The health service is untouchable, in political terms. That much is clear from yesterday's pronouncement by Gordon Brown that the NHS - unlike most other public services - will be protected from recession. David Cameron has also stated that the Conservatives are committed to increasing health spending in real terms. Yet the size of the hole in the public finances means that no budget as big as the NHS's should be considered sacrosanct.

The ecstatic reception that the Prime Minister received at the Royal College of Nursing yesterday must partly reflect the huge injections of cash that Labour has pumped into the NHS. Real NHS funding has almost doubled in the past decade, the largest sustained increase in the history of the service.

With a rapidly aging population and an avalanche of new drugs and treatments becoming available, demand for healthcare is only going to rise. But that is not an argument for protecting the service from the worst rigours of belt tightening, when every other department is facing potentially severe cuts: it rather makes the case for urgent and radical reforms to improve efficiency.

In the 1990s the NHS was arguably starved of cash. Today British expenditure matches the European average. Yet Britain still lags too many other countries in areas including stroke, cancer and quality of care. Stories of elderly patients being starved and neglected, and recent revelations about unnecessary deaths at Mid-Staffordshire NHS Foundation Trust, are inexcusable.

The NHS is the largest employer in the developed world. It is Britain's last big state monopoly; and there are diminishing returns to spending in a monolithic health service. In 2007 Sir Derek Wanless reviewed the spending spree that he, as a health adviser to Gordon Brown, had helped to generate. He found that almost half of the extra £45 billion that had been spent in the previous five years had gone on pay and price inflation. While some of the pay rises were merited, GP contracts notoriously ended up paying doctors more to do less. The price inflation was generated by the sheer size and scale of the spending spree, which swamped management capacity.

That error will not be repeated now, because the coffers are empty. The NHS will not be completely immune to the overall slowdown in the rate of spending growth: staffers are already concerned about the reduction in planned increases: which means that the budget for 2010 will be £102.3 billion, not £104.6 billion. But this is still a vast sum, and there have been no commensurate increases in productivity.

Yesterday Mr Brown promised to continue real increases in funding to the service beyond 2011. But the public will not get a proper return on that investment without serious reform, including a much greater commitment to competition. Everything should be on the table. The think-tank Reform, for example, has found a surprising measure of public support for introducing co-payments for certain services.

“Cut” is a deadly word in political terms. The NHS has powerful unions that are resistant to change and are already describing the slowdown in spending growth as a “cut”. But this is a virulent infection, which politicians must resist. Promises to protect a service with falling productivity might prove a death knell, not a lifesaver.