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Labour in the first few days of the election campaign has been like a football team defending a 6-0 lead in the away leg of a European tie. With nothing to gain, it has opted to play for a safe, boring 0-0 draw only to be caught napping by an early goal. Victory still looks inevitable, but the government has been rattled. It has appeared defensive; nerves have started to jangle.
The reason for this is simple: despite Labour's opinion poll lead, the Conservatives are still being allowed to set the agenda when it comes to tax. If the voters remember anything from the first few days on the hustings, it will be William Hague's pledge to cut the cost of a gallon of petrol by 27 pence. Of course, the ?8bn package of tax cuts proposed by the Tories is based on the sort of budget arithmetic that would have the financial services authority on the case were Hague running a company, rather than a political party.
And, naturally, the Millbank rebuttal unit have had a grand old time pulling the Conservative package to pieces, ridiculing Hague's back-of-an-envelope plans for finding savings to justify the tax cuts. But Labour was still unnerved enough to leak details of its own tax plans, which repeat the 1997 promise not raise either the top or the basic rate of income tax.
All this is highly significant. While Labour may be well on the way to rehabilitating the idea of higher public spending, it continues to fight shy of a debate with the opposition on the question of tax. Both parties work on the assumption that Britain is a low tax, low spending country that would like to be a low tax, high spending country, and spend their time working on ever more Byzantine ways to square the circle. In the end, the failure to win the argument over tax means that Labour cannot finally win the argument over spending.
Cupidity
To give Labour its due, the debate is not as clear cut as some of its critics suggest. It is unlikely that voters are quite as gung-ho to pay higher taxes as some of the opinion poll evidence would suggest. The Conservatives won election after election in the 1980s and 1990s by trusting in the cupidity of the electorate. A more telling point is that voters need to be convinced that the money will be well spent, and fear that higher taxes will be captured by a well-heeled managerial salariat rather than being spent on teachers and nurses.
Although Labour's emphasis on public sector targets runs the risk of becoming obsessive, and in some cases may prove to be entirely counter-productive by focusing on the wrong performance indicators, it does try to address this genuine concern that increases in taxation should provide value for money.
Gordon Brown's strategy is that the first term was designed to show that Labour could find the money for higher spending through prudent management of the economy, and the second would be used to show that the money could be spent wisely. He is pretty sure that the voters are not prepared to write a blank cheque to the government, and in that he is almost certainly right.
But the logic of the government's position is that after securing the extra resources and showing that it can use them wisely, the final stage of the process must be to make a theoretical argument for higher taxation. Otherwise, as the Institute for Fiscal Studies noted last week, Labour could be heading for serious problems further down the road.
Brown has turned around the public finances in Labour's first term. A deficit of more than ?20bn has been turned into a surplus of ?16bn, allowing the chancellor neatly to align the political and economic cycles - something that Labour governments in the past have found impossible. This happy state of affairs has been the prime objective of Brown's fiscal policy since 1997, because he took the view that pre-announcing hefty increases in public spending for a second term would allow Labour to set the terms of reference for this election campaign. This view has been vindicated: the Conservatives have indeed been forced to match Labour's key spending programmes.
Humiliating
By 2003-04, the surplus will have been spent, however, and the public finances will be back in the red. Unless by then Britain's trend rate of growth has defied a century of history and put on a rapid spurt, Labour will then have some tough decisions to make. It will then either have to rein in the level of spending growth to 2.5%, or, if it wants to carry carry on spending at 3.8% a year in real terms, raise extra money through borrowing or raising taxes by ?5bn.
Brown's response last week was that the government would bring spending growth back in line with trend growth, which in itself is something of a humiliating admission, since it appears to validate Conservative claims that he is spending more than the economy can afford.
But it seems quite incredible that Labour would go through with such a policy within a year or so of the next election unless it is convinced that by that stage public services in Britain will be so good that there will be no need for further hefty spending increases.
More likely, an easing back in spending growth to 2.5% a year would lead to a whole slew of stories in the run-up to the 2005 election about cancelled operations, schools on four-day weeks and transport snarl-ups.
So, the expectation has to be that Labour secretly plans to carry on increasing public spending at something like the current rate but would rather not say so.
Labour is caught between its belief in the economic efficiency of the low tax US model and its yearning for the social inclusion of the high spending European model. But this is a false dichotomy. In the US, gross domestic product per head rose by 3.8% a year in the five years to 1998, its best performance in recent times, according to the OECD.
Over the same period, per capita GDP rose by 3.3% a year in Denmark, 4.2% in Norway, 4.7% in Finland, 3.2% in the Netherlands and 2.8% in Iceland. For the record, Britain's per capita growth rate was also 3.2%.
As Peter Robinson, chief economist at the Institute for Public Policy Research, points out, developed countries can choose whether they want to be high or low tax societies without any discernible effect on prosperity.
Labour have made the case for higher spending, he says, but "doesn't feel confident enough to deliver the second half of the narrative - tax.
It is still running scared of offering the Conservatives this open flank to attack, he insists. This is the crux of the matter. In the last election, there could be some sympathy for Labour's decision to play safe. The Conservatives were punished for raising taxes in the aftermath of the recession of the early 1990s, and Labour was determined to show that it had shed its old "tax and spend" image.
Moreover, Brown and his team knew that there were plenty of alternative ways of finding extra money - abolishing mortgage interest relief, using the fuel duty escalator, punishing smokers and so on. Consumer resistance to "stealth" taxes and outright tax evasion mean that it is no longer quite so easy to raise taxes surreptitiously.
But that shouldn't really matter. If there was ever a time when a government could fight and win an election on the principle that higher direct tax might be necessary to fund future spending plans, then this is surely it.
The Conservatives are enfeebled and unpopular; Labour would win merit for honesty if it confronted voters with what they know as consumers of everything from restaurant meals to washing machines - you get what you pay for.
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