Labour must find its faith

One of the most damaging illusions of the "Third Way" has been that you can devise policies which di

All that can be said, in consolation, is that we know why Labour is so unpopular. A swath of policies has offended or alienated all but the hard core of the party's support. And the sum of general resentment is greater than its parts. Nobody now knows what the government stands for - whose side it is on. By attempting to be all things to all voters, it seems to have lost both its moral compass and its nerve. The problems that Gordon Brown was expected to rectify have intensified.

That does not mean he is incapable of putting them right. Indeed, Brown remains the politician most likely to set out a clear picture of the future that Labour wants to create. But he has to demonstrate his conviction as well as his com petence - quickly. Re-establishing the government's moral authority will not be easy. But it is possible. If the Prime Minister fails in that endeavour, the government is doomed.

No doubt ministers console themselves with the thought that some causes of government unpopularity are not their fault. That is true. But they must take responsibility for the inadequacy of their response. The crisis in the United States "sub-prime" lending market was the product of greed and stupidity. Mortgage salesmen earned their bonuses by arranging high-interest loans for families with low credit ratings - expecting that, if their customers defaulted on repayments, the capital would be recovered by repossession of the properties.

It may be that Northern Rock's collapse was the result of ineptitude rather than a willingness to exploit working families. But, like his American counterparts, the company's chief executive has been rewarded for his failure - in his case with a £750,000 severance payment. Social democrats ought to be saying there is a more efficient as well as a more socially responsible way to run the housing market. Yet the government has not offered a word of criticism. Imagine how Margaret Thatcher would have reacted if a trade union had caused an equivalent catastrophe.

It was necessary to rescue the ailing bank - both to protect mortgage holders and to prevent the crisis from spreading. But the way in which it was done implied sympathy as well as support. The Labour leadership appears to identify with the financial sector of the economy and to apologise for its mistakes - at a time when the general public is growing ever more impatient with its inadequate performance and social irresponsibility. I have nothing in common with the deposed directors of Northern Rock other than a mutual inability to run a successful bank. But I have not lost faith in social democracy. Too many men and women at, or near, the top of the Labour Party have. As a result, the government lacks a vision of a better society and - almost as damaging - ministers fail to take the fight to the enemy.

Taking sides has been politically unfashionable for years. Labour as a party of principle has disappeared into the soggy centre ground. No sane social democrat wants a lurch to the left. But the voters expect something better than a promise to revise refuse collection charges and the meaningless apologies that so excite weak-minded journalists.

Many of the people who deserted Labour on 1 May, because of the abolition of the 10p tax rate, had benefited from the cut in the standard rate that it financed. But they thought that penalising the poor was wrong. Labour - which has to appeal to something better than self-interest - should not be afraid to espouse the cause of the least well-off. Margaret Thatcher taught us the importance of bold belief. Politicians who are uncompromising in their convictions attract admiration, even from people with very different opinions. There are dangers in drawing up battle lines. But they are not so great as the hazards of ideological neutrality.

Ten years ago it may have been necessary for new Labour to emphasise its breach with the past. No more neutralism. No more nationali sation for nationalisation's sake. No more talk of withdrawing from the European Union. Some of us were against the 1983 manifesto in 1983, when many of the supporters of "the project" were enthusiastically endor sing it. But the battle for moderation was won long ago. Tragically, the belief that social democracy is more than a collection of benign but philosophically unconnected initiatives was one of the casualties of the war. The shortcomings of the Blairite "project" were almost always the result of either rejection or ignorance of basic social democratic philosophy. Equality of opportunity was regarded as the ultimate social goal because the pursuit of real equality was thought to amount to imposing uniformity. Liberty was defined as the right to enjoy all the benefits of a free society, rather than the ability to make the choices that freedom provides.

Most damaging of all was the sentimental heresy that informed the whole "Third Way" - a belief that it is possible to devise policies which help everybody and disadvantage no one. Gordon Brown knows better. He is the man who said: "Best when we are Labour." He must put that precept into practice.

Winter of Discontent

The decline of faith began a long time ago. The 1976 IMF crisis was interpreted by some members of the beleaguered cabinet as proof that increasingly influential international finance would never underwrite a government of the left. Fear that a bankers' veto would always frustrate progressive policies grew as the global market evolved from aspiration into reality.

The Winter of Discontent of 1978-79 added dis illusion to despair. Men and women who had been brought up to believe that the trades unions were a major force for social justice had to watch hospitals - picketed by porters - turning away outpatients and caretakers turning off the heating in schools where examinations were about to be held.

The 1979 election began years of anguish in the Labour Party during which moderate social democracy was crushed between a mindless left-wing extremism and the growing conviction that Thatcher was right to believe that Britain's salvation lay in ruthless individualism. Then Tony Blair won the 1997 general election on policies that amounted to a compassionate version of the Thatcher prescription. Even convinced social democrats began to believe that electoral expediency required them to proceed with caution. Those who retained beliefs that Labour's left had once dismissed as "revisionist" were treated as if the ideas of R H Tawney and Tony Crosland were as unacceptable as the doctrine of Leon Trotsky.

