Bridging the divide

The gulf between rich and poor is widening. Tuesday's Budget is a chance for Gordon Brown to make a difference

When Gordon Brown was growing up in Scotland, his family had a tradition that anybody who knocked on the door asking for money or food was invited in. As a child, the future Chancellor once took the principle slightly too far - offering tea and cake to a local burglar - but he has never forgotten this social conscience, honed by his Presbyterian minister father. Brown remains a man determined to reduce inequality.

The Chancellor's first two Budgets have seen money transferred subtly from rich to poor. This week's statement - which could include the introduction of a 10p starting rate of tax, a levy on child benefit for the highest earners and a reduction in mortgage interest relief - will continue the trend. The Tories call this "taxation by stealth" and delight in claiming that the Government has put up levies "by pounds 40.7bn". Some argue that it is evidence of the tension between Tony Blair, representing the middle classes, and Gordon Brown, on the side of the poor. Others say it is a canny move which has allowed the Chancellor to release funds for the poor without alienating Middle England.

But, crucially, this is not conventional Old Labour redistribution; this Government would balk at the suggestion. Brown has resurrected the 19th- century notion of the "deserving poor" - those who are willing to go to work or have children - on whom attention and money is being focused.

Analysis by the Institute for Fiscal Studies shows that the top 10 per cent of earners in the country have lost almost pounds 2 a week since Labour came to power. But, interestingly, this money has not gone straight to the bottom 10 per cent, mainly pensioners and the unemployed, but to those one rung up. The poorest 10 per cent have gained only about 50p per week, but the second poorest 10 per cent have won almost pounds 3 a week. This is the group of parents who have gone out to work and stand to gain enormously from the introduction of the working families tax credit, which subsidises the salaries of low- paid workers. At the same time, Andrew Dilnot, director of the institute, says it is difficult to identify specific individual "victims" of the Brown Budgets. So far money has come from measures such as the windfall tax on privatised utilities, levies on anonymous pension funds and, crucially, economic growth. The IFS believes the main difference between the Tory and Labour budgets has been this emphasis on transferring money to the poor. "The Tories tended to cut income tax across the board," said Julian Macrae, "but Brown is targeting money at what you could call the deserving poor."

Later this month, the Treasury will publish its analysis on poverty in Britain. According to research for the Department of Social Security, inequality has gone up particularly fast in the past 20 years. The proportion of total earnings taken by the top 10 per cent increased from 20 to 24 per cent between 1979 and 1995, while that earned by the bottom 10 per cent dropped from 4.4 per cent to 3.5 per cent.

The Treasury paper will point out that over 1.3 million more children now live in poverty than in 1979. Inequality passes down the generations in a "trickle effect", with two-thirds of children from poor parents likely to end up being poor themselves. Lack of academic qualifications is one of the biggest single causes of social immobility, it will argue - and therefore creating "opportunity", not simply giving cash hand-outs, is the best way of tackling the problem.

This will be used to justify increased help for poor families at the expense of the middle classes, for example by increasing child benefit across the board and clawing it back through tax from the richest sections of society. In typical New Labour style, Brown is targeting cash at those who deserve it, combining "rights with responsibilities".

Inevitably, this has prompted criticism from those who argue that money should be targeted at the most needy. Martin Barnes, director of the Child Poverty Action Group, believes that the Government has not gone far enough in redistribution. "This is a very unequal country and the gap between rich and poor has widened," he said. Most analysts agree that inequality is continuing to grow - mostly because of the disproportionate rise in the incomes of those in work. It remains to be seen whether the Brown strategy to tackle this will work. But, by stealth and by design, Brown is following his instincts.