The Tories' great re-disorganisation of the NHS is costing £1m a day, swallowing at least £2bn in all. But waste of money is only one aspect of an unfolding calamity. Cameron's pledge to "cut the deficit, not the NHS" fell apart this week: less is being spent on the NHS, while the deficit rises.

The politics of this is baffling: why is Cameron marching his party into a brick wall he always knew was there? He knew electability rested on oozing love for the NHS so he promised to leave it alone, even using his son to prove his commitment to all the NHS stands for.

Yet the next two years will see the NHS cascade into chaos. The Tories inherited a service that was more efficient, with results improving faster than at any time in its history. Labour's record will shine all the brighter, given the likely state of the NHS by the next election. If the Tories lose, the NHS will be the reason why. How odd that yet again Cameron's pragmatic political instinct deserted him: as so often when his party gets control, it can't resist that tribal blood-rush to marketise and privatise.

This week the Co-operation and Competition Panel did what's expected, criticising the NHS for anti-competitive behaviour. It accused primary care trusts of favouring local hospitals ahead of private firms, capping the number of patients referred outside the NHS. Ministers praised the report – as if the PCTs' financial plight has nothing to do with them. PCTs riposted indignantly that they must balance shrunken budgets and stop local hospitals collapsing: most people want to be treated locally and want their hospital to survive. Not good enough, says the panel, threatening PCTs with formal competition challenges.

So it's happening already, although the NHS bill has yet to pass the Lords. If it goes through, this advisory panel becomes a statutory part of Monitor, the regulator with power to impose competition. Originally the panel was a Blair brainchild and now it's at the cutting edge of these reforms: opening the NHS to private competition is what it's for. Already, private companies are demanding the right to take over NHS services.

Blair, of course, believed in the magic of competition. Yet Labour's success with the NHS depended on its antithesis: collaboration. Listen to the story Sir Roger Boyle has to tell. He retired last week after 11 years as heart disease tsar inside the Department of Health, choosing not to renew his contract rather than watch what he created be destroyed. He oversaw the cutting of heart deaths by a half, with stroke survival a similar success. This was the fastest rate of improvement in Europe. "All that was done by collaboration, not by competition," he says, as he describes the painstaking process of cajoling together specialists into local networks.

Slowly, with agreement and consultation not competing, a faster, better journey for patients was forged. Now a patient with a stroke or heart attack is immediately identified by retrained ambulance staff, no longer mere drivers but paramedics equipped with ECG equipment. They know to take people not to a hospital a patient chooses but to a specialist centre, avoiding A&E delay, rushing them straight into an operating theatre for angioplasty or a brain scan and clot-busting drugs: 90% are treated within 150 minutes of calling 999.

Heart attack patients are home three days later, when they used to stay 11 days. "That's not about competition," he says, warning that outsourcing any part of that treatment would break the chain. It's the same with cancer treatment, he says, describing smooth local pathways where one centre diagnoses, another operates and a third does the chemotherapy, with a multidisciplinary team seeing patient notes travel between. The bad old days of haphazard treatments done by insufficiently specialised units are mostly over. Incidentally, one of the competition cases before the panel is a private company bidding to take over an ambulance service: would that break-up be beneficial in this pattern?

But destructive fragmentation is what the new competition system will do, Boyle says. He has stopped vainglorious consultants competing, except to become the single local centre of excellence. He was wrestling with reducing the number of child heart units as he left: the Royal Brompton, losing out, has gone to judicial review – to the NHS chief executive's reported fury at the waste of money – but specialism has to be concentrated. These are necessary rationalisations that can only be done by an overall authority bringing local doctors together: 500 consortiums are not the answer. He gives one example of how the new GPs' consortiums risk disrupting treatment with arbitrary behaviour: in every area one specialist hospital is always open on a rota for heart attack and stroke patients. Wigan and Whiston, nine miles apart, take it in turns. But one consortium refused to send its patients to the other town – so the system breaks down in fragmentation and daft localism. That's competition instead of collaboration. "Look at our results. Now show me any evidence that NHS competition achieves as much."

Yet economists using econometric analysis say they can prove competition works – and that's what cuts heart deaths. What's more, they say their measurements of heart deaths hold good as a model for all treatments. Boyle ripostes that it's "bizarre to choose a condition where choice by consumer can have virtually no effect". Patients suffering "severe pain in emergencies clouded by strong analgesia don't make choices. It's the ambulance driver who follows the protocol and drives to the nearest heart attack centre". From 2002 on, "groups of clinicians and managers across England have been working together, collaborating, to bring about improvement in outcomes".

This is a fierce battle that goes right to the nub of this government's NHS plans. Blair believed in the mystical power of private competition – though in practice it stayed a very small element of the NHS in his day. We don't yet know what Labour now thinks, conflicted as ever by its own past and fears of being thought "old Labour". The fate of the NHS now rests with the Lords, but before voting for red-in-tooth-and-claw competition, they should hear Sir Roger's evidence on what works. This should not be decided ideologically, according to which instinctive side of the great clash of ideas you stand, but on the evidence. Competition may make capitalism thrive – but collaboration is more often the key to NHS progress.