PM: "It's the economy, stupid"

Tony Blair and Gordon Brown will today tell Cabinet ministers that Labour will use the economy as the springboard for a third successive general election victory.

The prime minister, chancellor and John Prescott met yesterday to agree the slogan for Labour's campaign, which will be: "An opportunity economy."

However, the party suffered a setback after government figures revealed that average household incomes have fallen for the first time in almost 15 years.

The middle classes were hardest hit, according to the Office for National Statistics, with people earning more than £27,000 suffering a one per cent fall in their incomes last year.

The independent Institute for Fiscal Studies said the drop was due to the one per cent increase in national insurance rates in Gordon Brown's 2002 Budget and his decision to freeze personal allowances.

Shadow work and pensions secretary David Willetts seized on the data, saying: "This is a devastating evaluation of what Labour have done to hard-working families. On average, they got poorer last year compared with the year before."

In a further blow, the IFS also said that Labour was now "more likely than not" to miss its target of lifting one million children out of poverty.

Despite the problems, Labour is preparing to combine its vision for Britain's economic future with a relentless attack on Conservative public spending plans.

Writing in the Times, Tony Blair says the Howard Flight episode has highlighted the differences between the parties.

He says that the Conservatives are now shown to be in favour of public spending cuts.

"It would be disastrous to cut off the investment just when it is producing results," he says. 

"This is the central difference between new Labour and the Conservative Party. They do not accept the direction we have set for public services."

Today's Cabinet meeting will discuss the manifesto and key undecided issues, such as the future of House of Lords reform.

Marking his re-engagement with the campaign, Gordon Brown will today visit marginal seats in south London to highlight Labour's plans for childcare investment and education and training. He will also speak at a housing policy launch tomorrow.

Meanwhile in a two-page feature today, the Guardian analyses public services today against the commitments given by Labour in 2001.