How to make them pay up

Tony Blair's habit of making policy on television studio sofas will one day be the death of him. It took a day or two for the implications of his latest performance, on the BBC on Sunday morning, to sink in. Mr Blair had promised to bring health spending levels up to those of our European neighbours (see Donald Hirsch on page 9 for what this means). But no sooner had ministers and civil servants consulted their calculators than the Prime Minister's press aide was attempting to backtrack. If the NHS is to get so much, what happens to the priorities of education, education, education? How is Labour to tackle rising crime? How can it hope to fight another ethical war? Worse, how can it sustain its new-found image as a tax-cutting party?

Mr Blair may well have judged the public mood exactly right, as he often does. Perhaps the public at last recognises that it cannot get something for nothing; an ICM poll for the Observer at the weekend found that only one in five of the population wants the Chancellor's 1p income tax cut, due in April. But the desire for a better health service, expressed to a pollster on a cold January night after a week of newspaper stories about people dying in hospital ante-rooms, does not always translate into votes on a warm summer evening. In any case, people who advocate tax increases usually think that somebody else will be paying them.

For this state of affairs, politicians have only themselves to blame. That is not only because they have fed public expectations of better services and lower taxes - actually denying, with all their talk of efficiency, that there need be any trade-off at all - but because they make the relationships between revenue, spending and outcome opaque. Ministers claim to have spent implausible amounts of extra money on this or that service, using accounting methods that defy common sense. They curtail local tax-raising powers and then finance local services from Whitehall through formulae that nobody understands. They prefer "stealthy" taxes on pension funds and the like to anything so transparent as an income tax rise. Though politicians insist that people can and should make choices about their children's schooling or their electricity supplier or their pension arrangements, they treat them as incapable of rational thought on any matter connected with the public finances. As a Demos pamphlet published in 1993 (and co-authored by Geoff Mulgan, now a No 10 adviser) put it: "Our tax system is shaped by the inheritance of despotism. The political model is that of Hobbes, with governments having the right to collect whatever level of tax they deem necessary, and to use whatever powers they regard as appropriate to the task. It is a top-down model."

Is it now time to rethink the nature of taxation, as Demos suggested, to make a change as radical in its import as the switch to progressive income tax a century ago? The hypothecated or earmarked tax (whereby a tax would be levied specifically for, say, the NHS) would transform the terms of political debate and perhaps even personal conduct. Would tax avoidance still seem so respectable if, instead of being money that disappeared into a remote Whitehall black hole, it became money that was specifically applied to schools or hospitals or the disabled or railways? Would politicians be so keen to promise lower taxes if they also had to explain how the education or health services could get by on less money? Would (to bring back the arguments about efficiency) public servants be so careless of their funds if they knew that, to get more, they had to convince the voters rather than just twist the arms of politicians and civil servants behind the scenes?

The arguments for hypothecation are that it extends democracy and reconnects taxation to the public benefits it finances. The objections are numerous. For example, it would create pressure for people to be allowed to opt out of certain taxes. Why should a childless couple or a couple who educate their children privately pay a hypothecated schools tax? (Answer: because they, too, will benefit from the social returns of educating other people's children.) Why should a pacifist pay a hypothecated defence tax? (Answer: because it is not possible for an individual to opt out of the protection of the armed forces.)

But hypothecation may prove the only way to avoid the collapse and ultimate privatisation of the NHS and other services. The left needs a credible alternative to the agenda of private choice still being articulated by the right: this is an idea it should seize.

This article first appeared in the 24 January 2000 issue of the New Statesman, The New Statesman Essay - The tyranny of the brands