This article originally appeared on The Guardian’s  Comment Is Free.

We caught up with Miliband as he arrived at St Nicholas Market, a covered labyrinth of stalls owned by independent traders in the city centre a short stroll from the glass and steel of the new Cabot Circus shopping centre. Altogether a suitably Blue Labour sort of place to be.

A throng was already around him as he started his walkabout, answering questions and talking at length to stallholders and shoppers. The owner of the T-shirt stall urged him to “give us hope”. Although the effect of the crowd around him was to make the immediate area impassable, no one seemed to mind too much. The mood was one of warm curiosity rather than excitement, but there was no hostility either. “Oooooh, Ed Miliband”, a woman behind me said to her friend as she reached for her camera-phone to take a snap.

It was said at the time of his election as Labour leader that Miliband would have a few short weeks to define himself or risk being defined by his opponents. Like so much else that passes for political wisdom these days, that turned out to be complete nonsense. The Red Ed tag didn’t stick, but nor did anything else. A country largely switched off politics for the last three years is therefore still getting to know him. Likewise, Miliband is still working out how to introduce himself properly.

His performances in Parliament have improved enormously, as his widely praised tribute to Lady Thatcher showed. It is noticeable that no one calls him “Labour’s Iain Duncan Smith” anymore. But he knows the Commons chamber isn’t the place where he can project himself most effectively. It’s in direct interaction with the voter that his personality is able to come through. So he has been experimenting with different formats, the latest of which is an open air Q&A conducted from a makeshift soapbox.

Outside the market, Miliband braved the drizzle to field questions from all comers for about forty-five minutes. The topics ranged from housing to the economy and Trident. The questioners were polite and Miliband responded with an engaging directness, taking care to remember the name of each of them. The only discordant voice was a shout of “vote Conservative” offered in mischief. Either that or David Cameron is doing better in the dishevelled inebriate demographic than I’d assumed.

The last questioner introduced a sharply political point by putting it to Miliband that the cuts were unnecessary because the deficit could be paid off in full by cracking down on tax avoidance. He wisely declined to agree and said that he couldn’t promise to reverse every Tory cut. Picking up on his conversation at the T-shirt stall, he said he wanted to give hope, but wouldn’t offer “false hope”.

The event and the format seemed to work well. The crowd stayed in place and grew, despite the weather. The couple beside me were surprised and impressed to see a national politician taking questions from the public without the usual stage management. But how do you capture the directness of that format in a way that breaks through given the sheer difficulty of reaching enough voters to make a difference? It’s a problem Labour’s strategists are still grappling with, which I guess means more experimentation.

On the train to Chippenham, I had a bit of time to ask Miliband some questions. I started with the death of Margaret Thatcher and asked why he thought it was important to mark her passing with a collective show of respect by recalling Parliament:

I felt throughout this process, you can disagree profoundly with what Margaret Thatcher did, as I do, but it’s really important to show respect. If you want to be Prime Minister of the whole country, there are lots of people who did admire her and when someone dies, it is one thing to have vitriolic disagreements when somebody’s alive, but once someone’s dead, you can disagree, as I did in the House of Commons, but you should also have respect for those people who took a different view. That’s just the kind of person I am. I think you’ve just got to behave with decency. It would have been tawdry to say no to a recall of Parliament.

Moving on to Thatcher’s political legacy, I put it to him that he was Labour’s third attempt at a response. Old Labour had offered unsuccessful resistance. New Labour decided to reach an accommodation with Thatcherism. How does One Nation Labour differ?:

I’m just wondering about that word accommodation. What New Labour did was massively challenge her social settlement in relation to the public realm, poverty and redistribution. It didn’t challenge it in the same way on economics. So it was an accommodation on the economic parts of the approach, but it was also a challenge on the social parts of the approach.

In relation to me, I think we’ve learned a lot since the financial crisis of 2008. That’s why it’s right to challenge it. What are the points of challenge? They are to deregulation being the answer. They are to a certain type of individualism. Yes, aspiration is important, but a take what you can, in it for yourself individualism is not what I’m for and I don’t think it’s actually how countries succeed. And some of the things we’ve seen at the top of society in the banks, for example, is part of the thing that needs to be challenged. Funnily enough, even some of the bankers are now saying that.

Thirdly, it’s about the idea that government should just get out of the way and that you can have a proper industrial policy or you can have the kind of balanced economy you need if government just withdraws. Actually, all of those things – deregulation, that kind of individualism, laissez-faire government out of the way – all of those things have been challenged. Where are we politically? We are at the moment when the old settlement has broken down and we’ve got to find a new settlement. That’s the challenge.

The short term changes we need, the departure from austerity, are important, but as important are the long-term changes we need to create a responsible capitalism. That is something Labour has always found incredibly difficult to get right. In a sense this is part of modernisation. The Crosland argument was that there’s kind of a new consensus about the way that capitalism works and let’s just distribute the proceeds is a very traditional argument. We’re trying to do something which is quite unusual and difficult for the Labour Party and has never been done in our history, actually, which is to have a left view about political economy which isn’t about nationalising the commanding heights, but isn’t about accepting the old settlement. That’s what makes it tough.

At a time when he was being accused in some quarters of retreating into Labour’s “comfort zone”. I wanted to know how his responsible capitalism agenda differed from the kind of Old Labour corporatism that people were familiar with:

It’s not about public ownership, for example. Somebody shouted form the crowd “are you just a capitalist?” I was tempted to shout back, “yes, I’m a responsible capitalist”. But it isn’t about old fashioned socialism, it isn’t about saying we’re just itching to nationalise the commanding heights or take everything into public ownership. That’s what makes it hard.

