As the most radical shake-up of Britain's public healthcare begins, Oliver Wright examines its ideology, finances – and impact

The NHS is to undergo the most radical pro-market shake-up in its history, under legislation published by the Government yesterday.

GPs will be handed 80 per cent of the healthcare budget, private healthcare providers will be allowed to compete with NHS hospitals for patients and more than 24,000 management staff will lose their jobs.

Andrew Lansley, the Health Secretary, said the proposals would save the taxpayer around £10bn over the next decade. Critics, however, said the reforms were unnecessary and hugely disruptive to the health service at a time when it has to find £20bn of efficiency savings.

Under the proposals published in Health and Social Care Bill yesterday:

* GPs will become responsible for "buying" care from hospitals and will form consortiums to do so.

* Every hospital will be given independence from the Department of Health and will be allowed to fail and will be taken over by private operators if its books don't balance.

* A body called the Care Quality Commission will be responsible for standards in every part of the NHS with regular inspections and powers to shut down services.

* The hospital regulator, Monitor, will have its role expanded. It will decide how much a hospital gets paid for treatments, license providers and "promote competition".

* Local "HealthWatch" organisations in each region will ensure the views of patients, carers and the public are represented.

* GPs will receive a "quality premium" – a proportion of practice income (yet to be decided) linked to outcomes for patients and how well finances are managed.

So, why is the Government carrying out these reforms?

Partly to save money and partly for ideological reasons. The NHS needs to save 4 per cent of its budget every year for the next four years – if it is going to keep up with the cost of treating an ageing population and stick within the budget set in the Comprehensive Spending Review.

Primary Care Trusts spend 80 per cent of the NHS budget and, since they were created, the amount of money they spend on administration has increased faster than the amount they spend on patients.

Andrew Lansley has decided that it is cheaper to abolish PCTs altogether than reform them. He claims the cost of implementing his changes will be £1.4bn in redundancy payments – but will save the NHS £1.7bn every year thereafter.

The new GP consortiums created by the bill will have the amount they can spend on administration capped – probably at around £5 a patient. This, ministers hope, will allow the NHS to do "more for less". But there is also an ideological aspect to the changes. Ministers say they want to make the NHS more responsive to patients. At the moment, people who work for PCTs have no day-to-day involvement in patient care. But the new GP consortiums will be run by working GPs who see patients the whole time. This, ministers believe, will speed up change in the NHS, eliminating the need for "middle managers".

What will they mean for patients?

These are all "under-the-bonnet" reforms and, in the short term, your GP's surgery will look no different, the way you are treated will seem the same and you're likely to wonder what all the fuss is about. But over the longer term – according to the Government – the performance of the NHS should improve. For example, if you need an operation in 10 years' time, you might be sent to a brand-new private treatment centre which operates on you in a day by keyhole surgery. That means you will recover faster and are less likely to contract MRSA from a dirty ward.

It should also make a difference to the taxpayer. In the 1980s, Britain spent 3 per cent of GDP on healthcare – but today that stands at 9 per cent. The Government thinks this is too much and needs to be reined in. If the reforms are successful, they say, we will get more for less.

What will they mean for GPs?

The bill gives huge powers to GPs as a profession and a bit more power to GPs as individuals. If a GP has an idea of a service he or she wants to provide to his patients, he only has to persuade his colleagues that it is a good one for it to happen. Some GPs in each consortium will become very involved in commissioning services – going to visit hospitals and talking to their colleagues about where money should be spent. Crucially, however, they will be accountable to their peers – and not to the Department of Health.

What will it mean for hospitals?

The change for hospitals is no less profound. All hospitals will be given independence from Whitehall and become Foundation Trusts. They will be allowed to run their own affairs – but if they are not efficient they will lose money and be taken over. There will be no cap on the number of private patients they can treat. Private companies will also be able to compete for NHS patients – and could even take over NHS hospitals.

Monitor will set the price the NHS is prepared to pay for each operation or night in hospital and will also license operators. The Care Quality Commission will try and ensure that standards are maintained.

What do the Government's opponents say?

The main criticism of the Government from the medical profession is less about what it is trying to do and more about the timing of it. Earlier this week, the leaders of the main health unions, including the British Medical Association (which represents GPs) and the Royal College of Nursing, warned that while the NHS was being asked to save £20bn it was dangerous to abolish the bodies that controlled spending.

One senior health economist put it more succinctly: "Managers in the PCTs don't need to try and sabotage these reforms for there to be a financial disaster in the NHS – all they need to do is take their eye of the ball for a second."

Dr Hamish Meldrum, chairman of the British Medical Association, described the proposals yesterday as a "massive gamble".

The unions also criticised the plans. The TUC's general secretary, Brendan Barber, said: "The Conservatives told us before the election that there would be no cuts to the NHS, no top-down reorganisation and respect for the founding principles of the NHS.

"Today's plans break each of those pledges. A giant top-down reorganisation that will cost billions to carry out, opens the door to widespread privatisation and comes on top of eye-watering efficiency savings all add up to a toxic cocktail of voter unfriendliness."

Karen Jennings, Unison's head of health, said: "This titanic health Bill threatens to sink our NHS. The only survivors will be the private health companies that are circling like sharks, waiting to move in and make a killing."

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