Brown's health tax deal rejected

Gordon Brown faced a fresh political battle today after the Tories rejected his proposal for a cross-party consensus on massive new investment in the NHS - paid for with higher taxes.

Labour's high command made no attempt to deny that the Chancellor's commitment of a higher share of national income on health meant that taxes would have to go up in what would be a landmark policy switch for New Labour.

Treasury Chief Secretary Andrew Smith, Mr Brown's number two, said: "I do not rule out the need to raise taxes to pay for the NHS if that is what it takes." The same message was being heavily underlined by Mr Brown's senior aides.

The Chancellor used yesterday's pre-Budget statement to attempt to outflank the Tories by calling for a "consensus" on NHS funding, demanding that all parties get behind the conclusions of banker Derek Wanless's interim report on the future of the ailing NHS.

Mr Wanless claimed that the current taxpayer-funded system was the best way of financing health but said massive amounts of new investment were needed to bring the service up to the standard of health provision in other countries.

The Conservatives, however, said Mr Wanless's report completely missed the point and vowed to press on with ways of getting more private cash into health, mainly through insurance schemes.

Their rejection of Mr Brown's consensus, though extremely predictable, effectively means that Labour will fight the next election on a platform of higher taxes to pay for health.

It would represent a major shift from New Labour's original platform of low taxes and an iron grip on public spending - the twin foundations of its economic policy when it came to power in 1997.

The Government cannot raise personal rates of income tax before the next election as the move was explicitly ruled out in Labour's manifesto at this year's election - but changes in the National Insurance system have not been ruled out and could be used to raise cash over the next few years.

After that, income tax rises could be considered.

Former Cabinet minister Peter Mandelson claimed Labour could fight the next election with a pledge to spend the extra cash raised by higher taxes on specific public services.

Asked on BBC2's Newsnight if this meant Labour might be offering a tax-raising agenda at the next election, Mr Mandelson: "They could be. I think we need to consider a hypothecated tax, so that people see a direct link between what they're paying more in taxation for and what it's going into."

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