It’s interesting, I was at this leaders’ summit in Copenhagen on Friday and a Danish journalist said to me that Tony Blair had the Third Way that united the European left, the Americans and the Brits and you don’t have anything like that. And I said that one thing that’s interesting is that if you think about where the American progressives are and where Britain is, actually there’s been a certain convergence around this idea of responsible capitalism. In other words, responsible capitalism, in its own way, was something that continental Europeans would have talked about and we would have shied away from talking about.

I remember going to this Anglo-French summit in 2009 and seeing this press conference with Sarkozy and Gordon Brown and Sarkozy saying that we need responsible capitalism as somebody of the right. And so, in a way, it’s very different from the past, very different from an Old Labour agenda.

But how do you articulate responsible capitalism to a country that has no deep tradition of it compared to other northern European countries?:

If you take the debate I set off in my 2011 party conference speech, the initial response of the right was to say, “Ed Miliband just wants to sit in Whitehall and pick good companies and bad companies”. Then within three months they were saying, “but we’re against crony capitalism too”. I think the right is much more on the defensive on this than we realise. Yes, Cameron said in his statement about Lady Thatcher that no one wants to go back to 90% tax rates and all that. He didn’t say, “and we all agree that the best government is the least government and we should just get out of the way, deregulation is the answer”, which he probably would have said pre-2008. So that old truth is no longer accepted.

I now see clearly what the pieces of this are. It’s about a proper skills system, a proper banking system, an industrial policy, tackling short-termism, infrastructure. It’s about a suite of things, some of which they have in parts of the continent, some of which they have in parts of Scandinavia, that come together and form a body of ideas around responsible capitalism. I think it’s absolutely where the public is.

I suggested that the initial response to his 2011 conference speech in the Labour Party had been one of nervousness. People agreed with it instinctively, but worried about the political implications. Did he think that was an ongoing issue?:

It’s always like that when you have new thinking. It’s always like that when you try and do new things. Just one point in passing. I met this stallholder – he makes T-shirts, he said “give us hope”. And he was saying, “Labour should be standing up for people like me”. Whether it’s the banks, whether it’s how government understands him. So part of the answer about how you make responsible capitalism sing on the doorstep, it’s about the energy companies, the train companies, about being willing to stand up to those vested interests. It’s about championing things that Labour would never have dreamed of championing, like small business and really saying we are the champions of small business. People are against vested interests in the public and the private sector.

What was really fascinating about Thatcher… I watched this interview she did in 1975, it was a conversation she did with William F Buckley, and then an interview she did on BBC Breakfast in 1995 – two links that somebody sent me. What was really striking was her utter consistency – utter consistency of ideas. That’s partly what I was saying in the House of Commons. She wouldn’t have called herself an intellectual, but she really cared about ideas.

Part of Cameron’s problem is that he was hugging a husky in 2006 and hugging a hoodie in 2007, and now he doesn’t care about the huskies and he wants to lock up the hoodies. There’s no sense of consistency. In a way, people sometimes say that I’m too interested in ideas, predistribution and all those sort of wonky things. Of course you’ve got to make the ideas mean something at the kitchen table, but getting the ideas right, the intellectual foundations, is absolutely crucial. And they’re particularly crucial in tough times. It’s easier in good times. But in tough times you’ve got to have a robust sense of where you stand.

The New Right managed to achieve that consistency of vision by boiling their ideas down to a simple maxim; as Ronald Reagan put it, “government is the problem, not the answer”. Did One Nation Labour have an equivalent theme to run with?

The closest I have to that, and I think it’s really got real power, is that the way economies succeed is not by a few people at the top, but by supporting the many. When all is said and done, that is what drives a lot of this difference. That they really think the wealth creators are the people at the top, and just the people at the top. Really, when they say “set people free”, that’s what they’re talking about: “set them free” and it will all be okay. Whereas actually we know – and this is where government comes in – we know that unless you have the infrastructure that supports the many, government willing to reform the banking system to support the many, the skills system to support the many, the industrial policy, you’re never going to succeed. At its core, that is at least a very big part of the difference.

The train pulled in to Chippenham and the long list of questions I had prepared on welfare, public spending and political strategy had to be put away for another day. Still, I got a clear sense of how Miliband sees a post-Thatcherite world taking shape and his own role in helping to bring it about. He dares to go where New Labour feared to go in challenging many of the fundamentals of her economic settlement.

As we departed, Miliband revealed that he had just discovered that he’d shattered his wrist on holiday ten days before and had been carrying the injury unaware of how serious it was. “Aren’t you in terrible agony?” the doctor asked when he eventually went to have it examined. Apparently not. That resilience has served him well so far. He’s going to need a lot more of it in the next two years.

Stripped of all the Third Wayisms, New Labour could always be summed up as follows: accept defeat and make the best of it because nothing much can really change. That’s why Blair, for all his efforts to claim the mantle of Thatcherism for himself, was really heir to the Tory Wets. His leadership was accommodationist, like Edward Heath’s, not transformative in the true Thatcherite spirit. Thatcher was obviously flattered by Blair’s explicit endorsement of her politics and understandably regarded the creation of New Labour as the pinnacle of her legacy. But it’s equally clear that she had more respect for the likes of Tony Benn and Denis Skinner, and not just because they were easy to beat.

