Cuts to the planned NHS allocation for 2010-11 will come at a time of increased demand for health services caused by the ill effects of recession, managers are warning.

But the chancellor's report has identified the£70bn NHS commissioning budget as a potential contributor to the£5bn cuts it will levy to planned public spending in 2010-11.

For hospitals, the tariff reduction for efficiency could increase beyond the 3 per cent it has been in recent years.

Further cuts may come through the commissioning for quality (CQUIN) programme. Documents seen by HSJ show the DH is considering making up to 4 per cent of tariff prices contingent on hospitals meeting quality requirements.

KPMG UK head of healthcare Alan Downey said PCTs should expect closer scrutiny of expenditure on items such as travel and subsistence, external advice and training, and for vacancies to be frozen.

Although the NHS budget had been protected during previous rounds of public spending cuts and savings, Mr Downey said rising unemployment would make it impossible for other areas such as work and pensions to take the strain.

The chancellor will set out precisely how much of the£5bn will come from the NHS in his 2009 Budget.Savings are expected to be set out like the NHS Institute's Better Care, Better Value indicators, which estimate the savings possible if all NHS organisations performed at the peak of efficiency.

Institute programme director Mark Jennings said the total possible "productivity gain" was£2.5bn in a year, of which£513m related to PCT-specific savings such as generic drug prescribing.

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