Middle England hit by 'fairness' quest

At the heart of today's Budget is a mystery. Why has Gordon Brown chosen to punish precisely the people who matter most to New Labour - the middle-income families in the suburbs that swung so sharply Labour's way in 1997 and last year? Although only one in 10 workers nationally earns more than £30,000 a year, the proportion is higher in these crucial marginal areas - and much higher in places such as Harrow, Finchley, Enfield and Wimbledon - that the party needs to retain if it is to stay in power.

Yet these are precisely where some of the glummest faces are likely to be found this evening, despite the fact that £30,000-a-year families will be eligible for the new child tax credit, with the news that the better-off are to pay higher National Insurance from next year.

Why, then, has the Chancellor acted as he has? One possible explanation is that he has stung them before and got away with it and hopes he can pull off the same trick a second time. In 1997 he imposed a £5billion-a-year tax on pension funds. In subsequent Budgets he also abolished mortgage tax relief and the married couples' allowance.

Yet middle Britain paid up with scarcely a squeak of protest. The raid on pension funds had no visible impact on most people's standard of living. Moreover, the economy was buoyant and mortgage rates fell to their lowest level for a generation. Despite the Chancellor's measures, most of Labour's key voters felt better off.

The same trick will be hard to repeat this time, even if the economy continues to grow. Mortgage rates are more likely to rise than to fall further. The opportunities to raise taxes by stealth have gone - National Insurance is an obvious, inyour-face deduction, with the amount printed on every worker's payslip. Is the Chancellor hoping that suburban voters will be willing to pay extra in order to ensure better public services for their families? To some extent.

Although many middle-Britain families have private health insurance and use private schools, many more rely on the NHS and state schools.

Today's Wanless report, which argues that health spending may have to rise by more £100billion in real terms in the next 20 years, is clearly designed to strike fear into the hearts of middle Britain. If this projection is accepted, then it should be possible to argue that taxes must rise in the long term to pay for it.

However, any 20-year projection can be made to produce fantastic sums. If the economy grows by 2.5 per cent a year, then in 20 years it will be £640billion bigger, in real terms, than it is today. The Government will have more than £250 billion a year extra to spend without any need to raise taxes as a proportion of national income. Giving the NHS its Wanless bonus will be tough, but not out of the question.

In the shorter term, however, the Government's main task is to persuade voters by the time of the next election that the NHS is on the mend. This, more than any other single task, needs to be accomplished in the next three years if Mr Brown is to have any chance of persuading middle Britain that the quality-of-life gains match today's financial pain.

There is, however, another part of explanation for today's Budget. Mr Brown genuinely believes in a fairer society. Too often the tension between him and the Prime Minister is painted in purely personal terms. Too little attention is given to their different social objectives. Tony Blair's dominant concern is with the moderately prosperous families of middle Britain, Mr Brown's with the need for a more equal society in which hardship and poverty are banished.

Despite the rows, one of the great strengths of Labour since 1997 is that the two men have negotiated a succession of compromise deals in which some attention has been paid to both objectives, even if neither man has achieved everything he wanted. Together they have struck a balance that has been socially shrewd and politically effective. Today, the Chancellor has tilted the balance towards redistribution. While hitting the better off with higher National Insurance, he is spending £2.5billion more on the new working tax credit and child tax credit than the benefits they replace.

Low-income families, especially those with babies and young children, will gain, while those earning more than £30,000 a year will lose out. Perhaps, as the next election approaches, Mr Brown will find ways to give some money back to middle Britain, beyond today's announcement that some child credit will be available to people earning up to £58,000 a year, and that child care help will be available to families earning up to £35,000 a year. If he does not, then today's Budget will be remembered as one of the most courageous that any Chancellor has delivered in recent times. And, as aficionados of Yes Minister know, "courageous" in this context carries overtones not simply of praise, but also foreboding.