Blair says cut taxes; Brown raises them

The minority of people who bothered to vote in Britain on Thursday probably did not have "Europe: the Third Way/Die Neue Mitte" at the forefront of their minds. Even so, the joint Labour/ SPD statement launched by Tony Blair and Gerhard Schroder at Labour's Millbank headquarters may well have more of a long-term impact on Britain's future in Europe than the outcome of the elections does.

During its launch, I grew convinced that Blair was serious about ending Britain's ambivalence towards Europe, the historic task he set himself in a speech last month. In spite of the European elections, which may well bring the Conservatives some short-term comfort, the terms of the political debate have been set. Blair is portraying himself with increasing regularity as someone who wants to place Britain at the heart of Europe. Even if the Tories' Euroscepticism is vindicated when the results are announced, Blair has moved too far down this road to pull back. Indeed Blair appeared to anticipate an electoral setback in the Commons on Tuesday afternoon when he told William Hague that "there are short-term tactical reasons" for the Tory position but "it is a big long-term strategic mistake". What Blair is doing, on the other hand, is subtle and ambitious and it is probably the only viable route towards establishing a different view of Europe in Britain.

For a start he seems to have decided that the "big picture", which he refers to often in a domestic context, is on his side in the European debate as well. This is extremely important given the grim findings of the opinion polls. Departing from his text on Tuesday afternoon he proclaimed: "All around the world people are moving closer together." In other words the isolationist Tory approach goes against the grain.

There were times in the early phase of this government when such rhetoric could be easily dismissed. The jingoistic election campaign, followed soon afterwards by the decision to kick the single currency into the long grass, suggested that we still stood in the familiar territory of the Major years. But the government has moved on. Major's flirtation was superficial, consisting largely of one big speech in Bonn in which he famously declared his wish to be at Europe's heart. Blair has moved on to form a series of positive relationships - of which the joint document prepared with Schroder and the SPD is the latest manifestation. In his speech at the launch he stressed, "This is not an exclusive partnership. In Sweden, Denmark, Austria, Finland and the Netherlands, and also in France, Italy and Portugal, there is considerable thought and experience to be incorporated into a new social democratic consensus."

It is inherently easier to work with governments when there is common ground. Much mutual strength can be gained from embryonic governments on the centre left working together, most of them trying to navigate new paths after long periods of right-wing rule.

For Blair, though, there is an additional factor. If he can convince Britain that Europe is willing to change, it is possible that this Eurosceptic island will end its confused hostility. Presumably that is why Schroder was willing to take part in a press conference in London a short time before his own party in Germany faced the same set of European elections as Blair's. If Schroder can play his part in convincing Britain that Germany is thinking along similar lines to a popular Labour government, perhaps the irrational fear of German dominance will subside as well.

What of the document itself? The context of its launch was, for Blair anyway, the early stages of his titanic battle with a Eurosceptic Tory party and media. Yet Europe: the Third Way concedes much ground to the prevailing orthodoxies of the Tory years. Some of it is distinctly new Labour. There is appropriate praise for use of the tax system to subsidise low-paid work, calls for lowering the regulatory burden on business and a vision for a highly skilled workforce capable of moving from job to job.

But its sections on taxation and spending could be a hostage to fortune. It declares that "public expenditure as a proportion of national income has more or less reached the limits of acceptability". Who says? Blair and Schroder go further. "Overall, the taxation of hard work and enterprise should be reduced." There is no acknowledgement that when the economy is less buoyant, taxes may have to be increased, nor indeed that the overall tax burden in Britain is set to rise.

Blair and Gordon Brown have done much positive work in claiming the area of tax-and-spend for the centre left. They have been right to stress that increased spending does not necessarily lead to improved services, and to concede that previous Labour governments sometimes increased taxes without having much to show in improved services (although the degree of profligacy of past Labour governments has been conveniently exaggerated to underline the prudence of new Labour).

But the level of expenditure on services is an important ingredient, as they themselves have demonstrated with the increases in the amount spent on health and education. I suppose the characteristic qualification that public spending had "more or less" reached the level of acceptability provides some leeway for the stealthy Chancellor. (I refer to the Chancellor who lives next door, not the one who flew in from Germany.) Even so, what arguments do parties of the centre left deploy when their opponents on the right promise even bigger tax cuts?

Still, the bigger picture deserves applause. Blair convinced middle England that Labour was on their side at the last election. Now he seeks to convince them that Europe is on their side, too.

This article first appeared in the 14 June 1999 issue of the New Statesman, Kosovo: a rich and comfortable war