How new Labour buried the dustbin people

D-Day for British politics - Despite the claims of full employment, the grim reality is that more th

"Britain is working," trumpets new Labour's election slogan on television while Tony Blair's haunted face peeps over the parapet and takes another pounding over his adventures in Iraq. Unemployment is down to 5 per cent, the lowest since 1974, the Prime Minister says. Even the TUC agrees that Blair has put the British labour market on a positive footing. "By European standards, we have very high levels of employment," says the TUC's policy officer Richard Exell. "There's no evidence the government is manipulating the figures, as the Tories did."

Even in some of Labour's derelict heartlands, where cooking the dole figures has actually been raised to an art form, the old Blair magic continues to weave its spell. Ena Savage, a prominent social activist in Hartlepool, Peter Mandelson's seat, says: "I think Mr Blair should stick to his guns. He should hand Iraq over to a group in the government so he and his cabinet can concentrate on us."

Savage, hovering between hope and despair, acknowledges that Hartlepool still has terrible problems. "Employment's still a bit of a pipe dream on Central Estate, where I live. We're looking at people who may be in a household of three generations of unemployed or sick. We've got call centres, but they've got a big turnover of staff. People don't seem to be able to adjust to it. They go up the wall and leave. Then quite a few go back because there's nothing else."

Thatcherism created these communities of dustbin people; smiling Blairism has institutionalised and buried them. From Hartlepool to Sunderland, from South Shields to Merseyside, from the South Wales valleys to the shattered shipbuilding and mining communities linking Scotland, Yorkshire and Kent, Blair's vision of full employment isn't worth the UB40 it is scrawled on. A blizzard of jargon-led "initiatives" has simply disguised new Labour's failure to bring any significant number of new jobs to the Iron Lady's bomb sites. Airbrushed away from the triumphal figures of official prosperity the legions "on the sick" - including one in four men of working age in South Wales - have disappeared from new Labour's hymn sheet. New research by Sheffield Hallam University's Centre for Regional Economic and Social Research shows that 2.5 million people are out of work in Britain, more than double the official government figure. The centre reckons that, of the 2.1 million on long-term benefit (including sickness benefit), 1.2 million would be at work if the industrial economy had been stronger.

Poverty bores Blair. It is too complicated and lacks the quick-fix glamour of foreign wars. The man was defined by his attitude to street beggars in London during Labour's first term. He suggested they would go away and get a job if only sensible people would stop giving them money. New Labour's finest have learned to walk haughtily past its underclasses, seemingly impervious to the huge social consequences (and staggering cost) of the government's political inertia over genuine regional development.

How can any serious new Labour politician sleep with this? I telephoned the South Shields constituency office of David Miliband, the Blairite cyberclone who used to be head of policy at No 10, and is now minister for school standards. I wanted to ask him how many jobs he had brought to his poverty-wracked town since he was handed the seat in 2001.

"You can't talk to his agent because he doesn't have one," a woman said. "We'll get back to you." They didn't.

I turned to the Coalfield Communities Campaign, which is based in Barnsley. It was formed in 1985 as an independent alliance of local authorities worried about job losses after the miners' strike. In quite a touching way, the campaign remains deeply symbolic for Labour's ambitious movers and shakers - a sort of political Blarney Stone, touching nerve ends of guilt as the last of the coal industry disappears into an oblivion of small-town, "sheds on roundabouts" trading estates. Labour hopefuls on the campaign trail like to drop by, wipe away a tear and talk about their uncle Fred who slaved 40 years man and boy at t'coalface in Slagwhistle Colliery before succumbing to the dust.

Their number in recent months has included Ed Balls, Gordon Brown's indispensable chief economic adviser at the Treasury. Balls has his eye on the safe Yorkshire mining seat of Normanton, next door to Pontefract and Castleford, which is already owned by his wife, the minister Yvette Cooper. The French magazine Courrier International has described him as "le petit Blair du Yorkshire" - not a happy phrase, given his attachment to Brown in the present leadership crisis. People who have met him say he's a nice man, even if he does use phrases such as "neoclassical endogenous growth" when he means "investing in the economy".

However, his political commitment to the real world of labour post-Blair remains untested. Could a Brown government, for example, kick-start the coal industry into new life, as so many governments have done in Europe? Joan Dixon, the coalfield campaign's principal community officer, says: "They seem very reluctant to invest in coal like the Germans and Spanish. I can count on both hands how many pits are left now. So, of course, we spend more and more of our time just trying to keep these few going."