Perhaps it was the presence of so many lapsed Marxists, but New Labour was always susceptible to the idea that the world had reached its historical endpoint. In place of the workers’ paradise the Blairites substituted a free-market utopia of Anglo-American design, which explains why they got on so well with Neoconservatives who had travelled the same path to the end of history a generation before. The victory of Thatcherism was not another phase of British history. It was complete and irrevocable; a “final settlement” as Dan Hodges called it in the Telegraph this week. There is no option for Labour to make the political weather, because only the right can do that. The choice is to adapt or die.

This view mirrors almost exactly what the Tory Wets of the seventies said about the post-war consensus. Keynesianism, nationalised industries, union power and universal welfare benefits had become unalterable facts of life. The Conservative Party would have to accept this “final settlement” if it wanted to be trusted with power. But if history proves one thing, it’s that there’s no such thing as a final settlement, that every victory is provisional and that history itself keeps moving. Thatcher ignored the Wets and overthrew mid-20^th century collectivism in the name of mid-19^th century laissez-faire, yet the clocks didn’t stop. The return of a politics based on the common good isn’t just possible but probable in the grand scheme of history. The only question is whether it can be made to happen here and now.

Tony Blair now occupies the patrician role of Edward Heath, tut-tutting at the follies of his youthful successor, for Ed Miliband self-consciously belongs to the second and authentically Thatcherite school of thought, even though his personal style could hardly be more different. He rejects New Labour’s fatalism and believes that ideas and political will still matter. He aspires not to ameliorate the worst excesses of the Thatcherite settlement, but create a new settlement of his own.

I’m with Miliband, of course, because politics becomes futile if it is reduced to a debate between different versions of the status quo. But I don’t dismiss Blair’s warnings entirely out of hand. Alongside New Labour fatalism there is the equal and opposite folly of those who never gave up the idea of a workers’ paradise as the ultimate end-state and seem to think that we now live in pre-revolutionary times. To such people there is no contemporary problem to which the solution is not more militancy. Blair may be wrong to imply that nothing has changed, but he is right to point out that there has been no straightforward shift to the left either. He is also right to sound the alarm about what will happen if Labour starts to believe otherwise.

To posit a shift to the left or right misses the point about what is unique to the politics of this moment. What we are experiencing is a disintegration of established political categories, which holds risks and opportunities for left and right alike. It is a crisis unlike any other. The Depression of the 1930′s was experienced as a crisis of the market and ushered in the social democratic consensus of the post-war years. The stagflation of the 1970′s became a crisis of the state that paved the way for Thatcherism. The crash of 2008 has produced a crisis of market and state together, which makes the political situation more fluid and the outcome more uncertain.

On welfare, immigration and Europe, shifts in opinion clearly favour the right. On tax fairness, the need for an active industrial policy and attitudes to the City, they create space for progressive arguments and ideas that hasn’t been there for a generation. Whereas New Labour considered the top rate of tax to be a taboo subject, Miliband is using the scrapping of 50p to considerable populist effect. Blair seems to question this, despite a mountain of polling evidence that confirms it. He wants Miliband to conform to public opinion, except when public opinion says something that doesn’t fit New Labour orthodoxy, in which case it must be dismissed as a dangerous mirage.

The same goes for the debate over phone-hacking where Miliband deployed a Thatcherite mix of good timing and guts to change the political weather quite dramatically. This also represents a major challenge to the Blairite world view, both about the scope of feasible change and the nature of Labour’s relationship with the power elites, which is why some Blairites fall back on conspiracy theories about the role of Hugh Grant as the causal explanation. It couldn’t possibly be proof that Miliband is brave and right.

Of course, transformative leaders like Thatcher need opportunity and luck as well as willpower and courage. Perhaps it would be fair to point out that Blair led Labour at a time when its options appeared a lot more limited. Miliband has been presented with opportunities to change the terms of debate and he has seized them. But he may not succeed in winning an election unless Labour also finds better ways to handle difficult questions on things like benefits and public spending where its ability to change the weather is doubtful in the short-term. This is where Blair’s jibe about moving to the right on immigration becomes absurd (this from the man who turned bogusasylumseeker into a single word!). It’s like Jim Callaghan criticising Blair for failing to defend his handling of the Winter of Discontent.

At the end of all this I wonder if Blair’s intervention isn’t really about concern for his legacy rather than concern for Labour. After all, if Miliband succeeds it might be taken as proof that New Labour was an unnecessary diversion rather than the brave exercise in political realism he wants recorded for posterity. And that really wouldn’t do, now would it?

That paradox has not only inhibited the Conservative Party in its faltering attempts to modernise and break free of its “nasty party” image. It has perhaps been even more vividly demonstrated in the reaction of its Labour opponents. Both Tony Blair and Gordon Brown were eager to identify themselves with the Thatcherite legacy one minute while using it as a stick with which to beat the Conservatives the next. The fact that both tactics could be equally effective shows that the country as a whole has never fully resolved its attitude to one of its most remarkable Prime Ministers.

Part of the reason is that Thatcher’s legacy reveals an extraordinary mismatch between myth and reality. She was the small state Conservative who presided over a large increase in public spending; she was the Hammer of Brussels who took the greatest integrationist leap by pushing through the European single market; she was the apostle of freedom who passed section 28, banned trade unions at GCHQ and dismissed Nelson Mandela as a terrorist.

