The Wanless Report which underlies British Government spending plans is a classic example of economics without price

"Trust" has been the theme of the BBC Reith lectures given by Onora O'Neill, a distinguished philosopher and Principal of Newnham College Cambridge.

Professor O'Neill is sceptical of the fashionable talk about the breakdown of trust in the professions, government, judges, police and so on. She finds little evidence that this is so, whatever people may say to opinion pollsters.

Trust is, however, a matter of degree. A patient might be more distrustful of alternative medicine than of the Health Service, but not have much faith in either. But let us settle for the lecturer's diagnosis that what we really have is a culture of suspicion rather than pure mistrust.

When it comes to remedies, she is suspicious of the cult of transparency. Perhaps too much so. While no sensible person would argue that the Cabinet should meet in the street, the availability of more information about how decisions are reached and of official advice reaching ministers is beneficial.

In my own neck of the woods the ascription of responsibility for interest rate changes to the Bank of England and not a confused amalgam of the Chancellor and the Bank Governor is pure gain. So is the publication of the Minutes and voters of the Monetary Policy Committee. This is so, even if one takes with a grain of salt the econometric models on which so much emphasis is ostensibly placed. In other areas, such as the preparation of the UK Budget, transparency is still very partial.

The Reith Lecturer is at her best when she lays into "the new accountability culture... Professionals have to work to ever more exacting standards of good practice and due process, to meet relentless demands to record and report, and they are subject to regular ranking and restructuring... Avoiding complaints becomes a central institutional goal in its own right... We are heading towards defensive medicine, defensive teaching and defensive policing... The real requirements are for accountability to regulators, to departments of government, to funders, to legal standards - indeed often to mutually and inconsistent forms of central control... Performance indicators are chosen for ease of measurement and control.. and even those who devise them know that they are at their very best surrogates for the real objectives." As one general practitioner writes, all local managers "want is to be able to report to the next layer of management that their own targets have been achieved. Thus a virtual NHS is created which has little relation to the real one." (Dr Jonathan Reggler in The Blue Book on Health, Politico's).

Last week's British Budget could have been designed to exemplify these warnings. Gordon Brown, and Chancellors before him, have said that more cash for the NHS depends on evidence of improved performance. And sure enough that evidence is to take the form of even more tests and inspections. Two new "super regulators" are coming: the Commission for Health and Audited Inspections (CHAI) and the Commission for Social Care Inspection.

What however is the alternative? Professor O'Neill herself insists that trust must be earned and can never be unconditional. She wants to rely mainly on "intelligent accountability" allowing "some margin for self-governance", presumably exercised by institutions such as schools, universities, hospitals or professional associations. But here I have doubts.

A famous quotation from Adam Smith says that "People of the same trade seldom meet together, even for merriment and diversion, but the conversation ends in a conspiracy against the public." Public service professionals are not exempt from such temptations. How often have we come across scandals in local authority children's homes or in the behaviour of priests, which have been covered up by their brethren; and how often have whistle blowers have been given short shrift? Professional bodies are just as keen to restrict entry and control immigration to maintain earnings as any blue-collar trade union. The British Medical Association tried to prevent my own father from settling in the UK before World War Two, because it was afraid that there would be too many doctors.

Much of the discussion after the Reith lectures assumed that the culture of constant inspection and ultra-detailed targets comes from the private sector. The truth is that some firms behave like this and others do not. The culture of testing and inspection probably spreads from management consultants who persuade successive governments that these are the ultimate in modern business practice.

There is an alternative both to professional self-government and to Whitehall invigilation. This is what is vulgarly known as the bottom line. A commercial concern which focuses on profitability does not need a myriad subsidiary tests en route.

In some of the best managed conglomerates the component divisions are allowed to get on with their activities in their own way provided they can eventually show a reasonable return on capital. There is of course good reason why the purchase of medical services cannot be treated just like the buying of food and clothes. This is not the arrogant one that patients lack the knowledge to fend for themselves. The private medical service is far from ideal, but patients in it can get advice on to where to go for treatment. Most people are affluent enough to purchase for themselves the procedures, medicines and consultations of everyday life. But beyond this medical needs differ by vast amounts from one person to another and cannot be taken care of by a negative income tax.

Many of the touted alternatives to tax finance lose their attraction on inspection. So-called social insurance turns out to be just a tax on payrolls, like the National Insurance contributions which Gordon Brown increased last week. Private insurance is full of snags in the small print. It works for one-off events like a broken leg or an appendix operation. But anything at all continuing or repeated is likely to be disallowed or excluded when the policy is renewed. This is quite apart from the cap which insurance companies have to put on benefits. New DNA techniques of investigation will inevitably discriminate against those who need financial help most. The heyday of medical and perhaps other kinds of insurance was reached when the likelihood of adverse events was a pure gamble and premia had to be set on overall statistics.

The way to introduce genuine market forces into medicine is to recognise that there is a large element of personal choice in how much to spend on medical care. If we were starting from the beginning it might be best to regard medical expenditure as a personal discretionary item of spending, but with increasing state top-ups as crippling levels of medical expenditure are approached.

Starting from where we are, the best way of introducing market forces would be, as my colleague John Willman has suggested, is to increase the element of charges, with a cap on how much any one can be required to pay. (A Better State of Health, Profile Books). Additionally, I would allow some of the fee proceeds to go directly to the providers of care. The combination would not only provide extra financial resources, but bring home to people that medical care cannot be free and make them think carefully before they spend. Meanwhile the Wanless Report on the NHS is fatally flawed as a classic example of economics without price. Obviously, I have not described a complete alternative model. All I am trying to emphasise is that there must be and are alternatives to Gosplan-type targets or delegation to professional bodies. Nobody can be completely trusted; but we could trust the customer, patient or parent more and the bureaucrat or professional body a good deal less.