The government watchdog on hospital procurement and design, NHS Estates, is to be abolished.

The decision, which raises questions over the future of programmes such as the £2.1bn Procure 21 and NHS LIFT, came after the Department of Health published proposals to cut £500m from NHS spending by 2007.

It is understood that NHS Estates’ procurement work will now be handled by the NHS Purchasing and Supply Agency. A small core of NHS Estates’ 218 staff will be transferred to this body.

It is also understood that staff did not know that NHS Estates was to be scrapped until they saw it on the DoH website.

NHS Estates chief executive Peter Wearmouth said: “As far as Procure 21 is concerned, it will not affect what we do one bit. It is business as usual.”

Inventures, NHS Estates’ property arm, is also to be abolished. Its £400m property portfolio has been earmarked by English Partnerships as part of the government’s affordable housing programme.

Health secretary John Reid this week gave the green light to 15 NHS hospitals worth more than £4bn. Most will be procured using the PFI.

Included in the plans are mental health facilities for Merseyside, Leicester and Teesside and redevelopments of Southend Hospital in Essex, Hillingdon Hospital in west London and Great Ormond Street in central London.