Whichever way you look at it, the announcement that Nick Griffin, the leader of the British National Party, might attend a royal garden party at Buckingham Palace is a milestone moment in British politics. For it marks another stage in the transformation of Britain's biggest far-right party from a past of street thuggery to the brink of electoral breakthrough. Griffin could next month become the party's first member of the European Parliament.

The real question is whether it has done that by shrugging off its neo-fascist antecedents and entering the extreme right of mainstream politics – or is it being done by the perpetration of long-running confidence trick upon the electorate? The answer to that lies in the one man whose personal writ runs authoritatively throughout the party. So has Nick Griffin really changed?

There can be no doubting the unsavoury background from which Griffin emerges. It is deep rooted in his family history. His parents met while heckling a Communist Party meeting in north London in 1948. Nicholas John Griffin, who was born a decade later, was as a boy reputedly given by his grandfather some of the more anti-Semitic literature of Oswald Mosley's British Union of Fascists. While at private school in Suffolk aged 13, he was reading Hitler's Mein Kampf and making notes in the margins. "Adolf went a bit too far," Griffin conceded in 2006.

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When Griffin was 15, his father Edgar took his son to his first National Front meeting. When he went up to Cambridge in 1977 to read history and law at Downing College, he founded the university's Young National Front Students group and soon rose through the ranks of the neo-fascist party. Within a year he had become national organiser.

But the National Front fell apart a decade later. Griffin was a key figure in the foundation of one of its successor factions, the International Third Position (ITP), advocating a blood-and-soil alternative to communism and capitalism. In it he praised the black separatist Louis Farrakhan, met David Duke, the former leader of the Ku Klux Klan, travelled to Libya at the expense of Colonel Gaddafi and expressed support for Iran's Ayatollah Khomeini – who also had a strong dislike of Jews, women's rights, homosexuals, liberal democracy, international capitalism, Coca-Cola and McDonald's.

Griffin also spoke darkly about the imminence of civil war, the need for his supporters to be trained on how to resist police interrogation, and the right to bear arms. In 1990 he was involved in an accident, in circumstances which have not been fully disclosed, in which he lost his left eye when a shotgun cartridge exploded in a fire. He now wears a glass eye. The accident happened in France where, a year later, Griffin lost a lot of money when a business project he was involved in went badly wrong. Since then Griffin has survived on a BNP salary of £1,800 a month and by raising pigs and chickens on the smallholding near Welshpool in mid-Wales where he lives with his wife and four children.

It was in 1995 that he joined the BNP, where for two years he edited a magazine called The Rune which, after three years of wild anti-Semitic stories, got him convicted of inciting racial hatred. In the witness box Griffin infamously said: "I am well aware that the orthodox opinion is that six million Jews were gassed and cremated and turned into lampshades. Orthodox opinion also once held that the world is flat." He was found guilty and sentenced to nine months in prison, suspended for two years.

The trial only increased his stature within the fascist Right, and months later he ousted John Tyndall – an old-style jackboots-and-armband neo-Nazi – as leader of the BNP. In 1999, Griffin began the long process of making the party electable in emulation of the successes of Jean-Marie Le Pen in France and Jörg Haider in Austria.

Out went the skinhead leathers and in came the jackets and ties. Out went the street protests and in came electoral campaigning. Out went the outright white supremacist racism and in came the dog-whistle semiotics designed to win the votes of whites disillusioned with Labour and Tories. Policies were "moderated", so that compulsory repatriation of ethnic minorities was replaced by the idea of bribing them with six-figure sums to leave the country. Hate was replaced by fear as the engine of the movement. The palette of prejudice was widened to include bringing back the birch for juvenile delinquents and hanging for paedophiles, rapists, drug dealers and the worst murderers. As leader, Griffin presented as a smartly dressed, Cambridge-educated family man.

