The Week in Politics: Grown-up debate needed in taxing times

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The cabinet will meet for a three-hour "strategic discussion" about the Government's direction next Thursday in a "political session", without civil servants. The debate comes at an appropriate time: ministers have suddenly realised they need to become hungry, party-political animals again. If they don't, they run the risk that the electorate will tire of them and vote in a different group of men in suits: the Tories.

An important change of government tone happened yesterday. In a speech in Liverpool, Tony Blair acknowledged the need to inspire the people and the Labour Party, and to dispel the view that his Government was interested only in holding on to power for its own sake. He admitted the Government had become "a bit managerial, a bit technocratic".

Two other ministers emphasised the point. Patricia Hewitt, the Secretary of State for Trade and Industry, said values were more important than public-service targets, of which the Government had too many. It had been a mistake to talk repeatedly about "delivery", she said, because: "You can't actually deliver good health or safe streets in a way that commercial companies deliver pizzas."

Estelle Morris, the Arts minister, said the Government should ask people to judge it on the broad "direction of travel" rather than its plethora of targets, and called for a "grown-up debate" with the electorate.

Here lies the problem. When Peter Hain, the Leader of the Commons, called for a "grown-up debate" about tax two weeks ago, he was shot down in flames by Mr Blair and Gordon Brown. Although Mr Hain's tactics were clumsy, the over-reaction by Downing Street and the Treasury fuelled the story.

It is easy to see why Mr Blair and Mr Brown are so nervous about tax. They have invested enormous amounts of energy in shedding Labour's "high tax" image, and judged that they had to stamp hard on Mr Hain's call to prevent headlines such as, "Hain reveals secret plan for tax hike". They preferred, "Blair slaps down Hain", and got it. A good example of government-by-headline.

Here lies the second problem: the media. "We are imprisoned by it, especially on tax," one cabinet minister told me this week. I quoted Enoch Powell's dictum that politicians who complain about the media are like sailors who complain about the sea. In New Labour's case, it is more rich to blame the media. Mr Blair and Mr Brown were brilliant at using it in opposition, brewing up storms to destabilise a tottering Tory government. So can they complain when they hit choppy waters, as every government does mid-term?

On tax, ministers have a point. Politicians and the media are to blame for the lack of a sensible debate. It is ludicrous for ministers to designate tax a "no-go" area. Because of global uncertainties, there is no guarantee Mr Brown will hit his growth targets. A difficult government-wide spending review looms next year. To maintain the big increases in spending on health and education, taxes may have to rise further.

But the knee-jerk media reaction to Mr Hain's intervention showed newspapers need to grow up too. Of course, tax provides the ultimate consumer story. Readers - and journalists - are anxious to know how any tax proposal affects them. Mr Hain was not proposing a massive tax-hike for the rich but making the point that many middle-income earners had been sucked into the 40 per cent top tax bracket. Should a teacher or policeman on £35,000 really pay the same rate as somebody earning three times that? Far from making a traditional left-wing cry, Mr Hain was posing a very Blairite question. His crime was to do it in public, and without telling the powers that be.

Perhaps people are more intelligent than the politicians and media think. A YouGov poll found a 2-1 majority felt Mr Blair should have allowed Mr Hain to debate higher taxation. While 25 per cent of people support the present tax bands, 67 per cent back raising the level at which the top rate bites from £35,000 to £40,000 and impose a 50 per cent rate on incomes of more than £100,000. The findings are not surprising. The mean income in Britain is only £21,400. The Inland Revenue says there are 23.1 million basic-rate taxpayers and 400,000 people earning more than £100,000. So a fairer tax system could be popular.

Is a 50 per cent top rate worth the candle? Mr Brown favoured it when Labour was in opposition but Treasury studies since he became Chancellor suggest it would cause a lot of pain for little gain, since many well-off people would find ways to avoid it.

His cleverest trick was to put a penny in the pound on national insurance contributions. This was similar to a proposal in John Smith's 1992 "Shadow Budget", prompting the Tory "tax bombshell" posters that returned to haunt Mr Blair and Mr Brown when they heard Mr Hain's comments.

My hunch is that further NI rises will be introduced for investment in public services. If Mr Blair and Mr Brown were to start a "debate" now, they could win the argument, as they did over the April NI increase for the NHS. Perhaps they should have a grown-up chat with Mr Hain. After all, he was similarly slapped down a couple of years ago. His crime then? For writing in The Independent that ministers sounded like technocrats.

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