'There will have to be a higher rate of tax to release more people from the 40p band,' one senior Labour source said.
Mr Blair, keen to show that Labour is ready to benefit the middle classes, said last week that under the Tories police officers, primary school teachers and middle managers had been caught by the 40p upper rate of taxation.
The tax plans will form part of a statement on economic policy to the party conference in 1995, but an interim paper is being produced for the 1994 conference in Blackpool.
'If it is too feeble, there will be criticism. We have escaped a lot of criticism within the party because of the successful campaign against the Tories on tax,' one source said.
Mr Blair has summoned members of the Shadow Cabinet to a special conference in September to thrash out Labour's strategy against the Tories. A second special Shadow Cabinet conference is being pencilled in for the Christmas recess.
Mr Blair will be under pressure to give a clearer commitment on taxing the rich from grassroots supporters at Labour's annual party conference in October. Many constituencies have called for 'progressive' taxation in resolutions for the conference, including a call for a higher rate on those earning more than pounds 64,000 a year - the level beyond which taxpayers have most benefited under the Tories.
The Labour leader said yesterday in an interview on the Walden programme on ITV the Tory tax increases were the equivalent of 7p on the standard rate. He spoke about closing tax loopholes used by the rich, but refused to be drawn on any commitments, and promised that Labour would explain at the election how it intended to pay for specific spending pledges.
If a higher rate is proposed by Labour, there is certain to be a dispute over the income level at which it is imposed. Some Labour sources believe it should be apply on salaries of around pounds 100,000, but the Tories are ready to attack it as a tax on aspirations.
The tax issue threatens to dominate both Labour and Tory party conferences this autumn. Tory grassroots supporters are on the warpath over the tax increases, including VAT on fuel, which could prove embarrassing for Kenneth Clarke, the Chancellor, as he finalises his November Budget.
The Tory party conference resolutions may make it more difficult for John Major and his Cabinet colleagues to make low tax a dividing issue with the new-look Labour Party, unless they cut taxes before the election. Michael Portillo, Secretary of State for Employment and a former Chief Secretary to the Treasury, denied a report that there was enough room for a cut of 4p in the pound.
The Cabinet will face angry demands by Tory supporters for the Government to return to its tax-cutting strategy within a month of the next Budget.
Criticism of the Government at the Tory party conference is likely to be muted, but more than half the motions submitted to Conservative Central Office for the economy debate at October's party conference call for tax reductions and a freeze in VAT on fuel at 8 per cent, stopping the rise to 17.5 per cent next April.
Mr Blair is also likely to face a strong campaign against dropping the 1992 general election commitment to return the water industry to public control. The conference debate on industry and the economy could see a clash of the old-style Labour supporters, including Arthur Scargill, and Mr Blair's modernisers. It could prove a test for John Prescott, his deputy.
Arthur Scargill and the National Union of Mineworkers have tabled a motion demanding the repeal of all anti-trade union laws introduced by the Conservatives since 1979, a move Mr Blair rejected in the leadership campaign, but which Margaret Beckett, the defeated leader, supported.Reuse content