The budget has soared from £33 billion in 1996/97 to £64.5 billion in 2004/05. Great Ormond Street is a flagship hospital with immense goodwill. In addition to the £177million it receives from the NHS each year, it gets another £20million to £25 million in charitable donations.

The explanation goes to the core of why the NHS as a whole has been such a disappointment as a system. It is not only Great Ormond Street that is short of cash. There are plenty of other hospitals in the same boat. Why?

There are two main reasons. The first is very simple: under the traditional NHS system, every operation and every scan or blood test costs a hospital money. This means that the basic question a hospital must ask itself before it undertakes an operation is: "Can we afford it?"

This is in contrast with other systems around the world in which every time a hospital does an operation or a diagnostic text such as an X-ray, the hospital receives money. The hospital is paid by the patient, by the patient's insurance company or by the government's insurance scheme.

In the NHS, operations are a drain on a hospital's resources. In most other places, operations increase a hospital's income. It has an incentive to be as productive as possible. It should therefore come as no surprise that in other countries and systems, the throughput of operations and procedures is more efficient. That is a fundamental reason why Britain has long been the odd-one-out in having waiting times for treatments that would be considered a disgrace elsewhere.

The second explanation is that the NHS, like other state monopolies, prodigiously wastes and misdirects money. Dr Maurice Slevin, a consultant oncologist, made a careful study of the ratio of managers, administrators and support staff to nurses in the NHS. He found that, even on the most conservative basis, there were eight administrators for every ten nurses. Of course hospitals do need management and support staff. But he went on to establish the comparable figure for a private hospital. It was only 1.8 administrators and so on for every 10 nurses.

The enormous waste in the NHS - in this and other ways - is not because any individual is deliberately profligate. It is partly because many well-meaning people, including government ministers, give out targets and tell other people how to do their jobs. In one leading London hospital, a team of 30 spends its time showing the government that is meeting targets. How much better it would be if the hospital was employing 30 more nurses instead.

To give it its due, the current Labour Government is trying to deal with the first of the two core problems. Though it ditched the 'internal market' created by the Conservatives when it came to power in 1997, it is now trying to introduce something similar. It is called 'payment by results'. The idea is that hospitals should receive specified sums of money for particular procedures. This, in principle, should give hospitals a positive incentive to do operations. However the new plans are not going well and have been delayed.

The prices are specified by the government so there is no competition based on price. Instead, some hospitals can find themselves making a profit on certain operations and others making a loss. Much depends on the government correctly estimating a price that will balance supply and demand - something governments are not good at.

The government has also put a spanner in its own works by continuing heavily to limit the freedom of hospitals to manage their own affairs - notwithstanding the development of Foundation Hospitals. The government has imposed, among many other things, the contract for consultants and pay scales for other staff. How can hospitals become more productive and well-managed if they are still continually told what to do and if many of their costs are determined by central government (not to mention the European Union)?

If a commercial company announced that its hospitals were short of cash and had to turn away ill people, despite a £31 billion increase in its budget, the directors would be sacked. But in state monopolies, no one gets sacked. That is another reason why, without a wholesale change in the system, there will always be a shortage of money in the NHS, however big the budget. And we will also have to accept that sick people - including sick children - will continue to be turned away from hospital.

The above is the unedited version of the article which appeared in today's Daily Mail. After it was too late to change anything, I wished I had found space to say that when govenments try to cook up ersatz market systems, they inevitably cannot capture all the the benefits a market system brings. There are various distortions, unintended consequences and misdirected efforts. Others, of course, will say that ersatz market systems are able to avoid some of the drawbacks of a true market system. One day perhaps we should list the advantages and disadvantages of each. But in any ersatz system, you are dependent on the cleverness and understanding of the designer. One of the advantages of a market system is that you avoid the risk of a designer who comes up with a dud.