It is a depressing, defining moment. The rejection by Ruth Kelly, the Education Secretary, of a diploma for all 14- to 19-year-olds - and her decision to keep GCSEs and A-levels - is the biggest domestic policy failure of Labour's second term. But it has a deeper significance. This was an opportunity for the next generation of Labour leaders, unscarred by opposition, to show that they could be more radical, more courageous and more modern than their bosses. In this, their first real test, Labour's new generation got an F grade.
The case for an integrated diploma system is overwhelming - which is why Sir Mike Tomlinson, the former chief inspector whose inquiry recommended it last year, received such widespread support. It would strengthen numeracy and literacy, broaden the subject areas studied - in place of the absurd narrowness of A-levels - and end the pernicious division between academic education and vocational learning.
Kelly is full of enmity for those who "snobbishly" undervalue vocational education. But by insisting on separate structures, qualifications and assessment methods for the two streams, Kelly is behaving as the ultimate snob. Labour ministers attack those who apply different standards to academic and vocational learning; then they praise the "gold standard" of the A-level. One has to believe they do not see the hypocrisy, even though it is obvious to the rest of us.
But what makes the retreat so demoralising is that it marks the death of the first policy which, politically, was entirely the work of the next generation. Fifteen years ago, a young researcher at the Institute for Public Policy Research co-wrote a paper called A British Baccalaureate, arguing for a diploma system uncannily similar to the one suggested by Tomlinson. That researcher was David Miliband, who went on to become one of Tony Blair's closest advisers at No 10. Later, as schools minister, he began work on bringing the idea to legislative life. Tomlinson was a key step along the way: he was specifically briefed to look into options for integrating academic and vocational qualifications; he didn't come up with the idea on his own.
Although there were disagreements over whether the labels A-level and GCSE would survive, it was clear they would be folded into a unified structure. Miliband appeared to have convinced Charles Clarke, Kelly's predecessor as Education Secretary. Gordon Brown was warmly disposed, although unwilling to spend any political capital. But the PM was still lukewarm.
What a relief, then, when a fellow young moderniser took over the top education job. Here was a policy that had been worked out and advocated over many years by one of the party's brightest young things, passed on in good shape to the youngest woman to reach the cabinet. The establishment of the diploma system would have shown that, just occasionally, sustained attention and knowledge can drive political action. It would have demonstrated the renewed radicalism that was to energise Labour's third term. It would have announced that there were new kids on the block. Two Labour mantras, "for the many, not the few" and "education, education, education", would suddenly have rung true.
Instead, after a word from the boss - himself spooked by Tory questions on the future of A-levels - Kelly caved in. It is not true, as some reports have suggested, that she never talked to Tomlinson. She met him just after being appointed, before she had managed to read his report. She met him again the Friday before the publication of her white paper on 16 February - to inform him, in conciliatory tones, that she had torn the heart out of his proposals. Downing Street, eager to ensure that Blair himself be seen as the saviour of the A-level, did not even allow Kelly the space to suggest she had reached her conclusions on her own.
It would have been hard for her to go to the wire with the PM, but she had enormous power. Blair could not have risked headlines of her departing on a point of principle weeks after her justly celebrated elevation. At the very least, she could have demanded more time to consider what will certainly be the single biggest issue of her tenure.
Far from representing a new political era, Kelly looks to be another dismayingly "safe pair of hands", characterised by unblinking loyalty. Pandering to Middle England, running scared of the conservative press, backing off from deep-seated change, talking the language of "toughness": far from a generational step-change, it all smells very much like politics as usual.
Andrew Adonis, another Blair adviser, suggested before 1997 that if the PM was serious about education, he should himself take the post of education secretary. On the evidence so far, he has got, in Kelly, the next best thing.
John Kampfner returns next week