Spending review: Darling surpasses expectations with a 4 per cent funding boost

Many had been expecting a real- terms increase closer to 3 per cent.

Mr Darling said some of the money would be used to improve access to GPs - providing funds to take forward the recommendations in Lord Darzi's interim report for his review of the future of the NHS.

However, the government expects increases in funding to be matched by savings of at least£8.2bn.

It says it will be up to individual NHS organisations to decide where to make savings. But it estimates around£1.5bn could be saved by reducing variations in productivity.

An annual increase of 1 per cent in local authority funding - from which adult social care is paid - equivalent to£2.6bn by 2010-11, was welcomed, along with the promise of a green paper on social care funding for older and disabled people. Direct health funding for social care will increase by£190m to£1.5bn by 2010.

Most health commentators welcomed the spending increase.

Professor Julian le Grand, former health adviser to Tony Blair, said he thought it was 'about right'. 'It's quite a good thing for the health service not to have too generous a settlement this time round because it might force more of those changes in productivity that have been masked in previous years by the very generous settlements,' he said.

But he said it also sent mixed messages. 'There is not much of a mention of choice or competition. It's not clear the extent to which it's an endorsement of the current set of reforms or whether it's really significantly different in direction.'

King's Fund chief economist John Appleby said the settlement was only a 'shade off' what Sir Derek Wanless had called for in his seminal 2002 report on health spending. But he said much of the increase was a result of the NHS underspending its capital budget this year, despite a maintenance backlog of more than£3bn. 'Nearly all the rise in capital comes from the underspend,' he said.

Professor of health economics at York University Alan Maynard said the main goal for the NHS was to increase productivity. 'What we can see is the continuing difficulty in primary care trusts controlling referrals to hospitals. We have still got an inflation of hospital activity which is putting enormous pressure on the system.'

NHS Confederation policy director Nigel Edwards said some trusts would still struggle financially. 'It makes things slightly easier but it does not lift the overall issue that it's significantly less than we have been getting,' he said. But Nick Bosanquet, professor of health policy at Imperial College London, attacked the government for 'throwing more money at the NHS when it has not got a real fix on why we have inadequate value from the last big round of spending'. He said the chancellor should have focused on competition and choice by making it easier for new providers to offer services.

The government has also introduced 30 new cross-departmental public service agreements, many of which affect the NHS.

A new set of targets

The spending review introduces several new aims for the NHS in public service agreements.

A handful reiterate old PSAs, for example the 18-week treatment-to-referral target remains. Others extend old PSAs, for example a new goal of reducing hospital-acquired infection rates by 30 per cent by 2011. Key PSAs for the NHS and its partners include:

• PSA 12 - improve the health and well-being of children and young people;

• PSA 18 - promote better health and well-being for all;

• PSA 19 - ensure better care for all.

NHS spending 2007-11

Baseline Additions

2007-08 2008-09 2009-10 2010-11

Capital budget £4,177m £412m £1,175m £1,909m

Total budget £90,352m £6,078m £12,545m £19,454m

• To read Noel Plumridge's analysis of how the CSR will affect the health sector, click here