Blair and Brown clash on separate tax to fund NHS

Tony Blair and Gordon Brown were at loggerheads last night over whether the Government should bring in a special "health tax" in an attempt to persuade people to pay higher taxes to fund the National Health Service.

The Prime Minister wants to consider the idea of an earmarked tax to meet all or part of the health budget, an idea backed by Alan Milburn, the Secretary of State for Health. But the Chancellor is strongly opposed to the plan and intends to block it.

After the Cabinet discussed plans to pump billions of pounds into the NHS, Mr Blair's official spokesman said there was "general agreement around the Cabinet table that the public should be able to see the real changes resulting from the extra investment".

Asked if an earmarked or hypothecated health tax remained a possibility, the spokesman said no avenue should be ruled out.

Mr Blair has asked his policy experts to investigate the idea of a separate health tax. Other supporters of the idea include Charles Clarke, the Labour Party chairman, and Peter Mandelson, the former minister, who said: "I think we need to consider a hypothecated tax, so that people see a direct link between what they're paying more in taxation for and what it's going into."

However, allies of the Chancellor made clear that he strongly opposed a health tax because there would be a risk that the health budget would be cut if slow economic growth reduced revenues from the tax. One Treasury aide dismissed the idea as "foolish".

The Government faced another controversy over the NHS when Derek Wanless, the former NatWest chief executive, appeared to distance himself from the "spin" put on his inquiry into NHS funding by Mr Brown in Tuesday's pre-Budget report. The Chancellor said Mr Wanless believed an NHS system funded through taxation remained the fairest and most efficient system.

Mr Wanless told a press conference that he had not ruled out other options of funding the NHS, including a French-style system of social insurance, and he would continue to study other countries' systems before completing his final report next April. He added: "I have not sought to bury anything for good. It would be quite presumptuous and premature to do that. It is not my purpose to bury [other] models, nowhere have we said that. It is not my job to bury social insurance ... What we have said is that the present system, against the tests of efficiency and equity, looks very good."

The Tories seized on his remarks, accusing Mr Brown of being "fundamentally dishonest" by pretending that Mr Wanless had rejected other ways of funding the NHS. Liam Fox, the Shadow Health Secretary, said: "Gordon Brown has conclusively boxed in the Prime Minister and the Government to a system of healthcare which is failing Britain."

Michael Howard, the Shadow Chancellor, welcomed the debate on health funding proposed by the Government but said: "It must be a proper debate. Gordon Brown has tried to close it down before it has started."

Mr Blair told the Cabinet yesterday that although there was a debate on how to find the extra money for the NHS, there was no cost-free option. He said: "The choice is funding from general taxation, from social taxation such as social insurance schemes, or from private health insurance – and none of them are cost free." Mr Brown added that there was "no magic solution."