It's fairer not to exclude taxes

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Roy Hattersley is a curious sort of egalitarian. Although he has better working-class credentials than many of his contemporaries in the Labour Party, he is a sybarite by nature who has become a legend in his own lunchtime. But being a gastronome does not necessarily disqualify him from preaching the virtue of equality. Mr Hattersley recalls the romantic socialist tradition when he says, as he did last week, that Gordon Brown should raise taxes by 2 per cent, and use half of the money promptly to improve the living standards of people below the poverty line.

Mr Hattersley's qualifications demand that his comments on Peter Mandelson's ambitious Fabian lecture on the subject of "social exclusion, what others call the 'underclass'" be taken seriously. Mr Hattersley's language is extravagant. He describes the lecture as "facile", "depressingly superficial", and accuses Mr Mandelson of dealing with "the problem of poverty like a door-to-door salesman whose merchandise is obviously second-rate". This tells us about the depth of hostility Mr Mandelson provokes among his colleagues, but it also reveals the vivid emotions that still enliven debate within the Labour Party. This subject stirs Labour's soul, and Mr Mandelson is seen by many of his comrades as a Mephistophelian figure intent on corrupting it.

But what does he actually say? Mr Mandelson does not fail to use the E-word. Speaking of two terms of Labour government, he declares: "One of the fruits of that success will be that Britain has become a more equal society." But Tony Blair's administration proposes to ignore the traditional Labour means to this end: "We will have achieved that result by many different routes not just the redistribution of cash from rich to poor which others artificially choose as their own limited definition of egalitarianism." There's the rub; just linger on the use of "artificially choose" and "limited definition" and you can see why Mr Mandelson makes enemies. He is his master's voice, and he defines Blairism as "a constant quest to move Britain on". This is not designed to appeal to ideologues or intellectuals. It is directed at voters, and so is the detail of Mr Mandelson's argument. Since debates about equality tend to become snarled in disputes about meaning, Mr Mandelson settles on a different word: "We are building a fairer society," he says.

The people who are excluded from this society are the 5 million families in which no one of working age works; the 150,000 homeless; many single parents of whom there are more in Britain than anywhere in Europe; the children who are not attending school, perhaps numbering 100,000. They are people without hope, and Mr Mandelson announced in his lecture the formation of a group to deal with them. We would like the idea even better if it had not been given the Orwellian-sounding name of Social Exclusion Unit.

Far from sacrificing labour market flexibility, Mr Mandelson's unit is there to promote it. Its job is to get people off dependency and into the labour market. That means improving educational skills, and establishing partnerships with business to raise investment and back small firms. It embraces Welfare to Work and "minimum standards of fair treatment at the workplace". This is a pragmatic, not to say prosaic, agenda, but it is churlish to describe it, as Mr Hattersley did, as "second-rate merchandise". As a political policy, it lacks both ideological weight and romantic allure. But that is Blairism. The test is whether it works. It is tackling a real and depressing problem and we are delighted that Mr Mandelson is going to put his weight behind it.

But that does not address Mr Hattersley's criticisms. He is concerned about the groups excluded from the Exclusion Unit: the disabled, the chronically sick, and the pensioners, whose numbers will grow steadily no matter how successful the unit may be. Coping with their exclusion is essential if society is to become "fairer", and the only way anyone has so far discovered of dealing with these problems is to throw money at them. Mr Mandelson did not ignore this; he spoke of doing more for those on the lowest incomes "when economic circumstance and the re-ordering of public expenditure makes this possible". That will not do. To prove their belief in a fair society Mr Blair and Mr Mandelson will have to admit that it cannot be achieved without redistribution of income, and that the fairest way to achieve that is through the tax system. That would surely silence Mr Hattersley.