Taxes will have to rise despite Coalition cuts, says study

Britain faces further tax rises even after the Coalition Government imposes deep cuts in public spending, according to a two-year study published today. An all-party commission warns that taxes will have to rise to cope with the financial pressures caused by an ageing population; an increase in chronic diseases such as diabetes and obesity; combating climate change; closing the gap between rich and poor; abolishing child poverty and improving skills levels in the workforce.

Research for the 2020 Public Service Trust by auditors Ernst and Young suggests that the share of national income devoted to public spending would need to rise above 50 per cent by 2028. "Tax receipts have never risen above 40 per cent and it is hard to see a consensus emerging for them to do so," says the report by the trust, which was set up by the RSA (Royal Society of Arts) think tank.

Today's report argues the looming crisis provides an "opportunity" as well as a "danger" because the Coalition Government can use the wholesale spending review to be completed next month to reshape public services.

"If as a society we do not want substantially higher rates of tax, then some fundamental decisions lie ahead, especially given that these cost pressures are greater than those we are currently facing," it says. "Our argument is that this should be done not through blind cutting or uniform retrenchment but through a refocusing and restructuring of public services around the needs, capabilities and resources of citizens today."

Its recommendations include:

*Everyone should receive an annual online statement of their "social account" – such as their tax contributions and the benefits they receive.

*The public should pay more towards the cost of services such as higher education and long-term social care.

*Local people should run services such as parks, leisure centres and libraries as cooperatives and mutuals.

*Welfare services should be locally controlled.

*Public-service providers should normally be paid by results.

*School curriculums should be more locally and community-determined.

Sir Andrew Foster, the former Audit Commission chief executive who chaired the inquiry, said: "The fiscal crisis must be used as an opportunity to re-shape public services for the long term. We already know the demands ahead are unaffordable, and there is a real gap between what citizens want and what our services can deliver. It is now up to our politicians to demonstrate responsible leadership by being upfront and honest with citizens about the kind of society they want to see emerging from short-term cuts and reforms."

Ben Lucas, the trust's director, admitted that greater local control could lead to different standards of services in different areas but argued: "It is time to get beyond the stale debate over postcode lotteries – social outcomes are already different across the country under our supposedly universalist system. Far better to have minimum national standards and allow localities to develop their own approaches to improving social outcomes."

The trust believes its findings are in line with David Cameron's vision of a "big society" but warns that his proposed "power shift" to local people could backfire. For example, the Health Secretary Andrew Lansley's plans to hand more power to GPs might strengthen central government if there is no framework for local decision-making. "We welcome this impulse to shift power towards citizens, but are concerned that attempts to do so by by-passing local democratic structures may prove counterproductive," it says.

Proposing a new deal between citizens, local and central government, the report calls for a "more for less" agreement based on "negotiated autonomy", with less money from the centre but more local control. There would be a smaller Whitehall with fewer ministers and fewer departments.

The inquiry concluded that it is time to " move on" from the post-war model for public services created by Sir William Beveridge, architect of the National Health Service. "His vision for public services – based on the realities of the 1940s – has served us well for over 60 years," says the trust. "But as society has changed and new social risks emerge, the suitability and sustainability of our public services model is increasingly under question. We cannot afford to keep delivering public services in the same ways,and nor should we want to. Yet as a society we have not yet found a convincing alternative to Beveridge's original vision."