Britain's health service "facing funding crisis"

* Report sees 15 bln pounds shortfall in 5 years from 2011

* Warning of "across the board" cuts, longer waiting times

* Cap on budget for new drugs may be necessary

* Government says NHS is a priority and will continue to be

(Adds details on mooted new drugs ceiling, quotes, background)

By Kate Kelland

LONDON, June 10 (Reuters) - Britain's National Health Service (NHS) is facing the biggest financial and organisational challenge in its 60-year history, with a 15 billion pound ($25 bln) shortfall looming after 2011, a report said on Wednesday.

The NHS Confederation, which represents health service managers, said recession and rising costs will squeeze the NHS budget by 15 billion pounds in the five years from 2011.

The two years leading up to 2011 would be "tough but manageable", its report said.

"In just under two years, the NHS will face the most severe constriction ever in its finances," it said. "Action is required now if the service is to remain true to its founding principles and continue to provide care free at the point of delivery."

The Confederation said funding shortages could lead to "across the board cuts", longer patient waiting lists, falling standards, and staff and patient dissatisfaction.

It added a cap on the budget for new drugs may have to be considered, and suggested looking at a "total resource ceiling" for the National Institute for Health and Clinical Excellence, which assesses the cost-effectiveness of new treatments.

"With little or no cash increase from 2011/12 the NHS has to prepare itself for real terms reductions in what it can afford to do," NHS Confederation Chief Executive Steve Barnett said in a statement accompanying the report.

The NHS was launched 1948 as a health service promising to be free at the point of need. It has grown in more than six decades to become Europe's largest employer, with more than 1.5 million staff across Britain. It deals with eight patients every second.



RECESSION, DEBT, UNEMPLOYMENT -- LITTLE CASH FOR HEALTH

According to the government's Department of Health, the NHS budget for 2009/10 is almost 103 billion pounds, a 7.5 percent real-term increase on the previous year.

The report noted finance minister Alistair Darling's projections for public spending to grow by 0.7 percent in coming years, but with Britain's government debt ballooning and fears that unemployment could rise well beyond 3 million during a biting recession, there could be little money left for health.

"Unfortunately, the call on this increase from debt interest and uncontrollable elements such as benefits is likely to consume any growth," it said, adding that the result could be mean a real terms reduction of 2.3 percent in resources available for other government departments, such as health.

Health Secretary Andy Burnham said the Labour Party, in power since 1997, had always been committed to spending on the NHS and would continue to back it. He admitted the NHS would face a "challenge" in the next decade but said suggestions that services or jobs would be cut were "completely premature".

"It would be wrong to scare people, that there are big changes coming, that there are cuts and closures," he told the BBC. "The NHS has always been our priority ... and that will continue to be the case."

Andrew Lansley, health spokesman for the opposition Conservative Party -- which opinion polls suggest is likely to win the power at Britain's next national election due by the middle of next year -- said the NHS had to cut waste and bureaucracy, focusing funds on "frontline care".

"We are committed to real-terms growth in NHS budget, but that should not change ... the demand inside the NHS to deliver much more effective high quality care," he told BBC television.

The report said there was scope in the system to make savings, and although it would not be easy, it had to be done to ensure the NHS's survival.

"History suggests that failing to deal with the spending squeeze will lead to problems large enough to call the whole NHS into question," it said. "We cannot assume it will survive." (Additional reporting by Ben Hirschler)