Budget Special: Your tax cut is my pay cut

A generation ago, when inflation was threatening to get out of its cage, Spain was wondering whether to push Francoism back into its cage, and Harold Wilson was in office but not in power, it was fashionable to discuss whether democracy was compatible with sound economic management.

It comes as a shock today to remember that this was because democracies were supposed to have too high a propensity to spend and, therefore, to tax. Today, anyone listening to John Redwood or to John Townend may wonder whether democracy is a threat to good economic management because it yields too little taxation and spending. A Treasury official, testifying to the Treasury select committee on the private finance initiative, has justified it on the grounds that voters will never consent to the amount of taxation needed for investment in public infrastructure.

"Never" is a short time in politics, and memories of the last generation show that the present pattern of political attitudes to taxation need be no more immutable than the last. This is nothing to do with altruism, which is only a different sort of feelgood factor. It is a matter of sheer self-interest. Since this is a broadly neutral Budget, voters can match pounds 2bn of cuts in spending with pounds 2bn of cuts in tax and can ask whether they would have preferred both or neither. They can even, if they are heretical enough, ask whether they would have liked to have paid a little more and get a little more for it.

For workers in public service pay (and as a university professor I must declare an interest), self-interest takes a special form. Other people's tax cuts are our pay cuts - as the current university strike illustrates clearly. Proposed legislation against public service strikes may be the herald of many more such pay cuts. Public service workers are 21 per cent of the workforce, or two-fifths of a majority.

Others may say that there is no such thing as a free tax cut - the money just comes out of the other pocket as charges. Prescription charges, dental charges and season tickets are obvious examples. Nothing in this Budget will make those charges any lower. Being a parent of a student alone costs a thousand a year above grant plus loan. There is no sign that the small but welcome increase in higher education funding is meant to meet that cost. And that cost alone may be more than the value of any tax cut.

Increasingly, some of us may feel less safe because of spending cuts. The closure of the research centre that detected BSE is a paradigm. When I read John Major's party conference boast that rail privatisation had been a success, I was travelling at half speed over the stretch of line on which the Watford train crash happened. I remembered that one of the trains in that crash had no black box, because it could not afford to maintain one.

When I go home on the Tube after writing this article, I will feel less safe because I know the Government thinks I would rather have a few pounds in my pocket than have London Underground properly maintained. When I read about further cuts to local authority funding and think of the consequential strain on the already desperate budget for care in the community, I will be more afraid of meeting another Christopher Clunis armed with a knife on my way home. I would pay to avoid this.

I would pay more tax now, because I would like to pay less in five years' time. The Treasury never counts the displacement costs when the dislocation caused by its cuts falls on the budgets of other departments. The effective abolition of single-parent premium is a cut falling on families, some of whom are already suffering from malnutrition. That is a cost for the National Health Service, which is already increasing its spending on screening for malnutrition. What the Chancellor has done is not merely cruelty to children in the name of family values; it is incompetent budgeting and we will pay more for it.

The same is true of the new ceiling on housing benefit. It is almost certain that there will not be enough housing available at the new lower limits of eligible rent. Many people on benefit will therefore become homeless. That is not just a humanitarian issue - a rate of TB among the homeless on the London streets is 200 times the national average and TB is a very expensive illness.

Many of the Tory spending cuts have been like saving money by not mending a hole in the roof. They cost a great deal more in the long run. As a taxpayer, I don't want any more tax cuts - I don't believe I can afford them.

The Earl Russell is Liberal Democrat spokesman for social security in the House of Lords.