A fierce debate within the government on how to tackle entrenched wealth inequality – possibly through a high pay commission or a tax on assets – is to be ignited by a report ordered by Harriet Harman, the Labour deputy leader and the minister responsible for equalities.
The report is due to be published in January. Early drafts seen by ministers say wealth inequality has deepened, with the rungs on the ladder having grown further apart, reducing social mobility. It is also expected to underline the degree to which access to pensions and housing play a crucial role in entrenching inequalities in wealth and income.
Harman sees the report, which has been commissioned from a team of academics chaired by Professor John Hills, as a political opportunity for Labour to frame a progressive debate on inequality before the election.
Downing Street and the Treasury would be opposed to a new wealth tax, but there may be pressure for a tougher capital gains tax on main homes, or widening council tax bands. It is also likely to lead to calls for wider employee share ownership and home ownership.
The Hills report will challenge the Tory policy of raising the threshold for inheritance tax to £1m and is likely to endorse tax credits as an effective way of redistributing incomes.
Its preliminary findings show "whether it's educational attainment, income, or housing, those from the most deprived backgrounds tend to do worse".
The latest official government figures show 1% of the population owned approximately a fifth of the UK's marketable wealth in 2003, and half shared only 7% of the total wealth. The results are even more skewed if housing is excluded, suggesting this form of wealth is more evenly distributed. Wealth is less evenly distributed than income.
Harman's equality bill, currently going through the Commons, will require ministers, departments and public bodies such as local authorities, primary care trusts, and regional development agencies to consider what action they can take to reduce socio-economic inequalities.
Separately, she has also suggested that the government needs to impose limits on the top end of public sector pay. She told MPs: "We can all recognise that the top of public sector pay has got completely out of hand, with many people being paid more than the prime minister. We need to get a grip on that and sort it out."
The issue was being addressed by Liam Byrne, the chief secretary to the Treasury, she said.
The housing minister, John Healey, has also vowed to force local authority chief executives to publish their salaries, but Harman would like to see some system for controlling excessive pay across the sector.
The shadow chancellor, George Osborne, has already said that new salaries higher than those of the prime minister – currently £197, 000 – would have to be agreed personally by the chancellor. Ten civil servants are paid more than the prime minister, and at least a further 180 public sector executives.
Sir Gus O'Donnell, the head of the civil service, has also admitted that pay in the public sector has got out of hand.
He told a parliamentary select committee last week: "Some of the relativities [in pay] within the public sector are very, very difficult to understand ... When you look, for example, at the differing responsibilities people have and their salaries, there does not seem to be much relationship between them."
He said he would favour a single body to look at high salaries across the public sector.
The senior salaries review body currently advises on the overall salary levels of 8,000 civil servants, judges, senior military officers and NHS managers.
But it has no responsibility for the individual pay of chief executives in quangos, NHS trusts or local government.