Earmarked taxes could fund health care and transport

DUTIES ON beer and cigarettes could fund the National Health Service, and levies on road use and petrol could boost public transport under plans for earmarking taxes canvassed yesterday by the Liberal Democrats.

Earmarking taxes for specific uses ('hypothecating') 'puts the taxpayer not the politician back in charge', Malcolm Bruce, the Liberal Democrats' Treasury spokesman, said - while allowing politicians to be honest about taxation.

But the idea was dismissed as 'almost always a deceit' by Andrew Dilnot, director of the Institute of Fiscal Studies, who said 'there is very rarely any real linkage between these sorts of taxes and the spending in the areas they purportedly go to'.

Mr Bruce, however, said it was 'arrogant' to suggest there was no room for a debate between government and the electors about the priorities for taxation. 'It is our belief that people are prepared to pay somewhat more in taxation if they know where the money is going,' he said.

A preliminary report from a party working group proposes giving every household an annual statement similar to that which accompanies council tax demands. It would detail how national taxes are raised and spent.

Consultation, including non-binding referendums, could be held on priorities for spending. Employees' National Insurance contributions could become a specific 'pensions payment', and increases in alcohol and tobacco taxes could be earmarked for specific new NHS projects.

Apportioning perhaps 50 per cent of income tax to NHS spending so that it would rise as the nation's prosperity increased is another proposal, while the party is continuing its commitment to put an extra penny on income tax to improve education - the proposal which struck a chord with the electorate and triggered yesterday's further move towards

hypothecation.

Mr Bruce said that his party intended to 'draw up a menu of services with costings and invite voters to support what we are offering'. Taxpayers, however, would not be given an individual right to opt in or out of a particular tax - people could not refuse to pay for defence, or the childless refuse to pay for schooling. But it would mean politicians would no longer 'disappear into purdah and come out with taxes without having consulted anyone'.

The party was not suggesting that the whole tax system be earmarked, Mr Bruce said, but it could allow projects which otherwise would not have gone ahead.

Mr Dilnot said the idea appealed to politicians as 'a way of seducing people into thinking that they have some new control over tax-raising and the amount spent on particular services'. That was, however, usually an illusion.

Gordon Brown, the shadow Chancellor, has said he favours connecting taxes to benefits more clearly. But his office and Labour's spokesmen yesterday dismissed the Liberal Democrat plans as 'soggy' and confused.

The idea that higher spending on the health service should depend on taxes intended to reduce the consumption of alcohol and tobacco was not to be taken seriously, Labour suggested.

John Townend, chairman of the Conservative backbench finance committee, said the plan was 'a recipe for increased taxation. If the Liberal Democrats were honest, they would say we are going to increase spending and raise taxes'.

Sir George Young, Financial Secretary to the Treasury, said ministers were under greater pressure to justify their claims when they competed for cash from a single pot. Automatic increases from earmarked taxes would remove that pressure.

Mr Bruce, however, insisted earmarked taxes 'could be quite significant in letting people make choices at the margins'.

Being Honest About Taxation; pounds 1.95 plus p&p; telephone: 0305 264646.

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