Hundreds of thousands of people will receive personal allowances of NHS cash to organise their own care, looking to put the power back into the hands of patients.

Going forward far more people with mental health problems, dementia and physical and learning disabilities will have the right to select and pay for treatments they want. The money will be paid directly to them, allowing them to spend it on whatever they think will best help to manage their condition, as long as a doctor agrees.

Veterans leaving the army and wheelchair users have also been promised the “personal health budgets”, with some such budgets running to tens of thousands of pounds.

The reforms will also allow recipients to employ relatives or neighbours as carers, buy specific pieces of equipment, enrol in exercise classes or even hire a personal assistant. There are currently 23,000 people with personal budgets in the NHS through NHS Continuing Healthcare, designed for those who need both social care and nursing. Now ministers want an expansion of personal health budgets, of up to 350,000.

The reform is significant for combining money from the health and social care budgets, a wider goal for health reformers.

Caroline Dinenage, the care minister, said: “If you have complex needs our current health and social care system can be confusing, so it’s right people should be involved in the important decisions about how their care is delivered. These changes will put the power back into the hands of patients and their families.”

Ms Dinenage insisted that personal budgets for patients would “not only improve quality of life and the care they receive, they will offer good value for money for the taxpayer and reduce pressure on emergency care by joining up health and social care services at a local level”.

Ministers see the policy as a way to let individuals tailor their own care. They point to evidence that people’s health improves if they can spend NHS money on what matters to them, while cutting costs by 17 per cent on average by stopping expenditure on unhelpful treatment.

Supporters have defended purchases of computer equipment or football tickets, saying that such items can be crucial in helping people with complex conditions to thrive, with all spending signed off by doctors. Money for personal assistants and iPads can be justified if doctors think that this will help people to organise treatment or live independently, they say. The budgets cannot be spent on alcohol, tobacco, gambling, debt repayment and illegal activities.

Nigel Edwards, chief executive of the Nuffield Trust think tank, said that for people with suitable long-term conditions that were too complex for existing services there was good evidence that personal budgets worked. “It appears that giving people flexibility and choice over the care they require produces better outcomes for them [and does] produce some relatively modest savings,” he said. He added that concerns about “what happens if I take a personal budget and spend the whole lot on a world cruise” had so far turned out to be groundless. “There’s a danger of being closed-minded and saying ‘that’s not a real health need’ and not taking the wider view,” he said. “There will be examples of football season tickets, which get people upset, but I don’t think it’s systemic. Most of the money goes on direct care and is often justifiable.”

However, Caroline Abrahams, of Age UK, said: “Older people in declining health with social care needs generally tell us they are not very interested in getting involved in organising the services they receive, they just want them to be effective and joined up, and delivered by kind and skilful professionals.”

John O’Connell, chief executive of the TaxPayers’ Alliance, said that “the NHS has been run in the interests of staff, not patients, so it’s very encouraging to see personal health budgets being expanded”, but cautioned: “The government can’t allow patients . . . to spend taxpayers’ money on ineffective treatments.”