Steve Richards: Green taxes will never reliably generate enough revenue to improve public services

If the taxes achieve their environmental objectives, there will be less revenue raised
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Still Britain struggles to have a grown-up debate about the most important policy area in politics, how a government taxes and spends. For more than two decades, general elections have been fought around a fantasy world in which parties promised to improve public services beyond our dreams while finding no need to increase taxes.

Now we travel to a new fantasy world. The fantasy is not related to the specific tax proposals of any political party, but the context in which they are presented. Tax policies are launched, debated and analysed in ways that are disconnected from the spending proposals for which the money is supposedly being raised. In the next few years, the parties will be armed with spending proposals, most of them necessary, and yet will accompany them with puny, unreliable tax-raising measures.

The new political fashion is for "green taxes". The taxes are an attempt to change behaviour as much as a method of raising revenue. If the green taxes achieve their environmental objectives, there will be less revenue raised. People will have changed their lifestyles to avoid paying specific taxes. Such proposals would be admirable if they were introduced in addition to other policies that guaranteed a source of revenue for public spending, but currently the opposition parties hail green taxes as an alternative to more familiar forms of taxation.

At least at the last election the Liberal Democrats clung to their proposal for a top rate of tax on high earners. Admittedly, they clung to it too assiduously. The single measure was going to fund a thousand spending policies. Even so, the tax was fair, affordable for those with too much money to know what to do with it and would have been an additional source of revenue at a time when Britain's infrastructure still creaks precariously.

Now the Liberal Democrats' leadership lapses into orthodoxy. When asked for a headline on their new economic proposals, they state proudly that they seek no increase in the tax burden. They used to have a distinctive role in the bleak, illusory politics of tax and spend. They were the candid party, daring to say what Labour could not, that Britain needs sustained and substantial increases in public spending.

Under Paddy Ashdown's leadership they stumbled even towards a way of making a case for higher taxes to pay for the spending. Ashdown coined a useful soundbite that had the potential to move the debate to a higher level. He argued that there should be "no taxation without explanation". No one cared to listen and still there is no explanation. Public spending decisions are made in the dark, the product of negotiations behind closed doors. As a result, it is easy for tax haters to claim that the voters' cash is being taken away from them and thrown into a vacuum from which nothing much materialises.

The Government's move to raise taxes for the NHS in 2003 was a depressingly emblematic example. Every agonised twist in the build-up to the tax rise was analysed and debated. But once the cash was raised, no equivalent spotlight was placed on how it was being spent. Even cabinet ministers were surprised to discover how their local GPs were suddenly taking lots of expensive foreign holidays. Most of the money had been blown on the new contracts for GPs and others.

Next summer's comprehensive spending review will be the defining event of the parliament. Normally, these reviews are conducted in the same darkness that accompanied the decisions on how the additional cash on the NHS would be spent. Gordon Brown would be well-advised to cast revolutionary light on the whole process. In doing so, he would highlight the current contradictory aspiration across the political spectrum. There is support for general cuts in spending and opposition to specific reductions.

As matters stand, investment in the NHS, having got close to the EU average, will start to fall in comparison with expenditure in France, Germany and even some smaller European countries. Schools will get relatively less too. Yet education and health will do well in the forthcoming spending review compared with other departments.

In theory, all the main political parties will support the tightening of the belt. The three main parties converge on a common position, endorsing a tax burden of two-fifths of GDP, the same level as it was at the height of Margaret Thatcher's rule.

But consider some of the specific spending aspirations for the next few years.

In his Budget Gordon Brown highlighted the possibility of state schools enjoying the same amount of expenditure as the pampered private schools. Such a move would indeed be radical and have more impact than current attempts to offer "choice" to parents. But even the "choice" agenda implies a surplus of schools from which parents can choose. That is expensive too.

More specifically, the Government plans for nuclear power, the replacement of Trident and the introduction of ID cards. It speaks of the need for more robust security measures and the possibility of sending more troops to Afghanistan. These aspirations are on top of existing spending plans.

Separately, the Conservatives proclaim the need to improve the quality of lives for those who are overwhelmed by work. They say they will set an example in the public sector. If this is not empty "spin", such an aspiration will be expensive, with presumably employees working less in order to pursue other interests. Meanwhile the Liberal Democrats have an armoury of proposals for students, the elderly, and for those who live in rural areas isolated by the hopeless privatised bus services. These will be expensive commitments. Improving the quality of life does not come cheap.

In Britain, most people have plenty of cash but tolerate filthy towns, appalling transport and erratic health care. In Europe, people have less to spend, but enjoy a higher quality of life. There is a huge cultural and economic divide. No party in Britain is ready to address it.

Instead, everyone is in denial. In the Labour Party, they debate with a freakish machismo the importance of reform, but are timid about the challenges of investment. The CBI calls for billions more to be invested in Britain's dire transport system and yet seeks tax cuts too. The Conservatives insist they will share the proceeds of growth on investment and tax cuts, the same unrealistic policy they have presented to the electorate for the past three elections. The Liberal Democrats hail measures aimed at changing behaviour as much as raising revenue.

However imaginative and innovative the measures, they obscure the great taboo of the moment. The hidden question that will come to dominate British politics is not whether the Government is recklessly spending too much, but whether it is about to spend dangerously too little.