The National Health Service faces the biggest financial challenge in its history as a result of the economic downturn, with a £15 billion funding shortfall likely in the next decade, according to a report published today.

The NHS Confederation, which represents 90 per cent of NHS organisations, said the next two years would be “tough but manageable” but beyond 2010-11 it would be “very different and extremely challenging”.

Its report — Dealing with the downturn: The greatest ever leadership challenge for the NHS? — said the service should expect a funding shortfall of £15 billion in real terms as a result of the impact of the recession and rising costs.

“With little or no cash increase, from 2011-12 the NHS will need to plan for real terms funding to fall by 2.5-3 per cent per annum,” the study said. “This is equivalent to a cut of between £8-10 billion over the next Comprehensive Spending Review and up to £15 billion over five years.”

The report called for immediate action if the service is to continue to keep to its founding principles of providing free care to everyone at the point of need. It warned against “diluting” the quality of patient care and extending waiting lists, or making cuts to training budgets.

A solution to the crisis lies in NHS leaders embracing innovation, change and improving efficiency, it said.

Steve Barnett, chief executive of the NHS Confederation, said that with little or no cash increase from 2011-12, the NHS would need to make “hard decisions about which programmes to fund, how to reward staff and how to reorganise services now”.

“If it does not, then the mistakes of the past could be repeated and shortages in funding will translate to the kind of across-the-board cuts which could see waiting lists lengthen, standards fall and dissatisfaction with the service grow among patients and staff,” he said.

“The NHS needs to take the opportunity to find efficiencies and savings — I believe it has the people, the ideas and the capacity to meet this challenge but we should be under no illusions of the size of the task ahead.”

Nigel Edwards, the NHS Confederation’s director of policy and author of the report, warned against losing significant improvements in the NHS through “short-term cuts and crude approaches to cost control”.

He added: “Quality improvements through greater efficiency and redesigning services can provide the budget savings necessary to navigate this crisis.”

The NHS budget in 2009-10 stands at £102.7 billion — a 7.5 per cent real terms increase on the previous year, according to the Department of Health. Next year, the budget will be £105.8 billion, which it said was a 1.6 per cent increase in real terms.

Hamish Meldrum, chairman of the British Medical Association, said that a funding crisis could be very dangerous for the NHS.

“It has the potential to seriously threaten patient services,” Dr Meldrum said. “We agree with the NHS Confederation that difficult choices will have to be made.

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