Protesters from the National Health Action Party lead a mock funeral procession for the NHS along Whitehall. Photograph: Getty Images.
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The NHS funding crisis is now impossible to ignore - which party will grip it?

Without new money, the health service will be condemned to years of dangerous decline. 

After four years of austerity, the NHS funding crisis is becoming impossible for the government to disguise. More than one in three trusts (58) are now running a deficit, compared to just one in ten (16) before the coalition entered office. Meanwhile, the BBC reports today that health service faces a funding gap of up to £2bn next year as its budget is burst by rising demand. 

All of this was entirely predictable. Contrary to the conventional view that it has been shielded from austerity, the NHS is currently enduring the toughest spending settlement in its history. Since 1950, health spending has grown at an average annual rate of 4 per cent, but over the current parliament it will rise by an average of just 0.5 per cent. Consequently, in the words of a recent Social Market Foundation paper, there has been "an effective cut of £16bn from the health budget in terms of what patients expect the NHS to deliver". Should the NHS receive flat real-terms settlements for the three years from 2015-16, this cut will increase to £34bn or 23 per cent.

If the health service, the most popular spending area among the public (71 per cent believe that its budget should be increased and just 5 per cent that it should be reduced) is to survive in anything like its present form, the question of new funding can no longer be deferred. Jeremy Hunt is involved in talks on additional funding for the next financial year (potentially to be announced in George Osborne's pre-election Budget) but this will only be a sticking-plaster solution at best. 

If they wish to avoid a significant fall in the quality and quantity of services, this government and future ones are left with three choices: to significantly raise taxes, to cut spending elsewhere, or to impose patient charges. The third of these is proposed today by the Royal College of Nursing, which calls for a £10 fee for patients to see their GP. If this seems heretical, it's worth remembering that our free health service hasn't been truly free since Labour chancellor Hugh Gaitskell introduced prescription charges for glasses and dentures in his 1951 Budget (although they have now been abolished in Scotland, Wales and Northern Ireland). But unsurprisingly, the Department of Health has responded by dismissing the idea out of hand: "We are absolutely clear that the NHS should be free at the point of use, and we will not charge for GP appointments." Labour, needless to say, takes the same view. 

The most concrete suggestion on how to solve the crisis has come from Labour's Frank Field, who has called for a 1 per cent rise in National Insurance, comparable to that introducd by Gordon Brown in 2002, with the additional funds put into a dedicated fund that would be run as a mutual. But after spending much of the last year warning of a "cost-of-living-crisis", senior Labour figures, most notably Ed Balls, are doubtful that the party can afford to go into the general election pledging to raise general taxation. In an attempt to start a political bidding war, I'm told by Field that he will shortly meet with Hunt to try and sell the idea to the Tories. But all the signs are that David Cameron and George Osborne intend to run a classic 1992-style campaign in which they pledge to clear the remainder of the deficit through spending cuts alone and denounce Labour's "tax bombshell". 

But unless the parties are soon willing to confront voters with the truth that if they want the NHS to survive, they will have to pay for it (that is to say, they cannot enjoy Nordic-style services on US-style tax rates), the health service, rated by a new US study as the best in the world, will be condemned to years of dangerous decline. 

George Eaton is political editor of the New Statesman.

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Former Home Secretary Jacqui Smith: Theresa May is the Tory leader Labour should fear

George Osborne is not inevitable as the next Tory leader – and Theresa May could be the one to see him off.

Some people believe that Theresa May has had her day as a Tory leadership contender, but she is a woman who has been underestimated throughout her career. Furthermore, as Angela Merkel, Tessa Jowell, Margaret Hodge and Harriet Harman will tell you, we are in the day of the (slightly) older woman politician. And, while Margaret Thatcher was certainly not an advocate for more Tory women, her legacy is a Conservative party who would not find it impossible to countenance another woman in charge. Could that be May?

