The Letters of Kingsley Amis contains a bravura passage in which Amis, writing to Philip Larkin sometime in 1982, complains about the theory of novel-writing espoused by their mutual friend Anthony Powell. "It did suddenly strike me how fed up I was about all those real people and real incidents he'd put in his books," Amis insists. "I thought you were meant to make things up, you know, like a novelist." The prime source of Amis's irritation turns out to be Powell's forthcoming novella, O, How the Wheel Becomes It! The subject is a famous writer who, like Powell, has just had a TV programme made about him. "Couldn't he at least make it a famous art historian?" Amis continues. "Can't he make anything up?"

Had these strictures ever got back to him, Powell would doubtless have replied that there are ways of making things up, and that nearly all of them have some kind of grounding in reality. He would probably also have comforted himself with the thought that accusations about novelists taking their material directly from life have been going strong almost since novels first came to be written. It is over a century and a half, for example, since Dickens, having put a diminutive hairdresser met on his travels into David Copperfield as Miss Mowcher, received such a withering letter of protest that he added an extra scene in which Miss M turns heroine and rescues several people from a fire.

The latest addition to this distinguished roll-call of cannibalisers is Hanif Kureishi, whose new novel The Last Word includes what seems to be a fairly exact portrait of one of our most senior novelists. In fact, having once spent time at an Italian literary festival with VS Naipaul, watched his faultless impersonation of an English gentleman abroad and listened to him abuse the Castilian literary tradition in the presence of one of its representatives, I knew almost from the moment that "Mamoon Azam" stepped on to the page and started offering his opinions on race, politics and the feebleness of all modern writers except himself precisely who Kureishi was taking off.

In fact, most of the great English novels of the 20th century come crammed with supercharged versions of real people. Never mind Powell's 12-volume A Dance to the Music of Time (1951-1976), with its lightly veneered portraits of the musician Constant Lambert and the rackety Soho literary man Julian Maclaren-Ross; Evelyn Waugh's Vile Bodies (1930) draws lavishly on the collection of Bright Young People whose antics Waugh had observed in late 1920s Mayfair, and Amis himself, for all his snootiness about "not making things up", makes hay with his much-disliked father-in-law in Lucky Jim.

There are several explanations for life's infallible habit of transforming itself into fictive art. It is not just, to state the most obvious, that certain novelists have very little creative imagination – more that whatever creative imagination they do have tends to work indirectly. By and large, the average man or woman who sits down at the desk with the aim of composing a novel does not begin by saying "I want to write an expose of the corruption of the Whitehall establishment" or "my theme is the effect of the virtual world on our emotional lives". Rather his or her interest is likely to be stimulated by a particular incident, a scrap of real-life psychology that impresses with its relevance: Cormac McCarthy, for instance, getting the idea for The Road from an evening spent with his son in a motel when the power failed, cutting off communications with the outside world.

None of this, naturally, is to ignore the case of the writer who, with some point to prove or score to settle, simply transfers subject wholesale into text: Somerset Maugham, to take a notorious example, did for Hugh Walpole's reputation overnight by putting him into Cakes and Ale (1930) as the scheming literary careerist Alroy Kear, while Disraeli worked off years of accumulated spite by depicting Thackeray as St Barbe, the embittered critic of Endymion. But straightforward transferral of this kind is relatively unusual. More often, the novelist projects certain aspects of the original – "elaborating the scope a little" was Powell's account of how Maclaren-Ross metamorphosed into the saturnine dandy-novelist "X Trapnel" of Books do Furnish a Room (1971) – leaving less picturesque details behind on the cutting-room floor to create something that is not a mirror image of its subject but, equally, could not have existed without the subject's authenticating stare. Powell's Erridge, Lord Warminster, who wanders diffidently through the early volumes of Dance is a cunning demonstration of this process at work. Tall, cadaverous, ascetic, mingling leftist politics with a weakness for bound copies of Chums and the Boy's Own Paper, "Erry" bears a passing resemblance to George Orwell, but the final portrait leaves Orwell far behind.

Personal experience tends to confirm these assumptions. I only once pitchforked a person I knew directly into a novel to make a point, and that was Miron Grindea, the editor of the international literary magazine Adam, whose respectful attendance on the great and good in his editorials I found highly amusing. I was once supposed to have appeared in a novel, in the character of "R Tranter", the vengeful reviewer of Sebastian Faulks's A Week in December, but a trawl through the Tranter material soon established that the whole thing was a fantasy projection, if only because Tranter seemed to make far more money out of literary journalism than anyone can reasonably expect in these straitened times.

On the other hand, there were one or two moments – notably an episode in which Tranter gleefully trashes a highly regarded work by a famous South American novelist – when I experienced a faint tremor of recognition, the curious sensation of having stumbled on a passage written for me and me alone. For it is a fact that, as a callow 27-year-old I blithely eviscerated Gabriel García Márquez's Love in the Time of Cholera for the Independent's book pages, an endeavour in which I was supported – nay, encouraged – by the paper's literary editor, one Sebastian Faulks.

Absolutely no blame attaches to Faulks for this sly little wave across time. It is how fiction works, and the idea that abstractions of this kind outrage some unwritten law of creative purity is a nonsense. If no one put the people around them into novels, then hardly any novels would ever get written. In the end this tethering in reality can even give the roman a clef an edge over more scrupulously written works, provided the material is properly handled. Even Amis, in his letter about Powell, notes that "me not knowing any of the people he knows means his books must seem better to me than they can do to any of his mates". The real test of The Last Word's merits will come when it is read by people who come to it cold, have never heard of A House for Mr Biswas and have no idea that Naipaul even exists.