It is too late to tax and spend - public services should have been reformed first

There is an old adage that a Budget's enduring merit is in inverse proportion to the warmth of its immediate reception

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Breakdown of NHS funds to support tax increases

Simon Carr: The more that is spent, the worse things seem to get

Gordon Brown has never exactly lacked self-confidence. He is now well in command of his Treasury brief, and he knows it. We can be sure that this week's Budget will be a theatrical performance, the more so as Mr Brown now has an especial incentive to impress colleagues. In recent weeks, several other ministers have stumbled, and even the Prime Minister appears to have lost his touch. So what better moment for the Chancellor to demonstrate his mastery of events?

He will do so in the sure knowledge that the applause from his own side can be taken for granted. On Wednesday, Mr Brown will probably announce tax increases, in which case most Labour MPs will cheer. It is also possible, however, that he will tell the country that though he was fully prepared to put up taxes in order to improve the NHS, there was no need to do so, because his economic management had been so successful that the Treasury already had enough money. That would be an equally popular message.

Yet there is an old adage that a Budget's enduring merit is in inverse proportion to the warmth of its immediate reception. This time, that will definitely be true, whatever the Chancellor's final fiscal judgement. Mr Brown will project himself as the great strategist, and for a few hours, this will be given much credence. But it is a fraudulent claim, and in the longer run, it will be exposed as such. This week's Budget will confirm the fact that the Government has no strategy for the public services, and that it has missed a great historic opportunity.

Tony Blair came to power in the best possible circumstances. Tax receipts were rising rapidly, so that there was extra money to spend on the public services without inflicting great hardship on the taxpaying public. Equally, the Government's political prestige was at record levels. The Tories were almost terminally discredited; at that stage most voters would not have been willing to listen to anything that the opposition had to say, and least of all on the public services.

Labour had won such a huge majority largely because it had been able to convince the electorate that the public services were collapsing, and that only a Labour government could put them right. So the newly elected Tony Blair had total control of the moral high ground, and with it a free hand. He would also have had an understanding public. There was widespread recognition that health, education et al were in need of radical reform. A Labour government, whose public sector credentials were then unchallengeable, would have been able to push through such reforms even if some of the public sector trade unions were unhappy. They would not have been able to challenge the Government's authority.

Five years on, much of that authority has been dissipated, which is the Government's fault. Admittedly, it would never have been easy to bring about the necessary reforms; if there were simple solutions to the complex problems of the NHS and education, they would have been implemented long ago. But a sensible Labour government would have started by ruthlessly exploiting the Tories' unpopularity so as to dampen down public expectations.

"We cannot cure 18 years of neglect overnight," ministers could have argued, "but we are at least trying.'' This would have bought the Government time, which it could have used to think through the necessarily long-term changes. Instead the Government seemed interested only in short-term political targets. Waiting lists – and clinical priorities – were manipulated in order to allow ministers to claim that they were on course. In reality, there was no course, only drift, and that cannot be cured by spending increases alone.

Anyone with any experience of any organisation knows that there is no point in spending extra money if the basic management structures are defective. Effective organisations owe much of their success to their skill in hammering out priorities and using the resources to full advantage. However well endowed any organisation is, it will only use finance to best advantage if it thinks of all resources as scarce resources.

But over the past couple of years, a demoralised and ill-managed NHS has received a lot of additional funding without any guarantee that those in charge have worked out how to use this money effectively. The ministers seem to have given up on fundamental reform. These days, they are interested only in the headline totals and in boasting about how much money they have spent – as opposed to the value for money the patients have received.

This is not only an administrative failing; it is a moral one. Two years ago, ministers were well aware that the public services needed radical restructuring and that there was no point in spending vast additional sums until that had been achieved. Those were the days when the Prime Minister referred to the scars on his back from the maltreatment he had received from the public service unions; the implication was he would not be deterred.

Well, he has been. He and his ministers have now given up all pretence of reforming the NHS. Their sole remaining aim is to out-spend the Tories. Even in political terms, however, this may be less successful than they think. They will be vulnerable to the charge that they are spending money without doing anything to ensure the money will be spent successfully. Enough of the public are now sceptical about the way that the NHS is run to be resistant to the argument that financial reinforcement for failure is the route to success.

The latest Brown Budget will contain other faults. Few Chancellors have ever set out to impoverish the accountancy profession, but even by previous standards, Gordon Brown is the tax accountant's friend. He always seems to believe that Britain can achieve economic success through the smallprint: that he can find some tax allowance or relief which will somehow stimulate business to redoubled efforts. He does not appear to grasp the basic point that the best tax rates are low and simple. Instead of inventing complex schemes which encourage highly paid advisors to devise equally complex means of tax avoidance, he would be better to cut rates and create certainty.

As it is, however, the tax rate is set to rise – which almost certainly means that the long-term growth rate is set to fall. All forms of taxations run the risk of transferring revenue from the productive sectors of the economy, which create jobs and output, to the unproductive ones, where the money turns into higher prices, higher wages and inflation.

Even if Gordon Brown leaves tax rates as they are, his previous stealth taxes are already creating burdens which risk weakening the economy in the middle term. If he does increase taxes, all those risks will be heightened – and not only that. Emboldened by the political success of his previous stealth taxes, Mr Brown may try to play the same trick again. This time, however, there would be nothing stealthy about the stealth taxes. Everyone would notice.