Senior NHS managers in Cornwall have taken the first step towards the commercialisation of community health services.

The Cornwall and Isles of Scilly Primary Care Trust (CIOSPCT), the commissioning body for the county, agreed in principle yesterday to the creation of a private company to manage 14 cottage hospitals and a range of non-acute services, including district nursing.

A business case will now be drawn up to form a social enterprise which will control the £75 million budget and manage about 2,500 staff.

The community interest company, similar in constitution to Fifteen, the restaurant and youth project created by celebrity chef Jamie Oliver, will eventually be subject to market testing.

Within five years it is expected to tender for contracts alongside private companies.

The process is also underway within Devon's PCT though a meeting next week is likely to opt for a temporary hosting arrangement with another NHS trust for its 21 community hospitals.

Steve Moore, acting chief executive of the CIOSPCT, stressed that patients would continue to be "treated free at the point of delivery".

"It is an administrative change to the running of these services and part of a range of organisational changes that will see primary care trusts phased out and replaced by GP commissioning consortia from 2013," he said.

Campaigners have strongly opposed the plan and claim it will inevitably lead to cuts and the potential closure of small community hospitals.

Terry Murray, chairman of West Cornwall Healthwatch, said the company would suffer higher running costs by being outside "the NHS family" with staff pensions, pay and conditions downgraded.

"It will have to pay rent, VAT and will not be part of agreements for purchasing equipment," he said. "Without centralised negotiating, staff could lose their final salary pension schemes. Our concern is that when it goes out to the market it will be taken over by a private company."

It emerged at the board meeting in Bodmin that executives had just days to make a "right to request" application in order to protect NHS pensions and conditions.

Jon Sparkes, the board's director of workforce development, said staff terms and conditions would remain "upon transfer" but could not be guaranteed in the future.

He said this was a "clear disadvantage" in terms of recruitment.

Mr Sparkes also told the meeting that staff organisations and unions were against the plans.

Medical director John Tilbury said the majority of Cornwall's GPs had supported the proposal, through the Local Medical Committee.

Kevin Baber, managing director of community health services, said it was "madness" to think the company would begin by "tinkering" with terms and conditions.

Mr Baber, who will now draw up the business case, said the plans chimed with the Government's intention to create the "largest social enter- prise market in the world".

He said the NHS already operated within the market place under the "any willing provider" procurement model. "The pressure is on the NHS to deliver higher quality for the same money," he said.

Graham Webster, vice chairman of campaign group Health Initiative Cornwall, said the plans were "misguided" and posed a "very significant threat" to health care.

"We were promised no changes then months later we see the most radical reform seen for years with the emphasis on privatisation," he added.

"We are not here to dismantle the NHS."

The board also agreed to put in place a two-year hosting arrangement for children's community health services.