"Is here OK?" asks Jon Cruddas as he sits down in an armchair next to a bag of golf clubs. Just above his head is a noticeboard on which is pinned a photograph of him with a big grin holding a giant fish in his hands.

Before we start, he draws our attention to pictures of the house he is building on the wild west coast of County Mayo in Ireland. "Look at this," he says. "Just the mountains, and the Atlantic. Next stop New York. Fantastic!"

His office is a good guide to the man. It is piled high with letters, papers from thinktanks, invitations to speak at universities and learned books about political philosophy. One is a work called Reclaiming Patriotism – Nation-building for Australian Progressives by Tim Soutphommasane, who Cruddas wants to invite to this country "as soon as we can" for Labour brainstorming sessions.

A few weeks ago this delicate balance that Cruddas has struck between real life, politics and academia was rudely interrupted by a phone call from Ed Miliband. "He invited me in and asked me to join his shadow cabinet," Cruddas recalls. The thought alarmed him. "I said to him, 'woah ... look, let's stop there. I am not really into the day-to-day stuff. So I am not interested.' "

The 50-year-old MP for Dagenham and Rainham, who worked for Tony Blair in Downing Street before becoming an MP in 2001, became disillusioned with New Labour in its later years. He thought it lost touch with its ethical roots and the party's founding purpose. He turned down offers to join Gordon Brown's government more than once. When Miliband made his initial offer, his reaction was the same.

But the Labour leader saw the refusal coming. "I thought you would say that," he said to Cruddas. "What about heading the policy review which we need to take to the next stage?"

Cruddas recalls his mind racing. "I was surprised. Blind-sided would be the best description. I thought, 'Why?' Then I thought, 'Why not?' This was the one that interested me."

The country is at a crossroads, Cruddas believes, economically and socially. On issues such as housing, social care and the wider role that the state should play in promoting secure and flourishing lives for all, he fears it is on the edge of a crisis. Given all that, it dawned on him that, if Miliband really would give him freedom in the job to be radical, he had to do it.

In his first interview since accepting the post as head of Labour's policy review, Cruddas is extraordinarily candid. He is clear that the appointment is "a gamble" and suggests that he will quit unless Miliband is "bold". If the party reverts to anything like late New Labour, he will be off. "I refused to join the Labour government because I was unhappy with the shape of it, and the trajectory of it," he says. "It was becoming mechanistic and bureaucratic. It lacked an identity.

"In fact, I stood for the deputy leadership in 2007 to try to change the direction of it. I am the worst person to be a defender of what the Labour government became. That is why it is a bold invitation by Ed, because I am not here just to dust down the record. If it is on those terms, I am not interested."

It was also bold because Cruddas did not vote for Ed Miliband in the 2010 leadership contest but chose his brother David. "I think I made a mistake," he says. "I just thought they were all about the same – but that David Miliband would play better at the box office."

Ed quickly impressed him. "I didn't go to the Labour party conference last year. I heard Ed Miliband's speech on reforming capitalism when I was driving. I stopped my car and started listening. I thought it was the most interesting speech I had heard for some time. He has caught my attention. Some of the stuff he has staked out does touch on the idea of the world changing and politicians being prepared to break out from old orthodoxies and challenge some of their own assumptions. It seems to me that this guy has got a game."

After just a month in his new post Cruddas has already "changed gear". He has torn up Labour's previous policy-making machinery of the past two years, replacing 29 separate policy groups with just three – on the economy, society and politics. He says what the Labour party has lacked since the last election is an "over-arching story".

That story should now, he says, be about "rebuilding Britain" both in terms of bricks and mortar (more housing and infrastructure to create jobs) and creating a sense among its citizens of joint involvement in "national renewal". This, he argues, will involve the unashamed championing of the role of collective action in people's lives – as distinct from the Tory-Lib Dem coalition, which he says wants to "hack back" the public sector and the state.

At the same time it will mean talking up the contribution of those who work in Britain's hospitals, schools and other public institutions. Cruddas wants to claim David Cameron's "big society" idea as the natural project of "true Labour" and make it work by inspiring a sense of national duty which includes and celebrates public service.

"Three of my brothers and sisters are public servants," he says. "The way that the notion of public service is being debased by the coalition in terms of the role of the state is a contest we have got to have. My family joined to make a contribution and I think we have to reclaim that notion of service. All of these ideas have to be framed about a contest on what we want this country to be."

He compares Labour's challenge now – as recession and austerity bite at home and the eurozone crisis deepens across the Channel – with the one it faced in 1945. "The way I look at it would be that in 1945 Labour locked in the organised working classes into an overarching story of national renewal, and that is the equivalent task at hand today."

He cannot give away details of policy, but his broad thinking is radical. He wants to look at the idea of appointing union officials to company boards. He wants to plug the public into the debate on Europe by offering an "in/out" referendum once the shape of the new European Union is known. He wants to reform public services where necessary, but only where that will enhance their role, not as a means of shrinking them and hiving them off in parts to the private sector.

Labour, he argues, cannot afford the luxury of time, because so much damage is being done. "When we lost in 1931 and 1979, it took us 14 and 18 years respectively to get back in the game. Now we are going to try to do that after an even bigger defeat – arguably our greatest defeat ever, in one term. We are obliged to do it because of the scale of the rupture that is occurring in real time around us in every element of the economic and social sphere."

He will not even contemplate "gang wars" between Blairites and other factions getting in the way because, he says, the task is too urgent. "We are beyond that. We have to be," he says. Neither is he bothered about the flak that papers such as the Daily Mail may well throw at him. "I couldn't give a toss," he says.

Some will see Cruddas's agenda as too abstract, too romantic. Others will say that the party's real task – before such grand theorising – is to rebuild economic credibility. This, he says, is already being done by Ed Balls. "If you look at the three crunch calls that Balls has made, he has got them all right," he says. "First, keeping Britain out of the euro; second, recapitalising the banks in 2008; and third, criticising the implications of fiscal constraint. Bang on, on every one. And brave, too."

Cruddas says he will be knocking on the doors of David Miliband and James Purnell in coming weeks to ask them to play their part. He talks confidently of "reforming the band", by which he means enrolling the biggest New Labour beasts, including Tony Blair, behind project Ed.

There may be a little less time for fishing and golf, but he promises an exciting ride. "Things could move quite dramatically if we get it right. But it is incumbent on all of us to step up, roll up our sleeves and get stuck in."