The NHS is under-resourced. Every user knows it. Its staff know it. The political establishment accepts it. The Prime Minister has admitted as much. Britain has fewer doctors and hospital beds per head than almost any other country in Europe. More needs to be spent, so when Blair committed himself last week to raising health expenditure to the European average by the end of the next parliament there should have been a national sense of relief. Instead it was an occasion for hand-wringing, Prime Ministerial wobble and general disbelief.  It couldn't be done, it was said. There isn't and there won't be enough money. Blair was dodging difficult choices about which taxes to raise. The Conservatives insisted that the only means to this end was to allow the private sector to lead the charge, urging the reintroduction of tax relief for private health insurance. And then Number 10 seemed to get windy, briefing on Monday that it was only an aspiration - and conditional in any case on the economy doing well.   But for once beleaguered liberal Britain should not look a gift horse in the mouth; this is an occasion for a cheer. The Prime Minister, despite his partial retreat, has set an important benchmark for the desirable growth of NHS spending, and by implication other key programmes such as education and transport. He has also put down a marker that the extraordinarily large Treasury surpluses projected in the years ahead will be spent on improving   public services and not given away in tax cuts. And he has put the Tories on the spot; they have to match his commitment or demonstrate that private health insurance can achieve the same result - a demonstration that is beyond them. In the new politics of how to spend the budget surpluses, Blair - panicked perhaps by the hysterical reaction to the comparatively small rise in flu cases and media overkill - has set the political agenda. It is an important moment.   The scale of the implied increase in NHS spending is vast. The 50 billion (in round numbers) spent on the NHS in Britain at the moment is 5.7 per cent of GDP; another 9bn - or 1 per cent of GDP - is spent on health privately. The crude European average is 8 per cent of GDP, but that is simply arrived at by adding up each country's average and dividing it by the total, so that Luxembourg's spending has the same importance as Germany's. If you weight the calculation by size of country, the real average of European health spending, according to the King's Fund, is 8.6 per cent of GDP.   Because the Blair Government does not plan to expand the private health sector, it will have to pay to close the gap of 1.9 per cent of GDP itself - 17bn at today's prices. If it wants to do that over the next six years, health spending will have to rise by just under 8 per cent a year in real terms to 2006; if spending grows at only 5 per cent annum in real terms - the figure the Prime Minister cited - then it will take a full 12 years to reach the true European average. And if the Europeans further increase spending, then it will take longer still. It takes time to redress a generation of neglect.   Can 8 per cent growth in NHS spending until 2006 be achieved without raising taxes? The straight answer is yes, even though it would push Gordon Brown's demanding framework for spending and borrowing to the limit. But spending in every other department   could only grow in line with the growth of GDP, the reason for Cabinet restiveness last week.   If this is a surprise, it is because almost nobody seems to have come to terms with the transformation in public finances under New Labour. The combination of Brown's 'stealth' taxes, equivalent to more than 2 per cent of GDP, sticking to the Conservatives' spending plans for the first two years of this parliament, economic growth of close to 2 per cent instead of recession in 1999, the fall in unemployment and continuing low inflation has been stunning. The current budget surplus last year was 7bn; it will more than double by 2003.   Indeed if the long run economic growth rate is the 2.5 per cent now assumed by the Treasury, then as the TUC calculated in its submission to the Treasury's Spending Review last week, public spending could be raised another 12bn by 2004 and, on my calculations, to the necessary 17bn for the NHS by 2006 - and still leave the 7bn safety margin Brown had last year.   If growth turns out lower, then the NHS budget can be protected by running down the safety margin; and in an economic downturn borrowing is allowed even under Brown's rules. A European class health service is ours for the having - and without raising taxes.   The Conservative proposition that the alternative can be achieved through private insurance is for the birds and, while New Labour retreats and tem porises in so many areas of policy, it is good to see some iron in its soul over private medical insurance. It is expensive, focused on those who are good medical risks, and rarely extends to the over-75s who are most in need. Worse, even if it worked in building up the private sector, it would have the perverse result of driving up the NHS's cost as private contractors bid up wages to attract the limited number of trained staff.   But the proof is in the pudding. Tax relief on medical insurance for the over-60s was introduced in 1990; but by 1997, when Labour abolished it, only 1 per cent more of the over-60s had taken advantage of the tax break. Moreover as the human genome project is completed, we will soon know each individual's DNA structure and predicted health experience; in this emerging world private insurance is madness, because those known to be poor risks will simply not be able to insure themselves at a reasonable premium. Poor Liam Fox, the Shadow Health Secretary, is stuck with a ludicrous, provenly unworkable policy that is out of kilter with the times - the mirror image of Labour's 1983 far-fetched commitment to extend nationalisation to promote economic efficiency.   The only way to fund the NHS is through general taxation or comprehensive social insurance; the hypothecated health tax is another blind alley. If all NHS spending is dependent on a stand-alone or hypothecated tax, then its revenues will go up and down with the economic cycle; if only part is hypothecated, then by the second or third year it becomes impossible to disentangle what is new and what is old money.   On the NHS New Labour is making a stand. What it needs to do next is to drop building privately financed hospitals with fewer beds, genuinely end the internal market and redress the system's disgraceful lack accountability - and we really could start cheering.