The ferment over Gordon Brown's plan to scrap the 10p tax rate has hit the Government hard. The fallout from the Prime Minister's latest self-inflicted political fiasco will be felt all the way to the next general election.

For the opposition parties, the opportunity will only be enhanced by the piquant coincidence of Labour MPs voting today to raise tax for the poorest just as The Sunday Times Rich List reveals that, under Labour since 1997, the wealth of the nation's 1,000 richest citizens has quadrupled. Talk about rich ironies.

Yet if we are truly concerned about inequitable taxation and social injustice, the question of the 10p tax is really a tuppenny ha'penny affair in the context of the Government's broader record.

You have to wonder if the Labour rebels who took a year to wake up to the implications of Mr Brown's 2007 decision to scrap the 10p rate have bothered to delve into the details.

The realities behind Mr Brown's rhetoric on poverty are a lot less impressive than his boasts of being the best friend of the disadvantaged imply. The stark truth is that after a decade of Labour Government, Britain is a nation of greater income inequality, in which the plight of the very poor has worsened. True, Labour has succeeded in lifting half a million children out of poverty since 1998. Yet the Government's figures are based on a poverty line drawn at 60 per cent of average incomes. If it is placed, instead, at 40 per cent - officially defined as “severe poverty” - the picture looks much bleaker, with the numbers of children in such dire straits no lower than in 1997.

The condition of poor adults is still worse, with more people in relative poverty now than since records began in 1961. Numbers in severe poverty multiplied drastically in the Eighties, peaking in 1997 at 8.8 per cent of households. The figure now is 8.7 per cent. And while in 1979 barely a fifth of those below the 60 per cent poverty line (18 per cent) were classed as in severe poverty, now the proportion has climbed to two fifths.

At the same time, the past ten years have been a golden decade for the affluent. The slice of the household income cake going to the richest 10 per cent is at levels not seen since the 1940s.

The widening gap between rich and poor in Britain over the past decade mirrors that across most of the developed world. Globalisation and technological advances have made these widespread trends.

Yet as an important new report from Reform, a centre-right think-tank, lays out, Britain is different in one crucial respect. Here, increased inequality has come with a fall in social mobility.

Where at one time Britain was a beacon for self-advancement, today it seems that, more than ever, to be born into poverty here is all too often a life sentence.

Studies such as a recent report for the Sutton Trust show that social mobility declined sharply for those born in 1970, compared with those born in 1958, and that there has been no improvement for people born in the present decade.

Here, the ladder of life chances for the less well-off looks to have grown a lot narrower and more rickety. All of this poses three big questions. Why should we care about diminished equality of opportunity? Why is it happening? And what - if anything - should be done?

The social and economic arguments that these trends matter are compelling. Socially, a more divided society that denies hope to the poor is not just a moral indictment, but will create what Reform calls a “why bother?” culture, nurturing seedbeds of crime that will affect us all.

Economically, the waste of talent as able but poor children are denied opportunity squanders potential income, innovation, investment and entrepreneurship and saps national prosperity. If Britain had the skills levels of the United States, for example, the benefit for the economy through enhanced productivity would total £32 billion, or £1,300 per family, Reform notes.

Why, then, is social mobility in today's Britain being stymied?

Reform rightly identifies two principal causes: the dismal record of the schools system in educating the poorest, and the malign effect of the tax and benefits system in undermining work incentives.

On the first, again the Government's preferred statistics mask reality. While ministers like to boast of rising numbers of pupils achieving five Grade Cs at GCSE, a study by the Conservatives' Bow Group last week highlighted how one million teenagers over the past decade have walked away from school without securing even five Grade Gs - the lowest grade considered a pass. An estimated 206,000 teenagers, meanwhile, are languishing as so-called Neets - not in education, employment or training. The unintended consequences of well-meaning welfare policies aimed at alleviating poverty also seemed to have nurtured the “why bother?” society.

The clawing back of benefits as people find better-paying jobs has undercut incentives for people to strive to improve their lot. Those moving from the minimum wage to pay of two thirds of average earnings can take home as little as 11p of every extra pound they earn as a consequence of the high marginal tax rates created by the benefits system.

So, what should be done?

It is important, first, to recognise the limits of government action. An important part of the problem is economic progress itself. In the Fifties and Sixties, as Britain became a modern, services-driven economy and as manufacturing shrank, a huge transformation led to a massive expansion of white-collar work that scooped up millions into the middle classes. This was a one-off shift that cannot be repeated.

Yet the scope for effective action that can strengthen the ladder of economic and social opportunity is equally plain. The education system can be reformed to equip all pupils, not just the children of the well-off. The benefits system can be overhauled to give the poorest a hand-up, not just a hand-out.

Why bother? Because it is right.

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