The electoral clock is ticking for Gordon Brown. The next few months will be make or break time for the prime minister and his Labour government.

If Labour is to win the next election - and I believe it still can - it will have to do things differently. There will need to be a fundamental rethink about the policies that are being put before the public. It will not be enough to tinker around at the margins with a raft of well intentioned and worthy small-scale initiatives or projects. The scale of Labour’s difficulties are such that much more will be required.

The local election results of 10 days ago didn’t just reflect the disappointment and at times disillusionment that is part and parcel of being in government for more than a decade. The reasons for such a comprehensive rejection by the electorate went much deeper than this.

Voters saw Labour as being out of touch. No longer on their side, but distant and uncaring.

We have a mountain to climb if we are to win back the support of the public. So we have to make big changes. There will have to be boldness, and at times risks will need to be taken. Some will say that this is a panic response. We must explain that we are responding to changing circumstances internationally and domestically. Above all, the action taken must be part of a clear narrative about the aims and objectives of the government - something that has been badly lacking in recent months.

To win, Labour will need to reestablish the coalition that has delivered three election victories. This will mean demonstrating that, in addition to protecting the vulnerable and tackling injustice, it also understands, respects and rewards those who want to get on in life and are ambitious for themselves and their family.

Developing the fundamentally different approach that is essential will not be easy. For it to be successful it will mean confronting issues that have historically proved most difficult and divisive and in so doing resist the temptation to retreat into Labour's own comfort zone.

To show we mean business and that no area is off limits there is no better place to start than a reconsideration of how we raise our tax revenues.

I accept that this is dangerous and difficult territory. Big changes to our tax system can create a toxic political brew, with the losers shouting loudly and the gainers slipping quietly away to count their money in silence.

So there are clear risks in opening up this debate, but taxation is one of those touchstone issues that have the power to determine the way people vote. For a variety of reasons, Labour has got itself on the wrong side of the argument about both the overall burden of taxation and the means by which we tax people and business.

In the past year far too many decisions about tax have been taken to try to secure a tactical advantage. This has led to some damaging mistakes. Whether in relation to the changes to inheritance tax, capital gains tax, the treatment of nondoms or the abolition of the 10p income tax band, the whole approach has been about political positioning. What has been lacking is a strategic and principled view of how we should change our tax regime. What should be done?

Between now and September consideration should be given to tax reform and a public debate should be launched about priorities. In order to gain credibility with the electorate about the motives behind such a root and branch consideration, an immediate halt should be called to the introduction of planned tax changes pending the outcome of the debate. This would include the fuel duty increase planned for this autumn and next year’s changes to vehicle excise duty.

Any debate about a new tax regime will throw up a huge range of issues. I believe three are of particular importance.

First, the debate about the abolition of the 10p starter rate for income tax has highlighted the need for a fairer system. People want to see a more equal sharing of the burden. Even those who benefit from the recent changes feel unhappy about robbing the £8,000-a-year Peter to pay more to the £40,000-a-year Paul. An approach that raises personal allowances and takes more people out of paying tax altogether is the best way of helping the working poor.

Second, much more needs to be done to link tax revenues directly to those areas where the public wants to see its money spent. This will mean a significant increase in the amount of taxation that is hypothecated for a particular purpose.

Finally, changes need to be made to the relationship between the tax regime and the present system of benefits and credits.

If we are serious about making work pay then it has to be unacceptable that we now have nearly 2m people facing marginal deduction rates from household income of more than 60%. Many will be the working poor who will have been hit by the abolition of the 10p rate.

If they decide to work longer hours to make up for their lost income, they will receive only 40p in every £1 earned because as their income goes up benefits and credits are withdrawn. More needs to be done to simplify the benefits and tax credits system to reward hard work.

In September decisions about the shape and form of a new tax regime should be made. It needs to have broad, popular appeal because it is seen to be fair and reflects the needs and aspirations of the British people. It would have the potential to launch the Labour party to electoral success.

To be a party of government requires courage and conviction, not tactical manoeuvring and political positioning. Now is the time for the Labour party to demonstrate that the days of easy options and avoiding difficult decisions are over. That in order to put the interests of the British people first we are prepared to act now and do so decisively.

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