The Guardian this morning has a story that tells us a great deal about the state of the New Labour Party. Apparently a 'fierce' debate has broken out on equality.

What passed for the Left in the Blair-Brown coalition is now attemping to drive the forthcoming election manifesto in a more traditionalist and 'progressive' direction.

We should always be cautious about this sort of story. It is 'kite-flying'. Proposals, as in this case, for an attack on high pay in the public sector and for increased taxes on family assets are flown high into the air to see if they can be sustained on the political breeze.

It does not take a cynic to see that the common denominator in these two proposals (touted to be responses to a report on equality commissioned by Deputy Prime Minister Hariet Harman) is money, both cutting its expenditure and raising more for the benefit of Government.

In the event of Labour returning to Government (increasingly unlikely but still not impossible), a 'progressive' Government is going to be forced to make massive spending cuts. It has to make this palatable to its core vote in the public sector.

These particular measures are designed to ensure that the highest ranks of the civil service set an example for lower level pay freezes and even cuts to preserve jobs across the sector and to raise funds from those in the upper middle classes who have managed to hold on to their assets in a recession.

They also increase the policy water between New Labour and the Tories. The Tories, if they have to make choices, will only make necessary tax increases to balance the budget. All their efforts, as we have suggested elsewhere, will be on cutting the fat in the public sector - and that means job losses.

We should not be too hard on New Labour but there is little idealism in the coming calculations. It is not just that New Labour is slipping towards unprecedentedly (at least since the 1930s) low shares of the vote or that a coming by-election seat needs to be held on a traditionalist Scottish Labour vote.

New Labour is now in survival mode. The next three or four months require tough calculations on how far to go towards Harman's 'progressive' agenda or whether to try a last-ditch effort to woo back the middle classes who voted for Blair.

The route that New Labour goes will tell us whether it thinks it can win or not. And by survival, we do not mean just as a Government, but as a party. The Sunday Times reported at the weekend on the depth of the party's financial crisis. Private sources have confirmed its seriousness.

Local parties are resistant to putting their assets on the line as guarantees for bank loans and they are politically right to do so. If the property assets in the localities fall into the banks' hands and are then sold off, the material infrastructure of a national party could be destroyed over night.

On the other hand, the trades unions are not in a position to bail out the party or offer their own guarantees. Their own memberships would not be universally happy and may have legal cause to challenge any funding that goes beyond the approved - approval for good money after bad is unlikely.

The pressure is also growing for increased working class representation on the Left. The loyalist representative of the Labour Representation Committee got a bit of a rough ride at an RMT-sponsored conference on the issue this weekend when she advocated working within New Labour.

Given their own limited resources and the fear that an incoming Tory Government will legislate their independent political role out of existence if they make a mistake, the trades unions must deliver a cogent traditionalist result for angry workers in a recession in return for any bail-out.

The 'progressive' agenda, increasingly associated with the trades union political officers, the New Labour Left (not to be confused with the 'real' Left) and the feminists, requires Government. Progressive Government requires progressive control of the main centre-left party.

The weight of criticism from both Left and the Tories simultaneously for a simple bail-out of a failed and defeated non-progressive New Labour Party would open up vistas of both division within and legislative action against the trades unions too terrible to contemplate.

Under current circumstances what this means is that the progressives are already making their own gamble on loss of office, driving legislation like the Equalities Bill and the anti-prostitution clauses in the Police & Crime Bill hard and seeking to position themselves for the civil war that will emerge on defeat.

This also helps to explain why an anti-inequality strategy, unexceptionable by historic Labour standards, appears to be being promoted at precisely the wrong time in history - when the Party is at an all-time low in the polls and is ready to lose power. Its purpose is not policy but power.

The puzzling thing to historians and idealists (though not to those who know the Party) might be - why now? The right time to promote such an agenda would have been 2001 when the Party had proven itself competent in office and had a reasonable mandate for a radical agenda.

Indeed the first reaction of angry centre-leftists seems to be not optimism and pleasure at the shift to the agenda that they have fought for but cynicism and renewed anger at the timing. History suggests that this is an opposition agenda, to be ditched when office can be smelled in the winds once again.

The active promotion of a full anti-inequality agenda, even if it gets past Brown and Darling which is to be doubted, moght well stop the drift of centre-left activists and voters from inertia or for voting for other parties. It may even push up Labour's vote by a few percentage points to ensure its survival.

But this is a time of recession when most middle classes are still filled with economic anxiety and distrustful of Government (and most voters see themselves as middle class).

Many small businesses are surviving only by dipping into family reserves. A tax assault on reserve wealth, while Government is bailing out banks, strikes this writer as the height of political ineptitude and a precursor to tax revolt.

Implicit threats to redistribute pensions and then transfer the added value of the house from their children to an inefficient 'bloated' state are going to go down like the proverbial lead balloon. We can be sure that neither Tories nor Liberal Democrats are going to be silent on the matter.

The real purpose of 'equality' promotion at this time is to lay the ground work for the preservation of jobs in the Labour-voting public sector and regions and to mobilise those same workers to vote in their interest.

What was once a class war between workers and bosses is in danger of degenerating into a class war between those working in the market and those protected by the State. The margins of the latter may have nowhere else to go but New Labour within a few months.

We doubt whether Brown or his circle will let this happen but the progressive rhetoric is useful for bamboozling old loyalists and public sector activists into a re-commitment to a Party that is about to lose Government or may only regain it on terms that are unlikely to deliver their agenda.

The Harman Report appears in January so it is interesting to see the debate hotting up as early as November, indicating that something is going on behind the scenes to manage its content. January is convenient because its recommendations can be assessed for inclusion in New Labour's manifesto.

This manifesto will probably have more union input that any since the early 1990s. There are signs that, having been corralled into employment rights since 1996, union political officers are chafing to get a grip once again on social policy and that means the equality agenda.

The probability is that this report will be fine-tuned in content and presentation to make it 'realistic' so that what we will get in the end is a manifesto that drives the equality agenda in populist terms but which contains nothing that would genuinely unnerve Middle England or offer hostages to the Tories.

The prescriptions will be genuine enough but they will boil down to cover for redirecting funds into the white working class areas where New Labour is losing ground to the BNP and extending the tax base to allow New Labour more leeway in holding its attenuated coalition together.

But the stakes for Southern Middle England, potentially overwhelmed by the interests of London, the regions and the public sector vote, grow proportionately, especially if the 'egalitarians' gain power within the Party without an economic recovery funding their ambitions. Redistribution will mean just that.

If the equality 'punt' is managed into something that sells well into the mass of the population who are not well paid or with significant assets (and there is evidence that it might), then a revived New Labour Government now or in a few years could seriously damage upper middle class wealth.

Given Tory grassroots anger at Cameron's decision on Europe, a lot of middle class conservative-minded voters are going to have to choose between their heart (on the national question) and their wealth. History shows that they will tend to choose their wealth.