This article discusses the application of internal markets to the publicly ยฎnanced British National Health Service (NHS). The objective of internal markets is to obtain, through the stimulus of competition, greater efยฎciency, effectiveness, and responsiveness to consumer needs than would be obtained through continued direct government provision. There have been real advances in the NHS attributable to the internal market, not the least of which is a growth of debate, dynamism, experimentation, and entrepreneurial attitudes that contrasts sharply with the glacial pace of change prior to 1990. However, there is also a sense in which the reforms have, thus far, failed to achieve all their promoters hoped for. It is far from clear that efยฎciency gains exceed the high transaction costs associated with the reform. Competition remains restricted, information is inadequate, and the regulatory and legal framework is ยฏawed. Lack of transparency and a clear publicly stated `end vision' of the reform process, together with a refusal to evaluate it systematically, have heightened already intense controversy. This has blurred the fact that the internal market is not a panacea and cannot alone be expected to solve the problems of a health service where demand is accelerating faster than the resources available through taxation.