John Rentoul: Labour is unelectable again

The small print of a little-noticed annexe to the pre-Budget report reveals that the Chancellor has revised the official forecasts: he has postponed the Labour Party's return to electability until 2028.

Gordon Brown might have thought last week's was an election-winning moment; Alistair Darling might have thought he was setting out a path to halving his party's credibility deficit within four years. But this secret annex suggests that it will take much, much longer. It is entitled "The End of New Labour, No It Really is All Over, It Is Much Worse Than You Think". It reveals the Prime Minister's cunning masterplan to put everything that he and his predecessor built to fire and the sword, making sure that the party is not simply dented but flattened for a generation, the big tent cut into pieces and burned, the centre ground abandoned to the enemy, and anything of value utterly destroyed.

Of course, the destruction of New Labour has been a gradual process. One important moment came in last year's pre-Budget report, when Darling announced a plan to bring in a new 45 per cent rate of income tax on earnings above £150,000 a year in 2011. But that was not the end. It would not have raised much revenue, but it was necessary as a token of fairness – to show that the burden of clearing up the fiscal disaster would be borne by those best able to afford it. A more important moment came in the Budget itself in April this year. That was when Darling announced not only that the top rate would be 50 rather than 45 per cent, but that it would be imposed from April next year. Tracey Emin threatened to leave the country. Stephen Byers, holder of the honorary post of Blairite Outrider, condemned it for breaking a manifesto pledge not to raise income tax rates – because it would come in just before the expected date of the next election. It became known that Tony Blair himself had described it as a "terrible mistake".

All that was bad enough, but there was worse to come last week. Not that Darling's forecasts for the economy and the public finances were significantly worse than they had been in the spring. But the tax on bankers' bonuses was the final act of self-destruction. I realise that clobbering bankers is, in some circles, regarded as a sane and desirable activity, and that the howls of anguish from the City and Canary Wharf are seen as evidence that it is the right policy. And I accept that excessive pay in banks owned by the taxpayer, and in other banks bailed out by the taxpayer, is a problem about which any government that cares for social justice ought to be concerned. But it is not a simple problem, and last week's one-off tax is not a solution to it. Not only is it arbitrary and indiscriminate, it is likely to be ineffective. Ways round it are certain to be found. No one seriously thinks that it will raise the £550m estimated by the Treasury.

The cost of the measure will be measured in years of lost goodwill. The efforts of the Labour Party to build its reputation for economic competence have, of course, been most damaged by its disastrous mismanagement of the public finances since 2002. But Brown's reversion to class-war politics has compounded his error. The City's fury matters. London has, at a stroke, become a less attractive place in which to do business. It is easy to say that "these are the people that got us into this mess", but in almost every individual case this is not true. There are blameless specialists in arbitrage, foreign exchange and pork-belly futures who know about as much about American sub-prime mortgages as you or I do. Bashing bankers is gesture politics.

And for what? It won't make Labour any more popular among the voters it needs to save its marginal seats at the election. Of course, with the public finances in the state they are, taxes will have to rise, and it is right that the burden should be shared according to ability to pay. Our ComRes poll today confirms that voters accept that it is "fair" for those on higher incomes to bear the heavier burden. The 45 per cent rate achieved that; even 50 per cent might have been defensible. But to break a manifesto promise for the sake of trying to embarrass the Conservatives (an attempt that failed: David Cameron and George Osborne refused to promise to reverse the tax rise); and to hit the banks overnight with a tax for the sake of being seen to be doing something about high City pay – that is to betray a hostility to aspiration and success. That inflicts lasting damage to Labour's image as the party that is on the side of those that want to get on in life.

The danger is illustrated perfectly by ComRes's question about Labour's attempt to use Cameron's Eton education against him: 70 per cent have no time for it. Almost the whole point of New Labour was that it meant Labour politicians had to make a conscious effort to suppress their inverse snobbery about the rich. That involved teeth being put on edge for a long time, as the press sneered about Blair's hobnobbing with millionaires and Peter Mandelson once saying that "we are intensely relaxed about people getting filthy rich" (although his next words, in 1998, are not so often reported: "as long as they pay their taxes"). But it also conveyed the message that Labour was a party that celebrated success.

That has now gone. Part of it, inevitably, is the tenor of tough times. But laid over that is a thick, suffocating, politically disastrous and completely unnecessary layer of Labour's oldest and least attractive instincts. It took the party 18 years to shed its association with the 98 per cent income tax rate (83 per cent plus 15 per cent "unearned income surcharge") of the Callaghan-Healey era.

Last week's pre-Budget report was not just the end of New Labour. It made it much, much more difficult for any kind of Labour to recover, possibly for a decade or more.

John Rentoul blogs at independent.co.uk/eagleeye