Spending without taxes

Once again, Tony Blair is apparently all set to promise that Labour will not raise the basic or higher rates of income tax during the next parliament if Labour is re-elected. How then is he to finance his admirable plans to make spending on state schools match private ones, to abolish child poverty and raise health spending to European levels? The public, fed up with the wanton deterioration of public services, is overwhelmingly behind him. Why does he think they will resist paying more taxes for improvements?

We know why. It is the Today programme factor - the prospect that during every radio or television broadcast ministers make during the election campaign they will be taunted relentlessly by interviewers and opposition politicians about the imminence of income tax increases. Who will pay, and how much? This is bizarre, because it will not banish the issue: if they deny income tax rises they will be accused of planning increases in "stealth" taxes. It is time to grow up: this is the right moment to revive the old tradition of ministers not commenting on future tax changes. Why? It is irresponsible for a chancellor to rule out tax changes because cyclical swings in the economy often make changes necessary for prudent economic management, let alone to finance vital spending plans. Every poll points to a big Labour victory. The chancellor is sitting on a budget surplus previous Conservative administrations could only dream about. And he has proved himself (so far) to be a more prudent chancellor than any of his Tory predecessors. Moreover, given the power to raise income tax he may not need to use it, at least in the very short term. Why? Although there is a strong case in equity to raise the top rate of tax from 40% to 50%, in the real world this would raise only a bit more than £3bn (less than a third of last year's £11bn "natural" rise in income tax revenue). The chancellor may think it is not worth the electoral flak for such modest revenue - if there are other revenue sources.

There's the rub. Notwithstanding his huge budget surplus and the £22.5bn windfall from the auction of radio spectrum, long-term sources of alternative revenues needed to resuscitate Britain's infrastructure are drying up. Globalisation and the rise of internet trading are eroding national tax bases. Governments can only remove mortgage relief and the tax privileges of insurance companies once. Unless the government is to find new sources of revenue - such as taxing capital gains on house sales and increases in land values, or through a new energy tax - then sooner or later the users of the new hospitals and schools will be asked to pay. And so they should. Nothing comes for nothing. It is vital that the government does not deviate from the huge spending needed to give Britain a social infrastructure for the new century. If the chancellor, by some magical means, can find the money without increasing income tax, then fine. But if he can't, he must bite the bullet and remind Britain's voters that they can't will the end without providing the means.