So what's the next big idea that would recapture Middle England from the Tories?

The Labour Party’s defeat at the May 2010 general election, after thirteen years and three consecutive terms in office, has triggered a vigorous debate within and beyond the party about the reasons for its defeat and the legacy of New Labour.

The ambivalence surrounding New Labour’s legacy has been reflected in the fact that, since its May 1997 triumph, the Labour Party has haemorrhaged 4.9 million votes, 160 MPs, lost more than half of its party membership and become financially insolvent.

New Labour’s 8.6 million votes and 29 per cent share of the votes cast, constituted its lowest share at any United Kingdom general election since 1918  save one — its 8.5 million votes and 28.3 per cent share in 1983.

The debate about New Labour’s legacy has been given additional urgency by the momentum created by the Coalition’s programme for government, June’s ‘emergency’ budget, and forthcoming spending review, whose publication on 20 October 2010 will provide the definitive statement of the extent to which New Labour’s core ideas and policies have been modified or abandoned.

At the same time, the very real prospect that the Cameron/Clegg coalition’s tenure might be measured in months rather than years has meant that the Labour Party’s new leadership may be given little time for reflection upon how much of New Labour’s legacy should be retained or jettisoned.

In The Third Man, his memoirs of life at the heart of New Labour, Peter Mandelson claims that ‘New Labour shifted the centre of gravity of British politics. National elections could now be won only by appealing to a broad constituency of voters in the centre ground, with policies that combined a commitment to social justice with respect and support for individual aspiration’.

In truth, New Labour did not shift the centre of gravity of British politics. It won three general elections by colonising the ideological and political territory in Middle England previously occupied by the Conservatives during the 1980s and early 1990s.

Nor did New Labour ever win the battle of ideas. The principal political and ideological legacy of New Labour, precisely because it embraced the Thatcherite counter-revolution in political economy, is that British politics (or more accurately, politics in England) remains stranded on the neo-liberal common ground of entrepreneur and market-led reforms first defined by Margaret Thatcher and Sir Keith Joseph in the late 1970s.  

That ideological counter-revolution and political common ground had been fashioned by the Conservative party’s harnessing of the market liberalism of Friedrich Hayek and Milton Friedman to the traditional principles of British conservatism.

The formation of the Conservative-Liberal Democrat government has formalised a coalition between the party political forces of conservatism and liberalism which had existed ideologically within the thinking of the Conservative Party leadership 35 years earlier. In this respect, New Labour’s defeat and the creation of the Conservative-Liberal Democrat coalition has brought British politics full circle to where it stood in May 1979.

At that juncture, Margaret Thatcher and Sir Keith Joseph’s remedy for national decline was to reverse the trend of postwar social democracy by attempting to roll back the frontiers of the state to restore an enterprise culture in which individual entrepreneurial initiative rather than state dirigisme would once more become the prime agency of economic and social change. However, the consequence of the market liberalisation, deregulation and privatisation which was unleashed during the 1980s, and strengthened and deepened by the Major, Blair and Brown governments’ policies thereafter was the engineering of a series of unsustainable consumer and property-led economic booms, punctured by a series of deep recessions at the turn of the 1980s, 1990s and at the end of the Noughties.

Rather than remedying any of the longstanding supply-side weaknesses in investment, innovation and skills or the long tail of corporate underperformance which had marked the United Kingdom’s relative decline, since 1979 successive Conservative and New Labour governments were able to use, initially, North Sea Oil revenue and privatisation receipts and, latterly, the massively expanded consumer credit, mortgage finance and government borrowing made possible by liberalised financial markets to engineer a series of economic booms and artificially high, but ultimately unsustainable and debt-based living standards.

The immediate effect of New Labour’s economic legacy is to have provided David Cameron political context where ‘New Labour isn’t working’, similar to that which confronted Thatcher and Joseph in May 1979, when their ambition too had been a fundamental shift in popular expectations of the relationship between the state, the individual and the market.

