The increase means that by 2010 the NHS in England will spend well over £100 billion each year (over £4,500 per household).
The report, entitled NHS reform: the empire strikes back, suggests that 2007 is a make or break year for the NHS.
Reform highlight that the DoH has continued to make expensive spending commitments, which given the financial situation, are simply unaffordable.
The authors, led by Nick Bosanquet, Professor of Health Policy at Imperial College London, argue that the failure to tackle rising costs and to invest in modern services means that the long term strength of the service is weaker than two years ago, despite record spending increases.
The report shows that the situation can be salvaged with a three-year policy programme, which begins with a deficit write-off and then uses patient choice and competition to redesign services around the needs of patients.
PCTs should focus solely on delivering best value to patients through commissioning rather than provision. Patient choice should be strengthened with control of actual resources.