As Jack Jones said in 1971, the relationship between trade unions and the Labour Party is a bit like a marriage: "Murder maybe, divorce never".
So anybody hoping that the Refounding Labour reform process, currently coming to a climax after a long period of consultation, might witness a fundamental breach between the two wings of the Labour movement will be disappointed.

It is no accident that the Tories and their media allies see such a breach as a big opportunity. They always have done, ever since the TUC set up the Labour Representation Committee (LRC) at a special conference in February 1900 to gain representation in Parliament for disenfranchised working class communities. The Labour Party emerged from the LRC in 1906.

Party finance

Conservatives were anxious about this threat to their political dominance and, three years later, in 1909, the House of Lords decided in the Osborne case that unions should be barred from financing political representation and activity from their general funds. After vigorous campaigning from the unions, however, the 1913 Trade Union Act made provision for separate political funds to finance their parliamentary representation through a "political levy".

Seventy years later Margaret Thatcher introduced the 1984 Trade Union Act requiring unions to win individual ballots of members every 10 years to retain their political funds. None of these ballots has been lost since but the cost is massive - millions of pounds each time; money that could have funded the Labour Party.

Now there are rumours that the report by the Standards Commissioner, Sir Christopher Kelly, will recommend greater state funding of parties - a good thing - but impose a cap on donations, which will hit trade union financing of Labour - a bad thing if it cuts off 90 per cent of the party's income last year.

So the Refounding Labour project, which Ed Miliband asked me to lead nine months ago with the intention of creating a different type of party capable of winning the next general election, comes against a difficult backdrop.

Since the 1950s membership of most trade unions and political parties has been in decline across Europe's established democracies. By 2005 only 1.3 per cent of UK voters were members of any of the three main political parties, down from nearly 4 per cent in 1983.

Trade union membership has shrunk and changed shape, falling from over 12 million 30 years ago to about seven million today. Britain's unions have lost two thirds of their shop stewards - from over 300,000 in 1980 to only 100,000 by 2004.

Today, unions represent a quarter of people in employment - just 15 per cent in the private sector and 57 per cent in the public sector. In fact, the trade union movement is overwhelmingly public sector with over 60 per cent of all union members working there. The only area where unions have done well is in recruiting half a million more women members - most trade union members today are women.

At the same time Labour's affiliated union membership has gone down by more than half, from a peak of 6.5 million in 1979 to 4.6 million in 1992 and just 2.7 million today.

Not only has the reach of trade unions into workplaces and communities massively diminished, so too has Labour's. With union activists under such pressure at work, small wonder that many rein back on their Labour Party involvement. Where once there were numerous union activists in almost all constituency parties, now they are few and far between.

Room for reform

Yet unions still provide a link to working people that no other political party has. The challenge is to recreate a much more organic link between Labour and the trade union movement, so that we can spread the party's influence throughout the community, especially in workplaces. How, for example, can our elected representatives and constituency parties better engage locally with affiliated members whose names are not even known or accessible to Labour constituency parties, MPs or councillors?

These are amongst the difficult issues I am seeking to resolve. One thing is for sure. We cannot carry on as before. Politics has changed dramatically. People are not "joiners" in the way they used to be - of any party. But many would still consider themselves "supporters". So we have to find new ways to reach out to supporters who might have joined in earlier times, by encouraging the development of a body of registered supporters who are not ready to join the party.

Ed and I are also committed to ensuring that Labour's National Policy Forum becomes more responsive to party members and trade unionists and supports us in developing a policy platform that ­commands popular support at the next general election.

As part of the Refounding Labour consultation, we have been considering how we can introduce reforms to address these issues. Many thousands of party members have got involved and they have told us there is a desire for our processes to be more open, transparent and responsive.

But if we are to make the policy making process more transparent and democratic, party members and trade unionists need to recognise the increased responsibility this places on them. Some years ago, Labour decided to move away from an ­exclusively resolution-based system of policy making towards a more deliberative process. We must reaffirm our commitment to this model, but at the same time we must be frank that there is big room for reform.

If - as he wants to do - Ed Miliband is to give party members and trade unionists more say in policy making, party conference needs reforming too. Over the years, union mergers have meant that those ­affiliated members belonging to unions linked to Labour have become concentrated in fewer organisations, with significant implications for the annual Labour Party conference where union representation used to be much more diverse, industrially and politically.

Trade unionists understand that being out of touch means being out of power. It is why, in the 1980s, the unions helped Neil Kinnock defeat Militant - which brought us out of political exile. Unions have always supported party reforms. I am sure they will want to do so now.

Peter Hain MP is shadow secretary of state for Wales and chair of Labour's National Policy Forum