BBC On The Record - Broadcast: 17.03.02

Film: Film on tax. Iain Watson looks at whether the voters will really support tax increases in the Budget.

IAIN WATSON: With the budget just a month away, opposition politicians, business leaders and even Tony Blair will be anxious to find out what the Chancellor has got in store for us. Now, just imagine if we could get access to Gordon Brown's lair here at number 11 Downing Street, get a peek inside that famous budget box. Ah we can but dream. Sadly, even the power of the imagination isn't enough to breach the secrets of the Chancellor's budget box. But if we were given free rein to root around Gordon Brown's office, perhaps we could find some clues as to its content. Ministers appear to have been briefing the press that a tax rise is on the way, at least to fund the NHS. But is everything just what it seems? And is Labour really confident about coaxing a tax-resistant middle England to pay more for public services? JAMES PURNELL MP: The government was elected on an agenda of improving public services, it's quite clear that those public services have not had the money that they needed over the last ten or twenty years and if we are going to see real improvements in public services the money will need to go in and that may have to mean tax increases at some stage. DEBORAH MATTINSON: People are now valuing public services and they also are not unrealistic, they know that they won't improve without more money being spent, and for the first time for a long time they're saying yes, actually, eighty- seven per cent of the population are saying 'I'd be prepared to pay more taxes for a better NHS. WATSON: Voters may well want to see more money spent on public services, but the real mystery is why the government is hinting that taxes have to increase to achieve this. Now if this could be opened up, it would show that finances are in a much healthier state than the Chancellor's dour demeanor tends to suggest. So he won't actually have to increase taxes this year at all. But if he wants to keep health spending growing at its current high levels, then he may have to increase taxes in future years. But the advice from those close to his next door neighbour suggests is that any increases should be kept low and well targeted. PURNELL: I think it's very important for people within the Labour Party to realise that this debate will only be won if the public see improvements in public services, if any increase in public spending or any necessary increase in taxation are targeted and limited and there's no return to punitive taxation or to ducking the difficult decisions on public spending which we took in the first term. WATSON: For a Chancellor who's been denounced for increasing tax by stealth, he now seems to be uncharacteristically open about his intentions. But by warning that taxes may now go up, Labour are also symbolically signaling their seriousness about funding the NHS. And there may be an additional advantage to talking up tax rises. ANDREW DILNOT: It's certainly the case that if you think you are going to have to put up taxes it's a good idea to try to frighten people in advance so that however large the tax increase that you do announce is a bit less large than the worse that people were fearing. I think we saw some examples of that earlier in the 1990's, I think some of that may be going on. WATSON: So any tax increases we see may be quite modest, but most Labour MPs would rejoice that the principle of paying more for better services has been firmly established, turning on its head the 'something for nothing' culture of New Labour. The debate going on within the Treasury and more widely within government isn't so much about whether tax will increase, but when. It looks like the Chancellor is receiving some advice not to do anything too hasty. The head of an influential Labour think-tank warns that voters are still volatile on the question of tax, and that they need reassurance that the money the government currently has is being spent more wisely. MICHAEL JACOBS: The government needs to prove that when you put more money into the public services you do actually get results, they have been putting the money in over the last two years but they haven't really got the results yet. In two years time they're may be able to prove that the extra money does work and then they can say but we still need more, that's when the tax rises will come in. WATSON: The argument over timing will be resolved by budget day, one month from now. What seems certain is that well before the next election, Labour will be asking for more cash to improve the NHS. Although this carries political risks, there are potential benefits. The Liberal Democrats could lose their unique selling point as the only party willing openly to increase taxes to pay for better public services. And the Tories are being advised not to oppose any increases automatically. FRANCIS MAUDE MP: I think if there is what looks like a tax increase it would be quite difficult for the Conservatives to oppose those tax increases. We would want to say that money in doesn't represent quality out and I think people are very amenable to that. But I think we would want to say, you promised you are going to reform the public services and make them better, you'll be judged on whether you do so. We're not going to oppose any increases in tax there are going to be but we are going to judge you very strictly on whether you have made the improvements in the public services which you've promised. WATSON: And the former Conservative Shadow Chancellor would go further, advising his current leader not to look for tax cuts in the next term of a Tory government, if voters are still demanding cash for public services. MAUDE: So I think it will be quite important to add to what Michael Howard and Iain Duncan Smith have already said when they have said that public services will take precedence over tax cuts and I think we will need to say, before the next election, that because of the parlous state of public services and because of the need, the urgent need for reform in those public services and because reform in public services does demand more money - at least in the short term - therefore we, the Conservatives do not expect to be able to cut taxes in our first term in Government, because of the needs of the public services. WATSON: For those of you who've ever filled in a self assessment form, you'll know by now that nothing about tax is straightforward. So the tables could yet be turned on Labour. One of the options the Chancellor is looking at for a tax increase would be a rise in national insurance contributions, roughly equivalent to a penny on income tax. Though that doesn't raise a huge amount, the trouble is, it may increase voters' aspirations for the funding the public services which simply can't be satisfied. So some say Labour must be more transparent about tax and spending if they are to avoid an electoral backlash. JACOBS: And I think the public need to be given much better information about taxes and spending. For example, we could send a leaflet to every self-assessment payer with their self-assessment form which sets out the taxes that we pay and where the money has gone. And also what the governments been doing with it over the last year; it's interesting that local government sends a leaflet out to all tax payers but central government doesn't. That information in my view should come not from the government however but from the National Audit Office which is an independent body. Unfortunately people don't believe politicians when they talk about taxes and spending. So I think if we're going to have credible information it's got to come from an independent body and I think the National Audit Office should be given that task. MATTINSON: People are realistic, they know that Rome wasn't built in a day, they don't expect the NHS to be transformed overnight, but they do need to be told what they can expect to happen and when they can expect it to happen by, and I'd also suggest that within that mix the government does make sure that there are some quick wins, there are some visible changes. WATSON: People have to see tangible improvements in the public services they use every day. But it may be difficult to achieve this before the next election, no matter how much Labour is spending. DILNOT: There isn't a pool of extra doctors, nurses and support staff, unemployed, waiting for Mr Milburn to pick up the phone and say - come and help us. They're doing something else, so drawing them in has turned out to already be very difficult, the same is true in education, the same is true to some extent in transport for people, but in transport also clearly for the resources to do capital projects or to build schools or to build hospitals, so pretty quickly shifting the structure of the British economy or indeed any other economy isn't very easy. I think between now and the time of the likely next election the government is going to struggle really to transform things. MATTINSON: If Labour gets this wrong, that is to say, if they put taxes up but people don't feel that they've got a result then I think that then questions that strategy and it gives the Conservatives an opportunity to start challenging that strategy and perhaps the campaign that they've been running, you know you've paid the taxes, where are the nurses, would really sort of find it's opportunity at that time. WATSON: So it's a high risk strategy; if people see improvements in public services, they may be less resistant to paying more tax; but, on the evidence so far, the government has quite some way to go to match service delivery with voters' aspirations.
NB. This transcript was typed from a transcription unit recording and not copied from an original script. Because of the possibility of mis-hearing and the difficulty, in some cases, of identifying individual speakers, the BBC cannot vouch for its accuracy.