John Rentoul: Gordon Brown has summoned up a deep, dark fear from the souls of Labour MPs

It is the fear of failure. That empty feeling that the past 11 years have been wasted

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Why is the crisis over what the Prime Minister called yesterday "a debate about 10p taxation" so damaging? The Government will not lose next Monday's vote in the House of Commons, although it would be fun to see the Whips' list, if it is like the one on attitudes to extending detention without charge that was leaked to the newspapers on Sunday. I particularly enjoyed the comment by the name of Andy Slaughter, Labour MP for Ealing: "Will support but thinks barmy." And Tony Wright, the member for Great Yarmouth: "Will do what security services want."

Many Labour MPs will vote against the Government on the Counter-Terrorism Bill. They have done it before, when Tony Blair tried to extend the maximum period of pre-charge detention to 90 days, and it did not do Labour too much harm in the eyes of the public. But the Finance Bill is different. The stakes are higher. So high that, although the Government will win the vote, it has already lost the argument and suffered a deep and lasting wound.

Why? Because Gordon Brown's strong suit has turned out to be a busted flush. He was supposed to be the Mr Fix-It of poverty. This goes far beyond the abolition of the 10p income tax rate. It goes to the heart of Labour's record on equality.

But let us deal with the 10p rate first, because that is bad enough. There never was a good rationale for abolishing the rate. Not when Brown, as Chancellor, announced it in last year's Budget. Not when it was implemented earlier this month. Not when Brown as Prime Minister and his Cabinet wingpersons – Alistair Darling, Ed Balls and Yvette Cooper – tried to defend it in the past few days.

Looking back at Budget day last year is a sobering experience, with not much Schadenfreude to ease the hangover. The effects of the 10p change are an embarrassing indictment of the entire politico-media complex. The Treasury did not see the day-glo-painted sign that warned: "Unbridgeable Chasm On Road to Brownite Supremacy."

Brown had first commissioned work on scrapping the 10p rate in 2003; he considered it for the 2005 and 2006 Budgets. Toby Helm in The Daily Telegraph reported, on the day after the 2007 Budget: "Treasury officials reacted angrily to the suggestion that it was all just a hastily cobbled-together stunt to boost Mr Brown's popularity ahead of Labour's leadership election. 'You can't just pluck this sort of stuff off a shelf,' said one aide. 'It takes years of preparation.'"

And it took a whole year to go horribly wrong. No one, MP, reporter or pundit, really understood what the impact would be, not even the sea-green incorruptible Institute for Fiscal Studies, which produced graphs showing that, overall, the poor gained more than the rich from the changes in the Budget.

The Treasury select committee niggled at the figures. Five million people lose out? Can that be right? Er, it's the "right ball park" said Treasury officials, sounding as if they were sure it wasn't but couldn't remember the "line to take".

It was not until companies got their tax codes for the year starting this month that the 10p coin began to drop. There must have been a reason for this, we all said, ministers, backbenchers, journalists and analysts alike, as we scurried to look it up on Google. It is just that we can't remember what it is. Except that when we followed Google to the Budget speech, the Red Book and all the newspaper pull-out supplements, there was nothing there.

Brown was proud of the great simplification of his swansong Budget, and many of us praised him for it. But the simplification that mattered was finally to align income tax and National Insurance – abolishing the 10p rate was not needed for that; all it did was, in effect, to pay for the cut in the basic rate of income tax from 22p to 20p. And that change was hardly a simplification because Brown kept the 10p rate on income from savings.

Yesterday, the Prime Minister followed Yvette Cooper, the Chief Secretary to the Treasury whose unpaid MP aide he persuaded not to resign over the weekend, in resorting to an irrelevant, second-line argument in his defence.

If you looked at the whole record, "we have done more as a government in the last 50 years for poverty than any other government". Not only is that irrelevant to the question of why some of the poor should be losing out now, it summons up a much deeper, darker fear from the souls of Labour MPs.

It is the fear of failure. It is that empty feeling that, perhaps, the past 11 years have been wasted. For all that time they told themselves that, whatever terrible betrayals of socialism Blair was selling at the front of the house, they – and Brown above all – were doing good work on poverty round the back.

That was partly why they acquiesced in Brown's uncontested succession. At last, they said, we can be a bit more open about creating a more equal society. We've been doing it by stealth for a decade and the sky has not fallen on Middle England. Now we can introduce them to the true words of our anthem: "Till we have built a new Stockholm/ In England's green and pleasant land."

Only it has not felt like that for some time. The statistics of inequality have proved stubbornly resistant to change. All the billions tipped into tax credits for children and pensioners at the bottom have been matched proportionately – and given the pre-existing inequality that's quite a proportion – by the escalating incomes at the top.

One Conservative is really on to something. Fortunately for Brown it is not David Cameron, who yesterday repeated his intention to vote against the 10p tax change without saying what he would do instead. That is not the stance of a Prime Minister in waiting.

No, the Tory with the sharpest analysis is Greg Clark, spokesman on charities, who isn't even in the Shadow Cabinet yet. At a Conservative seminar on "Fairness and Equality" (a title that was itself a revelation) last month, he presented some figures on the growth of "underlying poverty" under Labour.

Yes, more people are in work. And, yes, help for children and pensioners is more generous. But if it weren't for this more generous state help, many more people would be poor now than 10 years ago. In other words, the state has to keep transferring more and more money from the better-off to the poor to keep the gap between rich and poor from growing.

This is not what was supposed to happen. New Labour were elected to "cut the bills of failure" as Blair and Brown called social security payments. Instead, those bills have risen. Now, Mr Clark doesn't have the answers any more than his leader does, but he is closer to asking the right questions.

Nor is the record as bad as many Labour MPs seem to fear. Brown is right that a great deal has been achieved, although it may take a generation to see the benefits. But the 10p tax story exposes Brown's inability to sell any message that makes sense.

John Rentoul is chief political commentator for 'The Independent on Sunday'

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