Take the welfare debate today, for example. If the national benefits bill has soared to £200bn it is due in no small measure to the fact that large parts of Britain have never recovered from having the industrial heart ripped out of them in the eighties. For all her faith in the invisible hand of the unfettered market, the private sector never replaced those jobs, either in quantity or quality. Our over-dependence on a mix of high finance and low pay, which New Labour felt unable to change in bondage to the Thatcherite settlement, left us hopelessly exposed when the global economic crisis struck in 2008. The deficit is as much a part of her legacy as the fact that the Union Jack still flies over Port Stanley.

This is the real paradox at the heart of Thatcherism. Free markets do not mean a small state, as Conservatives like to pretend. They mean a bloated, bureaucratic, nannying state that is forced to make increasingly complex and expensive interventions in order to pick up the pieces of a capitalism that fails to create and spread wealth in the way that Conservatives insist it would if only it was left to its own devices. They end with the absurdity of what George Monbiot has dubbed the “capitalist command economy”, with Ministers attempting to impose freedom from Whitehall using bureaucratic decrees, rigged markets and public subsidies. People don’t behave in the way that free market theory says they should, so they must be forced to be free.

Pointing out the contradictions and failures of Thatcher’s record is easy and comforting for the left. The hard part is to acknowledge her political genius and accept that there is an awful lot to learn from her example. One is the power of ideas as the driving force of politics. While colleagues were content to work within the boundaries of the post-war consensus as they had come to understand it, she had the vision to imagine a different possibility and willpower to bring it about. Some called her a conviction politician, others an ideologue. Whatever she was, it was that quality that enabled her to press ahead when everyone else said she was wrong and doomed to fail.

I’m sure I won’t be the last in the coming days to point out that Britain today looks a lot like the Britain of the mid-seventies; beset by economic crisis and a mood of decline, uncertainty, disillusionment and political fragmentation. Margaret Thatcher turned crisis into opportunity with a clarity and determination that deserves respect. I may have hated what she did, but I couldn’t help admiring the way she did it.

Cook’s regret wasn’t just about the war itself, although he correctly anticipated the immense human suffering it would cause. It came also from the knowledge of what it said about the kind of party Labour had become. This was no momentary lapse of judgement. The errors that led to the invasion of Iraq revealed the extent to which Labour had adopted priorities and working methods that should have been alien to its instincts as a party of the democratic left.

Countless books, articles and inquiries have detailed the distortions and omissions by which the Blair government presented a false intelligence picture of Iraq’s weapons of mass destruction capabilities to the British people. But this was always servant to a greater falsehood – the idea that Labour’s position had anything to do with Iraq at all. Until George W Bush decided that Saddam had to go, Tony Blair was content to stick with a strategy of containment. It was his desire to position himself as US ally no.1 that drove the change of policy. Had Bush decided to make an example of a different member of the ‘axis of evil’ – Iran or North Korea – Downing Street would doubtless have produced the case for why that country had to be dealt with.

Blair didn’t have an Iraq policy; he had an America policy, and as a former senior official from the Bush administration confirmed again last weekend, it led Blair to offer the White House unconditional support for regime change come what may.

An often overlooked, but no less important, part of the story concerns the role of the Cabinet and the Labour Party more widely in taking Britain to war. It is clear from the Cook diaries that he and Clare Short were not the only Ministers to harbour serious reservations about Blair’s approach to Iraq as it took shape during the middle part of 2002. Other voices of concern were raised around the Cabinet table only to fall silent as Blair’s determination became clearer. As Jack Straw was candid enough to tell the Chilcot inquiry, he suppressed his own doubts out of loyalty to his leader. Something in the culture of the party prevented the checks and balances that define good government from working.

The Iraq War was the culmination of a process that started in 1994 with the rise of New Labour and reflected its heady psychological brew of arrogance and self-loathing. The arrogance came from a quasi-Leninist belief in Labour as the agent of some great historical mission on behalf of the masses – a traditional conceit of Labourism, admittedly. The self-loathing came from the party’s repeated failure to fulfil that mission, ending in the crushing disappointment of 1992. The conclusion Labour drew from these competing emotions was that it must win at all costs. Power and truth became entirely instrumental to that goal. Anything that got in the way – policies, principles and people – had to be ruthlessly swept aside.

One particular New Labour innovation was to insist that the pursuit of power necessitated an alliance with the powerful – the financial and business elites, right-wing media barons and the White House (regardless of who occupied it). Labour didn’t just have to neutralise their opposition; it had to win their approval whatever it took. The more painful the compromises the better, because it allowed Labour to convince itself that it was finally serious about winning. It became the ideological equivalent of self-harm for a party that secretly despised itself for the failures of the past. Success in 1997 completed the process by infantilising the Labour Party with gratitude to Blair.

These, then, were the essential ingredients of the Iraq disaster: an ‘anything goes’ approach to the truth, a slavish attitude to the transatlantic conservative elite and a party gripped by a cult of mindless leader-worship.

What, then, has changed to make another Iraq impossible? A fair amount, I would argue. Ed Miliband set out his criticisms of the war in 2010, but has sensibly avoided making it a theme of his leadership. It isn’t the point anyway. As ought to be clear, Iraq was a symptom of what was wrong with New Labour, not the cause of it. The greater task is to replace arrogance and self-loathing with the humility and self-confidence Labour needs to be a successful force for change in the future.

