TONY BLAIR is to be told today that hospitals must make drastic cuts in spending on drugs and agency staff.

Sir Ian Carruthers, the acting head of the NHS, will present his plan for reducing the estimated £750 million NHS deficit at a No 10 seminar.

Sir Ian, who took over after Sir Nigel Crisp’s resignation, believes that there is considerable scope for cuts in the £10.3 billion spent every year on drugs and the £1 billion on temporary staff. This will raise fears that some patients will not be given expensive treatments from which they could benefit.

Last year the Department of Health negotiated a cut of 7 per cent in the profits that drug companies can make from the NHS, but Sir Ian believes that too many hospitals still have a “misplaced brand loyalty”, which adds to costs.

His review for the Prime Minister comes as a report predicts that NHS staff levels will fall by 100,000 as reforms bite. A smaller, more effective and flexible workforce should emerge, according to the market- orientated think-tank Reform.

With young doctors emerging in ever greater numbers from medical schools, the report predicts “severe medical unemployment” and calls for a review of training plans. “There is little point in pulling more able young people into training with heavy costs when their employment chances are poor,” it says.

By 2004 the total NHS staff had risen to 1.33 million, an increase of 45,000 a year since 1999. As deficits hit hospitals, jobs are beginning to be shed — about 7,000 in the past few months — but new policies will accelerate the process, says the Reform team, led by Nick Bosanquet, Professor of Health Policy at Imperial College, London.

The costs of the expansion are one reason why the health service is being driven into deficit, the report says. Now the Government’s “highly welcome reform agenda” is likely to have widespread effects across the NHS. The reforms include payment by results, patient choice and the spread of foundation hospitals. The centralised “silo” mentality — pile up manpower regardless of cost or quality — will be replaced by more local initiatives.

These could include an end to centralised contract negotiations, a key feature of recent NHS history.

Professor Bosanquet said yesterday that he expected the reforms to benefit staff as well as patients: they will gain from increased choice, higher morale and the satisfaction of working in smaller, more independent organisations; but he is concerned about job prospects for young doctors. Given the expansion in medical school places, the number of funded training posts needs to rise by 1,768 between 2004-05 and 2007-08.

“Realistically this scenario is unlikely to be met as the funding situation worsens,” the report says. “New medical graduates are already facing serious obstacles to getting jobs. This pressure is likely to increase dramatically in the next few years as graduate numbers outweigh retirees massively and the financial situation of the NHS causes a dramatic slowing in recruitment and even a reduction in staffing numbers.”

So far most graduates do seem to be finding jobs. A survey for the General Medical Council found that only 2 per cent of those wanting to work as doctors were without jobs.

There are still a few areas where the NHS is short of staff, including midwifery and radiography. Some parts of the country find it hard to recruit GPs, and mental health services find attracting staff of the right calibre difficult.

The think-tank does not recommend that NHS staff should be paid off, but it says that this will inevitably happen if the Government’s current reforms are pursued.

• A further 500 job losses were announced yesterday at West Hertfordshire NHS Trust, in addition to the 200 already known there.

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