The NHS took a backward step in 2006 and now faces “make or break”, according to a report by the think-tank Reform.

At stake is the whole reform agenda and the Prime Minister’s legacy, threatened by the forces of reaction, the failure of money to transform the service, and the uncosted promises made by ministers that threaten to gobble up still more money.

The report, whose lead author is Nick Bosanquet, of Imperial College London, paints a gloomy picture of a service getting deeper into debt in spite of real spending having doubled. Professor Bosanquet says that the money has been wastefully spent on extra staff and spiralling costs.

Worse still, the reform agenda — patient choice, the introduction of competition, and payment by results — has been forced on to the back foot as the traditional monopoly reasserts itself.

Waiting times are no longer coming down and in some cases increasing, rationing of care is becoming more common, and “reconfigurations” are being driven by deficits, not by the need to improve care. As a result, the report says, Britain now has a health system that costs as much as other leading European countries but delivers less.

Spending will have gone from 6 per cent to 10 per cent of gross national product by 2010, a level at which it should be possible to deliver immediate access and high quality.

But so far, service improvement is modest: the paper estimates that while real-terms funding has doubled, activity, quality and access have risen by between 20 and 30 per cent.

The report, from a market-oriented think-tank that has backed government reforms, will make depressing reading for ministers. Patricia Hewitt, the Health Secretary, had described 2006 as the NHS’s “best year ever”.

“The evidence is that the service is in a weaker position than in 2004,” the report said.