Here is a scene from the recent past that becomes baffling in the light of what followed. During the Conservative leadership contest in 2005, David Cameron had a private meeting with the MP John Redwood in an attempt to secure his support. As any candidate does in these circumstances, Cameron highlighted areas of common ground. Then he paused and said to Redwood: "I must be honest with you. I am sure you want to reform the NHS but I am not going to touch it."

This was the point at which Redwood decided to back Cameron in the contest. To Cameron's surprise, Redwood agreed with the aspiring leader, pointing out that Margaret Thatcher took the same pragmatic view. Redwood, a more interesting political figure than caricature allows, is now one of those who are bewildered that sweeping upheaval within the NHS is one of the Government's defining themes.

Sweeping upheaval is a polite way of expressing the chaos that is being imposed. At the weekend, I met a lawyer who specialises in the sort of contracts the new GP consortia will be navigating. She told me the contracts will be nightmarishly complex and lawyers will charge a fortune to navigate on behalf of the consortia. Accountants will be similarly on hand to make money as GPs, trained in medicine, seek to become businesses on the back of guaranteed incomes from the Treasury, an arrangement that defies reason on several levels.

Last week, a GP wrote that more extreme forms of medical rationing are already taking hold, partly because of the unprecedented real-terms cuts in spending. This is before GPs have to calculate how much of the budget they have left for medical matters once they have spent huge sums on legal and administrative bills and perhaps on themselves. What will happen if they spend their budget before the end of the financial year, or fear they might and so ration accordingly?

In the meantime, waiting times soar after the Coalition dropped the relevant target, a centrally determined objective that was highly effective in measuring outcomes and focusing the minds of NHS managers – minds that are capable of meandering without such structures firmly in place. Now we have the worst of all worlds – prescriptive guidelines from a government that has rubbished the principle of targets from the centre.

The changes would be calamitous at the best of times but to attempt such reform when spending is being cut takes ideological commitment to a level well beyond anything attempted by Thatcher. As the Health Committee reports today, under the chairmanship of the former Conservative Health Secretary, Stephen Dorrell: "The reorganisation process continues to complicate the push for efficiency gains."

Note that the observation is made after the so- called "pause" in the legislative sequence. Most of the original proposals are still in place. Placing councillors on GP consortia, a Lib Dem demand that was met during the "pause", is not going to change anything. Shirley Williams told me recently that Nick Clegg had not read the Bill when he declared his original support for it. I wonder now whether he fully realises what he is signing up to.

How has it happened, given Cameron's public assurances before the election and his more significant private declarations to those like Redwood? The Liberal Democrats need to do much more work on what their support for vaguely defined "localism" means. The acquisition of spending powers by local providers, when the money comes from the centre, raises many questions in relation to accountability, efficiency and who is best placed to make key decisions.

The Liberal Democrats' instinctive support for "localism" is sometimes fruitful but leads them to a dangerous place on the NHS. Combine it with the evangelical "small-state" views of some of Cameron's closest allies, who were in despair about the "pause", and it is possible to see how the supposedly expedient Prime Minister gave the go-ahead. All of them, it seems, are ideologically incapable of calculating that if the PCTs are inefficient, some hospitals poorly managed and GPs take us for a ride then the centrally elected government should reform the PCTs, transfer the best managers of hospitals to the poor performers, and negotiate with less naivety when dealing with the pay demands of GPs. All the while pledging that every penny of taxpayers' money will be forensically audited.

Presumably, Cameron is an instinctive supporter of the reforms, but, as the historian AJP Taylor wrote of himself, Cameron has strong views weakly held. Sometimes weakness can be his strength when a U-turn is called for. Also, rather brilliantly at times, Cameron makes a big move, though nearly always in relation to political choreography rather than the hard grind of policy. For once, he should make a big move in relation to policy and drop the Bill altogether. He will have to scrap the policies at some point in the future amidst a major crisis, so he might as well do so now. I bet there are some in No 10 and in the Treasury who reached the same conclusion long ago.

s.richards@independent.co.uk