I think real progress has been made. Miliband’s willingness to set the agenda on press reform would be hard to imagine under another leader. His advocacy of radical banking reform, higher taxes on wealth and a foreign policy made in London rather than Washington are other welcome departures from New Labour. To be fair, the circumstances are much more favourable to this kind of approach than they were in Blair’s day. The City discredited itself with the financial crash, Rupert Murdoch did the same with phone hacking and even David Cameron wouldn’t touch the Republican Right with a bargepole. Still, Miliband deserves credit for being willing to take positions of principle that conflict with the interests of the powerful.

It is also good that Labour is now being led in a much more collegiate style. Given the circumstances of the 2010 leadership election, it might be argued that this was a necessity. But it also seems to reflect Miliband’s personal preference. He doesn’t marginalise and brief against colleagues that get in his way. He engages with them and tries to find common ground. This is a significant shift from the control-freakery of the past and the main reason why Labour has been able to defy its history by remaining united in defeat. It is essential if Labour is to govern more effectively in the future.

Labour still faces plenty of problems in coping with the legacy disintegration and decline that started with the Iraq War. But the lessons of the past are in the process of being absorbed. It’s a great pity that Robin Cook didn’t live to see the changes that are now being made. I think he would have been heartened by them.

1) Rumours of the Liberal Democrats’ death have been greatly exaggerated.

The circumstances of this by-election couldn’t have been worse from Nick Clegg’s point of view. The vacancy occurred because the Lib Dem incumbent committed a serious crime, the sleaze allegations of the Rennard affair were abysmally handled and the party’s national poll ratings had hit a new low. Despite this and almost three years of being panned and written off, they held on. The Liberal Democrats remain vulnerable in seats they recently captured at Labour’s expense, but in areas where they have been traditionally strong, their support will hold up. Whatever their share of the national vote at the next election, they will probably retain most of their seats, increasing significantly the chances of another hung parliament. Deal with it.

2) Portraying the Liberal Democrats as indistinguishable from the Tories is a dead end for Labour.

Labour activists may get a self-righteous glow from saying that the Liberal Democrats are just as bad as the Tories, but voters don’t agree. Labour made that the main plank of their Eastleigh campaign and it didn’t work. Voters were right to see through it because barely a week goes by without further evidence of serious and growing differences between the coalition partners. There is a silver lining here for Labour. That fact that the Liberal Democrats managed to squeeze the Labour vote suggests that there may still be some mileage in the anti-Tory tactical voting that has benefitted both parties for the last twenty years. Emphasising areas of agreement might be the best way for Labour to unlock that to its advantage.

3) David Cameron has played his best card in trying to see off the UKIP threat and it hasn’t worked.

Cameron must have thought he had blown the wheels off the UKIP bandwagon with his EU referendum gambit. He was sadly mistaken. That’s because he, like most of the political and media classes, continues to make the mistake of thinking that the UKIP phenomenon is primarily about Europe when it isn’t. Vox popping on the campaign trail confirmed the conclusion of Lord Ashcroft’s detailed polling analysis of UKIP supporters – that surprisingly few of them think Europe is important compared to issues like immigration and the economy. We have to stop thinking about UKIP as a single-issue party.

4) Voters are looking for something that conventional politics isn’t offering.

UKIP is very different from Beppe Grillo’s Five Star Movement in Italy, but both share something important in common – a rejection of business as usual politics and the articulation of a popular desire for fundamental change. As I have written before, the last time something like this happened was in the mid-1970s when the post-war consensus collapsed under the strain of stagflation. Thatcherism eventually answered the desire for an alternative, but the consensus it forged has also now run its course. Trying to revive that consensus is a waste of energy. Success will go to the party that defines its replacement.

5) Labour can’t expect to win the next election by default.

Labour shouldn’t dismiss this result or lose too much sleep over it either. Corby is far more representative of the kind of seat the party needs to win if it is to return to power. But it does show that Labour is not the automatic repository of anti-Government sentiment and power is not going to fall magically into its lap however unpopular and unsuccessful the coalition gets. Getting Labour into a winning position from the nadir of May 2010 was always going to be a whole-term project. It is moving in the right direction, but still has a long way to go.

6) Nor can Labour expect to win the next election by mimicking the Tories or tacking towards a centre-ground that no longer exists.

Having come third in one of their key target seats, the Conservative brand looks deeply tarnished this morning. Why anyone sees electoral mileage in copying it I do not know. Nor is there anything to be gained in searching for a long-vanished centre-ground. Voters feel deeply insecure and are inclined to vent their frustrations at immigrants, welfare recipients and bankers alike. They are moving left and right at the same time, supporting welfare cuts and zero net-migration along with caps on top pay that even I consider draconian. I don’t pretend that creating a viable political strategy out of this is easy. But I do think the egalitarian patriotism of Ed Miliband’s One Nation politics provides the most plausible and intelligent basis for working it out. It certainly beats the Blairism-by-numbers approach of those who think Labour can win the next election by dusting off the New Labour playbook of 1997.

Remember, preserving the nation’s credibility with the ratings agencies was the entire rationale for the Government’s rush to austerity in the summer of 2010. The loss of it means that Osborne is now in default, his political credit rating reduced to ‘junk’ status. Even the Chancellor’s expectations of himself seem miserably low for someone touted as the next Prime Minister only a year ago. According to one newspaper report, he has been reduced to telling friends: “My main aim this year is to avoid fucking up the budget”.

