Blair set for 'stealth tax' battle with Tories

Tony Blair will promise not to increase tax rates if he wins a second term in power, but will not rule out further "stealth taxes" in order to boost spending on public services.

The Labour manifesto for the next general election will reiterate the party's 1997 pledge not to increase the basic and top rates of income tax. But there will be no promise to reduce the overall tax burden during the next Parliament.

As the Cabinet prepared to discuss its long-term strategy at a Chequers "awayday" tomorrow, it emerged that Mr Blair is keen to offer the voters a new "contract" based on five clear manifesto pledges.

But the promises would be different to those which helped Labour win a landslide victory in 1997. The commitment to cut hospital waiting lists by 100,000 is now widely seen as a mistake, which has distorted NHS priorities. Instead, Labour is likely to highlight Mr Blair's plan to raise Britain's health spending to the European average.

The Prime Minister is keen to make a new pledge under which all schoolchildren would soon have access to computers in their classrooms. He also wants all adults to have access to the internet within five years.

Some Downing Street advisers want the manifesto for the election, expected next year, to include firm promises to eradicate child poverty and to cut crime.

Mr Blair and Gordon Brown, the Chancellor, are sceptical about opinion polls suggesting the British people would be prepared to pay higher taxes to fund better public services, and want to maintain a firm pledge on income tax. The basic rate will fall from 23p to 22p next month and Mr Brown may announce a further cut in next year's Budget if the state of the economy allows it.

However, cabinet ministers believe the voters are prepared to see other taxes rise modestly to boost health and education spending, provided the money improves services. They plan to promise "better services for the many rather than tax cuts for the few" - a reference to the Tory "tax guarantee" to reduce the overall burden.

Tomorrow's cabinet session will discuss plans to attack the Tory policy. Now that William Hague has promised to match the health and education commitments announced in last week's Budget, ministers will challenge him to say which other services the Tories would cut in order to deliver their tax guarantee. The Tories will counter by seizing on Labour's refusal to promise a reduction in the overall tax burden as evidence that Mr Blair would impose huge new backdoor rises if he wins a second term. They claim Labour has already introduced £44bn of "stealth taxes" since 1997.

The "tax and spending" issue is set to be a central battleground at the election. Ministers believe voters will accept other tax rises provided income tax is kept at the same level or cut. But the Tories are convinced they can exploit resentment among middle-class voters about"redistribution by stealth".