THE National Health Service is heading for a huge accumulated deficit of £7 billion by 2010, a leading health economist has calculated.

Soaring spending, extra staff, a huge hospital building programme, more drugs, generous contracts to GPs, consultants and other staff, and a rash of uncosted promises by ministers mean that the figures cannot balance unless the NHS enjoys a “productivity miracle”, says Professor Nick Bosanquet in a report published today by the think-tank Reform.

The figures will send a shiver through Downing Street, which is already rattled by evidence that the NHS is running short of money despite six years of big real-terms increases in funding.

But Professor Bosanquet’s analysis shows that the real problems lie ahead and will make today’s shortfalls look like small change.

“The NHS has two options,” he says. “Either radical reform to improve productivity or local rationing, rising waiting lists and falling staff morale.”

If it is the latter, Labour’s attempt to prove the NHS can work will have failed, at a cost to the taxpayer of tens of billions of pounds.

Professor Bosanquet, from Imperial College, has a long record as a health economist, dating back to the 1980s. Last year Reform published a report by him that calculated that the NHS would cost the country £20 billion more than it should by 2010 because the Government had put increased funding before reform.

In his new report, coauthored by Henry de Zoete and Emily Beuhler of Reform, he adds up the costs of the plans already announced by the Department of Health up to 2010, and compares them with the total growth in budget the NHS can expect, based on plans already announced by the Chancellor.

Strong budget growth of 4.5 per cent in real terms is promised until 2007-08, after which it will grow at only 2 per cent a year. Over the five years from 2006 to 2011, the NHS budget will therefore grow by 15 per cent, or £11.4 billion.

But over the same period, he estimates, spending will grow by £18.2 billion — a gap of almost £7 billion.

“This is a minimum estimate,” the report says. “The department is digging a deeper hole by announcing numerous policy initiatives.”

Among the most striking findings of the report are:

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