Jeremy Laurance: A prescription for financial disaster

Forty years ago, GPs cared for their own patients at all hours including nights and weekends - visiting them at home when they were too ill to go to the surgery. Many worked single-handed, were responsible for their patients 24 hours a day and shared cover out of hours with colleagues in neighbouring practices.

Today, GPs work near normal office hours from state-of-the-art surgeries that they rarely leave. Their average list size has declined - from 2,500 patients in the 1960s to 1,900 today - but the care they provide is more complex, and was previously only available in hospital.

The GPs' contract introduced in 2004 was intended to accelerate the transfer of care from hospital to surgery by providing financial incentives to GPs to care for chronic illnesses such as diabetes and asthma and to offer preventive measures such as monitoring and treating high blood pressure.

Known as the Quality and Outcomes Framework, it set a series of targets, with rewards attached. GPs were expected to score about 500 points out of a maximuum of 1,050 but their actual score was 958 in the first year and 1,010 last year, triggering inflated payments.

NHS Employers, the organisation to whom the Government unwisely handed the task of negotiating the new pay deal, badly miscalculated. The cost of meeting the GPs' contract was £300m over budget in the first year alone.

Hospital consultants have also shared in the boom with a 27 per cent rise in the past three years. They averaged £109,974 last year rising to a maximum of £165,000 for those with a top merit award.

Private earnings, averaging £69,500 in 2005 for the estimated 20,000 consultants with private practices, are on top of those figures.

Nurses have had lower rises - average pay rose 12 per cent in the same period to £27,868 - but, because of their greater numbers, they have a bigger impact on the NHS pay bill. The increasing pay bill is a key challenge for the NHS, which spends about 70 per cent of its budget on its 1.3 million staff.

In the latest pay round, Ms Hewitt has told the NHS pay review bodies to limit increases to 1.5 per cent next year, well below the rate of inflation, which has outraged the unions. Even a 1.5 per cent increase in headline rates will produce an average 4.5 per cent increase overall, Ms Hewitt told MPs last month. That is because of staff moving up pay scales and other factors. Rising pay is set to take an increasing share of future NHS budget increases.

In October, NHS trusts were projecting a gross deficit of £1.2bn by next March, in part offset by those in surplus, which is forcing job losses and service closures. Patricia Hewitt has staked her political future on the NHS ending the year in overall financial balance.