Throughout her political career, May has never been seen as “a rising star”. She was involved in politics at Oxford University having gained a place from her grammar school, but was not particularly pushy or sparkling future leader material. She worked in banking for a period and was a councillor in Merton. She fought two unwinnable seats before finally getting elected to parliament in 1997. So no easy, gilded rise through the party for her. Being on the receiving end of some of the misogyny found in all parties’ selection procedures may have been the spur which led her to declare the Conservatives the “nasty party” in her famous 2002 conference speech as party chair under Iain Duncan Smith’s leadership. She is a bit of an outsider, willing to argue that her party had to change and to reach out beyond its natural supporters. She is no Robert Halfon-style, blue-collar Conservative, but nor is she a “posh boy” – perhaps the perfect positioning for a future leader.

Thatcher prided herself on being an ‘honorary man’ – no feminist solidarity for her. However, May is much more comfortable supporting other women – she is an advocate of the Tory party’s efforts to find more women candidates. As party leader, she might well find ways to appeal to the older women who tend to vote, but have not always been attracted by the “calm down, dear” machismo of the current  Tory leadership.

A winning party leader will have to command the political centre-ground. May is no rightwing ideologue. She shows little passion for eye-catching policy announcements and has rarely, in recent years ventured beyond her Home Office brief to express strong views or a sense of the direction she would like to take the country in. The British public may not be attracted by demagoguery, but they will need a clear idea of what a May leadership would believe in and do. This could be an even greater barrier to actually getting elected within the Conservative party to begin with. For example, May has largely avoided the issue of Europe. She did make a speech last year criticising the stifling effect of European Union regulation, but the context was interesting. Some saw this as an attempt to broaden her appeal within the party, but it was also made at the time when she was attempting to win support to opt back in to a range of EU justice and home affairs measures including the European arrest warrant, which the government had opted out of in a grandstanding gesture. She may have to make ideological gestures to win  Tory support, but is fundamentally pragmatic.

However, that is not to say that she is not willing to be brave in taking on those who she feels need challenge. Her “nasty party” speech was one such example, but more recently she was willing to offer some home truths to the Police Federation at its conference. This was certainly at a time when the Fed was already weakened by internal divisions and the police was dogged by scandal. But, as any Home Secretary knows, the conference can be an unpleasant and surly event and it shows mettle to take them on in this arena.

Her time as one of the longest serving home secretaries is a double-edged sword for an aspiring Conservative leader. Being Home Secretary is a serious and difficult job – holding onto it for as long as she has means that nobody could doubt her credentials to take one more step up the ladder. Dealing with the security, cross-government issues and “events” which are the bread and butter of Home Secretaries is possibly a better qualification to be Prime  Minister than the more controlled environment of the Treasury. However, the all-encompassing seriousness of the role also makes it more difficult to win support as a future leader or prime minister. Being Home Secretary with the current policy portfolio is essentially about stopping bad things from happening. It does not leave a lot of time to make the wider political arguments or to engage in the “hopey, changey’” thing which many would look for in a future leader.

She has made mistakes – alienating the civil service in a particularly cavalier shifting of the blame onto senior Border Force official Brodie Clark for supposed weaknesses in border security when the fault was in her policy decisions. She has shown bad judgement and a lack of imagination in sticking with a crude immigration cap which achieves the double whammy of being impossible to deliver and perverse in the impact of trying to.

There is no doubt that May is not a clubbable or particularly warm person so has not built up a cadre of enthusiastic supporters. She has lost some good ministers from the Home Office, like Nick Herbert and Pauline Neville-Jones, suggesting that she may not excel at building the sort of team spirit needed to win a leadership bid and maintain the ‘machine’ necessary to be a successful leader.

However, she has built her career so far on not being a “natural” for each of the political jobs she has held. She has outperformed expectations and has some of the ingredients necessary to move the Tory party on from the dilettante gentleman, amateur approach of David Cameron. It is a record and an approach which just might attract both the party and those voters who Labour so desperately needs to win back. Don’t write her off yet.

This essay is from Face-Off, a series of linked articles on the next Conservative leader.