No is yes and more is less, but that's politics

HERE ARE some predictions about the tax-and-spending crisis, which the Cabinet meets today to grapple with - four likely conclusions from all the hours of sweating and arguing that lie ahead. One: taxes will not rise. Two: oh yes, they will. Three: tough, brave decisions will be taken on cutting public expenditure. Four: no, they won't be, not really. Contradictory? Insane? Absolutely: we are talking high politics here.

Taxes will not rise. Despite the vague Treasury-inspired threats, income tax rates will not go up. This has nothing to do with keeping, or breaking, election manifesto promises - that is a bogus issue. The manifesto said: 'We will make further progress towards a basic income tax rate of 20p.' Weasel words: if you are 'making progress' in your walk towards a hilltop, it is possible to go backwards for a short time, as you detour round a swamp. The manifesto would allow Kenneth Clarke a short-term rise in income tax if he wanted one.

The case against rises in income tax is political, not ethical. It is that the public view of the Tories as the low- tax party is essential to the Government's eventual re-election strategy. So long as the headline figures for income tax rates don't rise, indeed fall, voters seem to be prepared to give the Tories the benefit of the doubt.

The party has been able to turn recent general elections into virtual referendums on income tax, backed up by the radical-right view that lower taxes necessarily mean higher yields, because people have more incentive to work and less incentive to cheat the taxman. This simplification has been political gold dust for the party of government. Privately, even the wettest and most worried of ministers will rule out conventional income tax rises as pure fantasy. One senior Treasury source assured me recently that, by the next election, there will be another 1p off the basic rate - come what may.

So why does Mr Clarke not come out now and proclaim it, reassuring jittery right-wing MPs? Again, the answer is low, indeed crude, politics. He will have to force some spending cuts through the Commons. Many of those disloyal Tory populists who today demand that the deficit be cut will find the measures needed to cut it 'outrageous and unacceptable'. (That is how populists tend to behave, which is why populism is a dirty word in politics.) So he needs something to threaten his party with. He is, in effect, telling the Tory waverers: 'I am such a maniac that, unless you back the cuts to come, I will raise income tax and you will lose your seat.' Of course, he is not such a maniac. It is a bluff, and a pretty obvious bluff at that. But the faint suspicion that he might be a maniac is useful to him.

Oh yes, they will. There is a pretty obvious sleight-of-hand here, however. Taxes are in fact shooting up. The Budget included an array of changes to the tax regime and rises in charges and excises that will total pounds 6.7bn next financial year. They will continue to rise. Why? Because raising some taxes is still far easier and causes less political pain than cutting spending.

Tough, brave decisions will be taken on cutting spending. There will be some real cutting, of course. There has to be. Last week John Major guessed publicly that the structural element of the deficit was some 30 per cent of the total, or around pounds 16bn. His credibility as Prime Minister hangs on forcing through some cuts. So does Mr Clarke's credibility as Chancellor, Michael Portillo's as Chief Secretary, etc.

No, they won't be, not really. But, as Mr Major keeps reminding the Commons, this is a government crippled by a small majority. Ministers must first ask of every proposal, how much political trouble will there be, for how many billions of savings? What's the pain-gain ratio? And this means that indirect, lower-profile tax rises will probably end up outstripping spending cuts. Some numbers are necessary to illustrate why.

Let's look first at last week's row, the proposed limitation and taxation of invalidity benefit. The social security budget is both huge, gulping down more than a third of central government spending, and very fast- rising. If there are to be deep cuts, they must start here. And, according to the fax that escaped from that department last week, invalidity benefit is 'one of the few areas of social security expenditure where, realistically, savings could be made' quite quickly.

So how much saving? Not very much in the short term: around pounds 495m by 1996-97. And for how much cost? Although this seems to be a benefit that is being widely abused, the cuts will cause many genuine invalids, borderline cases, real suffering. To put it cynically/politically, the television pictures will be bad. A wettish minister may resign.

Now contrast some possible tax rises. Norman Lamont's March Budget restricted some income tax allowances to the new 20p lower rate. Were there riots? Protests by Tory backbenchers? Hardly: as with his earlier hike in value-added tax, Mr Lamont seemed to get away with it Shetlander- free (as we Scots say). Doing this to the married couple's allowance will net an extra pounds 1.17bn in 1995-96, doing it to mortgage interest tax relief, pounds 870m, much more than invalidity benefit.

The Treasury says that if the same had been done to personal allowances for the current year, that would have brought in a vast pounds 5.2bn. That might be too obvious and widespread an income tax rise to be politically saleable. But a smaller restriction to, say, 25 per cent, would have raised pounds 1.1bn. And restricting tax relief on pension contributions to 20 per cent would have brought in pounds 1.15bn.

I haven't even started on corporation tax or the myriad array of lesser- known charges, duties and levies in the Treasury armoury. But the political lesson is stark and obvious. Even for a would-be-tough Tory government committed to lower income tax rates, it is far less painful to raise the total tax burden than to cut spending. Mr Major and Mr Clarke will do both, of course, but we can expect that their 'low-tax, tough on spending government' will tax more than it likes to admit, and cut less deeply than it pretends. That's politics.