Is that all we have to look forward to after five years of economic torment? Don’t we deserve something better? How about a concerted effort to kickstart growth? Or some attempt to stop living standards falling off a cliff? Or any kind of light at the end of the tunnel at all? Apparently not. The most we can hope for is that Osborne will recover enough poise to stop slipping on his own banana skins. What a wretched prospectus.

The Chancellor and his few remaining allies insist that he is the victim of circumstance, that the economic conditions he inherited were much worse than feared and the road to recovery far longer and harder as a result. But it simply won’t fly. The country’s plight, trapped in an economic dead-zone, is the result of bad policy incompetently executed. It arises directly from mistakes made by the Chancellor himself.

Osborne staked his reputation on the idea of “expansionary fiscal contraction” as the key to recovery. Starting from the ideological premise that the public sector crowds out more efficient private investment and initiative, it assumed that lower public spending would, in and of itself, stimulate economic activity. The theory is nonsense, of course, but there have been examples of countries managing to expand their economies in times of sharp fiscal consolidation. The exponents of expansionary fiscal contraction point to Canada and Sweden in the early 1990′s. What they don’t tell you is that in both cases expansion was made possible due to strong growth in the US and Europe respectively that allowed Canada and Sweden to export their way out of difficulty.

It is therefore possible that Osborne might have got away with ‘austerity in one country’ had he been able to surf the wave of continued stimulus spending across Europe and the developed world more generally to compensate for spending cuts and weak demand at home. Cynical as it would have been to free-ride on the Keynesianism of others, it would at least have amounted to a logical strategy. Unfortunately, as soon as they were installed in office, Osborne and Cameron couldn’t resist preaching the gospel of austerity on the international summit circuit and then returning home to boast about how they were leading the world. The damage has been immense. Instead of the rebalancing towards exports we were promised, the UK continues to rack up record trade deficits despite a 25% devaluation of sterling.

If Osborne’s credibility is now at rock bottom, Ed Balls deserves a gold-plated ‘AAA’ rating. Everything he has said about what would happen to the economy since his 2010 Bloomberg speech has turned out to be right. Indeed, I wonder why he doesn’t just quit politics and make a mint for himself playing the markets as the new George Soros. Seriously though, this does raise an interesting dilemma for Labour. One idea often suggested as a way of strengthening the party’s economic credentials is to give the Office of Budgetary Responsibility (OBR) enforcement powers over the fiscal plans of the next Labour government. This would mean Chancellor Balls, who has been consistently right for three years, taking orders from an OBR that has been consistently and often spectacularly wrong in everything it has said since it was set up by Osborne. It may even happen, proving that politics is a crazy business.

And what of the Liberal Democrats? Everything that has happened since May 2010 has shown how right they were to warn about the dangers of cutting too far too fast during the election campaign and how wrong they were to change their minds afterwards. Thanks to Vince Cable and his trusty outrider, Lord Oakeshott, they have probably maintained enough distance between themselves and Osborne’s approach to make a definitive break credible on grounds of principle. But the longer they leave it, the harder it will be to pull off convincingly. If the Liberal Democrats win the Eastleigh by-election this week, perhaps their fear of facing the electorate will start to ease and the odds of an early general election will increase somewhat. Let’s hope so, because the country can’t afford two more wasted years under George Osborne.

All of this means that voters are likely to go to the polls in 2015 with the feeling that something remains profoundly wrong with the state of the economy. In conditions of virtual stagnation, the Conservative plan to run an election campaign on the theme ‘the country is back on track – don’t let Labour ruin it’ won’t be enough. The winning party will need an argument that explains long-term economic failure under both Labour and the Conservatives, along with a plausible vision of reform capable of putting things right.

To the extent that the Conservatives think they have an answer to this problem it involves falling back on what they know best – deregulation, cuts and tax giveaways at the top. Despite the Big Society makeover of Cameron’s now abandoned modernisation, the party cannot shake its ideological conviction that more and freer markets are the answer to everything. So how do they explain the failure of the Thatcherite revolution to deliver this market utopia? By insisting that it didn’t go far enough. Like Trotskyists of old who saw Stalin’s Soviet Union as a ‘deformed worker’s state’, the Conservatives maintain that there’s nothing wrong with Britain that can’t be put right with a heavy dose of revolutionary purity.

Explaining the crash and our failure to recover from it is as much a problem for Labour as it is for the Conservatives, and Ed Miliband has given his own answer today. It is one that deserves our close attention for the radicalism of its intent. In summary, he has declared the New Labour growth model dead. This was basically the Thatcherite settlement with a bit of Fabian statism tacked on. It accepted the premise that markets act as wealth mazimisers when they are left to their own devices and government gets out of the way. It even internalised the idea that societies prosper when wealth is allowed to ‘trickle down’ from the top, hence Peter Mandelson’s infamous claim to be “intensely relaxed” about the “filthy rich” and Tony Blair’s general contempt for egalitarianism in principle.

That was the ‘New’ in New Labour. The ‘Labour’ part consisted of skimming from the surplus of a turbo-charged capitalism in order to compensate for its failures through public service investments and a complex system of in-work benefits. But the idea of marrying social justice to laissez-faire came to a sticky end in 2008. Wealth didn’t trickle down, it concentrated at the top. The decline in the share of national wealth going to wage-earners that started under Thatcher became a real-terms drop in incomes from the middle down. In a bid to maintain their lifestyles, people borrowed ever higher amounts against the nominal value of their homes from de-regulated banks that were happy to throw money at them. The principal drivers for growth in the New Labour years were therefore financial services, public spending and rising household debt. The whole thing was a bubble waiting to burst.

