Blair's joy cut short by new tax row

Tony Blair, basking in the glow of his triumphant return from America and the Staffordshire South East by-election victory, yesterday found the left wing of his party eager to undermine his drive to make Labour the "party of the centre".

Clare Short, the party's transport spokeswoman, disrupted his attempts to present Labour as the party of middle-class tax cuts when she said people on her pounds 34,000-a-year MP's income should pay more tax.

Roy Hattersley, the former deputy Labour leader, renewed his attack on Mr Blair, accusing him of having changed his mind since supporting extremist policies in the early 1980s. His comments were backed by Rodney Bickerstaffe, leader of Labour's largest affiliate, the public services union Unison.

And Labour's socialist conscience in the House of Lords, Barbara Castle, warned that cooperation with Wall Street and the City "must not become capitulation".

Ms Short said on GMTV: "I think in a fair tax system people like me would pay a bit more tax." Asked whether her comments had been cleared with Mr Blair, she said: "It's cleared with me. I speak for what I see to be the truth."

She went on: "We'll get tax down by getting unemployment down . . . and then over time, year on year, we'll make it fairer so that people who can afford to pay a bit more will and people who are on low incomes . . . will pay less."

Her comments contradicted Mr Blair's speech last week to an American business audience, when he said it was surprising that people who were "hardly rich" paid the top rate of income tax, which applies above about pounds 30,000 a year.

This was the third time Ms Short has spoken from the party's heart rather than the leader's hymn sheet in recent Sunday interviews (her comments on cannabis and Harriet Harman's selective school also embarrassed Mr Blair), and she was forced to issue an immediate "clarification".

She said it would be "pure mischief" to suggest her comments would mean tax increases for middle-income families: "The vast majority of middle income families have been hammered by Tory tax rises. The Labour Party has no intention of adding to their tax bills."

Michael Howard, the Home Secretary, said that Labour could never be the party of low taxation: "Clare Short has just confirmed that today and every family in the land should know that if there were to be a Labour government they would pay higher taxes as a result."

Labour sources said her interview was "wholly supportive" of Mr Blair, and that "there was only one infelicitous sentence".

Meanwhile, Mr Hattersley, describing himself as the "new left" within the party, launched an assault on "new" Labour. "I share Tony Blair's view that anyone who wants to return to the policies of 1983 needs psychiatric examination. But, unlike him, I was against the policies of 1983 in 1983," he said in an article in yesterday's Observer, referring to Mr Blair's membership of CND from 1982 to 1986.

Mr Bickerstaffe, who recently took over as general secretary of the country's biggest union, warned against the move to the centre on the eve of the Scottish TUC conference in Edinburgh: "In reaching over to the centre, to middle Britain, it shouldn't be done at the expense of the disadvantaged, the sick, the pensioners and the dying."