TERRY DIGNAN:                Gordon Brown's Budget has 
given the Liberal Democrats a problem. Do they stick to their promise to 
tax and spend more than Labour? I've been checking out the On the Record 
tape library to find out why Matthew Taylor now faces a dilemma over his 
economic policy.

Until Gordon Brown's budget the Lib Dems had a distinctive appeal. Unlike 
Labour they unashamedly espoused the virtues of higher taxation to spend 
more on health, education and other services. 

"We told you so." That was the Liberal Democrat response to the Chancellor's 
declaration that more money for the NHS made higher taxes unavoidable. 
But, said party leader Charles Kennedy, at least Labour, unlike the Conservatives, 
had seen the light. 

CHARLES KENNEDY:            That is a clear ideological divide 
which now opens up in British politics between the Government and the Liberal 
Democrats on one side, and the incoherence of the Conservatives on the 
other.
 
DIGNAN:                    Of course, the danger for 
the Liberal Democrats is that now they lose their distinctiveness. It's 
hardly an election winning slogan - 'Vote for us. We're just like Labour.' 
Yet a closer examination of the party's policies shows they still do have 
something different to say. They want to make all personal care for elderly 
people free. They want an extra two-thousand police officers. And look 
at their plans for education. They'd cut primary school classes to twenty-five 
and recruit an extra five-thousand secondary school teachers. They'd scrap 
university tuition fees and restore maintenance grants. 

The trouble is all this has got to be paid for and in the Commons Tony 
Blair has been mocking the Liberal Democrats' tendency to make new spending 
commitments at the drop of a hat. 

TONY BLAIR:                "In the last week, they have 
called for over a billion pounds more on social services; more money for 
affordable housing; to fund research into a bovine tuberculosis vaccine; 
cuts in fuel duty; more money for transport; more NHS facilities in rural 
areas; seven hundred and fifty million pounds more for small businesses; 
more money for amateur sports clubs. I am sorry, but in the end, even for 
the Liberal Democrats, they have to realise cost can sometimes be an issue."
  
DIGNAN:                    The Liberal Democrats will 
pay for their extra spending by raising income tax by one-p in the pound. 
According to their alternative budget, this will bring in an extra three-point-three 
billion pounds. There'd be a fifty per cent tax rate on those earning more 
than a hundred-thousand a year, bringing in four-point-four billion pounds. 
So Liberal Democrats will have to keep their fingers crossed that voters 
will happily go on paying higher taxes. Otherwise they're in danger of 
losing support - to the Conservatives.

IAIN DUNCAN SMITH:            "Because to listen to the Chancellor, 
one would think that this week, this is the first time he had ever raised 
taxes at all. But he spent the past five years and six Budgets raising 
taxes, and all the time public services are getting worse."

DIGNAN:                    Yes, but suppose voters 
feel services have got a lot better by the time of the next election?

In recent months On The Record has filmed at hospitals like Birmingham 
Heartlands where have improved already. If this becomes the norm, it means 
higher taxes have achieved their aim, perhaps making further rises unnecessary.

So, that's the Lib Dem dilemma. By the time of the next election the case 
for higher taxes may have gone. Yet if the Liberal Democrats drop the idea, 
they lose the one thing that has made them distinctive.