John Smith's body may lie a-mouldering in the grave, but his ghost still haunts new Labour. In 1992, Labour lost an election when it ought to have won because (or so the conventional wisdom has it) Smith spelt out dramatic increases in taxation on middle-income earners. It has taken a decade to escape the belief, shared by nearly all leading politicians, that the open advocacy of higher taxes invites electoral death. This year's Budget only partially departs from that wisdom. It has been described (by 10 Downing Street, no less) as the last chance for social democracy. But once the applause dies down, and once the heavenly hosts of Smiths and Tawneys and Bevans complete their rejoicing at the two sinners who repenteth, we must face the truth: if this is social democracy, it has become a sad, mousy, timorous little thing.

What was wrong with Smith's notorious shadow Budget in 1992 was its timing. People were struggling with the effects of severe recession; this was not the moment to tell them that the government would take a higher share of their dwindling incomes. Now, after nearly a decade of economic growth, and the Chancellor's apparent success in negotiating an international downturn, the case can be made without inhibition; people are relatively confident that, even if their tax bills go up, their living standards will continue to rise. And the government has rightly made the case that, after years of neglect, public services, particularly the NHS, need substantial investment.

The problem is that the language used to sell higher spending on public services actually undermines social democracy. The public is offered healthcare and education, complete with choice, smooth delivery and value for money, as though they were fast-moving consumer goods. There is nothing here about the public sector's role in creating social solidarity, nor about how the point of its services is to treat people of all incomes and classes equally. On the contrary, ministers present state education in particular as yet another opportunity for the middle classes to seek competitive advantage.

The far greater social democratic failing concerns net income inequality; and it is here that the ghost of Smith haunts most insistently. Gordon Brown has, in effect, introduced a new penny tax, on employers and employees alike, to help finance the NHS. This hits the rich harder than anyone expected, and is a far more progressive move than raising the ceiling on national insurance contributions by a few thousand pounds. But it is nothing like as progressive as abolishing the ceiling entirely or introducing a new 50 per cent band of income tax on incomes above £100,000 a year. The latter would raise £4.5bn, about £500,000 more than is raised by the 1p increase in employees' national insurance contributions. Ministers argue that they do not wish to appear to penalise success. Yet there is plenty of well-rewarded success around: the pay gap grows wider, with average earnings among the top tenth of employees increasing by 7.3 per cent in 2000-1 while the bottom tenth got an average 4.5 per cent.

We know now that Labour did not, as was widely claimed, take a million children out of poverty (defined as those living in families that receive receive less than 60 per cent of median income) in its first term. The true figure was roughly half that. That is not wholly Gordon Brown's fault: to some extent, he is a victim of his own success, because an expanding economy lifts all boats, and those in the middle have simply risen more than those at the bottom. There is also a respectable argument that if most poor people are greatly better off (as they are), their relative position is unimportant. But equality was once central to social democracy. You would not know it from this government. Tax-and-spend may dare speak its name once more; equality still dare not.

Middle East: keep out

As Lindsey Hilsum observes on page 16, the full truth of what happened in the West Bank town of Jenin in recent days may not be known for months, if ever. All we can be sure of is that the Palestinians will now mark a new day of infamy to compare with the massacres of Deir Yassin (1948) and Sabra and Shatila (1982). But Deir Yassin was committed by a terrorist gang and condemned by the official Jewish leadership: Sabra and Shatila were the work of Israel's Lebanese allies, operating with the tacit approval of the then defence minister, Ariel Sharon, and those atrocities, too, were condemned by the Knesset. This time, the Israeli army itself is responsible and, despite a few brave dissenting voices, it appears to have the support of a large majority of the population. That is a measure of how much has changed and how far the divisions have hardened in the Middle East.

In this situation, it is not much good quoting the Geneva Conventions. No doubt Israel has broken them on the West Bank, but the US also had little time for them in its treatment of prisoners captured in Afghanistan. In proportion to its small population, Israel has lost as many people in the recent suicide bombings as the Americans lost on 11 September. Nor, as Jack Straw, the British Foreign Secretary, said in the House of Commons on 16 April, is it any good pretending that either side has a monopoly of right or wrong.

But that is not how Britain and America behave. They still treat Israel as a friend, albeit a wayward one; in Arab eyes generally and Palestinian eyes particularly, they are all colonialists, or thieves, sticking together. All the hand-wringing means nothing as long as the west continues to finance Israel and supply it with arms. The calls for Israel to withdraw its troops from the West Bank are pointless: another wave of bombings would be succeeded by another punitive military operation, and so on and on. Better by far that Israel is left to do as it wishes (which it usually does anyway) but told firmly that it is now on its own. Mr Straw insists that the conflict "can no longer be managed; it must be resolved". But outsiders have succeeded in neither management nor resolution these past 50 years. Perhaps they should try keeping out.