £8 billion increase in NHS funding referred to in the Budget, and Primary Care Trusts have got their full allocation to provide NHS healthcare as planned.
Health Secretary Patricia Hewitt has given NHS trusts a target of balancing their books by the start of April this year, and her department said the service was on track to record a £13 million surplus.
