The politics column - Allyson Pollock

Blair says his NHS reforms are bearing fruit - and so they are, for investors in PFI schemes and for

According to Patricia Hewitt the NHS has had its best year ever. So why is the Royal College of Nursing threatening industrial action over cuts and closures, and why did the annual conference of Unison, traditional Labour supporters, greet the secretary of state with heckling? In her words, "the NHS must modernise or die". So why, from Surrey to Manchester and from Gateshead to Shropshire, are local people banding into hospital action groups and "Keep our NHS public" campaigns in an effort to defend the health service? The chief targets for cuts are mental health services, palliative care, older people's care and emergency hospital care, yet Hewitt maintains, to general derision, that quality will not be affected.

The government says the NHS's deficits for the year just ended total £600m-£800m out of an £80bn budget and blames them on greedy doctors and nurses and bad local management. This is dishonest. Pay accounts for 60-70 per cent of NHS hospital budgets, but pay awards accounted for less than 30 per cent of the new money and should

have been absorbed easily. Nor was greed involved;

the increases returned NHS pay to previous levels after years of pay freezes. The hourly rate of the lowest-paid rose initially from £5.16 to £5.67 an hour; medical consultants got increases of 4-5 per cent a year, taking them to averages of between £75,000 and £95,000, while managers - their numbers swollen by the complications of marketisation - got 7.5 per cent more last year.

The real reason for the decision to axe in excess of 13,000 clinical staff and 1,000 NHS beds, plus associated services, is market-oriented reforms such as "choose and book", "payment by results" and foundation hospitals. Hospitals and services are required to behave like stand-alone companies, competing with each other and private corporations for income and patients. But their ability to balance the books is undermined by a requirement for primary care trusts - through whose hands 80 per cent of all NHS funding passes - to transfer 15-20 per cent of their budgets away from NHS hospitals and NHS primary care providers to for-profit, and usually multinational, healthcare corporations. The government plans to hand over most of the NHS budget to the private sector through "practice-based commissioning". Under this policy, local primary care trusts will eventually contract with for-profit companies such as the US-owned UnitedHealth Europe - whose president is Simon Stevens, Tony Blair's former health policy adviser - to provide GP services, transferring to it the 80 per cent of the NHS budget for all health services currently spent by primary care trusts.

The Prime Minister asserts that the reforms are bearing fruit, and so they are - for "investors" such as the lucky shareholders of Norfolk and Norwich and Bromley PFI hospitals, who received a windfall of more than £500m within months of the new hospitals opening. But the PFI has been less "fruitful" for local people, who have seen a quarter of beds closed and clinical staff and community provision cut. A large part of hospital trust deficits is due to PFI debts, running at £1.5bn a year.

Also proving fruitful are the NHS contracts for elective surgery being awarded to profitable independent sector treatment providers including Mercury, Capio and Netcare. These five-year, ring-fenced contracts, which will soon be worth more than £5.5bn, are guaranteed regardless of the number of patients treated - despite evidence that in some cases less than half the activity contracted for is undertaken.

There is, too, the £6.2bn going to corporations such as BT for IT services. And then there are the costs associated with establishing and operating a market - costs the NHS was explicitly designed to avoid: these are for invoicing, marketing, advertising, drawing up hundreds of thousands of contracts, legal disputes with contractors and rival hospitals, and using management consultants. At a conservative estimate, these market-related costs now account for between 6 per cent and 14 per cent of the NHS budget.

And though NHS hospitals remain responsible for balancing their books, the government has ensured that the only way they can do so is by cuts, closures, the sale of land and buildings - and more privatisation. Some foundation trusts are entering joint ventures with companies such as the Hospital Corporation of America, providing care to private patients in what were previously NHS beds. Others are charging NHS patients for "extra" care: Queen Charlotte's and Chelsea NHS hospital has introduced a fee of £4,000 for one-to-one midwife care - once the NHS standard - and the government is allowing it. The less fortunate hospitals - if that is the right word - are closing services and sacking staff. Is this what the English patient needs or wants?

Professor Pollock is head of the Centre for International Public Health Policy at the University of Edinburgh