Tony Blair: Yes, I agree with Gordon Brown. Raising taxation is the way to fund a better NHS

The two most powerful men in Britain may have their differences, but how to pay for the health service is not one of them, says PM

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Blair: Yes, taxes will rise. No, this is not the end of New Labour

Tony Blair: Yes, I agree with Gordon Brown. Raising taxation is the way to fund a better NHS

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Leading article: Mr Blair takes action on the home front, not before time

Steve Richards: How brave the mighty titans, daring to mouth the words 'tax and spend'

Most days Tony Blair awakes to raging headlines about his stormy relationship with the Chancellor. Sometimes there is not a great deal he can do about it because the stories have more than a ring of truth about them. The current outbreak of Blair/Brown fever, though, has got him going. Some in the media are screaming that Mr Blair disapproves of Mr Brown's plans to raise taxes in order to improve the NHS. They are portraying this latest round of the feud as Old Labour Brown versus New Labour Blair.

This is not how Mr Blair sees it. Instead he suggests that tax increases to pay for investment in the NHS is the latest, logical step in the new Labour narrative. He backs them as strongly as Mr Brown. Mr Blair puts it like this:

"There are three questions we need to address. First, do we agree that health care is underfunded? If we agree that we need to invest more, the second question is what is the best way of raising the resources: do we pay for it through general taxation, do we pay for it through specific taxation, in other words Social Insurance, which is a tax on employees and employers, or do we make people pay direct in a private health service?"

He moves on to the third question, the one that is central to the whole debate. "Is the additional money enough? No. It's got to be investment matched by reform." Mr Blair answers his own question unequivocably. He goes at least as far as Mr Brown has done. "We believe that the best way to do it is through general taxation." Note also that Mr Blair has a pejorative phrase to describe the alternative of Social Insurance. He calls it "specific taxation". As far as he is concerned, there is no getting away from it: the euphemistically titled Social Insurance is still a form of taxation.

Mr Blair is speaking on his way back from Dublin Castle where he has been holding talks with leading members of the Irish government. The brief flight becomes something of a political journey as he speaks expansively for the first time about his position in the previously unexplored area marked "tax and spend".

Like Mr Brown he displays no great enthusiasm for an earmarked health tax, known as hypothecated taxation. Such a tax has the support of the Health Secretary, Alan Milburn, and Charles Clarke, the Labour party chairman. Mr Blair does not rule it out, but his comments are hardly a clarion call. "A hypothecated tax is still a tax that comes out of general taxation. Whatever discussions people want to have about it I don't think it's a central question. This is the central question: do you take the money out of general taxation, specific taxation or a compulsory payment scheme?"

Sipping tea on a small plane, easily filled by his senior staff, Mr Blair answers his own question in detail. "People should start analysing different health systems. A lot of vague nonsense is talked about the French and German systems. There is a real anxiety from employers in France, especially, about the massive rise in non-wage costs under their social insurance scheme. We also have to understand that, in addition to the investment they raise through social insurance schemes France and Germany invest more public spending in their health care systems than we do".

Mr Blair believes that voters will be willing to pay more tax if they can be convinced that their money will be productively spent. So he makes the case, first, for the NHS as an institution. "Pound for pound the NHS is one of the more efficient health care systems in the world. However if you say to me can we make it more efficient, I say 'Yes'. But the Tories are saying that money is poured into the NHS and nothing has happened. The reality is different. We've had decades of underinvestment and only two years of significant investment."

He seeks more significant investment, dismissing the latest round of stories suggesting he was wary of his Chancellor's tax initiative. "I've been saying for years that we've got to have a properly funded health system, matched with reforms. Similarly, Gordon highlighted the reforms in the TenYear Plan when he made his statement last week. I've also been involved in a battle with my own side about the involvement of the private sector in health care. So this idea that we've gone for old style tax and spend with no reform is ridiculous."

No, they have gone for new style tax and spend with reform. It will still be a form of tax and spend. The only practical debate about the nature of the funding, as far as Mr Blair is concerned, is precisely how much will come from tax rises. "Some of it will come from economic growth. It won't all come from taxation. But if you want to make a step change to catch up with other countries we've got to make sure the money is invested".

