You've squeezed single mothers; when is it the fat cats' turn?

The state of shock persists. What words describe how Labour feels now? Lost virginity, said one commentator, but that's not quite it. Blood on their hands like Lady Macbeth, said another, but that's not it either. It feels like a bereavement, said one MP. Old cynics looked on last week with the relish of seasoned squaddies inflicting initiation rites on raw recruits. But it's not just the new MPs, or just the Old Labour ones, but wise and foolish alike have a bruised, abused look, still in emotional shock.

But MPs have to take their share of the blame for failing to take issue with the lone-parent cuts early on when something could have been done to make sense of this policy. It was there for all to see long before the Budget - and even after the Budget they said nothing.

It was a mangled policy because internal conflict prevented the Government turning it into something that at least made sense. Was it a family-values strike against single motherhood? Not really, because they all knew it struck at abandoned wives who haven't a hope of getting a job, alongside women with older children in places where they might find work. Harriet Harman couldn't and wouldn't say it had any ideological significance, presumably because she doesn't believe in that at all. Yet others in government didn't mind hinting, with a wink and a nod, that perhaps it was a gesture to please the Daily Mail.

They could have turned it into a carrot and stick, rewarding those willing to seek work, punishing those with older children who chose not to, Wisconsin- style. At least that would have been coherent. Instead they tried to present it as a purely budgetary measure, which it wasn't either. It was a fiscal virility test and Gordon Brown demanded that Harriet Harman do it. All she could do was to force a deal out of him on child care, though the two are largely unconnected. The result was a bungle.

But now it is done and there is no going back. It is not the rebels that have caused the Government anxiety, but their own uneasy guilt. So what might Tony Blair do now to atone, communing with his soul in the watches of the night?

By a curious paradox, this affair that caught their consciences by surprise could give him and his government a new moral authority. It gives them a moral obligation to apply the same ruthlessness - or more - to those who drain away far more money than mothers and babies ever could. Now Mr Blair has earned the authority to set about the fat cats, the vested interests, the tax avoiders, the self-serving professions, the special pleaders and the cheats with new vigour. Now he can launch an assault on those who seek to protect their tax loopholes and unwarranted tax reliefs, leaching off the honest, taxpaying PAYE classes.

Now he has proved himself so merciless with the poor, he must be even crueller to the rich. No more hobnobbing with some dangerously unpleasant right-wingers. No more imagining he can sit down at table with bad and corrupt people without contaminating himself. No more dining in the House of Levi the tax-gatherer - it is time to cast the usurers out of the temple instead.

First, no escape for those rich who call themselves self-employed and get away with paying only a fraction of the national insurance contributions paid by PAYE drudges without clever accountants. That would bring in over pounds 2bn. Then remove higher-rate tax relief on pensions for the best off: the rich need no extra incentives to save for their old age. That would bring in just under pounds 1bn. Another pounds 2bn could be saved by removing mortgage interest tax relief. More, too, by ending capital gains tax reliefs.

Too many escape the tax net by salting money away elsewhere or nominally residing abroad. The one really good lesson from the US tax system is this: every citizen should be obliged to fill in a UK tax form wherever they are in the world and pay to Britain the difference between taxes they pay in other countries (or off-shore rocks) and the tax they would pay here. US citizens everywhere do it religiously or risk not getting their passport renewed.

How about a few more windfall taxes? What about unmerited fat cat salary rises? Or taxing corporations who pay virtually nothing by spreading themselves inscrutably around the globe? Why not start with Rupert Murdoch, who has paid so little British tax? Why not tackle his monstrous media monopoly now?

It is time, too, to stand up to the defence industry and cut back on the defence spending spree. We could save billions by halving the number of Eurofighters we buy, reducing our commitment to the European average, the same level as the richer Germans.

All these things Mr Blair now has the right and the power to do. More than that, it is time he dared to tell the truth about public spending. We will never get the health, education or public transport we need until we have a leadership willing to tell the voters that they can't have something for nothing. Even if we do squeeze the perks of the rich, that won't be enough. There has to be a new honesty in telling citizens that they will only get the quality of services they pay for. Public services are like shoes - cheap ones pinch and fall apart.

Something changed last week, making it easier to say these things. When I was talking about tax loopholes to several large accountancy and management consultancy firms (not natural allies of the poor), I was struck by how many spontaneously expressed shock at the lone parents benefit cut. This wasn't just a spasm within the Labour Party, it sparked off more widespread shame. Does the Government understand that? I fear they may think they have just scraped through this unfortunate episode, a passing blip. But everything else they now do will be judged by this low-water mark. Will they push ahead and take civil legal aid from the poor, while doing nothing about the ballooning lawyers' fees that caused the legal aid bill to burst in the first place? Lone parents will come back to haunt them on many "hard choice" issues unless the Government treats the vested interests of the rich as ruthlessly as they have treated the poor.