Tension over Brown's health tax

THE Government is in confusion over plans for massive tax increases to fund the health service, amid tension between Gordon Brown and Tony Blair and conflict between the Chancellor and Health Secretary Alan Milburn.

Milburn suggested that voters would accept increases on the scale suggested in Brown's Pre-Budget Report if they were specifically earmarked as a dedicated 'health tax'. However, Brown, backed by the Treasury, has fiercely resisted such 'hypothecation' on the grounds that it would fundamentally challenge the Treasury's control.

But Milburn was backed by Charles Clarke, Labour's chairman and an increasingly influential member of the Cabinet. He said: 'I have argued for hypothecation and it's certainly true that health is the most obvious example. What Gordon's doing is moving that debate forward.'

There were also suggestions of disagreement between Brown and the Prime Minister over the promise to bring Britain's health spending up to the European average by 2005. That pledge, originally made by Blair last year, was dropped from Labour's General Election manifesto amid suggestions that the Treasury had deemed it too ambitious.

But on Wednesday Blair, challenged at Prime Minister's Questions, surprised MPs by bringing it to life again. It brought wildly varying estimates of how much it might cost. The respected Institute for Fiscal Studies said it would cost £10bn a year, the equivalent of 3p on income tax.

The equally-respected Kings Fund, an independent think-tank, said that if rising health spending across Europe is taken into account, it would cost up to £37bn annually, or 12p on tax.

Any increases in next year's Budget are more likely to come indirectly, with an increase in National Insurance Contributions the most likely candidate.