Billy Bragg and his guitar have been summoning us to the barricades for the past three decades, and today he's more hopeful for real change than ever before

'Look out the window, Jon," says Billy Bragg, bounding from a low-slung taupe armchair in a swish hotel room that's every shade of brown. He's still fired up from playing to 3,000 people the night before in an old cinema on the Commercial Road in east London, hard by the hallowed anti-fascist ground of Cable Street, and also the house where his mum was born: the last date of a triumphant UK tour on which that characteristically gruff, tender, fervent call to arms of his has – rejoice! – rarely felt more relevant.

With love songs and folk anthems and an unshakeable commitment to democratic socialism, Bragg and his guitar have been preaching a modest, very English kind of revolution from stages up and down the land for more than three decades now, and seriously, he's seldom felt more hopeful something might come of it.

We look out of the fifth-floor window over the frozen rooftops of central London. "Is it cold out there?" he asks. "Is it very cold? Are there clouds – heavy clouds? It looks to me like it's going to snow, Jon. Course, you can never say for sure. But there are things happening now that I've never seen before. Something's moving."

It's difficult, in truth, not to be stirred by the strength of his convictions; he's 53 now, a successful singer-songwriter living in a nice, big house overlooking the sea in Dorset, and still angry. But let's consider the signs.

The first stirrings, he reckons, were in May, when the forces of righteousness won the battle of Barking: all 12 of the BNP councillors elected in 2006 were sent packing, and party leader Nick Griffin given a right kicking in his bid for parliament. (Not, of course, that the victorious Margaret Hodge MP should be counted among the forces of righteousness, since New Labour – Bragg is quite clear about this, and cares because Barking is where he was born – was "absolutely complicit" in the fact the battle had to be fought in the first place.) No, the people of Barking saw the British National Party for what it was, and they ran it out of their town.

"What had happened in Barking," says Bragg, "was that Tony Blair had said: we can take the white working class for granted. Barking and Dagenham doesn't really belong in the south-east of England; it's a post-industrial town. But the people aren't racist, no more than anywhere else. What they wanted was decent social housing, better hospitals, proper schools, decent jobs. They felt disaffected, disenfranchised, and they had the BNP knocking at their door."

So they sought out "the bluntest weapon they could find, to send a message to New Labour – and it was those toe-rags". Four years later, though, they'd looked into the eyes of the beast. They'd understood the BNP was never "going to bring Henry Ford back to Dagenham". They voted clearly and unambiguously, and the BNP was vanquished.

"And what that says to me," says the Bard of Barking, who devoted a great deal of energy to the battle in a town that has, for some years now, boasted a Bragg Close, "is, I'm really quite encouraged. We can trust our fellow citizens."

Bragg's always been an optimist – ever since he bought his way out of the army in 1981, got politicised by Rock Against Racism and a formative Clash concert, released his first record and, in 1983, persuaded John Peel to play it by sprinting round to the BBC with a mushroom biryani when Peel happened to mention, on air, that he was feeling a bit peckish.

"I have to be [an optimist]," he says. "I'm a socialist. I'm a glass-half-full person. Look, if we're going to do this, we have to believe we can, don't we? Nothing pisses me off more than the cynics. Not sceptics. I mean the people who've given up hope, and want you to give up too. Eeyores. The BNP – they're cynics. You know, it's not capitalism or conservatism that's the greatest enemy of those of us who want to make a better society, it's cynicism. Not least our own. We have to guard against our own cynicism, too. Look at me: I once voted for Tony Blair."

But there's plenty to feel optimistic about, he reckons, for this Year of (Possible) Revolution 2011. Things are afoot, and on several fronts. The battle of Barking was just the start. Politics in the second decade of the 21st century are, against all expectations, starting to look quite exciting. "Free market capitalism," declares Bragg cheerfully, sucking on a mineral water, "is in crisis."

Because what people are beginning to grasp, he says, is that we have to find "a way to hold the markets to account – rules to constrain their worst excesses, and to make sure that when the banks fuck up, they're the ones that lose their arses, not us. Self-regulation's an oxymoron. Turbocharged capitalism's tanking: people are coming to understand that unregulated markets are a scam, a profiteering scam."

It was, sadly – if inevitably – under New Labour that the City was raised to its present pinnacle. "All growth is good – that was a dogma shared by all the parties," Bragg says. "But when you've got a chancellor saying, 'I can't do that because the markets won't like it …' Well, a society run by the market isn't a democracy. The market's like fire, you know? Constrain it, harness it, and it'll provide you with warmth and light and heat for your cooking … Let it rip, and it'll destroy everything you hold dear."

