A stocktake of the NHS in Wales has blamed the internal market and 'downsizing' at the former Welsh Office for financial problems at many health authorities and trusts.

The report, commissioned by the then Welsh secretary, Alun Michael, in February, says that by the end of the last financial year HAs and trusts had cumulative deficits of£72m. Two HAs, Dyfed Powys and Bro Taf, had deficits accounting for almost two-thirds of the total overspend.

The report on the stocktaking exercise, issued in time for discussion by the Welsh Assembly's health and social services committee this week, notes that some areas did maintain financial control by 'consolidating existing services and constraining service development'. But it says 'the view that the internal market structure made financial management more difficult is widely held'.

The report was drawn up by a project management board with four senior managers, including Dyfed Powys HA chief executive Peter Stansbie.

It identifies a number of factors that compounded the problems, including: Short-termism: the report says action was postponed because of the belief that if things became too bad 'more money would be found from the centre'.

Competing priorities: it says that faced with ministerial demands on waiting lists and winter pressures, some organisations saw 'overspending as a lesser evil than failing to meet these targets'.

Competing service issues: the report argues that Dyfed Powys and Bro Taf HAs faced 'particularly complex' problems, including the 'sustainability of a network of small acute and community hospitals' in Dyfed Powys.

The project board, which also included senior civil servants, including Peter Gregory, head of the NHS in Wales, also concluded that 'downsizing' at the Welsh Office had caused problems.

The report says many factors leading to deficits were all-Wales issues, and tackling them required central support, while the Welsh Office struggled with workload and was 'dominated by organisational change'.

It says the Assembly needs to be able to take an overview of performance and address issues 'at a strategic level' while the NHS Directorate 'needs a stronger performance- management capability'.

Mr Michael, now Assembly first secretary, said he had established the stocktake because he was 'increasingly disturbed at evidence of inadequate financial control and planning in the NHS in Wales' and 'that decision is clearly justified by this report'.

He said NHS bodies 'must plan to live effectively within their means' in future but 'stronger strategic leadership' was needed and there should be 'greater openness with the public' about the problems.

Stocktake of NHS Wales. www.wales.gov.uk See comment, page 17.