Things Can Only Get Better

Although his dismissal of Blue Labour (not that it is perfect) reflects the Hard Left's failure to understand that they are really nothing to do with the historic Labour Movement for which there would still be enormous electoral support, Seamus Milne writes:

Less than a year after its sun-kissed dawn, Britain's coalition government is already lurching from gaffe to crisis. From the half-suspended plans to dismantle the English NHS to bottled-out banking reform and next month's alternative vote referendum, the two ruling parties are increasingly divided – internally, and from each other.

Nick Clegg and the Liberal Democrats are facing an electoral meltdown, while one poll this week had Labour level-pegging with both Conservatives and Lib Dems combined. Add to that the punishment David Cameron and Clegg can expect in next month's local English, Scottish and Welsh elections, and the opportunities for Labour to build a credible alternative to the coalition's offer of small-state stagnation and social regression are mushrooming.

But there's a roadblock to renewal. The Blairite diehards and New Labour nostalgics who threw their all into David Miliband's leadership campaign last autumn are still struggling to accept they were defeated. Their expectation of an early Ed Miliband implosion has subsided. But the rearguard action has if anything intensified: more or less coded in public, far less so behind the scenes.

While the new leader called on his party to "move beyond New Labour", Douglas Alexander, the shadow foreign secretary, urged it recently to recapture the spirit of the "mid-90s modernisers". Where Ed Balls has begun to inch the party away from Alistair Darling's arbitrary plan to halve the deficit in four years, the former cabinet minister Hazel Blears has demanded Labour's leadership be more explicit about its "plans to cut" – echoing Tony Blair's recent insistence that Labour should propose cuts more "radical" than George Osborne's.

And while Miliband criticised the last government's record on Iraq, civil liberties, flexible labour markets and inequality, and Balls has apologised for the failure to regulate finance more strongly, the shadow defence secretary Jim Murphy (vying with Alexander as a future rightwing challenger) has declared that Labour must avoid the "quicksand of continual apology".

A powerful grouping among Labour MPs and the shadow cabinet remains convinced, like Blair himself, that the party lost last year's election because Gordon Brown moved away from New Labour – rather than because of the relentless squeeze on Labour's core supporters, Brown's unpopularity and the greatest economic crisis for 70 years.

Their failure to recognise that Labour lost 4 million mostly working-class votes between 1997 and 2005 and that the 2008 crash has changed the rules of the game is at the heart of their "continuity Labour" resistance to the changes needed to carve out a new political economy and electoral coalition.

And while ostensibly loyal to the new leadership, the Blairite right is increasingly relying on the well-funded factional group Progress to create a national network of true believers and candidates for future parliamentary selections. Lord Sainsbury, the former Blairite minister and billionaire, donated £12m to Labour over the past five years. When Ed Miliband was elected leader, however, Sainsbury took his bat and ball away in a huff. But he's bankrolling Progress – which has also benefited from corporate sponsors such as Bell Pottinger, Pfizer and Network Rail – to the tune of £260,000 a year. Progress has become so influential, both Eds feel the need to court it – even as it promotes the triangulation, cuts and privatisation they are edging away from.

Miliband was of course elected by the narrowest of margins, failed to win the majority support of Labour MPs and – like Margaret Thatcher in the late 1970s – is in a minority in his own shadow cabinet. Any parliamentary leader in such a situation would have to make significant concessions to hold the ring. At least on domestic policy, the ever-cautious Labour leader has nevertheless begun to shift the centre of gravity towards the centre-left.

But to go further, he needs to walk on two legs. Without a countervailing pressure to balance the New Labour right, Miliband risks being blocked from making the changes Labour needs to win back its lost voters when Cameron and Clegg finally fall on their swords. Given the weakness of the left in parliament, the ideological vacuum is currently being filled by maverick concoctions, such as Maurice Glasman's "blue Labour" communitarian conservatism of "family, faith and the flag".

That's why preparations are being made to launch a new left-of-centre group of Labour MPs, backed by the unions, in order to bolster Miliband's position. To head off a drift into factionalism, it's likely to be focused on workplace, economic and working-class issues – rather than be a mirror image of a Progress-style outfit.

The Blairites still hanker after a final rupture of the union link that was the last missing piece of Blair's project – and the cause of their undoing in last year's leadership contest. That's bound to be a forlorn hope, even if Miliband is anxious to demonstrate his independence from the unions whose members elected him.

Proposals to water down their influence are likely to surface later this year in the form of a new role for registered "Labour supporters". But in terms of reconnecting with Labour's base, far more significant would be to extend individual voting rights of its 2.7 million affiliated union members – as well as to open up the stitched-up policymaking machine that allowed Blair and Brown to ignore the common sense of members to their cost.

That would be good for Labour – but also for the wider political system. When official politics is dominated by a handful of parties, they have to be genuine political coalitions or they won't reflect the views of large sections of the population. Centralised party control around me-too neoliberal politics has fuelled the crisis of representation of the past decade.

That crisis will continue whether or not the alternative vote passes next month's referendum. AV would deliver more Lib Dem MPs but, unlike proportional representation, doesn't favour better representation for small parties of left or right. If anything, it would be likely to increase the pressures to cluster round the centre.

But whichever way the referendum goes, the tensions between and within the two parts of Cameron and Clegg's coalition look certain to grow. Which only makes Labour's reconstruction and renewal more important – and pressing.