Brown hints at rise in national insurance bills

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Gordon Brown hinted yesterday that he might raise national insurance contributions to finance the Government's plans to increase spending on the National Health Service.

But Labour's pledge to increase the health budget was called into question by the International Monetary Fund (IMF), which said in a report that the move could result in "significant waste" unless the NHS was reformed.

Although the IMF praised the "remarkable performance" of the British economy, it warned that the plans to raise public spending and taxes might result in higher interest rates and affect the exchange rate. It said: "We would urge caution. Additional spending increases should be undertaken only if clear-cut economic justification can be found and in the context of reforms to raise spending efficiency."

Despite the warning, Mr Brown promised that more money would be allocated to the NHS when he published a new three-year spending blueprint next summer. Asked whether the plan would raise Britain's level of spending on health to the European Union average, he told the Commons Treasury Select Committee: "I am sure you will not be disappointed." The Chancellor gave his strongest hint that the cash would be raised by increasing higher-earning employees' national insurance contributions. He ruled out increasing the basic or higher rate of income tax or extending Vat to children's clothes, public transport, books or newspapers.

But when challenged by Tory MPs, Mr Brown repeatedly refused to rule out abolishing the upper earnings limit on national insurance, which would raise £5 billion a year, or bringing the ceiling into line with the top rate of income tax to raise £1 billion a year.

Mr Brown said no responsible Chancellor would make commitments on the 250 forms of tax relief or allowance, and he would not repeat the mistake the Tories made in 1992 when they ruled out tax rises – a promise they later broke.

David Ruffley, a Tory member of the select committee, said Mr Brown's answers suggested he was planning "some of the most damaging potential tax rises for Middle England".

Mr Brown was challenged on a memorandum to the committee by the King's Fund think-tank, revealed in The Independent on Monday, which accused the Government of adopting the lowest possible definition of the EU average health spending.

The Chancellor said the aim was to raise the share of Gross Domestic Product devoted to health to 8 per cent, insisting that this had been the recent average in the EU. Although he reiterated Tony Blair's pledge to bring Britain into line with the EU by 2005-06, Mr Brown showed his reluctance to be pinned down to a specific figure. He said that what mattered was "outputs not inputs" and that decisions would be taken to meet "Britain's needs", which differed from other countries.

He said the level of spending would be determined by the review of future NHS funding by Derek Wanless, the former NatWest chief executive. "It is Wanless that will decide for future years the level of resources we need for the British health service for British conditions," he said.

Mr Brown repeated his opposition to the NHS being funded from a special "health tax". He warned that this would not provide the stability needed by the NHS.