Labour must fight inequality to win, says Blair adviser

Labour must rethink its policies on schools and taxation if it is to confront a revitalised Conservative party, one of Tony Blair's closest advisers will argue tomorrow.

In a Fabian Society pamphlet, Patrick Diamond will warn that the party cannot fight the next general election on the basis of its strong economic record and by portraying David Cameron as a traditional tax-cutting Tory. Labour must renew its commitment to tackling inequality and revise its education and fiscal policies in that light, if it is to win a fourth term.

Mr Diamond, a visiting fellow at the London School of Economics and a key figure behind the 2005 Labour manifesto, will warn that government plans to extend parental choice, contained in the education white paper, will "further erode the position of the least advantaged", without counter-balancing measures.

He will argue that the creation of independent "trust" schools must be matched with greater funding directed toward children from poorer backgrounds and a greater emphasis on literacy and numeracy.

The government must also increase overall education spending, which is currently less in real terms than in the 1970s especially "given the scale of under funding in educational infrastructure that occurred in the 1980s and 1990s".

Mr Diamond, who is a visiting fellow at the London School of Economics, will also criticise the government's fiscal policies, and argue that "Labour's tax system is deeply iniquitous because of the burden it imposes on the lowest paid".

"The rich enjoy generous tax relief. The poor pay a high proportion of their income in indirect taxes and due to tax credits the lowest earners pay the highest effective marginal rates," he will say.

He will propose that the party establishes a progressive tax commission to look at ways of making the tax system more redistributive, something that is likely to anger the Treasury, which guards its control over fiscal policy closely.

Mr Diamond will also insist the Labour leadership allows debate to flourish in the party: "No one wants a return to the factional civil wars of the past, but a party of blind obedience and mindless loyalty has no long term future. The Labour party cannot thrive without regular bouts of self-questioning."