Leading Article: Be brave, Chancellor: let's have a radical Budget

So, is Labour going to have to offend people at last? Tomorrow's Budget will bring winners and losers. Conventional wisdom holds that the Chancellor cannot help but burst the Blair bubble, puncturing the unreality of a two-month-old administration that has pleased rich and poor, left and right, cynical and gullible alike. Do not be so sure. The Government has raised the art of massaging expectations to a higher, unfamiliar plane, and there is no reason why "Flash" Gordon should not make a presentation that will surprise and gratify most people. The weekend trailing of the abolition of mortgage tax relief was particularly impressive: for suspicious minds it suggests that Labour's sultans of spin are on a mission to misinform, and that the plan is for Mr Brown to announce the survival of the tax subsidy, to a chorus of grateful approval from Middle England. On the other hand, the case for abolition is overwhelming; perhaps he will simply speed up its staged withdrawal, damping house prices without immediately taking pounds 6 a week from home-owners.

Speculation, of course, is futile. So let us try to stick to the big picture, and keep the hype at bay. This Budget matters terribly: there ought to be butterflies in Mr Brown's stomach as he rises to the Dispatch Box. He knows how important it is for the Blair-Brown project that he gets it right. After this Budget, the Government will have lost its innocence. Possibilities that were open will have closed.

What matters as much as the specific measures are the signals that the Budget sends about Labour's values and priorities. Economic behaviour will be changed not just by direct financial incentives, but by a knowledge of the direction of public policy. In 1979, Geoffrey Howe not only encouraged trade and travel by abolishing exchange controls; he also conveyed a sense of the government's determination to adhere to its philosophy of economic liberalism.

Whether or not Mr Brown's Budget makes a similar bang, it is bound to make the Government's direction clearer. Some of Mr Brown's priorities are those of any chancellor. Investment. Jobs. Low inflation. Winning the next election. To a large extent, these reinforce each other, and their relative weight is a matter of pragmatic judgement. But there are other, more contentious priorities, each of which could end up being recorded by history as the distinctive feature of this Budget.

The original purpose of an early mini-Budget was always to levy tax on the windfall profits of privatised utilities, so the welfare-to-work scheme for which this is to pay has been elevated to the status of Labour's Big Idea. But it is an unsatisfactory one, as it is clear neither what precisely the idea is, nor how big it may be. The fuzziest edge around welfare-to-work is the interface with lone parents. While a dwindling number of the young unemployed are to be offered training and work schemes, along with some older, long-term unemployed, the Chancellor has shown relatively little interest in one million lone mothers. The trouble is, few of them can earn enough both to cut their dependence on benefits and to pay for child care. And spending all that money as a one-off to employ 250,000 young people may lead Labour down a cul-de-sac: surely it would be better to use the windfall levy for a single leap in educational standards for the least able 14-19-year-olds?

The windfall/welfare idea looks a little faded now that Labour is in power. It has also become confused by Mr Brown's attempt to frighten us with an official report confirming a "black hole" in the public finances, thereby raising the whole question of whether or not taxes should be raised. Let us hope this is part of the pre-match spin too; a City-led fever that will soon subside. Gavyn Davies, columnist for The Independent and an adviser to the Chancellor, has argued convincingly in these pages that government borrowing will come down faster than predicted.

Meanwhile, the Budget has also been loaded with the luggage of "fairness". It is in the name of this euphemism for "equality" that Mr Brown will announce a cut in VAT on home gas and electricity from 8 per cent to 5 per cent. But as this will provide the most benefit to those who use most energy - that is, the better off - he will have to do something else to keep that baggage on board. It is important that he does so, because the privatised utility bosses have a limited shelf-life as scapegoats.

The cut in VAT also contradicts another priority (rather more recent), that of greening the planet. For someone who came to power explicitly not promising the Earth, Tony Blair last week sounded suspiciously as if he were planning to rescue it. But that Earth Summit speech, and the sotto voce rumblings about green taxes from the Chancellor, will be empty without real goads. Merely taxing fuel is not the answer; petrol is already heavily taxed. Instead we should find ways to encourage people to buy cars that use less of it, and make it convenient and cheap for them to use other kinds of transport.

Real radicalism means finding new forms of persuasion, new ways of approaching tax (by, for example, signalling an intention to unify the tax and benefits system). It means ditching anything hinting at makeworkery, to concentrate on radical reform of the education system, properly funded. It means challenging the NHS to devise new ways of organising itself more efficiently, and making judgements about which treatments it can afford, and when. It means breaking down the "us and them" mentality in private and public enterprise (yes, it is still there, even after all these years). And all this needs to happen while keeping firmly in place the managerial and economic liberties that have stimulated this recent period of sustained growth in Britain. That, Gordon, is what radical means now.