Huge budget increases have not brought the exptected improvements in NHS performance. Nor are they likely to. Some 70% of the NHS budget goes in wages, and increases tend to go there first. Medical equipment and medicines are getting more effective, but they are also more expensive. Meanwhile, the population continues to get older, demanding yet more medical and social care. And because there is no competition, new money shores up out-of-date ways of working, rather than going into the development of innovative systems.

The result is that most of us are unlikely to notice any improvement in standards, no matter how large the budget increases given to the NHS.

How then to bring change to the NHS, or any other state monopoly? It seems likely that the most effective, and possibly the only, way to drive reform is to open state services to the same kind of competitive pressure faced by almost every other business. In other words, the knowledge that, if you do not provide the very best of service, customers can quite realistically leave and go to another provider.

Of course, we do not have this position at present, either in healthcare, or education, nor in any of the major state services. A lucky (or desperate) few can afford to go private instead, and just by-pass the state provider; but the vast majority of the public cannot.

In a paper for the Adam Smith Institute, Getting Back Your Health, Professor Philip Booth of the City University, London recommends that we give patients a rebate, based on the value of the medical care they can expect from the state. They can then take this rebate to any provider, public or private. The rebate does not necessarily cover the full cost of alternative care, since we need to make sure that a reasonable funding stream continues for those who choose to stay with their NHS providers and not to take up alternative options. But it would give an important cash boost to perhaps millions of people who would like to go private, but cannot quite afford to do so.

The rebate proposal, says Professor Booth, should go hand-in-hand with reforms to the NHS. This is important in order to deliver a higher quality of service to those who choose to use the NHS. It is also important as part of a more general move to liberalise the provision of healthcare and free the NHS from the top-down approach to funding and management. Without going into detail, the following list gives an indication of the kinds of reform that are necessary in the NHS. They are designed to change the incentive structure so that there is more chance of developing functional pricing systems – so that people know where the waste is and where the shortages lie – and that providers will look to patients, and not bureaucrats, for their continuing funding. The reforms include:

* the principle of fund holding should be restored to GPs * trusts should be made fully independent and responsible for setting pay and conditions * health authorities should be allowed to purchase health services from any provider * trusts should be allowed to sell health services to any funder (a private insurance company or any health authority).

The government, in fact, has made limited progress on some of these points, in terms of statements of principle. However, much will depend on how radical the implementation is and the extent to which the devolution of budgets to ‘Primary Care Trusts’ really does involve devolution to the front line, and how entrepreneurial the PCTs will prove to be. However, given the huge opposition within the government’s own Party to even the most modest reforms – such as Foundation Hospitals – the prognosis is not good.

Which again brings us back to our starting point: that the most likely way to improve the systems and output of the NHS is, paradoxically, to enable people to leave it. And with a state rebate cheque, millions could do just that, speeding their own treatment and taking a huge pressure of demand off the NHS.