Labour tax shift attacked: Blunkett warns of need for equality after growth in gap between rich and poor

A BATTLE for the soul of the Labour Party was launched last night by David Blunkett, with a clear repudiation of the pledge by Gordon Brown, the shadow Chancellor, that Labour would not penalise the wealthy.

Mr Blunkett, the Labour spokesman on health, raised the banner for the Labour's left-wing socialists and said he would keep up the campaign, which is likely to lead to a row at the party conference in October.

Raising the prospect of greater prosperity through wider opportunity, Mr Brown said last week: 'The basis of our tax policy is not to penalise wealth but to promote greater opportunities for all.'

But Mr Blunkett warned: 'It is our job to argue for a new agenda rather than to accept the existing orthodoxies. We must shape thinking and not merely be shaped by the dogma of the last decade. This entails sensitive policies to increase equality of treatment and reward and not merely opportunity for the individual.

'The rich have got richer and the poor have got relatively poorer. The gap has substantially increased and with it the consequences which have been evident to all in both economic and social outcomes.

'That is why it is time to challenge the prevailing orthodoxy and look to progressive economic and social policies to link the needs of individuals and communities with the economic objectives we rightly set ourselves.'

The speech in Sheffield will be seen as a rallying call for critics of the leadership, who are unhappy that economic policy is taking on a Tory tone - a charge Mr Brown denies.

Mr Blunkett supports demands by the party leader, John Smith, on the unions to accept one member, one vote democracy. But he made it clear last night that he believed Mr Brown had gone too far last Tuesday when the shadow Chancellor appeared to shift Labour away from taxing the rich to redistribute wealth to the poor.

Investment in welfare could help to narrow the gap between rich and poor, Mr Blunkett said. Under the Tories pounds 31bn of tax cuts had resulted in half the population sharing only 15 per cent of the redistribution of wealth, while the top 1 per cent gained almost twice as much.

Meanwhile the Tory feud over taxation was intensified by John Biffen, the former Cabinet minister, who called for an increase in the 40p in the pound higher rate of income tax, with rises in indirect taxes such as VAT, to reduce the public sector deficit. But the right-wing MP Theresa Gorman said if the Chancellor went ahead with increases in taxes he would be writing a suicide note for his party.

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