IN an exclusive interview with The Northern Echo last week in his Sedgefield constituency, Tony Blair explained why he and Gordon Brown had rejected calls for them to look at alternative ways of funding the National Health Service and why yesterday Mr Brown decided to increase National Insurance.

Mr Blair said: "There is no doubt at all that if you want to improve the NHS you have got to fund it, and the most efficient way is do it out of taxation.

"If you fund it out of social insurance that is just a tax on wages. European systems (which are based on compulsory Government-administered insurance schemes) are good because they spend a lot of money on healthcare but they are disastrous in the way they raise the money. They put pressure on employers, and the cost of hiring people is the reason that our unemployment is easily the lowest of any major country in Europe - it is because we don't have high taxes on wages.

"The other system is the private medical insurance of the US and the trouble with that is that a lot of people can't afford it.

"If we switched to that now and said to people in their sixties that they had to fund their own healthcare, they couldn't afford it.

"The issue now is not whether we pay because if you pay through general taxation, or a tax on wages, or out of your own pocket directly, you pay. The question is what is the best and fairest way of paying."

Although National Insurance was invented by David Lloyd George in 1911 as a state-administered insurance scheme, it has been run by the Treasury since 1948 and is now, in all but name, part of Income Tax. However, as Labour's manifesto promised not to raise Income Tax, an increase in National Insurance was the only way available to it of increasing general taxation.

Mr Blair accepted that increasing tax was something of a gamble in electoral terms.

He said: "We are less than a year into the new term of office and I think most governments need two full terms to really make a difference.

"If, at the end of our second term, people can't notice any difference in the health service they will be entitled to ask me some hard questions about it - and I'm sure they will."