The nhs is not, as some would allege, in crisis. It faces some serious problems but is not on the verge of collapse. Those problems include a chronic shortage of staff, over-centralisation, over-politicisation and a lack of responsiveness to patients. As a result, innovation is stifled and NHS managers are compelled to focus more on meeting a welter of government targets than on finding out how patients would like to be treated and how staff believe they can best carry out their jobs.

This was made clear by a recent King's Fund study which found that once NHS-specific inflation (most importantly staff pay rises) and the government's priorities (such as cancer, heart disease and hospital waiting times) are accounted for, less than one-fifth of the extra money the service received this year can be used to meet local priorities. This one-fifth is, of course, the most vulnerable part of the service when resources become tight - regardless of local circumstances. Thus when the chief executive of the South Eastern region warned her colleagues earlier this year about the growing deficit faced by its health services, she stated that any cuts "will mean reductions in areas that do not contribute to national imperatives".

The solution to those problems does not lie in changing the way the NHS is financed (for example to a social insurance-based model), nor in imposing yet another restructuring exercise on the service. Both of these options would again disrupt the workings of the NHS, taking managers' eyes away from the crucial tasks of increasing capacity and making services better suited to their patients' needs. A new funding system, moreover, might well damage the fairness implicit in the NHS as well as increasing the amount of red tape in transaction costs.

Instead the future should lie in continuing to increase funding steadily over time, supporting increased staffing levels and creating a new legislative settlement for the NHS, changing the balance of power away from the centre and into localities. This could, for example, mean setting up NHS trusts as public interest companies, publicly owned but with permanent control of their own assets, and giving Primary Care Trusts - who run GP services and purchase hospital care for their populations - more freedoms in the way they operate.

Nationally it might mean setting up a corporation to manage the NHS at arm's length from the Department of Health. In this scenario, the government would determine funding levels and health policy, while the corporation would spend the money and regulate local service providers to ensure the highest possible quality of care is always provided. Patients, meanwhile, should have more of a say in their own care, for example in terms of what treatments they receive, where they get them and who performs them.

The benefits of such a settlement would be considerable. The NHS could change to be an organisation that nurtures talent and innovation instead of squashing them. It could plan for the long haul, rather than being subject to a series of short-term directives managed to politically-expedient timetables. The new settlement would enable the government to focus on the broader determinants of how healthy people are and on providing adequate funding for the NHS without the burden of dealing with every dropped bedpan. It should lead to a service that seemed a better career option for young people, better able to retain skilled staff than the NHS is currently - thus helping to remedy our desperate shortage of health professionals.

This vision is eminently achievable. It would take time to change the culture of the service, both to enable local managers and staff to work without constant interference from Whitehall, and to encourage them to take more heed of the needs, wishes and preferences of their patients. The advantage of this approach, however, is that it does not advocate complete demolition of the current funding mechanism for the NHS, nor does it suggest yet another major structural upheaval for a service that has undergone 10 years of permanent revolution. Instead it sets out how a genuine, irrevocable, shift in the balance of power can be achieved and, through it, how the conditions for a truly world-class health system could be created.

The next step should be opening out debate on the future of the NHS to staff, patients and the voting and taxpaying public. Instead of imposing reforms upon the service, we need a period of experimentation with new ways of working and new forms of NHS organisation. Then, once the new ideas are properly evaluated and discussed, they can be spread more widely, giving the NHS the opportunity to change itself to face shifting public needs and expectations for the remainder of our new century.