The taxation gloves are coming off

UNLIKELY though it sounds, the last two weeks of August saw the most profound shift in British politics since the 1997 Election. On the surface everything was quiet, with MPs away and Tony Blair basking in the sun with a series of foreign plutocrats.

But behind the scenes the ground was being prepared for what may turn out to be the most massive redistribution of power and wealth in Britain since 1945.

Over the past couple of weeks, Tony Blair's Labour Party has set out its stall for the most audacious tax grab in modern times.

It has not done so openly, of course. That has never been New Labour's way. Neither Chancellor Gordon Brown nor Prime Minister Tony Blair has yet announced his intention. Instead they have moved forward - as they always have - through surrogates. Everything, at every stage, is deniable.

The first sign that Labour was secretly preparing to strike came exactly two weeks ago. The Institute for Public Policy Research quietly issued a report demanding that the rate of inheritance tax should rise from 40% to 50% for estates worth more than £760,000.

This announcement, perhaps innocuous enough in itself, was followed by a call from the Fabian Society for a new 50% 'supertax' for those earning more than £100,000 a year.

Both cases were well argued. Indeed, I found it hard to disagree with much that was to be found in the IPPR document.

But it is impossible to deny that between them the IPPR and Fabian Society documents constitute the start of a move towards a fundamental redistribution of wealth within Britain.

Between them they mark just the kind of red-blooded, no-holds-barred, socialist attack on middle-class wealth that would have taken the vast majority of Labour supporters into politics in the first place.

And just the kind of tax rise that Tony Blair has always sworn blind that he would never permit.

The appearance of these two documents at practically the same time, during the dead days of August, is no coincidence.

Both the Fabian Society and the IPPR pretend to be independent. In practice they are nothing less than appendages of this New Labour Government. Again and again New Labour uses these organisations to road-test future policies. Meanwhile, personnel move from the two think-tanks into government with ease.

The former chief of the IPPR, Matthew Taylor, now heads policy in 10 Downing Street, charged with preparing Labour's General Election manifesto. More eye-catchingly still, Michael Jacobs, the former chief of the Fabian Society, recently became a key adviser to Gordon Brown at the Treasury.

The Government cynically uses the Fabians and the IPPR as a pair of advance pickets for the New Labour army, testing reactions and silencing opposition. That is why it is only prudent to assume that the proposal for the new 50% top rate of inheritance tax and income tax will soon become official Government policy.

It is worth bearing in mind that 50% income tax means that, once National Insurance is taken into account, the state is taking 60% of every penny you earn in the top tax bracket.

The Fabian and IPPR pamphlets are proof that New Labour is preparing to move on to Stage Two of its plan for government.

Stage One was all about gaining the trust of the electorate, establishing a reputation for competence and the destruction of a viable Conservative opposition.

In the eyes of many Labour people that stage is now finished - and they may be right, judging from the near-complete silence from the Tory Party as the latest plans for giant tax hikes were unveiled.

During Stage One, New Labour was obliged to move surreptitiously. To gain the confidence of the middle-class voters it desperately needed, it felt obliged to

issue guarantees and reassurances that the tax rate would never rise. During this period, of course, the Government did increase tax - but only by stealth. Council tax bills soared, stamp duty went through the roof and £5bn a year was taken out of the nation's pensions. That cynical, underhand method has been exhausted.

But now, after seven years in power, New Labour strategists have concluded that it is time to come out into the open.

Only today does Labour feel confident enough to air publicly its real plans to attack the British middle classes. Only now does it feel free to deliver its true agenda. Only now are officially sanctioned party organisations such as the IPPR and the Fabians free to talk the language of tax redistribution.

That is why the last two weeks in August mark such an important turning point.

Until then, to call for a tax rise was equivalent to launching an attack on Tony Blair and Gordon Brown's leadership. Now the big debate has been officially licensed.

One powerful and intriguing question remains, however. What is Tony Blair's own attitude? The Prime Minister has long held out against an increase in the rates of income tax. Indeed, he has given agonised personal assurances to newspaper editors and business leaders that he would never raise them. He could change his mind only at the cost of a giant personal humiliation.

The sad truth, though, is that the Prime Minister has lost his grip on domestic politics. The longer he remains in Downing Street, the more fixated he gets on foreign policy, in particular Europe and Iraq.

Colleagues say he takes no more than a perfunctory interest in all other matters - health, education, welfare and the economy. Here the agenda is driven forward by his former friend and bitter rival, Gordon Brown. Whatever Tony Blair may or may not think has become irrelevant - and Gordon Brown, whose socialist instincts are so much more genuine and acute than Tony Blair's, has always favoured a 50% top rate of tax.

I remember six years ago sitting alongside a senior Minister, one of Gordon Brown's greatest allies and admirers, in a fashionable London restaurant.

The Minister's words have haunted me ever since: 'Tony is just the front man. His job is get us through the door and into the sitting room. His job is to get us into a position where we can pursue our real agenda.'

The last two weeks of August saw that agenda emerge right into the open.

Calls for higher income tax no longer come just from outoffavour Left- wingers on the backbenches or Marxist trade unionists. Now they come from within the heart of the New Labour policy-making machine.

That is why historians will look back at those two, sleepy weeks of August 2004 and conclude that that was the fortnight when everything started to change.

Peter Oborne is the Political Editor of the Spectator