The crux of Miliband’s message is that you cannot build a stable and successful economy on the flimsy basis of trickle down. The distortion of wealth distribution in a financialised, de-skilled, de-industrialised economy that seeks competitive advantage through wage depression and a deregulatory race to the bottom leads to weakened consumer demand and dangerous financial imbalances. One of the most telling parts of his speech was his observation that over the last three decades less than 15p of every additional pound of growth has gone to the bottom 50% of the population while 24p has gone to the top 1%. As Miliband argued, “It’s no wonder our economy isn’t growing when people can’t afford to buy the things that British businesses try to sell”.

Recovery must therefore be built from the middle out, not the top down. It requires an active industrial policy to create more and better paying jobs in the middle, changes in corporate governance to shift the focus from short-term profit to long-term success, a national skills strategy with real training and apprenticeships, rolling out the living wage, new measures to clamp down on rip-off lenders and price-gouging utilities, and radical tax reform to put more spending power in the pockets of the majority.

Miliband’s speech is his most compelling step to take his party beyond New Labour yet. But it is also a challenge to the verities of Old Labour as well. A policy of nationalising industries that merely changed the name-plates without altering their basic structure or behaviour did absolutely nothing to advance social justice and left Labour without a serious vision of economic modernisation at a time when it needed one most in the 1970’s. Miliband is rejecting the failed orthodoxies of state planning and laissez faire and returning to the challenge that Old and New Labour both flunked – that of creating a British variant of the social market economy. While the 10p tax announcement is sure to grab the headlines, his most important commitments for me involved tackling the culture of short-termism in British industry and creating new responsibilities for companies to offer training and apprenticeships. Stakeholder economics is firmly back on the agenda.

For the last two years Miliband’s critics have fallen into two camps – those who argue that he doesn’t have a distinct economic vision and those who say that his vision is dangerously radical. The former can now retire into silence while the latter will have to explain why the economic principles that put other countries of northern Europe at the top of the global competitiveness league can only lead to disaster in Britain. This is an important moment and David Cameron’s floundering response to the speech shows that he’s worried. He isn’t equipped to win a living standards election and he knows it.

This last finding led the Observer to report that “Ed Miliband is failing to repeat Tony Blair’s success in winning over former Tory voters”, a familiar argument of those who question whether Labour is doing well enough to stand a chance of winning the next election. They argue that Labour’s 10% poll lead is soft because non-voters are unreliable, and as for Lib Dems – well, we don’t like them, so their votes don’t really count. It is only by copying the New Labour playbook and tacking right in a single-minded effort to win over Conservative voters that Labour can hope to govern again. Anything else is a foolish distraction.

There are a number of reasons why this doesn’t stack up as an argument and why Ed Miliband deserves much more credit for the progress he has made so far in putting Labour back in contention.  Let’s start by challenging some of the faulty assumptions about New Labour and the 1997 election that tend to skew this debate.

First, Labour won in 1997 by adding 1.96 million votes to its 1992 tally, yet the Conservative vote fell by 4.4 million. Most Conservative defectors therefore either stopped voting or went to third parties (the Referendum Party and UKIP polled 917,571 between them as new parties). When you consider that the Liberal Democrat vote also went down by 756,659 and the Green vote fell by 108,316 (most of which undoubtedly went to Labour, tactically or otherwise), plus the natural turnover of voters leaving and joining the electoral roll, Blair probably won the votes of around a million Conservatives in 1997. That was a major achievement, but a more modest one than most people seem to remember.

Second, the Conservatives won 14 million votes in 1992 and only 10.7 million in 2010. The simple fact is that there far fewer Conservative voters for Miliband to target today than Blair had in 1997 – 3.3 million fewer of them to be exact. We can also plausibly assume that they are less soft in their support for the Conservatives. By extension, there are more Liberal Democrats (836,642 extra) and many more non-voters (almost four million extra) to target compared with 1992-97. Then there’s the bit no one likes to talk about – the additional half a million plus votes for the BNP since 1992. The fragmented character of the modern political landscape makes the task of putting together a winning electoral coalition much more complex and difficult for Miliband than it was for Blair.

Third, Blair had a crucial and often forgotten ally in the shape of good old Father Time. After eighteen years of Conservative government, enough people had forgotten how badly Labour fumbled in the 1970s, while the Conservatives had made enough mistakes of their own to transform perceptions of competence. Eventually, two recessions, the poll tax, Black Wednesday, Back to Basics and turmoil over Europe came to overshadow the IMF crisis and the Winter of Discontent. Miliband is fighting with Labour’s mistakes still fresh in the memory against a Conservative government that continues to get some benefit of the doubt.

Against this very challenging background, a gain of 400,000 Conservative votes at the next election would bear favourable comparison with the one million Blair gained in 1997. So would a win among former non-voters. Remember, one common criticism of the ‘Five Million Votes’ approach of targeting those who stopped voting as well as those who deserted Labour for other parties is that non-voters are often more similar to Conservative voters in their views on issues like welfare, immigration and the economy than they are to Labour loyalists. There is some truth in this, so if Miliband is leading among former non-voters in general – a much broader group that includes people who previously supported the Conservatives – this would obviously disprove the suggestion that he is failing to reach beyond Labour’s core support.

