If you were making a list of the most off-putting phrases in the language, a contender might be "public information film". Another would be "charity record"; not the least of Princess Diana's achievements is that she inspired 32 million people to overcome record-shop compassion fatigue. Yet the pop recording that may have been more talked about than any other in 1997 (except "Candle in the Wind") started life as a public-information film, and will shortly become a charity record. It is "Perfect Day" by Various Artists, for the BBC.

The film first appeared on 20 September, deliciously unannounced. There was Lou Reed, looking like a leather jacket, singing the first line of a song that is deeply loved but not widely known. When his voice stumbled, on the suitably antiquated line "Drink sangria in the park", his place was taken by Bono from U2, defying the critics with the same soulful ease that he brought to the Band Aid record 13 years ago. You wondered if it was a trailer. It just kept you hanging on.

Up popped David Bowie, who co-produced the original "Perfect Day", swiftly followed by a variety show: the two Johns, Elton and Dr; and the Andersons, Brett and Laurie; reggae singers; soul singers; opera singers (Thomas Allen, rolling like thunder and showing up either the pop stars or his own trade, according to taste); teenyboppers; Britpoppers; folkies; country queens; performance artists; the BBC SO and a gospel choir. Each did a line or two; none sang in unison, except the choir. Behind the singers and between the lines, there were gorgeous Kodachrome colours, kaleidoscopes, and backdrops like lemon drops, and shots of a garden, from dawn to dusk, in which everything was rosy. And then the hard sell: "Whatever your musical taste, it is catered for by BBC Radio and Television. This is only possible thanks to the unique way the BBC is paid for by you. The BBC: you make it what it is."

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It left you with a warm feeling, and the hope that you might bump into it again (the Sunday Times even printed a transmission schedule, which rather missed the point). Arty but uplifting, subtle yet populist, this was the public-information film for people who don't like public-information films.

The BBC received "a massive response" by post, telephone and - the contemporary clincher, the new touchstone of democracy - e-mail. The stars, who had all appeared for a token pounds 250 (and some priceless exposure) were asked if the song could be released as a single. They agreed, and waived any further fees. All record-company profits will go to the BBC's Children in Need appeal; retailers can follow suit or not as they wish.

The information film disappeared after a month - "So people would get withdrawal symptoms," as a BBC spokeswoman put it, in an interesting choice of words. This week it returns, as a curtain-raiser for Children in Need. Next week, it will be on Top of the Pops, and the circle will be complete. We will be spending money on a recording made, on our behalf, to show us how wisely our money is spent.

It could be the biggest hit since "Candle in the Wind", or it could be kept off No 1 by the Teletubbies, or the Spice Girls. When the kids are united, the rest of us don't stand a chance, and "Perfect Day", give or take a glimpse of Boyzone, is for grown-ups. You have to be a householder to buy a TV licence; you have to be a certain age to know and love Lou Reed's album Transformer (though it long remained a steady seller, down in the depths of the Top 200). Reed was never to everyone's taste. He's an artist's artist: "Not many people bought the Velvet Underground's first album," Brian Eno famously observed. "But all of them formed a band of their own."

Nobody has ever chosen "Perfect Day" as one of their Desert Island Discs. For 25 years it has been a well-kept secret, a cult classic. Now, it is turning into a popular one.

It couldn't happen to a better song. "Perfect Day" has the fabulous simplicity of the most timeless pop music. The words deftly sketch a world. The park, the zoo, the movies: this is urban realism, an everyday sort of weekend. It's a Lou Reed lyric in the tradition of "Sunday Morning" - a walk on the mild side. But the tune is something else: slow and stately, with an air of foreboding, especially on the word "home", which says perfection is fleeting, maybe illusory. It seems to be a love song, an ode to an affair that has reached the stage of habit and domesticity without palling; but it leaves room, as we will see, for another view. With its conversational verses and colossal chorus, it is an intimate epic.

For the BBC, the choice of this song has kept their operation free from piety. It's a lecture for people who don't like being lectured. Not that everybody approves of it. As well as acclaim, the film has provoked parody (on Radio 4's Loose Ends), vilification (for wasting licence payers' money - as if those who say this hadn't spent 18 years putting the BBC on the defensive), and above all, suspicion. A stray remark in the Independent, of all places, suggested that the song was about drugs. The Daily Mail licked its lips and rang round Reed's biographers, trying to stand the story up, without success. This didn't stop the Observer blithely declaring that the song was " almost certainly" about heroin. Their evidence was that Lou Reed used to take the drug (undisputed, but hardly conclusive), and that "Perfect Day" was used for the scene in Trainspotting in which Ewan McGregor takes an overdose. The possibility that this might have been counterpoint or irony was not permitted to cloud the issue. Nor was it explained why words should be so indirect. If Lou Reed wanted to write a song about heroin, he did - and called it "Heroin".

Reed firmly denies that "Perfect Day" is a drug song. He would, wouldn't he - but he always did. When Transformer came out, in 1973 (on RCA), he gave an interview to Nick Kent of the NME, which contained several references to narcotics. Kent mentioned a recent poll in another magazine, which had asked its readers to name the person most likely to be the next rock'n'roll casualty. Reed had come second, behind Keith Richards. "Perfect Day" was touched on, but not in connection with drugs. Unpromted, Reed said: "That's a lovely song. A description of a very straightforward affair."

