Steve Richards: Our public services won't improve until there's a proper debate about taxation

Let us hope that the lucky British journalists who reported on the European Championship are adapting to life back here. Their reports on the scintillating competition were punctuated with joyful observations about their few weeks in Austria and Switzerland. The trains ran on time at affordable fares. The cities were clean. The inhabitants danced into the nights after matches without beating each other up.

The same fortunate journalists filed similarly upbeat reports two years ago when Germany staged the World Cup. At these international sporting events, British journalists are the equivalent of reporters who left the Soviet Union to discover that there were alternative ways of living elsewhere.

In Britain the quality of life has improved over the last decade. Few yearn for the public squalor of the 1970s and 1980s. Yet still we are far behind on many fronts. Only the other day, the admirably reflective rail minister, Tom Harris, told me that in spite of the recent optimistic speculation, Britain is still a long way from even deciding whether to opt for high-speed trains or more electrified tracks. Apparently the costs are too great. We do not have the skilled engineers and those we do have are expensive.

On other spending fronts, it is not at all clear how the increased demand for the NHS from a larger elderly population, combined with the costs of expensive new treatments, will be paid for. The next time a tournament is held in another part of Europe, I fear the British journalists will report back still with admiring envy.

The chances of Britain catching up in the next few years are made less likely by the daunting economic context. Yesterday's Today programme on BBC Radio 4 was depressingly on the button in its illuminating sequence. We heard from drivers who wanted cuts in petrol tax, then from those that want the Government to scrap its plans to tax the most polluting cars. Later came a business leader who wanted tax cuts as Britain dances around the edges of possible recession.

Meanwhile the Chancellor, Alistair Darling, has been forced already to hand out nearly £3bn to compensate apparent losers from the previous Budget. Predictably, more losers have surfaced subsequently and he is under pressure to find more cash, even though he could not afford to hand over the £3bn in the first place. He did so on top of the cut in inheritance tax rushed through in response to a similar proposal made by the Conservatives, along with cuts in proposed business taxes.

This is what happens when there is a dangerous mismatch between the political and economic situation. An unpopular government has no choice but to give in when facing defeat in the Commons and anger from the voters. Dissenting Labour MPs assumed they were doing their party a favour when they forced Brown and Darling to part with £3bn. They were wrong.

While they were responding with justification to the concerns of constituents, they did not help their party's cause, as the Crewe by-election proved a few days after the concessions had been announced. It is a mistake to dismantle a Budget in the best of economic times. In the current situation, the act is the equivalent of dismantling a ticking time-bomb while blindfold. Who will be the next set of losers to erupt and demand a few more billion pounds?

Darling has become a reluctant Father Christmas when he would prefer to play Scrooge. He is having the role of Santa Claus thrust upon him although he cannot afford to distribute the gifts. Forget about the quality of life in Germany, Austria and the rest. Because of the economic downturn, Darling struggles to meet an already extremely tight public-spending settlement and yet he has no choice but to give more cash away.

In a moment of calm, the Government, or another government, must take stock. The scope for stealth taxes is non- existent now. It was always an odd contradiction in terms that Brown became famous for his stealthy tax increases – the equivalent of Harold Wilson becoming famous for being devious.

How was Wilson so brilliantly devious if colleagues knew that, above all, he was looking to outmanoeuvre them? How can a government put up taxes stealthily when it is famous for doing so? Businesses scream about any tax rise supposedly hidden away. So do motorists and those on low incomes. And yet the reports from those lucky sports journalists remind us that the appetite for a higher quality of public life is undiminished.

The gap must lead to a fresh debate about the purpose of taxation and spending priorities, two of the biggest political taboos. Such a debate should begin with a much broader definition of what constitutes inequality, one that goes well beyond income redistribution. The quality of public services in poorer areas matters more than the precise level of income a poorer family receives.

There is little point in getting a few extra pounds a week if the schools are run down, the housing hopeless and the transport exorbitantly expensive. The purpose of taxation must be to generate the maximum resources available for investment. If this overriding principle leads to fairer tax levels, that is a bonus. But the Business Secretary, John Hutton, is right in making the supposedly blasphemous point that there is no point taxing high earners if the end result is less money for improving public services that can help the poor. Seemingly fair objectives must not have unfair outcomes.

A review of public spending is also urgently needed. What could be cut while leaving more resources for those services that bring us closer to European standards? Where could money be spent in ways that voters would recognise tangibly the value of their investments?

The next public spending round should be conducted more openly, rather than behind closed ministerial doors. It is odd that virtually every area of British politics is played out in public, or semi-public, from the setting of interest rates to the diplomacy in the build-up to war and on to the extensively reported stormy relationship between Blair and Brown. Yet few know what happens in relation to public spending until big, meaningless figures are announced at the end of the secret ministerial negotiations.

More specifically, there is an overwhelming case for earmarked taxation: If you spend x you will get y, thank you and good night. "No taxation without explanation," as Paddy Ashdown once said. Perhaps as a start a government could invest in faster trains, a tangible improvement where a link between investment and popular outcome is easily made.

Sadly these issues raise big, thorny questions that a government has the space to address only at the start of a new parliament, rather than at a point when the next general election moves into sight. The prospect of an election means a desperate expediency will prevail – imprudence for a purpose. The Chancellor plays a reluctant Santa Claus in order to keep his fearful MPs in marginal seats happy, or less frightened. He buys a very short-term happiness.

s.richards@independent.co.uk

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