This "step change" does not mean that new Labour has become old. Indeed Mr Blair goes out of his way to dismiss a grieving newspaper headline that proclaims "New Labour RIP". "We are still new Labour. It is always being said that new Labour has become old Labour. Some of these people did not understand what new Labour was all about in the first place. New Labour was never the Conservative Party. New Labour is a modernised Labour Party".

As far as the broader debate is concerned, Mr Blair suggests his opponents are evasive on how they would pay for the improvements. He spells it out on their behalf. "Under a social insurance system employers and employees pay out. The Tories say pay for your health care directly. We say spend to organise it through the NHS. If you read some of the newspapers you'd think that the choice is between a system that is funded out of taxation and one that somehow comes free".

The hint of tax rises – still neither Mr Blair nor Mr Brown has actually explicitly said in public there will be tax rises – has been portrayed by some as an historic break with new Labour. Mr Blair suggests that it is part two of the same narrative. "There have been two essential stages – one was to stabilise the economy and to get sustained growth. This year we will achieve the highest growth of any major economy in the world. We always said the next phase would be increased investment."

Mr Blair is robust about the need for more investment, but he has suddenly become less precise about his commitment to meet the European average by 2005. Originally he made this commitment on The Frost Programme 18 months ago, to the fury of the Chancellor. Mr Brown was far from pleased when he appeared to repeat it last week during Prime Minister's Questions. Now he is giving himself a get-out clause.

"I'm not deciding the spending levels now, but I am saying in broad terms that we have underinvestment and under-capacity, and in broad terms we've got to match other European countries."

The qualification gives Mr Blair and Mr Brown considerable leeway. In "broad terms" they could still be some way from the European average and simultaneously close to meeting it. The phrase "broad terms" is the statisticians' flexible friend.

Mr Blair links the case for higher taxes to improvements in the NHS. For him this is the key to winning the debate. "Where extra resources have already gone in it has made a difference, for example, in cancer treatment. There is a reason why, very shortly, we will be able to get from diagnosis to treatment within a month of any major cancers." The reason, according to Mr Blair, is additional funding combined with reforms. He suggests the reforms that Labour has already introduced are as substantial as any undertaken before and more are to come.

Mr Blair is less forthcoming and effusive about the future of his Secretary of State for Transport, Local Government and the Regions Steve Byers and his adviser, Jo Moore. Asked to comment on more controversies surrounding the ineptly manipulative news' management of Mr Byers and Ms Moore, Mr Blair stuck to the policy rather than the personalities. "We could not carry on in effect subsidising the share price of Railtrack." Pressed further he mentions neither Mr Byers nor Ms Moore. He does not appear to be especially thrilled with either.

On the possibility of the "war against terrorism" being extended to Iraq, Mr Blair is also opaque. "We have always said there will be a second phase, but people shouldn't rush to conclusions about what the second phase will be. Nothing will happen without consultation with allies ... It will be done in a very considered way."

This leaves Mr Blair's options open. He could still support a US onslaught against Iraq, or withdraw his support. But his stress on the guarantee of "consultation" and of a "considered" response suggests that he may not be forced to make such a stark choice.

Mr Blair is more expansive on the death of George Harrison, announced shortly before our flight from Dublin. He has met Paul McCartney and was much amused by McCartney's impression of Gordon Brown. He never met Harrison, but strummed his guitar to "Here Comes the Sun", one of Harrison's greatest songs.

"I played a bit of that on the guitar ... These are people we grew up with. I remember every time a Beatles record came out you would be playing it with friends day in, day out. There is always talk about new bands being the 'new Beatles'. But they were the ones that were made to last and will stand the test of time. They were amazing. I knew people who knew George Harrison and they tell me he was a very decent, nice guy. It's very sad."

Fleetingly, he is another middle-aged Beatles' fan coming to terms with the fact that the Beatles are dying. But by the end of the short flight, he has contributed another landmark to another history, that of his own Government.

He has signalled his approval of the new agenda outlined by Gordon Brown last week. There are tensions between Mr Blair and Mr Brown on a range of issues. As far as the Euro is concerned they are potentially explosive. On the need to raise taxes to pay for improvements in the NHS, the two of them seem to be singing the same tune.