The Chancellor's announcement made clear that the years of plenty have come to an end for the NHS.

The annual growth rate of 4 per cent above inflation for the next three years was at the very top end of expectations, but it is still barely half the 7.4 per cent that the NHS has enjoyed for the last five years. Spending will rise by £20bn, from £90bn to £110bn by 2010.

Alastair Darling said the increase in spending would help to fulfil the Government's pledge to provide 100 new surgeries in under-doctored areas and 150 new health centres open seven days a week, as set out by health minister Lord Ara Darzi in his interim review of the NHS published last week.

Generous as it is, the size of the rise is still below the minimum 4.4 per cent advocated by Sir Derek Wanless in his review of the NHS carried out in 2002 – at the request of the then Chancellor Gordon Brown.

The blow of a near-halved rate of growth will be softened by the war chest the NHS has built up. It ended last year with a £640m surplus which is forecast to rise to £1bn by next April, when the new, leaner years begin. Foundation trusts , which account for a third of all trusts, have an even bigger surplus.

However, this has been achieved at the cost of widespread pain. The NHS overspent in 2005-06 and getting it back into financial balance involved losing or freezing some 22,000 posts, delaying operations and closing wards.

The challenges ahead are equally daunting. The Government has set a target to reduce waiting times to a maximum of 18 weeks from GP referral to hospital admission by the end of next year. Latest figures show 54 per cent of patients are currently treated within that time, leaving NHS trusts an enormous amount to do to meet the target.

Tackling hospital infections, which surveys show worry patients more than waiting lists, are also at the top of ministers' priorities. MRSA rates are falling – though not fast enough – but Clostridium Difficile infections are rising. The health department said £130m would be allocated to introduce MRSA screening of every patient and a further £140m to reduce c. difficile by 2010-2011.

Health research is to be boosted by £25m a year over the next three years to provide a single £1.7bn fund by 2010-11. The health department described it as the "largest-ever increase in Government funding for health research."

The Institute of Healthcare Management said the new era of austerity in the NHS would be difficult for the health sector to deal with.

Sue Hodgetts, the IHM's chief executive, said: "Much of the previous period's increased spending has been poured into pay settlements. The challenge for healthcare managers over the next three years will be to continue to support the reform agenda within far tighter financial constraints. Patients and the public will expect to see more bangs for their bucks."

The Kings Fund, the health policy think-tank, said the increase would bring NHS and private health spending up to 9.4 per cent of GDP, close to the average across all European Union nations.

Angela Henry, nurse: 'How are we meant to survive? I'm paid peanuts'

"I qualified in August after three years' training at King's College, University of London. I can't find a job anywhere, even after spending thousands on the training. We knew the Chancellor would promise more funding, and a rise 4 per cent above inflation is probably better than we expected. But nurses don't just need more money, we need better-directed money.

"I think there's a strong feeling among nurses that despite all the extra cash we're told about, the promise of an extra £20bn by 2010 won't be much consolation – amazing though that may sound. It's not that we don't want more investment; it's just that we're not convinced it'll actually reach us.

"Frustration doesn't describe how we nurses feel. It's much, much more than that. More than 60 per cent of my cohorts from college can't get jobs. How are we meant to survive? I'm just temping as a healthcare assistant, and I'm paid peanuts. I want to be a nurse on the front line.

"We're constantly told about shortages, so why are so many newly qualified and willing recruits shown a closed door?"

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