Chris Lancelot: The recession is over - it's payback time

According to the government, the recession is now over. Strictly speaking it is correct, because the definition of recession is 'when gross domestic product falls for two or more consecutive quarters'.

But this is only half the story: because the government decided to spend its way out of the recession using borrowed money, many of its knock-on effects are just about to hit us.

I'm sure Gordon Brown wants to convince us that 'the recession is over' to create a feel-good factor in the run-up to the general election. But this is simplistic: the real pain will come after the election, when we have to start repaying the loans - and the amount of money involved is gargantuan.

Repayment will inevitably mean higher taxes and/or less public spending - for 10 years and maybe for 30. The whole nation is going to have to tighten its belt.

Despite government attempts to persuade everyone to the contrary, the NHS has to be in the firing line. It now absorbs £110 billion a year - three times what it cost when Labour came to power, yet with little increase in output to show for it.

Regardless of who wins the next election, I am convinced that the NHS will suffer huge funding restrictions - indeed, NHS chief executive David Nicholson has already talked of a £20 billion cut over three years. Any incoming government is also likely to look afresh at the recently rejected McKinsey report which suggested selling off £8.3 billion of surplus hospital land and contemplated 10 per cent of the workforce (including front-line staff such as GPs and nurses) being made redundant. Why did the government reject it? Probably because of the large-scale redundancies - again, something the government doesn't want to discuss prior to the election.

As we all know, the NHS is bloated, inefficient and wasteful. Even so, externally-imposed cuts are often far too blunt an instrument. They risk all sorts of unforeseen consequences and can interfere with service delivery.

Despite all this I am convinced that carefully trimming the NHS could save a vast amount of money, help to repay the national debt, while simultaneously improving both its services and staff morale. How? It's all down to simple psychology. More next week.

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