The NHS must prepare for a substantial cut in planned funding from the year after next.
Chancellor Alistair Darling's pre-Budget report set out plans to cut £5bn from government spending plans for 2010-11 - and the NHS is the largest of 12 areas that could be hit.
In the past, some efficiency savings have been delivered through productivity gains - doing more for the same money - rather than through resources being cut.
But the Treasury describes the£5bn as "recoverable savings" and removes any doubt as to whether these will involve cuts to funding allocations by clearly subtracting£5bn from its latest table of departmental revenue allocations for 2010-11.
The£70bn NHS commissioning budget is cited as an area in which the Treasury believes savings could be made. It explicitly links efficiency savings with the world class commissioning programme, which the Department of Health has previously stressed is all about quality improvement.
It says: "As primary care trusts enhance their commissioning skills towards world class standards over the next years [they will] unlock cashable value-for-money improvements across the£70bn of commissioned health services."
Value for money
The precise "value for money impact" of the world class commissioning programme will be set out in the Budget next year, as will the "scope to increase efficiency further" through the hospital tariff.
Alan Downey, head of healthcare at consultants KPMG, said: "This is new. The focus up to now has been on the 11 world class commissioning competencies... There has been no focus on cost savings as the aim of the exercise."
NHS Confederation policy director Nigel Edwards said: "I suspect people will have their allocations reduced and told that now they are 'world class' they will have to get on with it."
But DH director general of commissioning and system management Mark Britnell told HSJ: "This is a great opportunity for world class commissioning to demonstrate that PCTs can make sound financial investments and meet government efficiency targets."
The report says the Treasury's public value programme has identified£100m a year that could be saved from 2010-11 by improving use of the NHS estate to "reduce the need for new hospital space".
It also paves the way for entire PCT property estates to be transferred to public-private partnerships, to be known as PropCos.
The 2009-10 operating framework will contain more details of the plans.
The details of the cuts to each of the 12 government spending areas will be set out in the Budget. The approximate total value of government spending that will be prime targets for cuts is£250bn, of which£5bn is 2 per cent. A 2 per cent cut to the NHS budget would be£2.1bn.
If the savings were shared between government departments according to the same proportion as previous year's efficiency targets, the DH's cut would be nearer£1.35bn.
Mr Edwards said there was a danger that the NHS's share of the£5bn cut would be passed on to acute providers through reductions in tariff prices and contracts. "That would not be efficiency," he said, adding that PCTs must "urgently" look to make savings by using cheaper procedures and treatments.
An extra£100m in capital funds will be spent upgrading up to 600 GP practices to "training practices" as part of Mr Darling's£3bn attempt to stimulate the economy by bringing forward planned investment.
Last year's comprehensive spending review pledged to increase public sector spending in real terms by an average of 1.9 per cent a year between 2008-09 and 2010-11. But the pre-Budget report says spending will grow by just 1.2 per cent in real terms between 2011-12 and 2013-14.
A DH spokesman said the NHS was well placed for the challenges ahead. "The NHS has a good track record," he said.
THE REPORT IN NUMBERS
£5bn The total reduction to planned public spending in 2010-11.
£1.35bn-£2.5bn The NHS's likely share of the reduction.
£32.7bn Total value of the non-hospital trust NHS estate, part of which could be transferred to public- private partnerships.
£100m Savings the Treasury expects the NHS to make per year by cutting hospital space.
NHS budget one of 12 areas of public spending highlighted as a target for a share of£5bn of cuts to planned spending in 2010-11
Commissioning cited as area in which savings could be made and world class commissioning will be assessed in next year's Budget for the impact it will have on value for money
LIFT scheme to be expanded, with DH due to announce plans for PCTs to transfer entire estates to public private partnership schemes
£100m of planned capital spending brought forward from 2010-11 to 2009-10 to upgrade 600 GP practices into training practices as part of the Treasury's£3bn "fiscal stimulus"
£1.1bn net cut from planned capital spending between 2009 and 2011. DH says this is due to an earlier overestimate of the cost of stockpiling pandemic flu vaccine