Leader: Tax cuts? We can't afford it

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What Is remarkable - and, in some respects, alarming - about last week's leaked Treasury paper on "strategic considerations" is how it accepts the present political consensus almost without question. Far from thinking the unthinkable, Kenneth Clarke's "kids" ponder the drearily familiar. Trying to look a decade ahead, they insouciantly assume that the world proceeds on tramlines. If some things are being privatised today, their duty is to dream up more things that could be privatised tomorrow; if fees for university students are being talked about now, fees for sixth- formers must be next. To be sure, the kids play with adventurous ideas about regional government (see Neal Ascherson's column on this page) and even open government. But on the most fundamental issues they are strikingly conservative, expecting more of the same. "In considering how the role of the state may change and what is the scope for using markets instead," they write, "one of our most important beliefs is clear. Treasury officials have a high level of commitment to the efficiency of the market mechanism."

Yet, as we report elsewhere in this issue, the prevailing orthodoxy is falling apart. Even the World Bank and the OECD, high priests of the orthodoxy, are beginning to doubt it. Allowing the rich to get richer does not, after all, benefit everybody; it just benefits the rich. Far from assisting economic growth, inequality hinders it. "Flexible labour markets" - a clever person's term for letting the bosses have their way - do not necessarily lead to more jobs. Low public spending does not guarantee higher growth and lower inflation. The emperor, therefore, if not exactly naked, is at least down to skimpy underpants. Once the economic arguments for unrestrained free markets and rampant inequality are stripped away, not much is left. Even Margaret Thatcher, despite her ingenious reworking of the Good Samaritan parable (the Samaritan, it will be recalled, could help only because he had plenty of wealth to spare), always had trouble finding any substantial moral basis for her beliefs. And the effects of inequality on social cohesion and of unrestrained markets on the environment are widely acknowledged.

All That is left of Thatcherism, indeed, is the belief that people will not vote for higher taxes. But the truth may now be dawning on the electorate: private provision can be just as expensive as public. If the state does not provide adequate pensions, you will have to pay into a private scheme. If the state doesn't provide for sickness, disability and unemployment, you will have to pay premiums to an insurance company. If the state starves its schools of cash and capital, you will be crippled by private-school fees. If the state fails to help the poor, who are then driven to desperation, you will need to protect yourself with expensive burglar alarms and security systems. (Alternatively, or additionally, the state itself needs to spend more on police and prisons.) If the state fails to support adequate public transport, you will need a car not just for yourself but another one for your partner and perhaps yet another for any late-teenage children - and it had better be a comfortable one, with all accessories, if you are going to spend hours in traffic jams.

The trouble is that the minimal, low-tax state becomes a self-fulfilling prophecy. The more that people have to pay from their own resources, the more convinced they are that they could not possibly cope with higher taxation. If you already have a child at a private school, if you have already taken out health insurance, another 2p on income tax may indeed seem a grievous burden. If you have to pay for so much yourself, you will increasingly see taxation as being for other people's benefit, to finance services that you will never use - hence, the search, even among such Labour figures as Frank Field, for a social insurance and entitlement system that enables people to pay into a pot of money that they can call their own. Hence, too, the inevitability that, if the Tories carried on for another term or two, privatisation of roads, with tolls or road-pricing, would become a serious possibility. Why should an immobile pensioner pay (even if only through indirect taxes) for other people's motoring if they will not pay for her long-term care? Once the principle is accepted that people will not pay for others' misfortunes, there is almost no limit to the state's retreat.

One Thing has changed, however. When Baroness Thatcher first embarked on her state-shrinking mission in the 1980s, a large section of the population - including almost the entire middle class - might have imagined that it could only gain from lower taxes. They would never need dole money or income support; they would always be safely embedded in an occupational pension scheme or, if not, would be able to pay into their own. In the 1990s, the position looks quite different; even teachers and civil servants have ample reason to feel insecure. Hardly anybody can be sure that they will not, one day, need state benefits. The bigger the gap between rich and poor, the greater the fear of a fall - remember all those heart-rending Victorian novels of wives and children being thrown out of their homes when Father was ruined. There lies the opportunity for a social democratic leader such as Tony Blair, if only he can seize it.