Brown won't rule out NI rise

CHANCELLOR Gordon Brown dropped the strongest hint yet that Middle England is to pay the price for putting the NHS back on its feet. Challenged by MPs on Tuesday, he repeatedly refused to rule out raising National Insurance contributions to bring the health service up to European standards.

His words were seen by City analysts and Opposition MPs as a clear indication that NI - the tax which targets middle earners - is his favoured option.

The Chancellor appeared to signal his intentions during a tense clash with Tory MPs at a meeting of the powerful Commons Treasury Select Committee. Invited to say where the money would come from to meet Labour's promise to raise NHS sending to the EU average by 2005, he quickly ruled out no fewer than six sources.

He said that raising the top and basic rates of Income Tax and extending VAT to clothes, transport, books and newspapers were all out. They penalised lower earners disproportionately and would undermine the Government's policy of rewarding work, he said.

National Insurance is seen privately by ministers as the favoured vehicle for raising big revenues because it is most associated in the public mind with the NHS - even though there is no direct connection. With Brown dismissing all other options, the simplest way of raising income would be to remove the ceiling on NI contributions, which stands at £29,900. If this were raised by 10% it would bring in a further £1bn to £2bn. If the ceiling were removed altogether then around £5bn could be raised. But this would in effect mean that certain taxpayers would be handing over 50% of their income.

The burden could be shared by employers if the Government were to raise their National Insurance contribution, currently 11% of every salary.

Other possible routes include a rise in everyone's contributions. But the latter option now looks unlikely after Brown declared that he did not want to hurt the worst off.

Brown also delivered a swipe at Health Secretary Alan Milburn. He dismissed the idea of having a separate dedicated or 'hypothecated' tax for the health service. He also rejected other options such as private insurance.

The Chancellor was challenged at the committee by a trio Tory MPs: Andew Tyrie, a one-time adviser to former Chancellor Nigel Lawson, former minister Michael Fallon, and David Ruffley, a former political adviser to the last Tory Chancellor, Kenneth Clarke.

Ruffley asked Brown to make it clear which taxes he definitely would not raise. He replied: 'We have said we will not raise the basic and top rate of tax and we will not extend VAT to children's clothes and to other items like transport costs and books and newspapers.'

He added: 'But what I have also said in the discussions around the manifesto is that we make no other promises about taxation because these are matters for Budgets. We are not going to make promises on every item of taxation. I don't rule out tax rises.'

Ruffley said: 'If he gets rid of the upper earnings limit this will be his biggest stealth tax on Middle England. It will be a five billion pound National Insurance tax rise on schoolteachers, senior nurses and policemen.'