After fighting the 2001 general election on the theme of improving public services, Blair's government raised taxes in 2002 (described by the Conservatives as "stealth taxes") to increase spending on education and health.
Blair insisted the increased funding would have to be matched by internal reforms.
The government introduced the Foundation Hospitals scheme to allow NHS hospitals financial autonomy, although the eventual shape of the proposals, after an internal Labour Party struggle with Gordon Brown, allowed for less freedom than Blair had wished.
 But with the supply of healthcare services increasing less quickly than demand, benefits from the NHS have not yet increased to the same degree, and the NHS had an £800,000,000 deficit for the 2005/6 financial year.

The peace process in Northern Ireland hit a series of problems.
In October 2002, the Northern Ireland Assembly established under the Good Friday Agreement was suspended.
Attempts to persuade the IRA to decommission its weapons were unsuccessful, and, in the second set of elections to the Assembly in November 2003, the staunchly unionist Democratic Unionist Party replaced the more moderate Ulster Unionist Party as Northern Ireland's largest unionist party, making a return to devolved government more difficult.
At the same time, Sinn Féin replaced the more moderate SDLP as the province's largest nationalist party.

In its first term, the government had introduced an annual fixed tuition fee of around £1,000 for higher education students (rejecting requests from universities to be allowed to vary the fee), with reductions and exemptions for poorer students.
At the same time, the remaining student maintenance grant was replaced with a low-interest loan, which was to be repaid once the student was earning over a certain threshold.
In 2003, Blair introduced legislation permitting universities to charge variable fees of up to £3,000 per year.
At the same time, the repayment of student loans was delayed until the graduate's income was much higher, and grants were reintroduced for some students from poorer backgrounds.
It was claimed the increase in university fees violated a promise in Labour's 2001 general election manifesto, though this claim is arguably unsustainable if the relevant promise is interpreted strictly and literally.
At its second reading in the House of Commons in January 2004, the Higher Education Bill which contained the changes was passed with a majority of only five votes, due to a large-scale backbench Labour rebellion.
A defeat was averted by a last-minute change of intention by a small number of Gordon Brown's backbench allies.

On 1 August 2003, Blair became the longest continuously-serving Labour Prime Minister of the United Kingdom, surpassing Clement Attlee's six-year term from 1945–51.

The Hutton Inquiry into the death of Dr. David Kelly reported on 2 August, ruled that he had committed suicide, and despite widespread expectations that the report would criticise Blair and his government, Hutton cleared the Government of deliberately inserting false intelligence into the September Dossier, while criticising the BBC editorial process which had allowed unfounded allegations to be broadcast.
Evidence to the inquiry raised further questions over the use of intelligence in the run-up to the war, and the report did not satisfy opponents of Blair and of the war.
After a similar decision by President Bush, Blair set up another inquiry—the Butler Review—into the accuracy and presentation of the intelligence relating to Iraq's alleged weapons of mass destruction.
Opponents of the war, especially the Liberal Democrats, refused to participate in this inquiry, since it did not meet their demands for a full public inquiry into whether the war was justified.

The political fallout from the Iraq War continued to dog Blair's premiership after the Butler Review.
On 25 August 2004, Plaid Cymru MP Adam Price announced he would attempt to impeach Blair, hoping to invoke a Parliamentary procedure that has lain dormant for 150 years but has never been abolished.
Howe
After fighting the 2001 general election on the theme of improving public services, Blair's government raised taxes in 2002 (described by the Conservatives as "stealth taxes") to increase spending on education and health. Blair insisted the increased funding would have to be matched by internal reforms. The government introduced the Foundation Hospitals scheme to allow NHS hospitals financial autonomy, although the eventual shape of the proposals, after an internal Labour Party struggle with Gordon Brown, allowed for less freedom than Blair had wished.  But with the supply of healthcare services increasing less quickly than demand, benefits from the NHS have not yet increased to the same degree, and the NHS had an £800,000,000 deficit for the 2005/6 financial year.
The peace process in Northern Ireland hit a series of problems. In October 2002, the Northern Ireland Assembly established under the Good Friday Agreement was suspended. Attempts to persuade the IRA to decommission its weapons were unsuccessful, and, in the second set of elections to the Assembly in November 2003, the staunchly unionist Democratic Unionist Party replaced the more moderate Ulster Unionist Party as Northern Ireland's largest unionist party, making a return to devolved government more difficult. At the same time, Sinn Féin replaced the more moderate SDLP as the province's largest nationalist party.
In its first term, the government had introduced an annual fixed tuition fee of around £1,000 for higher education students (rejecting requests from universities to be allowed to vary the fee), with reductions and exemptions for poorer students. At the same time, the remaining student maintenance grant was replaced with a low-interest loan, which was to be repaid once the student was earning over a certain threshold. In 2003, Blair introduced legislation permitting universities to charge variable fees of up to £3,000 per year. At the same time, the repayment of student loans was delayed until the graduate's income was much higher, and grants were reintroduced for some students from poorer backgrounds. It was claimed the increase in university fees violated a promise in Labour's 2001 general election manifesto, though this claim is arguably unsustainable if the relevant promise is interpreted strictly and literally. At its second reading in the House of Commons in January 2004, the Higher Education Bill which contained the changes was passed with a majority of only five votes, due to a large-scale backbench Labour rebellion. A defeat was averted by a last-minute change of intention by a small number of Gordon Brown's backbench allies.
On 1 August 2003, Blair became the longest continuously-serving Labour Prime Minister of the United Kingdom, surpassing Clement Attlee's six-year term from 1945–51.
The Hutton Inquiry into the death of Dr. David Kelly reported on 2 August, ruled that he had committed suicide, and despite widespread expectations that the report would criticise Blair and his government, Hutton cleared the Government of deliberately inserting false intelligence into the September Dossier, while criticising the BBC editorial process which had allowed unfounded allegations to be broadcast. Evidence to the inquiry raised further questions over the use of intelligence in the run-up to the war, and the report did not satisfy opponents of Blair and of the war. After a similar decision by President Bush, Blair set up another inquiry—the Butler Review—into the accuracy and presentation of the intelligence relating to Iraq's alleged weapons of mass destruction. Opponents of the war, especially the Liberal Democrats, refused to participate in this inquiry, since it did not meet their demands for a full public inquiry into whether the war was justified.
The political fallout from the Iraq War continued to dog Blair's premiership after the Butler Review. On 25 August 2004, Plaid Cymru MP Adam Price announced he would attempt to impeach Blair, hoping to invoke a Parliamentary procedure that has lain dormant for 150 years but has never been abolished. Howe
Premiership of Tony Blair