The Treasury has set the NHS a target of £10bn “value for money” savings a year by 2012-13.

The chancellor’s pre-Budget report today says these savings will come from improvements in how the NHS buys services for patients and adjustments to the tariff price. It says this will “enable” hospitals to “reach the productivity levels achieved by the best,” and incentivise “the most appropriate treatment in the right place.”

HSJ has already reported over recent months that the Department of Health plans to cap the volume of patients that hospitals will be paid for at full cost in a bid to stop hospitals responding to a squeeze on the tariff prices by increasing the volume of their work.

The Treasury says further savings to reach the £10bn a year target will come from an extension of common prices to community and mental health services and in reductions to back office and procurement spending.

The chancellor’s report today also confirmed the government will cut parts of the NHS IT programme and expects to find some £500m a year by 2012-13 by scaling back public sector IT programmes, although it has not yet set out how much of this will come from the NHS.

But although the report sets out a likely real terms freeze for NHS spending, other areas could be cut severely.

The chancellor has said the “frontline” NHS will receive increases “in line with inflation” which he projects will be 1.5 and 2 per cent in 2011 and 2012 respectively.

Other spending areas will increase by an average of 0.8 per cent. But with health making up almost a third of departmental spending and debt repayments rising further, that implies other spending areas will face severe cuts.