Loadsa money, loadsa woe

For all the complaining, there is good news, argues Niall Dickson. Power is being devolved to local

It is a terrible thing when your clocks are not synchronised and the government has a serious horological problem.

The electoral clock and the NHS reform clock are badly out of sync. The next general election is doubtless being planned for May 2009, which leaves barely a year to ensure that changes, such as closing accident and emergency departments, are out of the way before the countdown begins. What is more, from April 2008 the period of big investment - more than 7 per cent a year every year in real terms since 2000 - will cease. That means the unattractive prospect of a service struggling to meet demand, without the usual excuse that it has been chronically underfunded.

Already the public believes the health service is in perennial crisis and the usual band of trade-union critics has been joined by such luminaries as the British Medical Association and the Royal College of Nursing. It seems every expert agrees that ministers have messed up this great institution - again. That is certainly what many doctors think. According to the Lancet, the government has presided over "a catastrophic collapse in medical morale". Given that morale was said to be at an all-time low when Labour came to power, things must be pretty bad, even allowing for a dose of hyperbole.

How did the government get itself into this predicament? On one level, it seems hardly fair. Back in 1999, ministers were told the NHS did not have enough money. So they doubled its budget. They were told patients were waiting too long for operations. So they slashed waiting times. In England, very long waits for in-patient procedures have been eliminated.

They were told cancer services were substandard. So they made these a priority, targeted big sums, and put a doctor in charge of the programme. Evidence suggests cancer services are significantly better; the same is true of the management of heart disease and treatment in A&E departments. They were told the service needed more clinical staff - there are now nearly 60 per cent more medical students than in 1997, and in England the NHS employs in excess of 80,000 more nurses than in 1997. They were also told that staff were underpaid - today medical and nursing salaries in the UK compare well with those in almost every country of the world bar the US.

The government has created at national level a series of institutions that ought to stand the test of time - that is, they will not be abolished by the next government. The National Institute for Health and Clinical Excellence is going through another rocky period, but no one now opposes the principle of having an organisation to assess the cost-effectiveness of new technologies. The National Patient Safety Agency has also had a difficult birth but, again, it has broken ground and the idea is widely supported. Although there may be arguments about the size and scope of the Healthcare Commission, the inspectorate that ensures quality and assesses standards, few doubt that it or something like it is essential.

Nor are this country's ministers alone in grappling with a seemingly dysfunctional health service, unable to cope with rising demand. A recent PricewaterhouseCoopers survey found that many healthcare systems around the world could be unsustainable in 15 years' time. France and Germany have been grappling with runaway costs - at one point the French system was said to be losing more than £15,000 a minute.

Strains and discipline

But the British government has also been the architect of some of its own woes. At least some of the current financial strains could have been avoided if discipline had been imposed earlier. The need to change the shape of care and reduce hospital costs could and should have been pushed through when the extra money was flowing in, not just at the point where it was about to be turned off. The latest reorganisation of NHS boundaries in England - albeit more coherent than earlier efforts - has distracted senior staff from key operational issues and further undermined morale.

Many of the gains have been achieved by imposing national targets and exerting top-down pressure, a process that seems to be effective for a few years but becomes counter-productive as resentment builds up and local innovation is stifled.

Then there was the triple whammy: three large pay hikes for hospital doctors, GPs and other staff. It was ambitious, not to say foolhardy, to try to transform the pay of more than one million staff simultaneously. The government also badly underestimated the cost of the deals. In 2005, the NHS received an extra £7.2bn; nearly half went on increased pay and new terms and conditions for GPs, consultants and other staff. A Treasury official was heard to mutter that he saw a different triple whammy - the NHS had paid out a fortune, failed to boost productivity and at the same time achieved the seemingly impossible by infuriating the staff in the process.

So, for all the progress that has been made, there are dark clouds on the horizon. The disillusionment of staff has to be up there among the top five things to turn around, along with the finances, and controlling demand for expensive hospital services. Winning hearts and minds will be hard to achieve, given that pay is now going to be held down, that there has to be more focus on productivity and that, in many areas, the pattern of services will have to change.

The good news is that, for all the bad press, the government appears to have learned from its mistakes. It does now genuinely appear committed to devolving power and responsibility to local level and, falteringly, it is moving away from the centrally driven, monopolistic model that will always struggle to inspire staff or provide responsive care. There is a chance that the health system will at last learn how to commission services effectively at local level, something that requires a complex set of skills that has not been mastered from the first days of the Conservative internal market in the early 1990s.

And there are good signals from the new breed of auto nomous NHS foundation trusts. The first wave was already high-performing, but there are early signs that it has benefited from the discipline of the journey to autonomy and from additional freedoms. Alongside private and other new forms of provider, succeeding waves of foundation trusts should be able to deliver better value and reignite belief in the system among staff. Politicians will never achieve this.

Given staff disillusion and public distrust, the question now is whether there is time for the tough decisions to be made and for change to be embedded, before all is swallowed up in the political firmament.

Niall Dickson is chief executive of the King's Fund

Where has the money gone?

£300m a year on stand-in doctors and nurses to cover staff shortages

£90m a year on luxury cars for senior managers

£4.1m in 2005 on works of art

£172m on management consultants this year

£20bn on a delayed project to upgrade IT systems

30% pay rise for GPs, taking the average salary to £106,000

Research by Ambur Beg