Some social democratic ends can be achieved by non-social democratic means. Gordon Brown did more to alleviate poverty than any chancellor since Lloyd George. But the gap between the rich and poor has not narrowed. By some calculations it has widened. It was the director of the independent Office for National Statistics, not a Labour minister, who said that reducing inequality is the mark of a civilised society. That goal cannot be achieved by a government that feels it has to propitiate the gods of self-interest by attempting to match Tory reductions on inheritance tax, when conscience must have made clear that there were better ways to spend the money. Neurosis about Labour's past - real and imaginary - is prejudicing the government's future.

It was necessary to wipe the slate clean of some of the slogans that became policy in the days when Labour governments nationalised the shipbuilding and aerospace industries, and thought it possible to subsidise unprofitable companies into viability. There is no sensible argument in favour of returning to the Labour policies of some past and half-forgotten age. Change is essential. But the tragedy for Labour - which may result in its downfall - is the assumption that the change is incompatible with its core beliefs. Governments retain office only if they feel and look confident about the future.

Profit and progress

Social democracy is about much more than economic organisation. To be successful in the pursuit of its abiding objectives, Labour has to have a distinctive position on markets and ownership. Markets are an essential feature of a free society as well as a successful economy. But they are not always the best way of allocating resources.

During his first week as Secretary of State for Work and Pensions, James Purnell said that it was important for the government to be "neutral" between alternative forms of enterprise - public, private and social. He was right. However, he did not accurately represent the posi-tion of the government, which has worked on the assumption that private is always better than public.

Profit is indeed one of the engines of progress and prosperity, but not the only one. Much of what a social democratic government wants to achieve relies on men and women who, by the nature of their employment, cannot receive share options, golden handshakes and giant loyalty bonuses. Unless it inspires them with a vision of the good society that it wants to create, many of its most important policies will fail. To convince the non-commercial sector of its crucial importance, ministers must demonstrate that they are not in thrall to every high-income earner. Does the government really contemplate introducing vouchers which enable the well-to-do to buy places in superior care homes while the poor, unable to afford top-up payments, have to accept deteriorating minimum standards?

The Blairites always claimed that only their policy of accommodating private industry's demands could win elections. If it were ever true, it is not true now. The voting public has grown impatient with entrepreneurs who have no concern for the public good. They may not remember that it was Thatcher's Big Bang that deregulated the financial services market and allowed building societies to become banks and, in consequence, make shareholders rather than mortgage holders their first concern. Yet they know something is wrong with a system that allows directors who have ignored the interests of consumers and employees to receive huge bonuses. That is not how competition is supposed to work.

It should require penalties for failure as well as rewards for success. Too much of the British economy has insulated itself against the consequences of its inadequacy. Yet the government neither denounces nor curtails such conduct.

The financial sector's vulgar excesses provide a vivid illustration of why greater intervention is a political imperative as well as an economic necessity and moral obligation. The tabloid newspapers and the television news prove how popular it would be. Stories of rising fuel prices are prefaced with details of oil-company profits. Giant corporations are excoriated for not doing enough to protect the environment. Multinationals are exposed for paying below-subsistence wages in the developing world.

Commentators speculate about the investi gations by the Office of Fair Trading into alleged price-fixing by the supermarkets. The general public may not know that the Financial Services Authority is to mount a new assault on "insider dealing", but they have read that Lord Stevenson of Coddenham, the chairman of HBOS, told his shareholders: "We've jolly well got to stop bad people doing the modern-day equivalent of bank robbery." Labour ministers - even if only in the cause of their own survival - should be saying much the same.

They often seem to be saying something quite different. The Prime Minister ought to take John Hutton, Secretary of State for Business, Enterprise and Regulatory Reform, aside and tell him everything that is wrong with his view that we need still more millionaires. There is no reason to believe that the very wealthy automatically contribute to the success of the economy. Only the handful of social myopics still claims that, because of the "trickle-down effect", increased wealth at the top of the income scale results in a higher standard of living at the bottom.

A nation in which the gap between rich and poor widens rather than narrows lacks the social cohesion that brings civil peace as well as commercial prosperity. And - the criticism that will hurt Hutton most - admiration for the rich, and for wealth in itself, is last year's shibboleth. It is no longer in fashion with thinking people.

Hutton, it must be said, was not guilty of the worst assault on Labour's essential image. That accolade goes to Caroline Flint, the recently appointed housing minister, for speculating about tenants who refuse to move from welfare to work being evicted from their council property. Nobody is going to put a downtrodden woman and her disadvantaged children on to the street because her husband is work-shy.

So, everybody who read of the suggestion concluded that either Flint was desperate to read her name in the papers or the government wanted to give the impression that it was "tough on scroungers". Such misguided attempts at news management make the government look divided and confused. And they undermine the prospect of Brown achieving the only reputation that can carry him, and his party, to victory. He has to forget the sketch-writers' cheap sniping and be himself - not anyone's creation.

Gordon Brown is a puritan with compassion and conviction. That is the man he must be seen to be: a man with faith in himself and faith in social democracy. As someone once said, there is no alternative.