Hain calls for 'honest debate' on tax and wealth redistribution

Peter Hain has restarted the debate on whether Labour should make high earners pay more by urging the Government to use the tax system to redistribute money from the rich to the poor.

Mr Hain, the Leader of the Commons, was slapped down by Tony Blair and Gordon Brown in June when he suggested that the well-off should pay more tax to ease the burden on the middle classes. But he has returned to the fray by saying that Labour must do more to help the poorest people in society.

Writing in a pamphlet published by Progress magazine, Mr Hain says: "We have been one of the most redistributive governments ever: since 1997 the real incomes of the poorest tenth of society have risen by 15 per cent with those of the richest falling by 3 per cent. This gap needs further narrowing whilst still rewarding risk taking, enterprise and success - because huge inequalities remain."

Although Mr Blair is wary of the tax issue, Mr Hain calls for "an honest debate about the limits of general taxation if we also wish to use taxation to redistribute to those on low incomes". His intervention will encourage such a debate during the Labour Party conference in two weeks. Mr Blair, said by his critics to have run out of steam, will come under pressure to adopt a more traditional Labour agenda by tackling poverty and inequality, if necessary by raising taxes.

Mr Hain also fires a warning shot at the Prime Minister's controversial plan to force middle-class people to pay more for public services so that spending on them can be increased to benefit the poor, a system known as "co-payment". Mr Blair said in July: "We need to address the balance between what the citizen pays individually or collectively."

But Mr Hain argues: "We appear to be starting the debate about co-payment from the wrong end. Instead of looking at where co-payment might be acceptable to Middle England, we should instead be first setting out the principle of services which we guarantee to deliver to all citizens, free at the point of use and fully funded by general taxation."

The Commons Leader proposes that "citizens' contracts" be sent to people each year, setting out the services they could expect from the Government. Health and education would be "ring-fenced" and not candidates for co-payment.

He dismisses the argument by Blairites that co-payment would dissuade Middle Britain from opting out of state provision. "That is not a version of universality I recognise," he says. Mr Hain rejects the idea of vouchers for health or education and says there must be limits to the Government's plans to extend choice for NHS patients.

In a sideswipe at Mr Blair's reforms, he says: "Public- sector workers have been through more than a decade of almost permanent structural revolution, leaving many feeling demoralised and fatigued, constantly reorganising rather than delivering. We have to work harder to ensure public- sector workers feel that they are partners in reform."

Mr Hain says co-payment could play a role through greater use of charges for services such as refuse collection, road pricing and higher education, which the Government is already trying to do through top-up fees.

But he argues that Labour should give much greater priority to pupils who do not go to university, saying they receive far lower levels of student support for vocational courses or apprenticeships. Raising technical skills should take priority over the Government's target of ensuring that 50 per cent of those aged 18 to 30 go to university, he says.

Mr Hain praises the Government's achievements since 1997 but says: "We are still a long way from seeing our vision of a progressive society anything like realised."