The health service faces an "unprecedented" £15bn shortfall which is likely to trigger job losses and service reorganisation as it is forced to get to grips with the "most severe contraction in finances it is ever likely to face", NHS leaders will warn tomorrow.

The NHS Confederation, which represents trusts and health authorities as well as independent health providers, calls for "hard decisions" if the NHS is to remain true to its founding principles and provide care free at the point of need over the next few years.

The stark prediction may push the health service up the political agenda in the run-up to the next general election as Labour prepares to defend its lengthy record in office. The NHS Confederation's chief executive, Steve Barnett, will tomorrow challenge the NHS to "prepare itself for real-terms reductions".

He will tell the confederation's annual conference in Liverpool that the NHS must "make hard decisions about which programmes to fund, how to reward staff and how to reorganise services now.

"If it does not, then the mistakes of the past could be repeated and shortages in funding will translate to the kind of across-the-board cuts which could see waiting lists lengthen, standards fall and dissatisfaction with the service grow among patients and staff."

Despite running a surplus of around £1.35bn this financial year, NHS finances are likely to deteriorate dramatically after the current spending review in 2011, a study by the confederation warns.

"The position beyond [then] is very different and extremely challenging," says the report, Dealing with the Downturn. "The NHS will need to plan for real-terms funding to fall by 2.5%–3% per annum. This is equivalent to a cut of between £8bn–£10bn over the next spending review and up to £15bn over five years. It is unavoidable that this will also translate into fewer staff."

The restrictions will start to bite at a time when extra demands will emerge from an ageing population and the "negative health effects of recession in areas such as mental health and alcohol".

The report adds: "Public spending will be dominated by the need to service debt and so NHS and social care spending will not follow renewed growth in the economy." Simple savings programmes used in the past should be avoided, the study urges. Letting waiting lists grow, cutting training or allowing a hospital maintenance backlog to develop will all lead to serious problems.

"While it is inevitable that reduced real funding will lead to a need to reduce staff in some areas, the costs of redundancy and pensions are often significant and loss of knowledge and experience has hidden costs." The focus instead should be on improving quality and efficiency. Proposals for charges for visits to GPs or accident and emergency treatment are likely to emerge, says the report, but the NHS Confederation does not support them.

Restricting pay rises could be another option. Nigel Edwards, the confederation's director of policy, said there could be a "trade-off for pay and jobs" if staff decide it is better to stay in employment. He fears that cuts could come into force before 2011. The NHS budget has grown to £98.2bn this year and will rise again to £102.3bn the following year. Such increases are unlikely to be seen again for many years.