HOW SHOULD  a modern, left-of-centre political party which has been in power for more than 12 years respond to the growing gap between rich and poor?

“Tax the rich” is the obvious knee-jerk reaction from some. And they will have their chance to press home their case once Harriet Harman’s report on inequality is published in the new year.

The logic seems to be this: Labour’s eschewing of traditional Labour tax-and-spend policies has led to the current disparity between the lowest and the highest paid; soaking the rich would therefore, of itself, make Labour popular enough to win a fourth general election as well as narrowing the incomes gap.

Except that this analysis seems to overlook the fact that Labour won the last three general elections with a commitment not to reintroduce punitive tax rates. Are the electorate really turning to David Cameron because they believe he will tax them more?

And there is absolutely no point at all in taxing the highest earners more unless you intend to do something positive for the lowest paid with the revenue raised. Sure, reducing the incomes of the rich would, at a stroke, reduce income equality. Even if you just banked whatever tax you raised and didn’t use it for anything, income inequality would be reduced because you’ve reduced the incomes of those at the higher end of the income scale. Job done?

Well, no, obviously. Such a move would stink. There is nothing intrinsically good or moral in taxing for its own sake. If, on the other hand, extra tax revenues were used to achieve something – raising tax thresholds for the lowest paid, for instance – then that would be worth looking at. The only problem is: how much extra tax would you have to raise to make any meaningful impact on thresholds? Top rate tax rises bring diminishing returns, so there’s no bottomless pit of readies in that direction.

What, other than tax thresholds, are the mechanisms for raising the poorest up? We know how to bring the richest down, but once we’ve done that, how do we use that money raised to benefit the poorest? Increasing benefits? In general, no. Keeping people and families on benefit is a sure-fire way to entrench real, absolute and relative poverty. Increase tax credits? Fine, but apart from the pension credit, tax credits are mainly aimed at making work pay. I’m not aware of any evidence that low tax credit rates are responsible for low take-up of paid employment.

There are certainly plenty of areas of social policy which could do with the extra money, but none of them would directly or easily close the incomes gap.

Tony Blair and – let’s not forget – Gordon Brown put a great deal of effort into reinventing Labour as a low tax party. As a result, we won three general elections in a  row, and as a result of that, we introduced the minimum wage, tax credits and the New Deal, raising nearly a million pensioners and 600,000 children above the poverty line.

So why has incomes equality increased? And is it the inevitable consequence of a booming economy, as the UK’s was until the global recession started to bite?

More to the point, does anyone seriously believe that if the Tories instead of Labour had been in power since 1997, incomes equality would have been narrower than they are today? Without the minimum wage and tax credits it would surely have been even greater.

The Tories, of course, will be rubbing their hands in glee at the prospect of this debate within the party, and praying that we come down unequivocally on the “soak the rich” side of the argument.

Personally, I’d rather we stay in government.