He's warming with Essex eloquence to his theme, the boy who failed his 11-plus, who was never expected to do anything but work in the car plant; the young punk rocker whose dad, Dennis, warehouse worker, sales manager for a Barking hat maker, died of lung cancer at the age of 52, when Billy was just 18. ("I'm older than my dad ever was," he says later, outside in the corridor. "That's part of what's made this year special.")

But it's not just the markets that people have had enough of. "There's a whole lot of issues out there beginning to coalesce: tuition fees, bank bonuses, tax avoidance, the decimation of the public sector, fair pay, opposition to globalisation … And what connects them all, Jon? A wishy-washy word called fairness."

But that fairness, he goes on, is "nothing to do with the Big Society I hear David Cameron talking about. It's a society run for the benefit of all, that puts markets at the service of the people, not the other way round. It's a compassionate society."

Which brings us, he believes, to the potential game-changer here, the one big difference between now and, say, 1968: the fact that, these days, "We're living in a post-ideological period."

The people out protesting now, Bragg says, are the first generation ever to be able to talk about socialism without having the long shadow of Karl Marx hanging over them. If, indeed, they even describe it as such. "To be honest, I don't care if it's called socialism," he says. "Anyway, what is socialism but organised compassion?"

Today's young protestors, he points out, "don't need the SWP to tell them what they're fighting for, or the TUC to tell them where to march. They're making their own connections, and at the bottom of them all is an absolute sense of unfairness. That's what's politicised them. Not some abstract interest in dialectical materialism."

He doesn't hold with violence, mind: "One of the lessons of the failed anti-globalisation protests is, you don't change the world by smashing up branches of McDonald's." Nor, he says, are these protestors Thatcher's children. "They're Attlee's children," he insists. "They're standing up and saying, this should be funded from collective provision. Besides, there was a generation between ours and this one, you know. They were Thatcher's children. They went shopping."

And where is music in all this? Back in the days of the miners' strike, of Red Wedge, the Falklands and the poll tax, there was music, wasn't there? So where is it now? It's a question, he admits, that he's thought about a lot. The 60s generation, Bragg reckons, believed they could change the world through music, because their own lives had been changed forever by rock'n'roll.

"It wasn't that simple," he says. "You can't change the world by selling records. But in the 1980s, that helped me, and others like me. Because when Red Wedge and all that happened, the people who ran the music magazines, they'd all been teenagers in 1968. They gave us a platform. Whereas today, it's not accepted for young bands to be political. They need to feel confident, to feel they've got a base, and it's not there yet. It'll come, though. No one wrote about Vietnam until they started conscripting college-age kids."

The musicians of Bragg's generation can help, he believes, by "showing them that they're not the first to have fought the fight. That's the real role of the musician. Look at me. I wouldn't be sitting here if I hadn't once been to see the Clash. But it wasn't the Clash that changed my world. It was the audience. In the office I was working in at the time, there was a lot of casual racism. I didn't like it, but I wasn't big enough to say anything. But then I went along to Victoria Park in Hackney one afternoon, and there were 100,000 kids there who felt exactly like me. So I went back to work on Monday morning, and I knew I wasn't alone. My world hadn't changed, but my perception of it had. And that's the role of the musician."

Changing perceptions or not, Bragg's never been busier. Besides the tour and the battle of Barking, last year he refused to pay his tax bill as long as the government refused to cap bonuses at the Royal Bank of Scotland. He's visited a dozen prisons as part of his Jail Guitar Doors campaign to bring music-making into prisons; he's been working with the Featured Artists Coalition, representing artists' interests in the digital age.

He curated the Leftfield pop-and-politics tent at Glastonbury; appeared at Speakers' Corner; performed in Pressure Drop, "part play, part gig, part installation" at the Wellcome Collection; visited and inspired student sit-ins. And he was in America for the mid-terms.

As a tactical Lib-Dem voter since 2001, he feels "a dreadful sense of betrayal" now they're in government. "They had some positive things in their manifesto, and they seem to have abandoned the lot of 'em." But he is still a firm believer in the benefits of more plurality in politics, and has been active in the Take Back Parliament campaign for voting reform.

He's taken some flak, but hey, "If you stick you arse out the window, you never know if they're going to kiss it, kick it or stick a flag in it." Right now, though, wife Juliet and son Jack – who took to the stage with his dad last night – are waiting down the corridor, eager to start the drive back to Dorset.

Last year was, he says, "a galvanising year", and 2011 will be more so. "I'm excited, really. We should never underestimate the vigour of youth, and their ability to remake the world. We've got a lot to learn from them – their ability to join things up, take the initiative, not hang around and see what Marx would have said. The old men can sit and shake their heads, you know. Or they can follow the students to the barricades. I know where I'll be."

Here's wishing you a very Happy New Year, Mr Bragg.