The surgical instrument manufacturing industry of Sialkot in Pakistan makes scalpels, scissors and other items for buyers all over the world – including Britain's NHS. Photograph: BMA Medical Fair and Ethical Trade Group

British hospitals are buying surgical instruments produced in dangerous working conditions in Pakistan using child workers as young as eight, the NHS has admitted. In some workshops, products such as scalpels, clamps and scissors to be used in NHS operations are made by workers paid as little as 170 rupees (£1.40) a day.

Injuries to workers are common because of a lack of safety gear, but buyers at NHS trusts - who spend £20bn each year on procurement - did not know about the problem because of the complex supply chains that bring the products to Europe.

Dr Mahmoud Bhutta on how he discovered the NHS sweatshop scandal

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To try to address the problem, the NHS is today issuing draft guidelines on ethical purchasing. According to NHS Purchasing and Supply Agency, the guidelines stem from a realisation that some instruments they buy are made in parts of Pakistan where sub-standard working conditions and child labour are common. They admit they do not know the size of the problem.

Even if the guidelines are adopted, they will be a voluntary code - no NHS trust will be obliged to follow them.

The Pakistani companies that export the products to Europe argue that poor working conditions are the fault of buyers such as the NHS driving down prices.

The guidelines were prompted by Mahmood Bhutta, a surgeon and clinical research fellow at Oxford University who has investigated the industry in Sialkot, the city where the vast majority of Pakistan's surgical instrument makers are based.

Here, large companies typically sub-contract much of the early work on their products to small freelance workshops. These frequently subject workers to appalling sweatshop conditions.

"I have walked down a street and just in this one street there must have been 10 children working on surgical instruments. Some were certainly, I would guess, around eight or nine," Bhutta said.

"It is estimated that over a quarter of children enter the industry to pay off family debts owed to the employer."

One estimate from the International Labour Organisation puts the number of children working in surgical instrument manufacture in Sialkot at 5,800. It is not known what proportion of surgical instruments bought by the NHS are produced under sweatshop conditions.

Shakeel Ahmed, 13, who earns around £1.40 a day making surgical instruments, said injuries in the workshops are common. He described an injury to a fellow worker who was using a polisher. "The stone blade broke suddenly and it hit his head and it started to bleed. Other workers caught him and carried him to hospital," he said. Ahmed left school aged eight to begin working in the industry.

"The health of our nation is actually indirectly linked to the health of people around the world," said Dan Rees, director of the Ethical Trading Initiative. He said part of the problem was buyers such as the NHS pushing for the cheapest deal. "The focus of public procurement has been value for money ... The hard facts are sometimes that where you find extreme forms of exploitation, then of course there are costs that have to be engaged."

The NHS is launching a consultation on ethical trade guidelines aimed at improving conditions for workers. The consultation ends in April and the guidelines could be in place by the summer. But because individual NHS trusts are responsible for their own procurement policies, none are obliged to adopt the guidelines.

Sandra Gidley MP who sits on the parliamentary select committee on health described a voluntary approach as "feeble". "I suspect most people sitting in an office procuring this stuff will not give a second thought to this aspect. They only way they will be forced to give a second thought is if it becomes part of compulsory guidance," she said.

David Wathy, head of sustainable development with NHS purchasing agency said: "We recognise some of the surgical instruments used in the NHS are primarily manufactured in Sialkot and if they are not manufactured in Sialkot they may be manufactured in other countries with similar challenges." But he added that a simple kneejerk reaction to stop buying from Pakistan would be counter-productive.

Bhutta said solving the problem would not happen overnight. "We want to work with the industry not against industry. We don't want to sit here and point fingers and blame somebody else."

Sheraz Safdir, of Sialkot's Surgical Instruments Manufacturers Association, said the 5,800 figure was overestimated. "No more children are coming into this field," he said, though he admitted some very small sub-contractors do use children. "Overall, 95% of the industry is clean."

He suggested NGOs were deliberately exaggerating the problem. "The trouble with these people is that if there is no child labour in the surgical industry, how are they going to get their funds from abroad? What are they going to work on?"