Jeremy Laurance: After decade of feasting, NHS faces famine again

For most of its 60-year history, the NHS has lurched from crisis to crisis. In the 1980s, funding pressures led to the Thatcher review and the Tory market reforms. In the 1990s, rising waiting lists prompted Tony Blair to declare record investment and a programme of modernisation. Now, another looming crisis will open a new debate about the future of the country's most revered public service. For the next two years, things look reasonably comfortable. The £2.3bn extra efficiency savings from the NHS, announced in the Budget, have already been largely found. Primary Care Trusts will keep their annual 5.5 per cent real increase in funds, already allocated, which may be less than the record sums of recent years but still high by historical standards.

It is after 2011 that the real squeeze begins, with the prospect of cuts in NHS services not seen for a generation.

Overall, growth in public spending is projected to be an eye-wateringly tight 0.7 per cent, much of it absorbed by the rising cost of unemployment benefit and interest on record levels of government debt. That will mean zero or even negative growth for the NHS, according to health economists.

As a £100bn business which has grown by £60bn in the past decade, ministers will hope there is scope for more savings, beyond those already identified, which include cheaper drugs, shorter lengths of stay and more patients treated outside hospital – projected to reap £1.6bn annually by 2011.

Cash has been poured into the service so fast over the past decade that it has undermined reform. It has proved easier to do the same, but more of it, than to do it differently. Productivity has fallen.

Niall Dickson, the chief executive of the Kings Fund, the health policy think-tank, said the Budget was a "wake-up call" for the NHS.

"The real message of the Budget is that from 2011 the NHS will have to be much more productive or make significant cuts in its services," he said.

The upside of the coming squeeze, according to Nigel Edwards, the policy director of the NHS Confederation, is that it provides the "spark to efficiency improvement".

A patient who gets the right treatment at the right time in the right way enjoys better care, spends less time in hospital and saves money.

But with tax revenues dwindling in the recession, demands for more radical reform will grow.

One of the biggest pressures is continuing nursing care for the elderly, and one option would be to define it as an insurable risk and withdraw it on the NHS.

Prescription charges could be imposed on all drugs, subject to an annual cap of £200, with the poorest entitled to reclaim the cost.

Other options include the introduction of co-payments, with the NHS providing a package of core services and patients paying extra for treatment outside the package.

Cosmetic and lifestyle treatments such as IVF could be hived off to the private sector (where most are already carried out).