The National Health Service is on course for a deficit of £6.8 billion over the next five years unless efficiencies are significantly improved, according to think-tank Reform.

With the NHS itself predicting a deficit of £620 million for the 2005/06 period, Reform has called for an end to major hospital building schemes, saying the recruitment of new staff, more competitive contracts, overhauling the NHS IT system and massive construction projects will require an extra £18.2 billion in funding. Just £11.4 billion is in the pot.

One quarter of all NHS trusts failed to balance their books last year, resulting in a £250 million shortfall that various estimates suggest will rise to £620 million for the 2005/06 period. And some hospitals have already started to take measures, including delaying operations and closing wards, to recoup some of the finances. But Jo Webber, Deputy Policy Director of the NHS Confederation, said: “It would not be in the best interests of patients for frontline services to be potentially damaged by the need to eliminate all deficits by the end of March.”

She also stressed that the financial situation should be put into perspective, adding: “This projected deficit represents less than 1% of the NHS budget and the majority of trusts are balancing their books. We should not lose sight of the fact that NHS organisations and their staff are delivering real improvements in patient care – and most are doing that within budget.”

However, Professor Nick Bosanquet of Imperial College London, and author of the report, said: “We have got system failure. The Government if not prepared to face up to the changes that would make funding and commitments fit together, so the financial system does not stack up. The NHS has two options: either radical reform to improve productivity or local rationing, rising waiting lists and falling staff morale.”

As perhaps was to be expected, Health Secretary Patricia Hewitt knocked back some of the report’s figures, saying significant savings made by the NHS had been ignored. She reveals that savings of £1.7 billion have been achieved since March last year - £200 million ahead of schedule, with annual efficiency gains of £6.5 billion forecast by March 2008.

She concluded: “I recognise that a minority of the NHS is facing a challenge to tackle projected deficits. However, these savings show that productivity gains and improved quality of care go hand-in-hand.”