I wouldn’t pretend for a minute that everything is perfect or that Labour is anywhere close to being a sure bet at the next election. The party’s lead in the polls is tentative and provisional, of course it is. How could it be otherwise given the drubbing it took less than three years ago? What amazes me most about the self-styled “realist wing” of the Labour Party is how hopelessly unrealistic most of their expectations are about what can be achieved and how to achieve it. It assumes that a majority would be Labour’s for the taking if only the party’s leadership would adopt the correct tactical positioning: “support Tory spending plans”; “be tougher on welfare”; “hug a banker”. But the idea that we can treat the next election like a replay of 1997 is frankly delusional.

Labour can only win by going where the votes are, and they are not in the same place that they were in 1992-97. There are far fewer Conservatives, quite a few more Liberal Democrats and BNP supporters, and many more non-voters. The implications of this are being explored in the work being done by the Fabian Society and in an eminently sensible and balanced report written by Lewis Baston for Progress last Autumn (Marginal Difference: Who Labour Needs to Win and Where). It eschews the simplistic answers proffered by Labour “realists” as well as the narrow advocates of a “progressive majority” and sets out the choices and challenges for Labour in putting together the kind of diverse electoral coalition required to win.

How can Labour appeal to disillusioned Liberal Democrats and leftish non-voters concerned about social division and the hollowing out of public services while at the same time reaching out to voters who have deserted Labour because of concerns about immigration and public finances? It is difficult, but not impossible. After all, the Thatcherite revolution was carried through with the support of just such an implausible alliance of economic liberals and social conservatives, of blue collar workers and bankers. By setting out a One Nation vision that fuses egalitarian concerns with an ethic of patriotic endeavour, I believe that Ed Miliband has given Labour a chance to achieve something similar. There is a long way to go, for sure, but the evidence suggests that he is making good progress. Labour should build on it instead of dwelling on past glories.

Whether it gets Cameron out of his short-term party management problem remains to be seen, but I can see a number of areas where he has stored up real problems for the future. These are the main areas of weakness, risk and logical inconsistency as I see them.

1. Cameron has not promised an in/out referendum by 2017. He has promised one “when we have negotiated [a] new settlement”. What happens if, as likely, a new settlement proves impossible to negotiate? Will a referendum happen anyway? The phrasing strongly implies not and makes the referendum contingent on a new settlement being in place. Cameron’s preference is to negotiate new terms as part of a general treaty revision involving all member states and linked to eurozone reform. The change in Germany’s position now makes that very unlikely by the deadline of 2017. His fallback is to seek a unilateral renegotiation of the kind that our partners have no obvious need or desire to agree to. The media coverage so far seems to assume that a full renegotiation as described by Cameron is going to happen when the odds are heavily against it. What will happen to public opinion and the Conservative Party when they realise they have been sold another false promise?

2. Cameron has no idea what he wants the future shape of the EU or the UK’s relationship with it to be like. We can’t even say at the most general level that he wants it to be looser because he talks about extending and deepening the single market, the area responsible for the largest and most intrusive amount of EU regulation. He also supports deeper integration among eurozone members, something that is bound to have a significant effect of the UK. We have no clear idea, even in vague outline, about the sorts of powers Cameron hopes to repatriate. At one point he talks about a relationship with the EU based on trade and foreign policy, which would be a much stripped down form of associate membership. Elsewhere he talks about the importance of working together to tackle climate change and organise crime, which is something very different again.

3. Cameron has made the gap between expectations and reality dangerously wide. It is possible that other EU countries might be willing offer some token concessions short of treaty revision, if only to appear reasonable. But they are not going meet Cameron’s minimal demands let alone the expectations of his party. These include the wholesale repatriation of social and employment policy, along with justice and home affairs. Cameron is more likely to repeat the experience of Harold Wilson who began with a renegotiation mandate listing seventeen issues, including dismantling the common agricultural policy, and came back with slightly better access for New Zealand butter. Wilson got away with it in 1975, but Cameron would need more than a fig leaf in 2017.

4. Cameron’s ideas for institutional reform are pitifully thin. He is simply wrong to say that the EU doesn’t have a single market council. It does. It just happens to be called the Competitiveness Council (incorporating the old Internal Market Council). Is that his big vision; changing the name plates on office doors in Brussels? He calls for more accountability of EU decision-making to national parliaments. But this is a purely internal matter. The member states are represented by their governments in the Council of Ministers. How far those representatives are accountable to their national parliaments is a national matter and entirely within Cameron’s power to resolve. If he thinks it’s inadequate, he should do something about it.

5. Cameron doesn’t seem really seem to know whether he wants a flexible Europe or not. He repeatedly talks about the need for flexibility and the right for the UK opt-out of anything he doesn’t like without giving many clues about what those areas might be. In the same sentence he talks about the importance of a single market in which the rules are respected but also the need to be free of “spurious regulation”. We are either in a rules-based Europe or not. If we were allowed to pick and choose the rules we like, then so would everyone else and that would include many of the trade rules we regard as important. Cameron wants flexibility for the things he doesn’t like and one size fits all for the things he does. He is deluded if he thinks he’s going to get it.

The vision of Europe Cameron set out today is full of holes, evasions and wishful thinking. I hope it gets the proper scrutiny it deserves, although I’m sure the media are getting bored to tears with this and will want to move on quickly. I share that view. But bad policy deserves to be exposed and what David Cameron announced today holds real dangers for the future.