If you’ve been moved by the remarkable real-life human stories and the heroics of the hospital team on the Channel 4 series 24 Hours in A&E, then you may be surprised to know that behind the scenes at St George’s in Tooting, where the series is filmed, this great hospital is battling with an unprecedented financial shortfall. It is not alone. The NHS is heading for a real smash, and practically everyone running a hospital knows it. Hospitals are at 100% capacity at the moment – and the onset of winter could be a nightmare. But beyond this, an accelerating financial disaster is in progress.

Two years ago a quarter of hospitals recorded deficits Last year, this rose to half. This year, three–quarters of hospitals are running deficits, some of them extremely large – and 90%, including St George’s University Hospitals NHS Foundation Trust, of which I am chairman, expect to be in deficit by the end of the year. Hardened professionals who have worked in the service for decades have never seen anything like it.

Does it matter if hospitals run big deficits? It matters profoundly. As hospital managements come under pressure from regulators to return their trusts to surplus, spending is cut, vacancies are left unfilled, staff-patient ratios are relaxed, and hospitals cut their capital programmes, which means fewer operating theatres and MRI scanners.

Evidence of eroding standards of care is already with us. Waiting times for cancer treatment, and in A&E departments, are now missed routinely, as is the minimum wait for diagnostic tests. And the waiting target for elective procedures has been abandoned. Missed targets trigger fines of many millions of pounds, intensifying financial pressures. The queues will go on lengthening.

Ministers are in denial about what is happening, yet there is no mystery. The past five years have seen the smallest increase in health spending over any parliament since the second world war – 0.8% a year. This compares with an annual increase in demand and cost pressures of between 4% and 5%.

Dedicated professionals in the NHS performed miracles to bridge the gap by raising productivity and reducing costs at a rate that has never been achieved over an extended period by any health service anywhere in the world. Costs cannot be reduced at this rate indefinitely. The system has reached a tipping point.

The choice is stark: more money every year or a sustained decline in standards

Simon Stevens, chief executive of NHS England, did the NHS no favours when he said the NHS could manage with a budget increase of £8bn by 2020. This enabled ministers to say they were committed to giving the NHS what it had asked for, and should stop complaining. In fact, the Department of Health itself accepts that the NHS will face not £8bn but £30bn of additional operational pressures by 2020. Yet it expects the health service to make an extra £22bn of savings from a budget of £116bn. To do this, it would need to reduce costs at twice the rate of the past five years. Quite clearly, this is for the birds; yet it is the basis on which budgets are being set.

Why are costs rising so much more quickly than the finance being provided? Four factors are inescapable – population growth, the ageing of the population, the rise in chronic conditions such as diabetes and obesity, and the need to invest in advanced technology. The second of these is particularly important. Spending per head on people in their 80s is seven times that on people in their 30s. And once admitted, old people with complex conditions require hospital beds for longer periods than other patients, reducing hospitals’ income as well as increasing their costs.

St George’s Hospital, south London: ‘Three–quarters of hospitals are running deficits and 90%, including St George’s University Hospitals NHS Foundation Trust, where I am chairman, expect to be in deficit by the end of the year.’ Photograph: Martin Godwin/The Guardian

With private sector pay rising again, the turnover of nurses and other essential staff is also soaring. Without pay increases, staff shortages will become acute, making the employment of yet more expensive temporary staff inescapable – despite the caps the government wants to introduce. Continuing government demands for improvements in services for which no extra finance is provided, the most recent being 24/7 healthcare, are also forcing up costs.

The government’s response to all this is wholly inadequate. So far, not a penny towards the £8bn has been paid, and the word is that there will be no more money until towards the end of the parliament.

By next year, hospitals’ deficits may have escalated to such a degree that the NHS could face widespread financial collapse. Since hospitals have to take out loans to finance their deficits, their accumulated debt will become so large that many could run out of borrowing capacity and cash. At this point, when they can no longer pay wages, the sort of financial crisis the NHS has never seen before will be unstoppable. If the Treasury then has to step in and bail out the whole system it will cost many billions of pounds, and it will still be necessary to increase NHS budgets at a sufficient rate to keep up with demographic pressures.

The choice is stark: more money every year or a sustained decline in the standards of healthcare and a financial collapse. How much more money? Even if the efficiency gains achieved in the next five years matched those of the past five, the government would need to increase annual budgets by £2bn-£3bn a year between now and 2020 to preserve standards. But since the NHS cannot continue to raise productivity at this rate, at least £4bn a year extra will be necessary, starting in April.

Those drawing up the autumn statement need to be aware of these realities. Even if the Treasury does provide more money, but substantially less than the annual £4bn needed to restore hospital finances and protect standards, there will still be a car crash, just one in slower motion. Meanwhile, more of the people who understand what is happening from inside the health system need to speak out. With a few honourable exceptions, they are reluctant to do so, which is understandable for professionals whose careers are at stake. But chairs and boards can, and must, do so. Hence my decision to write this article.