Blair hints at tax rise to improve public services

Tony Blair gave his clearest signal yesterday that taxes would have to rise to allow Labour to continue to plough more money into health and education.

The Prime Minister hinted that he was ready to make the case for higher taxation in an attempt to persuade people that this was necessary to ensure Britain enjoyed high-class public services.

In a speech to public-sector workers in London, Mr Blair departed from his prepared text to suggest that the record investment in health and education would be extended when the Government agrees a new three-year spending blueprint next year.

"Our commitment to get the resources is not just in this [current] comprehensive spending review but afterwards as well," Mr Blair said. "That is why we have got the certainty of funding rises this year and we are going to ensure similar rises for the next three years."

MrBlair said: "I do believe that people can be persuaded that they have to pay for good public services. I don't believe the public is any longer fooled by the notion of short-term tax cuts at the expense of long-term investment."

Mapping out the dividing lines for the next general election, Mr Blair rejected the policy likely to be adopted by Iain Duncan Smith, the new Tory leader, of encouraging people to take out private health insurance. He said he preferred people to pay collectively through taxation rather than buying services themselves. "The vast majority in any event can't afford private schools or health care," he said.

Mr Blair's speech came after similar hints from the Chancellor, Gordon Brown, which prompted speculation that the Government is preparing the ground for tax rises to be phased in over the next few years. Although Mr Blair and Mr Brown are highly unlikely to breach Labour's manifesto pledge not to raise income tax rates, the manifesto left them room to increase national insurance contributions or bring in other back-door tax rises and made no promises about the overall tax burden.

The Prime Minister's speech was intended to show that he has not taken his eye off domestic politics even though he has played a key role in forging the international coalition against terrorism since last month's attacks in America.

He has begun a programme of visiting the government departments delivering frontline services, and Downing Street said he had found a tour of the Health Department on Monday "uplifting."

Yesterday, Mr Blair said the war on terrorism must not cause the Government to "lose our focus" on problems closer to home. He added: "The economy, living standards, crime, the welfare state and the public services – schools, the NHS and transport – it is these bread and butter issues on which the Government will rightly be judged."

He went on: "This will be the toughest challenge of this Parliament. The legislative programme is dominated by it: major Bills on school reform, the NHS, criminal justice and asylum and the railways."

He reiterated his message that the extra money being injected into public services had to be accompanied by reform, including a greater role for private companies and the voluntary sector in providing them.

"Contrary to myth, no one has ever suggested they are the answer. Or that they should replace public services. But where use of them can improve public services, nothing should stand in the way of their use," he said.

Michael Howard, the shadow Chancellor, said Mr Blair was asking for "more time" and "more tax".

He said: "It's the same old story from Labour. Tony Blair has already raised taxation while failing to deliver improvements in schools and hospitals ... The Government is asking for more money because it has failed to produce the ideas needed to reform public services."