Many voters found the change palatable. In 2002, the BNP made an electoral breakthrough to get three members elected to Burnley council. It won further local elections in the following years. By the 2005 general election, the party had quadrupled its total votes and Griffin got 9 per cent of the vote standing at Keighley in West Yorkshire. In May 2006, it doubled its number of council seats from 20 to 44, making gains in traditional Labour heartlands in the East End of London in particular. Its latest tactic is to take up uncontested vacancies on parish councils.

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Disenchantment with the main political parties attracted various subsets of voters to the BNP – sections of the white working class who felt abandoned by New Labour, Tories disillusioned with their party's feeble opposition to Europe and those with an animus against particular BNP targets such as bankers, homosexuals and others. The new suits were not so flashy as to conceal totally the old bigotries, nor were they intended to.

There was not much coherence to it all, as even Griffin's former allies admit. The ITP recently denounced Griffin thus: "He has been a conservative, a revolutionary nationalist, a radical National Socialist, a Third Positionist, a friend of the 'boot boys' and the skinhead scene, a man committed to respectable politics and electioneering, a 'moderniser'. Which is he in reality?" But political coherence is not what the new improved BNP leader is selling.

Islam is now a bigger enemy than Zionism to the man who once backed Ayatollah Khomeini. In 2004 he was secretly filmed describing Islam was a "wicked and vicious faith". He claimed gangs of Asian men were drugging and raping white girls as part of an Islamic plot to take over Britain. He spoke of "Muslim thugs and perverts", "young Paki street thugs" and Britain being "mongrelised out of existence". He was prosecuted for incitement to racial hatred but was acquitted, claiming his target was Islam, not Asians.

Several things have changed here. Griffin has broadened BNP policy to include concerns about unemployment, the environment, farming, crime and sterling as well as its traditional preoccupations with immigration, asylum-seekers and the politics of race. But the context has changed too. Senior politicians such as Jack Straw have voiced public reservation about aspects of Islamic culture. And journalists such as Richard Littlejohn – Griffin's favourite columnist – air many attitudes which echo those of the BNP. Griffin has cleverly played into the concerns raised by hardline secularists on the Left who attack multiculturalism and question whether democracy and Islam are compatible. And he has made common cause with civil libertarians over issues of free speech.

Yet behind the scenes, Nick Griffin has maintained his links with the hard right in Europe and America, where he has spoken on platforms with white supremacists, anti-Semites, Islamophobes and Holocaust-deniers. His continued obsession with a coming civil war or race war also shows how little his politics have changed in 20 years. The BNP's 2005 general election manifesto called for adults who have completed a period of military service to be "required to keep in a safe locker in their homes a standard-issue military assault rifle and ammunition".

Next month Nick Griffin is standing as a candidate in the North-west in the coming European elections. Last time he polled 6.4 per cent there. If he gets a small increase – perhaps to as little as 7.5 per cent – he could get elected. With the electorate so disenchanted with the mainstream parties because of MPs' expenses, that it is a real possibility. It would be a major breakthrough for the BNP. If that happens, Britain's political establishment will have a lot more to worry about than garden parties.

A life in brief

Born: Barnet, 1959. Grew up in Halesworth, Suffolk.

Family: Wife, Jackie, and four children.

Career: Attended St Felix School and Woodbridge School, both public schools in Suffolk. Studied history and law at Downing College, Cambridge. At Cambridge he joined the National Front. In 1995, he joined the British National Party; three years later was convicted of inciting racial hatred after denying the Holocaust. Received a nine-month prison sentence, suspended for two years. In 1999 he became chairman of the BNP. In 2006 he was again arrested for inciting racial hatred, but was cleared at trial. The party has made significant gains, winning a seat on the London Assembly. This week BNP Assembly Member Richard Barnbrook announced he was taking Griffin as his guest to the Queen's garden party.

He says: "Ordinary members of the British public are now really starting to get turned on to the British National Party, because they understand that we're the ones who tell the truth, even if it's not politically correct."

They say: "The only lengthy publication to BNP leader Nick Griffin's name is a diatribe against Jews who, he claimed, secretly control the media." – Denis MacShane, MP for Rotherham