Higher tax? We might be lying

With a nip here and a tuck there, the public finances have been shaved to fit into Kenneth Clarke's battered brown briefcase. The pundits are speculating about small changes in taxes and transfers between spending budgets to be revealed in the Budget on Tuesday. But few people expect any dramatic shift in priorities, or substantial change in the size of the state.

As Hamish McRae argues above, there are important long-term questions to be resolved about what we expect from the state in future. However, the ideologues who claim that Mr Clarke should be chopping up the state immediately to respond to global competition and to avoid spending escalating out of control, are going too far. The apocalyptic view about an imminent crisis in the British welfare state looks absurd in the context of two new pieces of work on public expenditure released in the last few weeks.

The first is a volume of essays from the centre-left think tank IPPR (Institute for Publec Policy Reasearch), edited by Dan Corry. The second is a Social Market Foundation pamphlet written by former advisor to Nigel Lawson, Andrew Tyrie. These experts from left and right agree; the British welfare state is not in crisis. British public spending levels are well within the broad range of spending by our main competitors, and show no sign of exploding out of control in the near future.

However, left and right disagree on the best composition of public spending in Britain, with Corry et al arguing that public investment (in both infrastructure and human capital) is too low. As they point out, the Conservatives have presided over a huge drop in the net wealth of the state, and a substantial shift away from public investment and into public sector consumption instead, raising serious questions about the long-term sustainability of current patterns of spending. This aside, though, it seems that the most severe constraints on Mr Clarke's freedom to manoeuvre this week are political, not economic.

The biggest challenge to the modern Chancellor is to find a package of tax and spending measures which satisfy voters' complex demands. Most taxpayers can undoubtedly afford to pay more in tax, as they are richer today than 20 years ago and the tax burden has barely changed. The important question in a democracy, however, is whether they want to pay more tax, and what kinds of spending they are prepared to subsidise.

Get the answer wrong, and the voters will wreak their revenge. This is exactly what Conservative backbenchers fear most, if Mr Clarke cannot deliver the tax cuts they believe voters want this week. Meanwhile, Labour has ditched the higher-tax-higher-spending strategy that it used in the last election.

But are all these politicians right in assuming that voters don't want higher taxes and spending? Peter Kellner, writing in the IPPR volume, argues that the majority of the public would willingly contribute more. And this week, the latest British Attitudes Survey provided further support for his thesis.

At first sight, the BAS does seem to show a growing appetite for higher levels of public spending. The proportion of respondents answering that the government should "increase taxes and spend more on health, education and social benefits" has risen from 32 per cent in 1983 to 61 per cent in 1995. Health spending is most popular of all, with 87 per cent of people calling for more. Even when told they would have to pay personally (an extra pounds 35 a week) for the higher spending, the proportion supporting extra cash for the NHS only fell to 60 per cent.

But something doesn't feel quite right. Certainly, the politicians who have most to win or lose by miscalculating public opinion don't trust them. Even though people may tell a researcher they want more spending and taxing, they may not be prepared to vote for it. After all, a majority of those questioned still believed their own taxes were too high.

Reconciling these apparently contradictory views isn't easy. One possibility is that voters are in favour of higher taxes and spending in principle, but fear that in practice the money will be wasted. Heath, Jowell and Curtice in their analysis of the 1992 election, argue that Labour lost votes not on tax itself, but on its failure to convince people that the money would be well spent.

Voters have even less reason to trust politicians now. In 1992, they were told by their Conservative government that they could have tax cuts at the same time as public spending was increasing. In 1993 and 1994 that same government imposed pounds 17bn of tax increases and few have seen any improvement in their public services as a result. No wonder voters think public money is wasted.

So if politicians want to carry on spending, or even if they want to spend more, they will have to justify the cash and themselves to a sceptical public. The Corry volume has several suggestions to improve matters - both to make spending more transparent and to make it more accountable and responsive. Martin Cave argues that the public sector should find out exactly what the public want from their services. Before spending on the tube network, for example, we should find out whether the public would rather have more trains, cleaner trains, faster trains, and so on. Geoffrey Hulme goes further and suggests using citizens juries to assess public preferences. And, of course, government could always devolve more power over priorities to local politicians.

All of these measures may help reconcile voters' statements to the pollsters with their actions in the polling booth - making the Chancellor's decisions more open, accountable, and even slightly easier in future. But for now, we should take note of the politicians' nous. They believe that once we voters are alone with our ballot papers we remain susceptible to a tangible tax bribe, no matter how short-termist or selfish it might be. And for the moment, the politicians may well be right.