The Daily Telegraph can disclose that many of the arguments currently being waged against the introduction of

competition to the NHS are wrongly placed.

In 2006, confidential legal advice obtained by the Labour government and seen by this newspaper concluded that reforms introduced at that time meant that private firms were legally able to compete for hospital contracts.

The document said that the NHS is subject to EU competition law because changes introduced by Tony Blair meant it was an “economic undertaking”.

In his letter Mr Clegg said that the role of private firms had been curtailed as a result of his previous involvement.

A source close to the Deputy

Prime Minister said: “No Lib Dem wants an American-style market in the NHS and our changes will rule out that threat.”

The Government was braced for further defeats on the Bill in the House of Lords.

Yesterday afternoon, a spokesman for the Prime Minister said that Mr Cameron was “happy” to provide Lib Dems with the additional reassurance they were seeking through the amendments.