Finance: We can't get any slimmer

If the Government fails to increase its health budget, the NHS will have to cut services or relax policy targets. Paul Gosling reports

"The NHS is going through a very difficult year. If we are to retain public confidence, we must recognise that some service reductions will occur, and must manage them in advance to avoid criticism of crisis and confusion in the NHS - because in election year problems won't remain local difficulties any more."

So says Richard Jones, chief executive of Gloucester's Severn trust, who sees himself as an objective observer in the great NHS funding debate. His trust is adequately funded to see out this year without the trauma that is growing in a number of trusts. But he is worried on behalf of the NHS as a whole.

"The NHS will remain the best free health care service anywhere in the world, so it would be a shame it this damaged public confidence," adds Mr Jones.

The current financial year saw a tough financial settlement for the NHS. While the average allocation to health authorities gave them an extra 1.1 per cent, many trusts received much less. Even a one-off extra pounds 25m grant to some of the worst-affected health authorities has not solved the problem.

"It is not just a tight settlement," explains David Bell, treasurer of the NHS Trust Federation, who is also finance director of the St Helier trust in Surrey. "We have had a heavy rise in emergency admissions, double- digit percentage increases year on year for the past couple of years. We are trying to keep a cool head, but the winter never ended for us.

"Growth money from the Treasury is not coming as heavily here as in other areas. Our health authority is deemed to be above target for capitation, and so got a 0.5 per cent grant increase."

Crisis might be too strong a word for St Helier's situation, but it is certainly in a tight fix. It has responded by putting in makeshift extra beds in the accident and emergency admissions area, where patients await beds becoming available in proper wards.

"We can open beds that are not in an ideal situation, and not increase costs," says Mr Bell. "We don't have to take on extra staff. We have been muddling through, but that can't go on any longer. It is not unsafe, but it is not the best treatment."

The hospital needs to open more wards, but can do so only if allocated an additional pounds 500,000. "We are still trying to persuade the health authority it can afford to pay for it - it can't afford not to," Mr Bell argues. "We are not quite at breaking point, but resources are at a point where they can't stretch much further."

St Helier's problems may be worse than in many trusts, but they are common enough. It has a population that is increasingly elderly, becomes ill more often and stays in beds longer once admitted. Patients continue to occupy beds even when they no longer need them, but the breakdown of the traditional family can mean there is nowhere for them to go to.

GPs, worried by possible legal actions for negligence, are more inclined to refer patients to hospital. And heavier pollution and climate changes are adding to the number of respiratory illnesses.

Many health professionals believe that the Government has become complacent because of the success of its own reforms. For years it has made the NHS use its existing resources more efficiently - until now, when they will go no further.

Indeed, some elements of the reform process have greatly added to the pressures. In years gone by St Helier's would have cancelled elective operations, extending waiting lists, in order to cope with the unexpected demand from emergency admissions. But the Patient's Charter, combined with fines where operations are cancelled, mean this is no longer an option. The reformed NHS is more efficient but also less flexible than the old NHS.

Health authorities and trusts are having to consider radical solutions. More are looking to rationing, including the limiting of cosmetic skin operations and fertility treatments. Some want the Government to review its policy on non-emergency operations, allowing waiting lists to grow again.

Chris Ham, health services professor at Birmingham University, says: "The situation is very serious. A lot of trusts are running deficits, which they can only pick up through non-recurring funds. I don't think it is possible to keep within budgets and also meet all the objectives of the NHS. The Government will have to put more money in, or accept some relaxation of policy targets."

Until now the worries of NHS managers have been more anecdotal than proven. But both the NHS Trust Federation and the National Association of Health Authorities and Trusts (which are in negotiation to merge) are conducting surveys of members which they believe will provide hard evidence of the damage caused by the funding shortfall.

Philip Hunt, director of Nahat, says: "I don't think it means long-term problems. The rule of thumb is that we need 2 per cent extra money per year in real terms. I am convinced that if you give this to the NHS, it will continue to provide a first-class service."