This Minister for Fatcats is Stuck in a Blairite Time Warp

Let us now praise very rich men. So says the business secretary, John Hutton. "Rather than questioning whether huge salaries are morally justified, we should celebrate the fact that people can be enormously successful in this country," he exhorts in his speech tonight to Progress, the Blairite thinktank. "Rather than placing a cap on that success, we should be questioning why it is not available to more people."

This is no throwaway remark. His speech writers' briefings yesterday made clear that this is a challenge to what he sees as entrenched labor party resistance to wealth. He urges: "We must be enthusiastic - not pragmatic - about financial success ... Any progressive party worth its name must enthusiastically advocate empowering people to climb without limits [his emphasis], free from any barrier holding them back."

On the eve of the budget, Hutton means this to be a tide turner, the point where labor kicks off the last irksome remnants of egalitarian nonsense. It is a counter punch to any expectation that Labor's limp jab at the non-doms will be followed by sterner action against exorbitant boardroom pay and the tax-avoiding culture at the top. He's punching a straw man, of course, because no one has suggested capping anyone's pay - unless he means modest attempts to collect their fair taxes.

Hutton carefully repledges Labour to tackling poverty, but says that has nothing whatever to do with how much money people may have at the top. I doubt any Tory front benchers would embrace fatcatism so flamboyantly - if they did, you can bet David Cameron would hasten to squash them. I wouldn't make the same bet about Gordon Brown, though.

This may turn out to be a historic speech of sorts, as it crystallizes everything Labour got wrong over its relationship with the City, private equity and the explosion of extreme salaries in the past decade. There is something almost poignant about how out of kilter with the times Hutton is. Just as the great bubble bursts and the financial world reappraises its recklessness, here is a labor business secretary still mesmerized by cascading cash.

Last week in Rio de Janeiro the Institute of International Finance - the association of global banks - met to discuss for the first time a voluntary code of conduct on pay. This was revolutionary and penitential, acknowledging that a cause of the credit crunch was wild risk-taking with other people's money to secure higher bonuses for themselves. Suggestions included deferral of bonuses until the impact of a strategy was clear, or even clawing back bonuses in the light of later worse performance. A Financial Times leader on Saturday welcomed it: "Bankers do have to understand that if they do not act to curb the worst excesses themselves, regulators are likely to be under fierce pressure to do something." Not if Hutton is in charge of regulation, they won't.

If international banking thinks it has overstepped the mark on pay, why is Hutton stuck in a pre-sub-prime, pre-Northern Rock time warp? In his paean to money, you might expect a cautious backward glance at what went wrong.

History will wonder at Labor's naivety and its fixation on finance, which accounts for only 7.9% of GDP. The City took off when Brown was persuaded to cut capital gains tax from 40% to 10% by those who pretended it would spur start-up enterprises. But as intended by its lobbyists, the effect was an explosion of private-equity buyouts - many sucking the value from public companies and spitting them back out. labor said nothing. When the rich flocked to this new tax heaven, labor boasted that it was the prowess of the City that drew them.

The Institute for Fiscal Studies finds that the richest 10% take 28% of income - and that's only what they declare. Wealth is as unfairly shared as it was before the second world war. In two decades the earnings of the average FTSE 100 chief executive have gone from 17 times the average employee's pay to 75.5 times. Is it deserved? The economics commentator John Plender says too many executives "have come to expect entrepreneurial rewards for managerial performance". Work Foundation reports find no merit explanation for soaring salaries. The Economist annual survey says income is "distributed more unequally than in almost any big rich country except America".

Hutton doesn't dispute the facts; he says they don't matter. Forget envy and egalitarianism. But that's not what voters think: according to British Social Attitudes, 76% think the gap is too wide.This was echoed in February's Guardian/ICM poll, where 75% were concerned about it - the highest figure yet. Politics is the art of touching symbolic issues at the right time - and there is a mood of outrage at the rich taking unwarranted pay and kicking up a stink when expected to pay the same taxes as everyone else. While half the cabinet is trying to strengthen communitarian feelings of Britishness and endeavor, Hutton celebrates people "as individuals not as part of a collective". As belts tighten, voters will feel injustice all the more - but don't hold your breath for the budget speech to catch that mood.

Hutton argues that child poverty can be abolished while "people at the top are very wealthy. It is not only statistically possible - it is positively a good thing". However good, it is profoundly implausible. The only countries to abolish child poverty are also more equal, notably the Nordics. Britain's levels of poverty and inequality are no coincidence.

Politically, Hutton's is the most extreme of a series of recent demarches by the retro Blairites - Flint, Purnell, Straw, McFadden - outdoing each other in promoting counterintuitive, counter-labor policies by being toughest on the weakest. But in the how-Tory-can-you-be stakes, Hutton has hit the jackpot. As they seize the nasty party mantle, this is a challenge to Brown's authority. The decent faction in the cabinet - Cooper, Harman, Johnson, Alexander and the Milibands - may wonder: where is the clunking fist to restrain these increasingly out of order boot boys? This is a gathering heart-and-soul storm.

Cynics might think Hutton's speech a good win-win bet. Either he succeeds in making labor more Tory than the Tories, which he wrongly imagines is the way to win again - or if labor loses, here is his public bid to join Blair in some of the plusher investment bank boardrooms.