Why did Sir Nigel Crisp, head of the NHS, go?

For much of his five years in the post, he was seen as one of Whitehall's top performers. The NHS delivered on all its targets, waiting lists were cut to a record low and he held the senior management team together.

Sir Nigel was sufficiently admired that a year ago he was invited to apply for the post of head of the Civil Service. But in the past nine months, as the NHS's financial position worsened, he lost the confidence of ministers and senior managers.

Some hasty decisions over the reorganisation of primary care trusts, later rescinded, undermined his standing. With the NHS deficit deepening in January, instead of improving, his position became untenable.

How bad is the NHS's financial crisis?

At the end of January, the NHS was projected to be £790m overspent by 31 March - the end of the financial year - up from £620m last October. That represents barely 1 per cent of the NHS's overall budget of £76bn but the financial problems are concentrated in a minority of trusts, one in four of the total, and the situation of some is critical.

However, the financial pressures are being felt across the NHS. Patricia Hewitt, the Health Secretary, ordered management consultants into the 18 worst-affected trusts last year but they have not come up with any new solutions.

Why is the NHS in trouble after years of record spending?

The reasons include big increases in staff - 80,000 more doctors and nurses have been appointed since 2000 - and hefty pay awards which have made UK doctors and nurses among the highest-paid in the world.

Tough targets to cut waiting times and improve treatment for heart and cancer patients, set centrally and with no quarter given to trusts that missed them in the run up to last June's election, took another large slice of the extra cash.

A new culture of transparency in NHS accounting practices has meant that trusts are no longer able to disguise their deficits or raid capital accounts to shore up day-to-day spending.

The multibillion-pound hospital rebuilding programme, which has been paid for with private finance, is saddling trusts with expensive debt. The go-ahead yesterday for the Barts and the London redevelopment project, the largest so far, brings the total of schemes complete and approved to 39 with a total value of £6.2bn, on which large repayments must be made.

What can be done about the problem?

The Government's strategy is to order the NHS to rein in its spending. That means strict controls on how much work NHS trusts do and penalties for those who cut waiting lists more quickly than necessary to achieve the target of a maximum 18- week wait by the end of 2008.

But this will not be enough to sort out the problems in the worst-hit trusts, which face the closure or merger of departments and hospitals if they are to balance their books.

The years of record spending are over. Next year will be leaner for the NHS as trusts try to build up surpluses to cushion them for the future.