The politics column - Martin Bright on Blunkett the great class traitor

Blunkett's journey has a heavy symbolism in the Labour movement: new Labour's totemic proletarian he

There was a time, not so long ago, when the ownership of shares was seen as a sin against socialism in some Labour circles. Forget, for a moment, whether David Blunkett broke the ministerial code in his dealings with DNA Bioscience; this latest saga shows just how far we have travelled politically when a Labour secretary of state felt perfectly comfortable buying £15,000 of shares in a get-rich-quick scheme to provide an inheritance for his sons. The fact that he chose to invest in a company with a man who made his fortune selling off renovated council homes provides an added ideological piquancy to the tale.

As Blunkett's credibility unravelled, there were signs elsewhere that Blairism was in deep trouble. It is fitting that the killer blow to the career of such an iconic new Labour figure should be delivered just as the whole edifice began to crumble.

While the cabinet has been squabbling over the details of a largely uncontroversial smoking ban, support for further market-based reform in health, education and the criminal justice system is draining away. Almost every piece of legislation being pushed through parliament is a potential problem for Downing Street: bills on identity cards, religious discrimination and anti-terrorism - all have their significant Labour detractors who oppose the measures on principle.

Senior backbenchers talk openly about a new direction for the party. One former minister and leading dissident described to me what was happening as "completely unsustainable". These are not the usual suspects - thwarted former secretaries of state or stalwarts of the Campaign Group - but true believers in Third Way politics who feel that the long march to the right requires them to justify policies that make Labour indistinguishable from the Conservatives. Downing Street knows how to deal with the "old Labour" and "real Labour" versions of dissent, but "real new Labour" will be a different proposition. "This can't be led by the traditional left," one real new Labour source says. "Part of the answer lies in the set of people who have been modernisers from the start having the confidence not to rubbish the whole lot."

The party leadership should be concerned that the rebels are organising, forming alliances and grouping behind potential leaders. The death of Robin Cook deprived them of a guru, but provided them with a saint. John Denham, chairman of the Home Affairs Select Committee is being touted as a likely successor. His credentials are impeccable. For a start, he is not a rebel by instinct. As a minister at the Department of Health, he was a committed moderniser and in the Home Office he introduced community support officers and backed antisocial behaviour orders. But he is also a man of principle: his resignation as a minister over the decision to go to war in Iraq was, in its way, a more significant moment than Cook's departure. It is more courageous to resign on your way up in politics than on your way down.

Denham is not alone. Other MPs being talked of as sympathisers to his cause include his former Home Office colleague Angela Eagle and even Ed Miliband, one of Gordon Brown's closest confidants. The Prime Minister's decision not to serve a fourth term always made such a real new Labour movement possible. Although the election demanded unity, when the Blairite "ultra" Alan Milburn was put in charge of the manifesto, the writing was on the wall. The rebels decided they would act at the next sign of a rightwards lurch.

The birth of the movement can thus be traced to a precise date, 6 October 2005, when the Health Secretary Patricia Hewitt announced that budgets would be devolved from primary care trusts (PCTs) to GPs, who would be allowed to commission from the private sector. Such bureaucratic detail passes most of the electorate by, but PCTs, set up just three years ago, are institutions that run 90 per cent of healthcare in Britain. The proposals contained in the innocent-sounding Department of Health document that followed the announcement, Commissioning a Patient-Led NHS, have received sustained criticism, including the threat of judicial review by the Royal College of Nursing. To many backbenchers, the new arrangements sound too much like the deeply unpopular Tory system of GP fundholding, which was abolished in 1998.

Except among a small group of committed Blairite apostles, loyalty to the project has always been conditional. The wooing of middle Britain was to be balanced with delivery for the poorest in society. The growing feeling is that this compact has now been breached in health, and the newly published schools white paper showed that it has been breached in education too.

For some time, Blunkett was the guarantee of this compact. For this reason, his journey has a heavy symbolism within the Labour movement: new Labour's totemic proletarian hero has become its greatest class traitor. In the search for a leader of real new Labour, it is worth noting that the Commons register of members' interests shows that Denham holds no company directorships.