Stephen Fothergill, the campaign's director and a co-author of that grim Sheffield Hallam report on the true extent of unemployment, says: "The primary solution to joblessness isn't New Deal measures. It is getting jobs there in the first place. And, yes, it's possible to see progress on the ground but you have to put that in the context of the scale of the problem in the first place. For example, the Dearne Valley enterprise zone outside Sheffield has created 10,000 jobs, which is undoubtedly substantial. But when you remember that 60,000 jobs went in the South Yorkshire fields alone, you can see there's still a long way to go.

"You can't quote me on this with my coalfield hat on. I'm commenting as a professor. My impression is that, yes, within the Labour Party there's a commitment to social justice and regional development. But - and this is a big but - I'm not convinced they have the mechanisms to deal with those aspirations. In very broad terms, the rhetoric is not matched by reality. Devolution, over which there is confusion, does not necessarily mean you'll solve your economic problems. That requires funding and positive discrimination in the less well-off areas - a whole battery of measures. I am one of the academics who remain unconvinced that there is a real regional policy in place at all."

Other academics were warning the government - even before the 2001 election, when Blair pleaded eloquently for "another chance to finish the job" - that much of British society was deeply troubled. One paper, published four years ago under the title Non-working Classes by the Centre for Economic Performance (CEP) at the London School of Economics (LSE), painted a grim portrait of public deprivation - four million adults and 2.6 million children living in poor households (four times the number in the 1960s) and the highest level of child poverty in Europe. One of the paper's three authors, Jonathan Wadsworth, says today: "Not much has changed since then. The labour market has improved to a certain extent but there's still this problem of two million men of working age who are not in work. That problem hasn't gone away. The government is just tinkering with it with New Deal initiatives. It's the next generation, the children of these people, which is most worrying. There has got to be a much stronger set of regional policies."

The government's response, quietly gaining official approval, is to crack down on what it regards as a primary recruiter to the vast, expensive army living "on the sick". It has identified GPs working in regions of deprivation as the soft touch for sick notes, and wants them out of the loop. Minutes of a recent select committee on work and pensions bemoans the system's "reliance on the medical profession, who may not be the best placed to decide whether or not someone is capable of working". It recommends the job would be in safer hands with "occupational nurses and Disability Employment Advisers".

A glimpse of what may be the future comes from the Shaw Trust, a charity that has a government contract to deliver the disadvantaged to the likes of Tesco supermarkets. Tracey Proudlock, the trust's political affairs manager, did not mince her words when she spoke to me from her office in South Shields.

"We don't support the idea of doctors, because the doctor will not be work-fixed," she said. "He will be thinking about all the bits of a patient that don't work, while we believe you're much better off talking to someone about solutions to your condition. That's where we come in. It's not cheap, but we're going for broke, returning 100 disabled people a month into work to get rid of the myth that such people are parasites."

Proudlock was reluctant to say how much the government paid for the trust's services. "It's a fixed fee but I can't tell you what it is," she said. "If the high street employment agencies knew, they might steal our business. I can tell you it's not cheap. We don't do it for nothing. What the government is saying is: 'This is what it costs us to keep them unemployed. This is what they'll pay us if they go back to work.' They're trying to work out a formula because it's public money. I'm being very blunt about this. That's how it is in the market place. Hearts and minds don't really come into it when you're running the country."

Proudlock's views, with their whiff of Victorian "realism", define Blairism and the kind of society that the government has moulded. The slogan "Britain is working" conceals a weird geo-economic landscape dominated by the glittering pinnacles of the rich and super-rich. Below that, on a tundra stretching to infinity, the larger population toils longer hours and for less pay than in any other country of old Europe. In the middle of an overheated property market, where many rely on inflated housing equity to finance holidays and new cars, they have little time, or inclination, to pity Blair's hidden legions of sick and unemployed. Too many people think that they, too, will sink when the property balloon bursts over their heads. Middle-class emigration to a better life in Europe is rising dramatically.

The slow burn-out of compassion - the oxygen of Blairism in 1997 - is a recent phenomenon in British society. Even at the LSE, once famous for sit-ins and street demos, the barricades are looking musty. I was discussing this with Professor Hugh Stephenson at the CEP. "Funny you should mention that," he said. "The single most depressing moment for me in the past year actually happened here, where I work. On fine mornings the young gather underneath my office window to drink their coffee. So I listen. And one day I heard a group of them spend an entire 20 minutes discussing the relative merits of their Bupa policies."