Andrew Grice: The Week in Politics

How the ghost of John Smith still haunts Labour's attitude to the rich
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The Independent Online

On Tuesday, the Government staged a partial retreat over its plans to close the tax loopholes enjoyed by foreigners who live in Britain, who include some of the wealthiest people in the world. Yesterday, Gordon Brown opened a new phase in the battle against poverty.

On the face of it, the two things don't add up. Tackling poverty is expensive. The Government is short of money. The years of big rises in public spending are over. The Treasury will need all the extra revenue it can muster if Mr Brown is to complete what he described yesterday at the Welsh Labour conference as "the great mission of the next decade": driving up social mobility.

Labour has lifted 700,000 children out of poverty since 1997. But the low-hanging fruit has been picked and ministers are struggling to hit their ambitious target to halve child poverty by 2010 and end it by 2020. Most experts think Labour will fall well short.

Social mobility has stalled and Labour ministers can no longer blame anyone but themselves. It's depressing when, after almost 11 years of Labour government, the former minister Alan Milburn finds it impossible to imagine someone growing up in a council house today reaching the Cabinet (as he did).

There is a growing recognition among senior Labour figures that they have been too cautious in pursuing the party's social justice goals. The reappraisal lies behind Mr Brown's call for a renewed anti-poverty fight. "With hindsight, we were too cautious – and now the results of that are becoming clear," one architect of the New Labour project told me.

The seeds were sown in Labour's wilderness years. In the mid-1990s, New Labour dropped the party's traditional commitment to close the inequality gap between the top and bottom of society. Instead, the priority would be to tackle poverty, unemployment and social exclusion.

Mr Blair and Mr Brown were haunted by the ghosts of the "shadow Budget" proposed by John Smith as shadow Chancellor in 1992, the last time Labour openly advocated redistribution. The Tories' "tax bombshell" campaign nuked Labour's 1992 election chances.

Mr Brown hoped his tax credit scheme to top up the earnings of low-paid workers would reduce inequality. The gap between poor families with children and poor pensioners on the one hand and people on middle incomes has narrowed but those at the top have been largely untouched.

Mr Blair explained why shortly before he left office: "If you take a few rich or wealthy individuals and clobber them with taxation, I'm afraid you're not actually going to get more money; they'll just move elsewhere. I don't think that's what is keeping back social mobility. What does keep it back is the fact that ... as opposed to having a large working class and then a middle class, what you've got today is 10 per cent at the bottom who find it really, really hard to break out of that, and I think that requires different policies for them." Mr Brown has now picked up that mantle.

Political pressure has forced Labour to tackle "fat cats" but has it made a complete mess of it. Last October, Alistair Darling targeted private equity bosses with a shake-up of capital gains tax (CGT). But the Chancellor staged a partial retreat after business accused him of hitting small firms. This week he did the same over "non-domiciles", foreigners who live in Britain who do not pay tax on their overseas income. Mr Darling proposed a £30,000 annual fee after non-doms have lived here for seven years but has now given assurances they would not have to disclose their foreign earnings after a lobbying campaign warning of an exodus of wealthy people.

A new generation of ministers promoted by Mr Brown are not haunted by the demons of 1992 because they were not in politics then. And calls for a more bold approach to the very rich are not coming from the usual left-wing suspects. This week Frank Field, the former welfare minister, proposed a 10 per cent tax on earnings over £150,000, which could be avoided if the same amount was given to charity. Roger Liddle, a former aide to Mr Blair, advocates a "top pay commission" to match the Low Pay Commission in a new pamphlet from the Policy Network think tank, of which he is vice-chair (policy). He also calls for higher inheritance tax on lifetime gifts made from large fortunes to finance a "life chances fund" for deprived communities; tax incentives for the rich to donate money for public purposes like city academy schools and a CGT regime which limits the most generous reliefs to genuine start-up firms.

Ministers insist there is no inconsistency between their "clarification" over non-doms and Mr Brown's new anti-poverty strategy drive. They argue the Treasury could have been worse off if the "myths" about the new non-dom charge had not been tackled, leaving less money for measures to improve social mobility. But sometimes appearances are not deceptive at all.

If Mr Brown wants to help those at the bottom, he is going to have to take a bit more from those at the very top.