Leading Article: Voters want fair taxes

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NEARLY 50 years ago, surveying Britain's exhausted post-war economy, Hugh Dalton, Labour's Chancellor of the Exchequer, said he would find the money to rebuild it "with a song in my heart". It is impossible to imagine a Chancellor from either side of the House speaking like that now. The idea of public spending as a creative force - to achieve a more equal society, to create better schools, to revitalise public transport - is all but lost. Chancellors and their Shadows compete in cut-price tax offers, as though they were supermarket brand managers: Kenneth Clarke promises, at some unspecified future date, a 20p basic income tax rate; Gordon Brown trumps him with a 10p bottom rate.

Most of these offers are, or will prove to be, bogus. For example, as this newspaper revealed last week, the people who are told they will gain from Mr Clarke's income tax cuts will eventually find that they have lost much of it in higher council tax. Debates about public finance and taxation have become almost entirely divorced from reality: Mr Clarke might as well have recited an Edward Lear poem last week for all the sense he made. Taxation, we are told, is a Bad Thing. So, too, is borrowing, because future generations have to pay it back, and so it is just deferred taxation. We must therefore call upon the private sector to make up the deficit. Thus, a pounds 2.5bn decrease in government capital expenditure will be partially balanced by a pounds 0.9bn increase in Private Finance Initiative investment. Will private firms find this money out of some sense of altruism, for the good the community? Of course not. They will be expecting a healthy future return on their investment. What is this if it is not deferred taxation?

Again, Mr Clarke announces, as an axiom, that "the share of national income taken by the state in public expenditure must be reduced to below 40 per cent if we are to remain competitive in today's world". Why 40 per cent? Why not 30 per cent or 50 per cent? Mr Clarke presumably has read somewhere that, in both the United States and Japan, public spending is between 30 and 40 per cent and that their long-term economic growth rate is better than ours. But Germany's growth rate is also better and its public spending is near 50 per cent of national income. The point, surely, is not the level of public spending but how it is collected and how it is spent. Money transferred to the private sector does not automatically support internationally competitive enterprise. In the US, much of it goes on private medicine and, because it is used to bolster a complex insurance bureaucracy and to finance unnecessary cosmetic operations, it is notoriously less efficient than the British NHS. Indeed, if the costs of private health care are added to American and Japanese public spending, the totals as a proportion of national income are almost identical to the British.

Then Mr Clarke tells us that his Budget is one for people "with that great British virtue, a social conscience" who want a successful economy only in order "to give the weak and less fortunate a helping hand". But "the weak and less fortunate" might prefer a mugging to the helping hand of a Tory Chancellor. Since 1979, according to Treasury figures, the lowest earners, on pounds 5,000 a year, have benefited from income tax cuts of just pounds 2 a week - a gain more than outweighed by increased VAT and national insurance contributions. The highest earners, on more than pounds 80,000 a year, have gained pounds 913 a week. Mr Clarke's Budget runs true to this form. The poorest 20 per cent, according to calculations by the Institute of Fiscal Studies, will be between 19p and 29p a week worse off. The richest 10 per cent, by contrast, will be pounds 7.30 a week better off.

The Tories believe that, whatever they say to pollsters, voters prefer tax cuts to improved public services and investment. The truth is that they prefer fair taxation, and taxation with a purpose. For the past 16 years, they have seen the poor taxed harder than the rich, individuals taxed harder than corporations. They have also seen their money wasted on foolish schemes for turning schools, health services and railways upside- down. They want a Chancellor who will introduce some sense of justice to taxation. They also want a Chancellor with a mission to improve the nation's education, housing, transport and employment prospects. Then they, as well as he, may have a song in their hearts.