LEADING ARTICLE: Taxing questions for Mr Clarke

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The Independent Online
When Kenneth Clarke gets to his feet to make his Budget speech around four o'clock today, one question will dominate the minds of commentators and politicians alike. Has he done enough to turn the Conservatives' fortunes around and give them a chance of winning the next election?

For make no mistake about it, this will be a political performance. Mr Clarke has a complicated balancing act in front of him. The Conservative Party craves tax cuts in any form to bribe a hostile electorate and wrongfoot Labour. Meanwhile, he may have to survive another 18 months before the election takes place, so he needs tax and spending cuts that opinion-formers in business and the City will regard as economically sustainable in the meantime.

But the problem with all this, as with the great majority of pre-Budget debates, especially pre-election ones, is that it is irredeemably short- termist. What is missing is the big picture - any acknowledgement that difficult questions need to be asked about taxation, spending and the future responsibilities of government. Viewed globally, nations enjoy very different tax burdens and very different levels of government involvement and service provision. As global competition intensifies, it is inevitable that different levels of government activity will be subject to a different kind of scrutiny and justification.

Last month, Hong Kong governor Chris Patten set the stage for more searching questions to be asked about British public spending when he pointed to the low levels of tax and public spending in the fast-growing economies of East Asia. Of course, a simple comparison of the overall percentage of a nation's wealth spent by government is not very useful: historical and cultural differences have profound effects. But there is a serious question underlying Mr Patten's remarks; what should the responsibilities of government be, and how are they most efficiently exercised? For example, drawing on Frank Field's ideas, social insurance might best be provided in the private sector, through compulsory savings schemes. Other important issues include the extent of the Government's responsibility to expand public health services in future, or to provide long-term care for a growing elderly population.

Alongside the debate about where government money should be spent is an equally important discussion of the kind of tax system that is appropriate to a modern economy and society. Here Gordon Brown has made the running by reviving the arguments about what counts as "fair" taxation and by raising the possibility that tax and benefits should be focused on getting people into work, rather than redistribution alone.

None of these questions can easily be answered in one afternoon's Budget speech. A few Treasury economists researching behind closed doors are not going to invent a strategy for the state in the next century. There is little chance that such a debate will take place before the next election: short-term political exigencies will override serious strategic thinking. Meanwhile, the best we can hope for is that Mr Clarke doesn't do too much damage, and leaves some freedom to manoeuvre for the Chancellor who presents the first Budget of the next Parliament. The beginning of a new term should provide more propitious conditions for politicians, and commentators, to face up to the real debates.

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