Parliament packs up for the summer holidays on Tuesday. This time last year, Labour was nervous and the Conservatives were enjoying themselves. Now, the positions seem to be reversed. The Liberals are at least consistent – but gallows humour is not very attractive in politics.

There are risks for both main parties over the next year, the biggest of which is that many voters see politics as broken, having nothing to do with their lives and offering no solutions to the country’s problems. As the economy stagnates, politics needs to respond with vigour and imagination.

The danger for the Tories is to become consumed with political tactics at the expense of running the country. That is the most obvious explanation for the lurches and U-turns since the Budget in March. The crudity of George Osborne’s smear campaign against Ed Balls over the LIBOR fixing scandal suggests he is going to fall deeper into the trap.

The risk for Labour supporters is different. According to a recent ComRes poll, 74 per cent of them now expect the Tories to lose the next election. The danger is to confuse being a better opposition with becoming a potential government.

Labour has been calm, united (the attacks on the think tank Progress aside) and quick to point out Tory weakness and hypocrisy. Yet the Tories still stand on 35 per cent in the latest YouGov poll, giving weight to Ed Miliband’s warning after the May local elections that Labour’s next task was to become a magnet for votes, not just a receptacle for them.

Finding a voice

“The left needs to find a voice.” So wrote the historian of Europe and the left Tony Judt in one of his last books, Ill Fares the Land. Judt excoriated the cruelties, injustices and stupidities of western societies. But his book also exposed the main dilemma that parties of the centre left need to resolve.

Judt contended that, in seeking a better future, the left in recent decades has lost sight of the strong inheritance from the past. He advocated “defensive” social democracy, because “the left has something to conserve”.

At a time of austerity and recession, with a madcap reorganisation of the NHS and the Prime Minister’s demotic recycling of Peter Lilley’s 1992 Conservative party conference speech and its “little list” of benefit scroungers and welfare queens, you can see Judt’s point. There is a lot to defend.

Defensive social democracy won Harold Wilson the 1974 elections in Britain (just). More recently, centre-left parties in Denmark and France have kept their heads down and benefited from a swing against the right. But if defensive social democracy delivers a win – and it is a big if – the problem will be with governing. Economic power is shifting to the east, putting huge pressure on tax revenues. Meanwhile social needs are rising – because of economic inequality (including 25 million unemployed in Europe), on the one hand, and social pressures from demographic changes, on the other. In France, President Hollande is facing that reality as he looks to square the financial realities of an independent budget audit with electoral commitments.

Labour’s history is that it wins and governs when it aligns an economic narrative of modernisation with a social agenda of compassion and a political culture of dynamism and pro­gress. In 1945, the story was national renewal; in 1964, the scientific revolution; in 1997, a meritocratic Britain.

Today, Labour has a disruptive economic narrative – that Britain needs fundamental change in its market structure and culture to compete in the modern world. This is bold. Given the crash, it is also necessary. We could do worse than take Vince Cable’s 2012 Budget submission to the Chancellor, bemoaning the lack of a plan for growth and setting out how to deliver one, and promise to implement it.

There are big choices on social policy, too. Three areas cry out for attention: housing, childcare and eldercare. The fiscal situation is bleak. Labour needs to make “switch spends”, the difficult process of shifting expenditure to reflect priorities, not just renew commitments to “tax and spend”.

The think tank IPPR has proposed that housing benefit and housebuilding budgets should be combined and devolved to cities. There would be local decision-making about the balance between rent subsidy and housing investment. IPPR has also shown how a ten-year freeze on child benefit could pay for universal affordable childcare. Meanwhile, long-term care funding has been locked in the “too difficult” box for three decades because the extra public funding required – which the recent Dilnot commission now estimates to be £1.7bn rising to £3.6bn a year – has never been looked at alongside other funding for old age, from tax reliefs to pensioner benefits.

There are pros and cons to moves in any of these areas. The point is that defence of the status quo cannot deliver our goals. The Nordic countries have used family policy, including childcare, to create jobs and promote social integration. The German Social Democratic Party developed its “dual flexibility” programme – in export industries and the service sector – to drive the country forward. Neither strategy guaranteed votes – but they have helped build economies and societies we admire. We need to occupy that space, building a different kind of social market economy for the modern age.

Opening up the conversation

These are the kinds of issues that Jon Cruddas can get his teeth into as Labour’s policy tsar. He is not a policy wonk – a great advantage. Policy is where choices get made; but it is politics that opens up the choices rather than closing them down. Good politics starts with empathy, proceeds to analysis, then sets out values and establishes the vision, before getting to the nitty-gritty of policy solutions.

Political reform is not a diversion from this agenda. It is vital to it. In developing new policies, Labour cannot afford the old politics of a conversation with itself. Winning the public round to an agenda of real change is not about conference resolutions. It is about daily engagement with the people leading change in communities.

People know that the Tories are empty and tactical. They have rumbled that there is no Cameron “project” for the country. Now they want to discover what ours might be. And here, we have one great advantage. In the 1980s local government lost Labour votes. In the 2010s it can be the forcing house of new ideas on the economy, social security, crime and housing. It can pioneer a different conversation with the public.

People are frightened. Tactical Tory populism can have resonance. Their aim on Europe, immigration and the welfare state is to fuse a story about issues of identity and culture with one about economics. They must not be allowed to pull it off. Serious, credible actions and ideas are the best antidote. Tony Judt said in his book that “social democracy cannot just be about preserving worthy institutions as a defence against worse options”. Sadly, he did not live to contribute to that process, but the message is right. As it plots its next steps, Labour cannot be conservative. The prize is not just winning – it is being able to change the country again. 

David Miliband is the guest editor of this week's New Statesman. The magazine, cover-dated 16 July, will be on sale in London on Thursday 12 July and in the rest of the country from Friday 13 July. Domestic and international purchasers can obtain single issue copies here