The findings and views expressed do not necessarily reflect those of the sponsor.

It might be said of British governments that if they didn’t inherit a National Health Service (NHS) that is free at the point of delivery, they wouldn’t choose to create one. Such is the difficulty of satisfying public demand for quality healthcare services at a manageable cost. Never in the 61-year history of the NHS has solving this quandary been as challenging as it will prove to be over the coming years.

The difficulties will be as much political as administrative and economic. An Economist Intelligence Unit survey conducted in July 2009 found that less than one-third of Britons feel that the government has the right approach to healthcare. Whichever party takes power after the coming general election will find that the public, which has come to expect high standards of care, will not necessarily be sympathetic to pleas that there is less money in the coffers to pay for it. Policymakers will be required to walk a tightrope between a need for cost saving, on the one hand, and the political necessity of populist initiatives to expand or improve services, on the other.

For example, central to balancing both interests will be a reform of the way in which the NHS pays for medicines. The current system, which formally precludes subsidised patient access under the NHS to drugs that are not deemed cost-effective, has become a rod with which to beat the government and is deeply unpopular. The opposition Conservative Party has committed to making all “clinically effective” drugs available to patients under the NHS. To do so in a time of budget cuts will require the introduction of drug price regulation, but most importantly it would presumably stem the negative headlines about rationing of access to the latest medicines. Such a move may offer an easy way to gain political points. But it will do little to address underlying problems, given that the drug budget is only slightly over 10% of the total NHS budget.

But governments will find that the larger, more important reforms of the British healthcare system do not come with the built-in incentive of a popularity boost. Policymakers will need imagination and conviction properly to grasp the opportunity for healthcare reform afforded by the tumultuous economic and fiscal conditions.

Fears over the implications of the country’s unprecedented levels of debt are now so great that opinion polls currently suggest that the public is in favour of spending cuts being applied to various government services. It remains to be seen, however, whether Britons will stomach cuts to healthcare, particularly if they are worried that standards of care will slip. But they appear to be bracing for a period of austerity, talked up by all the main political parties, in which difficulties in maintaining standards can at least be placed into a broader context. In his pre-budget speech in December 2009, Alistair Darling, the chancellor, vowed to protect hospital budgets for at least two years from 2011, with minimal real increases in spending on frontline NHS services, while reducing the budgets in other Whitehall departments by more than £36bn over three years. At the same time, he said he would cap pay rises for all public sector workers at 1% for at least two years from 2011 and cap public sector pensions by 2012.

This should alleviate some of the political pressure. It should also create an environment ripe for the difficult decision-making necessary to implement substantive reform. It must be hoped that the next government, whether Conservative or Labour, will be sufficiently bold to seize this opportunity.

The Conservatives’ agenda claims that efficiency—a frequently heard but somewhat vague term when used in reference to healthcare—will be improved by making each treatment centre stand by the results of its services. This, it is argued, will foster competition and raise standards by allowing patients to select the centre with the best track record for different procedures. Allow funding flows to follow these results, and both quality and efficiency should improve.

But the question of how the results can be quantified remains a complex one. The development of patient-reported outcome measures (PROMs), together with a growing acceptance that health outcomes should determine the allocation of resources, represents a step forward for British healthcare. Nonetheless, the concept of payment-for-performance is still in its infancy, and will require even greater attention in the next five years.

Citizens and healthcare professionals fear that as long as politicians are focused on the notion of efficiency, their first response will be to cut costs. Reformers would do well to seek ways to reduce the length of in-patient stays, and provide a wide range of NHS services in lower-cost community facilities. But reforms are just as likely to translate into salary cuts, as the pre-budget report suggests, and the cancellation of plans to renovate or expand facilities. The next government will be at pains to avoid making cuts that affect service delivery—which is far more electorally damaging—but it is probable that the NHS’s hard-fought battle to reduce waiting times, for example, will once again become harder to win.

On the face of it, the public sector funding crunch also provides an opportunity for expanded private sector involvement in NHS service delivery. Any British government might well wish that it didn’t havethe burden of providing high-quality free healthcare to its entire population, but after 60 years, the NHS is itself a source of state legitimacy. Whichever party wins power after the next election, it is fair to assume that NHS treatment will remain free at the point of delivery. Public regard for the concept is such that David Cameron is anxious to make clear that the Conservatives, if elected, would enshrine the basic tenets of the NHS in a formal, statutory constitution.

This report looks at what may be in store for British healthcare over the next five years. The issues it examines will be a problem for whichever government takes power after 2010, but it is fair to assume that until 2013 reform will be gradual, rather than systemic. The NHS will continue to dominate delivery of care, while the private sector will enjoy a limited but growing role in delivering outsourced treatment to the NHS. Recent innovations such as PROMs will help the NHS to focus on outcomes, rather than performance targets.

But in tough economic times, efficiencies will be demanded of healthcare, and if efficiency gains prove elusive through incremental initiatives, larger-scale reforms will be proposed, which will involve all stakeholders—public and private providers, policymakers and citizens. Opponents of private sector involvement in Britain’s healthcare industry often point to the US, where quality care is unaffordable to many citizens. But they are taking an extreme view. It is beyond the scope of this report, but not inconceivable, that in years to come the British public will be asked to consider accepting a healthcare system such as that in the Netherlands, where basic care is paid for by obligatory contributions to private health insurance.