When Cameron became the leader of the Conservative Party in December 2005, he claimed that the lesson the Conservative Party had to learn was that it should acknowledge and come to terms with its victory in the battle of ideas — symbolised by Tony Blair’s New Labour project, and its embracing of the language of macroeconomic stability and fiscal prudence.

Furthermore, Cameron’s Conservatives had to recognise that the Thatcher governments’ cardinal error at the end the 1980s had been to become ‘too much the economics party’. No-one had known what their thinking was ‘about the health service, or the environment, or society’.

Consequently, rather than abandoning Thatcher’s principles of entrepreneur-led and market-led initiative and reform, the Conservative Party under David Cameron would seek to broaden the application of those principles from the economy to society and the reform of welfare.

To this end, the most conspicuous political and economic legacy of New Labour has been fiscal policy. A fiscal inheritance of public sector net debt of £893.4bn or 62.1 per cent of GDP, and total private UK personal debt of £1,460bn or £57,915 per household, has provided George Osborne with the means to portray New Labour’s legacy as one of fiscal imprudence and irresponsibility. It has also enabled both David Cameron and Nick Clegg to portray the Coalition’s current and future plans for public spending as ‘Labour’s cuts’.

The formation of the Coalition, and Nick Clegg’s wholehearted support for a programme of government whose principal domestic priority is the reduction of the budget deficit, has provided the opportunity for David Cameron and George Osborne to attempt to introduce an economic policy agenda far more resonant of the 1980s. As the Institute for Fiscal Studies has noted, not only do the Con-Lib Democrat coalition’s current plans imply the reversal of all of the increases in Departmental Expenditure Limits under the Blair and Brown governments, as a share of national income. They also propose the most prolonged and profound sustained cuts in spending on public services since at least 1945, and far more ambitious than anything attempted during the 1980s.

Cameron and Osborne appear to be seeking to use New Labour’s fiscal legacy as a political weapon to attempt a more radical redefinition of public expectations of the respective roles and responsibilities of the state, market and individual in the provision of public services and welfare than anything which was attempted during the Thatcher or Major governments.

However, New Labour’s greatest constitutional legacy, devolution, has ensured that Cameron and Osborne’s ambitions will be a fundamentally English affair.

David Cameron’s ‘Big Society’ agenda, with its commitment to a new culture of voluntarism and philanthropy, public service reform, and community empowerment, applies to England alone. Control over the resources, policies and services affected by the Big Society had already been devolved by New Labour to the Scots’ parliament and the assemblies in Wales and Northern Ireland.

In a similar vein, the Coalition’s flagship reforms of public services, namely the cancellation of more than 700 ‘Building Schools for the Future’ projects and the creation of ‘free’ schools, coupled with the devolution of health budgets to GPs, and the scrapping of Primary Care Trusts and Strategic Health Authorities, also apply to England alone.

Labour’s next leader will need to concede that New Labour’s economic legacy was a deeply-flawed British model of political economy which bequeathed a poisonous fiscal legacy of massive public and private debt that in turn has fostered a neo-liberal ambition to begin a rolling back of the frontiers of the state more ambitious than that of Thatcherism.

The new leadership must also acknowledge that New Labour’s principal political legacy has been a constitutional settlement that has led to an increasing Anglicisation of the domestic policy debate at Westminster and in the London-based media, which has barely registered in the narratives of any of the major political parties.

Redressing that lacuna of an effective English narrative of democracy and policy will be a prerequisite if the Labour Party is to have any prospect of winning the next general election.

Dr Simon Lee is Senior Lecturer in Politics at the Department of Politics and International Studies, Hull University. He is the author of ‘Boom and Bust: The Politics and Legacy of Gordon Brown’ and co-editor (with Dr Matt Beech) of ‘Built to Last? The Conservatives under David Cameron and Ten Years of New Labour’. His next book, ‘The Nation We’re In: The State of England’, will be published by Palgrave Macmillan in autumn 2011.