The NHS will be able to cope despite the slash in funding growth expected to be announced in the next comprehensive spending review, according to a King's Fund report.

The chancellor is expected to announce cash increases of 3-3.5 per cent per year for the NHS up to 2011-12, less than half the annual increase the service has received each year since 2000.

Funding Healthcare: 2008 and beyond warns that the slowdown in funding should not damage services as long as the NHS plans effectively for a period of reduced investment.

The report, produced as a result of a summit of some of the leading thinkers on health policy, warns the government that it must take action to reduce widespread variations in hospital performance, improve productivity and win the support of health staff if the NHS is to cope with the lower funding growth.

Department of Health finance director Richard Douglas, Prime Minister's Delivery Unit director of health Jonathan Slater, Audit Commission managing director of health Andy McKeon, and UnitedHealth Europe president Simon Stevens all attended the summit that produced the report.

It reveals a consensus on five key challenges the NHS will need to meet if it is to have a viable future: Reduce variations in performance and clinical practice; improve productivity; engage clinicians; measure impacts of the service on patients and design effective incentive systems to innovate and improve performance.

Report editor John Appleby, chief economist at the King's Fund, said: 'As funding growth slows from 2008, but with demand and public expectations likely to continue to increase, getting more benefit from every pound spent will become an urgent priority. The NHS needs to get to grips with recent declines in productivity, the widespread and often unexplained variations in performance, and the underlying causes of financial deficits.

'In spite of this lower growth, spending on healthcare will still take an increasing share of national wealth.nearly 10 per cent of GDP by 2008, which is around the European average. This report doesn't support those who predict the imminent demise of the NHS.'