So pounds21bn sounds like a lot of money, but how much of it is really headed your way?

Patrick Butler reports

As the fog of hype surrounding 'the biggest programme of renewal and modernisation in the history of the NHS' begins to clear, managers are asking themselves: how much money is really heading for health service coffers?

And after the din of praise for health secretary Frank Dobson dies down, the service is beginning to assess to what extent the ambitious programme of investment could be thrown off course by unforeseen factors in the key areas of inflation, pay, and private investment.

Chancellor Gordon Brown stunned everyone with his announcement last Tuesday of pounds21bn for the UK health service over the next three years, an increase of 4.7 per cent. Of this figure, a headline pounds18bn is earmarked for the English NHS. And within this, pounds8bn is for capital investment.

This figure appears to be at least double what most pundits had predicted or hoped for. NHS Confederation chief executive Stephen Thornton said it was 'beyond our wildest dreams'.

Two days later, the mood had changed: Mr Thornton now warned of 'pressures on the service which must not be lost in the excitement of the big numbers'.

The percentage increase looks slightly less impressive when put into the context of the lifespan of the parliament, as the Institute of Fiscal Studies has done. This shrinks the average increase to 3.7 per cent over five years, equivalent to pounds11bn in cash terms.

The increase is further affected by NHS inflation - which is assumed to be higher than general economic inflation. This takes in factors such as the high costs of medical technology. It could reduce the figure even further.

It is also clear that double and triple accounting has inflated actual rises in spending, which amount to pounds8.8bn over three years, not pounds18bn.

This is not to take away from what is still a generous settlement. But there are concerns that such unnecessary hype could unduly raise public expectations.

According to IFS, the three-year, 4.7 per cent increase is smaller than the NHS investment provided by the Tory government to kickstart its internal market reforms between 1990-93. But Labour is spending a marginally bigger chunk of GDP.

The biggest potential stumbling block is pay, which is 70 per cent of the NHS budget. Unless pay increases are kept within a tight range of 2.5 to 3 per cent over the next three years, key parts of the package will suffer.

The government has said that public sector pay increases 'must fit' within each department's three-year spending limit.

To keep the lid tight, the pay review bodies' terms of reference will be revised to ensure that they take into account departmental spending limits, the achievement of service targets, and the government's inflation targets.

But a tight rein on pay could scupper Mr Dobson's ambitious plans to recruit 15,000 more nurses, and 7,000 doctors.

Mr Thornton warns that this target will be difficult. 'They will have to be enticed back with better packages that will probably have to include higher pay.'

Unison head of health Bob Abberley says: 'It is not possible to modernise the health service without improving morale, working life and pay levels.'

The government line, though, is that while pay rises should be enough to motivate and recruit staff, they should not undermine the entire programme. 'Fair pay and modernisation go hand in hand,' says Mr Dobson.

Capital spending for England of pounds8bn - or pounds1bn of actual increases - over the next three years amounts to average annual growth of 13.5 per cent. Just over pounds5bn of this - or pounds753m - is public capital, a sum which will be marginally reduced by the cost of setting up the Food Standards Agency.

The remaining pounds2.5bn depends on meeting two targets: the NHS disposing of pounds816m of capital assets - mainly land - over the next three years; and attracting finance from the private markets amounting to just over pounds2bn.

The first, prudent, target - pounds272m in each of the three years - is less than this year's target of pounds349m. The private finance initiative targets are more demanding: this year the NHS must find pounds310m. That target will double next year, and rise to pounds740m in 2000-01.

The government has set up a ring-fenced pounds5bn 'modernisation fund' for information technology and medical equipment, staff training, mental health services, health promotion and primary care. And pounds3bn of the pounds18bn is also contingent on 'value-for-money' efficiency targets of pounds1bn a year.