Leading article: A failure of nerve

The warning signs are now flashing. A report commissioned by the Reform think tank has predicted that the National Health Service is facing a deficit of nearly £7bn by the end of the decade unless it takes radical action to get its spending under control.

Some symptoms of financial crisis are already appearing. A number of NHS trusts are in serious trouble, having grossly overspent their budgets. Making this bad situation worse is the fact that Gordon Brown has indicated that government spending on the NHS will begin to slow after 2008. This means the crunch could come even sooner than anticipated.

According to the author of the Reform report, Professor Nick Bosanquet of Imperial College, the only way the NHS can reduce its costs is by stepping up the pace of reform. This means improving financial controls, stopping unnecessary building programmes and increasing private sector involvement. It is difficult to find fault with this prescription. But the Government still seems to be in denial.

Yesterday the Health Secretary, Patricia Hewitt, questioned the Reform report's figures, arguing that it had ignored efficiency savings made in recent years. She pointed specifically to a contract to keep down the price of drugs. And today she is expected to declare that those trusts struggling on quality or cost control will have to change.

It may be too little, too late. The financial problems of the NHS go much deeper than Ms Hewitt is willing to admit. When the Government launched its NHS plan in 2000, there was no shortage of warnings that huge cash injections could be swallowed up without delivering any discernible improvement in the service. Ministers promised that the money would be spent efficiently, and that extra spending would be accompanied by reform.

Five years on, these pledges ring hollow. The Government has failed to grapple with the reality of reform. A few independent treatment centres have opened, forcing a handful of hospitals to raise their game. But the NHS is still fundamentally running as it always has - as a profligate, monolithic and inefficient healthcare provider. And now, despite the billions that have been spent over recent years, this woefully inefficient organisation finds itself stumbling into crisis.

In coming months, the Government will come under pressure to water down its plans to introduce payment by results, greater patient choice and more private sector involvement. It will be claimed that these measures will destabilise the NHS further. But failure to implement them will only make financial crisis a certainty. Timidity has not worked. Reform is now more of a necessity than ever.