Published: 24/03/2005, Volume II5, No. 5947 Page 31

While there has been a growing clamour from the media and politicians about the fate of the extra billions given to the NHS over the past few years, perhaps a more pertinent question is not where has the money gone, but where should it go?

There are different ways of answering both questions. In one sense, we know where the money has gone; it has paid for the salaries of NHS staff, new hospital buildings, electricity, drugs... But this functional account of spending does not help with the real questions underlying the query: are we spending the money on the right things? This is a more important question that concerns the efficiency of the NHS in allocating resources and carrying out its work.

One step towards answering this question is to construct programme budgets. As the Department of Health states in its memorandum of evidence to the Commons health select committee, this concept has its origins in work carried out for the US Department of Defense. The military wanted to know what they were spending in pursuit of their objectives rather than, as their accounting system reported, what they were spending on weapons.

Although the DoH has produced programme budgets for some years, these have been based on service areas - acute inpatients, chiropody etc - and not on the objectives of the NHS.

However, in 2002 the DoH started to look again at the idea of programme budgeting, designing new programmes and developing new data collections to populate them with financial data. Unfortunately, the new programmes do not line up with the key objectives for the service (such as reducing the incidence of avoidable disease) but are based on disease categories such as disorders of the blood, heart disease etc.

Nevertheless, the resulting information is interesting (see pie chart). An analysis across England for 2002-03, for example, shows that 'problems of mental health' consumed the largest share of the NHS budget - just over 11 per cent.

The pie chart shows the full breakdown for all 22 disease areas (plus another category covering, for example, spend on general medical services and strategic health authorities).

All this is just a first step. For the system to be useful, the programmes need to align with the broader objectives of the NHS so that the cost of meeting objectives is clear; the benefits or outcomes of each programme also need to be specified and measured.

Quite where patient choice and the allocation decisions that will inevitably flow from the choices patients make will fit in is difficult to say.

John Appleby is chief economist at the King's Fund.