We need value for money

The British have a wonderful ability to deceive themselves about tax. Yesterday when Chancellor Gordon Brown sat down after delivering his Budget speech there was an almost audible sigh of relief from the middle classes. They thought they had got away with it relatively unscathed.

They should remember the parable of the frog. Drop a frog into boiling water, so they say, and it will jump straight out. But drop it into cold water, then raise the temperature slowly and it will swim around happily until it is well and truly cooked. I would not suggest you try this at home. You just need to know that we are the Chancellor's frogs. We swim around in our innocence. He turns up the heat ...

Yesterday was a case in point. After the unprecedented softening-up barrage of press leaks and ministerial speeches on the need for higher taxes to fund better public services, even the most blinkered expected to be clobbered. But as the Chancellor yesterday unveiled what appeared to be an unexceptional package of changes, things seemed not to be so bad. There had been no change to income tax. There was no doubling of stamp duty on property. Petrol and most alcohol were unscathed. VAT stayed firmly at 17.5 per cent. There were no fancy new taxes to drive a wedge into our wallets. Things could surely have been so much worse.

Dream on, frogs. Concealed in that seemingly innocuous one per cent increase in National Insurance, which Brown barely alluded to in his speech but which was revealed in full in the supporting documents, is the breach of a fundamental principle. Until yesterday National Insurance was levied only on the first £30,000 of income. From next year all income above the former ceiling will also be subject to one per cent tax. It means a further £200 a year for someone earning £50,000 which, though again seems not too much to worry about, must surely be seen as only the beginning.

It will not be long in Budgets to come before that one per cent gets doubled, and probably doubled again, because this is not about National Insurance at all. It is simply an underhand way of increasing the rate of income tax paid by higher-income earners. What Brown did yesterday was the equivalent of raising the upper tax band from 40 per cent to 41 per cent. Forty three per cent, 44 per cent and probably 50 per cent will surely follow before long. We have in Gordon Brown a Chancellor who simply cannot resist doing things by stealth. But even here we fool ourselves, because we think of the amount we pay in tax as being the end of the story, when in fact because of the failure of public services it is only the beginning. The real stealth taxes on the middle classes are not the wheezes dreamed up by Brown as he sits in his bath. Rather they are the far more onerous burdens borne by people who feel duty bound to try to secure a decent education for their children, tolerable health care for themselves and a bit of comfort and security for their old age. People make these payments not because they want to set themselves and their children apart, but because what the state offers "free" is too awful to contemplate. When we have an educational system so inadequate that a quarter of pupils leave school functionally illiterate, a health system which gives you a better chance of dying than making it to the top of the waiting list, and a pension-system which on the Government's own admission will not much longer keep you above the poverty line, they don't really have a choice.

It is in coping with the consequences of these failures of the state that the middle class money goes - and on the mortgage - but because these items come under the headings of school fees, private health care and personal pensions, we don't call them taxes. We persist in the charade that they are voluntary, no matter how inadequate the state-provided alternative may be. This is why when, say, a husband earns £60,000 a year - riches in Gordon Brown's terms - his partner still goes out to work. We have a more egalitarian society than anyone would believe. Everyone feels poor by the time they have paid these bills.

What is even more bizarre, though, is that we continue smugly to assert that Britons have a lower tax burden than the people in the rest of Europe, but we do not look at what they get for their money. Parents in France, Germany or Holland don't have to impoverish themselves so their children can learn to read, write and count to 10, any more than they have to wait more than a few days for a hospital appointment. They have state schools and hospitals which work. True, there may be doubts about the longterm health of their pension schemes, but even there our claims for superiority look increasingly hollow in the world after Equitable Life. And what they do have, above all, is the knowledge that once they have paid their slice of income tax, whatever is left is there to spend and enjoy. That means it does not have to be spent on school fees.

So the whole debate about income tax in this country really is a nonsense. The clobbering of the middle classes comes not from the Chancellor finding a way surreptitiously to put one or two pence on income tax and hoping we won't notice. It comes from the fact that anyone seeking to do right by their families enters into a parallel universe of double taxation where they have to pay twice for the basics the state is supposed to provide. Only when this miserable state of affairs is rectified will the debate on tax take on true meaning, and the marginal rate of income tax will really become a figure worth arguing about.