Brown has altered face of UK politics

Big changes in politics do not happen very often, but when they do, they hit us like a bursting dam. Pressure builds up, warnings are issued, cracks start to appear, the dam superintendent tells us not to worry, and then - whoosh - the whole edifice suddenly gives way.

So it has been with Labour's approach to tax-and-spend. The party's election-winning 1997 manifesto could not have been more explicit: "The level of public spending is no longer the best measure of the effectiveness of government action. It is what money is actually spent on that counts more than how much money is spent." But in office, Labour found the pressure to spend more, and not just better, quickly became irresistible. By last year Gordon Brown was promising dollops of extra cash for education and transport.

These prompted increasingly loud warnings that taxes would eventually have to rise. A Fabian Society commission was especially significant, for it addressed the matter from a sympathetic standpoint; but it could not evade the conclusion that, in the long run, tax would have to rise as a share of national income. Ministers would have none of it. The tax take would not rise much above 37 per cent of gross domestic product. In this year's election, Labour repeated its 1997 promise not to raise the basic and higher rates of income tax.

Now the dam has broken. The basic reason is simple enough, and wellknown to economists. Health and education are "superior goods". That is, our demand for them grows at a faster rate than our income. More young people want a higher education, we want our schools and colleges to be better equipped, we demand ever-better drugs and quicker hospital treatment, we live longer and expect more and better geriatric care - and so on.

Of course, money is not the only solution to the problems posed by these growing demands. But it is a large part of the answer. If too little cash is provided, then we start blaming those we hold responsible for their meanness. It is a lesson the Tories learned the hard way in the Nineties.

Deciding to acknowledge these harsh realities is only the start. Now comes the really hard bit: converting the new politics of tax-and-spend into politically acceptable day-to-day reality. Do not be fooled by suggestions that the Chancellor has bumped the Prime Minister into abandoning one of the basic precepts of New Labour. If anything, it has been the other way round. Mr Brown was furious last year when Mr Blair told Sir David Frost live on television that Labour would lift NHS spending to European levels.

Where there is a rift between Downing Street's neighbours is how the money should be raised. Mr Brown has always opposed Mr Blair's commitment to hold down the top rate of income tax. Recently, whispers from inside the Treasury have muttered about scrapping the ceiling on national insurance, which would have much the same effect as raising the top rate of income tax.

If Mr Blair rejects this ploy, then he has to back an alternative. One option (favoured by the Fabian commission) is to levy a specific NHS tax. The argument is that this would be publicly more acceptable, because we would know exactly where our money was going. For example, we might all be required to pay an extra 4p in the pound, on top of our income-tax bills, with the extra £10 billion-plus that this would raise going straight to the NHS in extra resources.

In reality, however, this would be simply a presentational device. The money would still be collected by the Inland Revenue. The Treasury would still control Britain's health budget. The only difference between this and a straight tax increase would be an extra line, and another number, on our payslips and tax returns. It would be an income tax in all but name.

There is an alternative: to raise all the money needed by the NHS from a hypothecated tax, and remove all control from the Treasury. But not only would the Chancellor fight like a cornered tiger against such a proposal: he would be right to do so, for this would pose more practical problems than it would solve.

A partial, and largely cosmetic, hypothecated tax must be a real possibility. Especially after Tony Blair's endorsement three times at Prime Minister's question time yesterday of "social insurance" as a way of paying for public services. Certainly it is hard to see a solution that does not involve some income-related component to the extra taxes we would pay. (The main alternatives, such as a higher rate of VAT, or extending VAT to food and children's clothes, or vastly higher duties on tobacco, alcohol and petrol, are all political no-go areas.)

However the money is dressed up, the Chancellor remains keener than the Prime Minister to extract as much as possible from the better-off. But if the difficult choices provoke headaches and harsh language in Downing Street, stress-levels are also likely to rise in Conservative Central Office. Just as they thought they had neutralised the tax-and-spend issue by promising better public services before tax cuts, along comes the cunning Mr Brown to move the goalposts.

Now the Tories must decide whether to play me-too on tax rises, or argue for a radically different strategy, with more and more people paying directly for their own family's education and health care, and relying less on the state. Not an easy choice for a party that remains distrusted by millions of its former middle-income supporters.

All in all, this week has seen a momentous shift in government strategy; and now that the dam has burst, it will take years before the waters subside and the future shape of British politics becomes clear.