In the summer of 1972, Lou Reed was not news - he was a 30-year-old has-been. His first solo album had been greeted with mixed reviews and worse sales. The Velvet Underground were not as revered as they later became. But he did have one famous and fashionable fan: David Bowie, who had burst on to the scene with "Starman" in June and Ziggy Stardust in July. Reed's manager hired Bowie and his guitarist-sidekick, the late Mick Ronson, to produce the next album. Reed and his first wife Betty rented a house in Wimbledon, where their compatriot Stan Smith had just won the men's singles. Recording took place in August at Trident Studios, in a passage off Wardour Street.

Nothing is known about the writing of "Perfect Day". (Reed has said that the incidents in his lyrics are real, so if anyone reading this ever shared a bottle of sangria with him in Central Park, please will they e-mail us.) During the recording, Ronson is believed to have been more hands-on than Bowie. He played the rather baroque piano, and added the strings. But Bowie lent his fresh-baked stardom and his sexual ambiguity, and the album's most arresting song, the gender bender's theme tune, "Walk on the Wild Side", gave Reed his only hit to date in either Britain or America.

Recently Reed was asked by Vanity Fair what he would regard as the lowest depth of misery. He said: "Being interviewed by an English journalist". So it was less than astonishing when he declined to help with this article. For a first-hand account, I turned to the bass player, Herbie Flowers, later to join T.Rex, later still to join Sky (the jazz-rock band, not the broadcaster).

He remembers the Transformer sessions less than well. "I've done 7,000 recording sessions in my life," he says, from his home in Sussex. But he does recall how long it took, and how much he was paid. "We did virtually everything in three days. One of those magical, unusual happenings. Some bands take a year now. What a waste of time."

And the pay? "Twelve quid a session - the basic rate. And I haven't seen Lou Reed from that day to this. It's wonderful that they're doing this thing, it's a beautiful song and whoever has put it together at the BBC is pretty sharp, but as a wage-earner I'm a bit miffed. Lou must know that I work with kids. You'd think he'd send me 500 quid towards that." Still a session player, Flowers also teaches on a travelling course called the Rock Shop. Part of the funding comes from the Home Office Drug Prevention Unit.

Does he think "Perfect Day" is a drug song? "Nah. A lot of that is exaggerated. He can't have done that much because he doesn't look bad now." Very genially, he adds: "I couldn't give a shit about Lou Reed."

"My songs do make perfect songs for other bands," Reed once said, "because they're so easy to play. That's one of the things I like about rock'n'roll. You can sit down and learn how to play it. It's democracy."

"Perfect Day", however, was not covered for years. Maybe other singers liked it too much; maybe it was just out of time, amid the bombast of the mid-Seventies and then the frenzy of punk.

Americans didn't seem to appreciate it: to this day, there has been no US cover version. And among those who may not have rated it was Lou Reed. He released many live albums, but never included "Perfect Day". In 1979, he played it on a world tour, but Sounds magazine reported: "He ruined the peaceful colour of 'Perfect Day' with his mangled yelling, turning it into a piece of glib self-gratification." Mind you, he has probably done that to all his best songs. On world tours, each man kills the thing he wrote.

The first cover of "Perfect Day" came in 1982. Martyn Ware and Ian Craig Marsh, who had just left the Human League and formed Heaven 17, commissioned and produced a set of covers called Music of Quality and Distinction Vol 1 (Virgin). It was stylish and surprising, with guest vocalists ranging from Tina Turner to Paula Yates. Glenn Gregory, also of Heaven 17, sang "Perfect Day", in a fine, sombre rendition that opened with a moment of brilliance: the lavishly recorded sound of a match being struck and a cigarette lit. The singer's world-weary exhalation then turned into the gentlest of synthesised percussion loops.

"We were amazed that it hadn't been covered by anyone else," Martyn Ware says. "It's so beautifully poignant, very bittersweet, with an undercurrent of oh-my-God."

He had long been obsessed with Lou Reed. "His songs had a certain wistfulness, an ennui that living in Sheffield was all about. His voice was impossibly glamorous and languid. And if Bowie was associated with something, it was instantly OK. If only that was the case now."

Ware never considered the drugs angle: "I assumed it was a simple love song."

And the BBC version? "It's tripe. Bland, no soul behind it. I'm all for charity work, but let's not pretend it's not benefiting the people involved. You end up with a pop royal family." This is said with some authority. Martyn Ware sang on "Do They Know It's Christmas?"

The song still hadn't been a single, but it had appeared on the B-side of "Walk on the Wild Side", and B-sides could be found on juke boxes. At the Pizza Express near the British Museum, it was played to death by a teenager, up in London for the day with her mum - Kirsty MacColl. "You could hear both songs while you were waiting for your pizza. It was fantastic." Two decades later, Kirsty MacColl was looking for a song to sing as a duet with Evan Dando of the Lemonheads, to round off her greatest hits (Galore, Virgin). She still loved "Perfect Day": "It's glorious and tragic at the same time." Without being asked, she adds: "Of course it's a bit weird that it's a drug song, especially for Evan." Their version is a faithful one. MacColl decided that their voices, and the fact that it was a duet, would make it different enough. "It doesn't need cannons going off to have drama." This is how singers show their love: with high fidelity She thinks the BBC version is a very clever idea. "But then I had it first, didn't I?"

"Perfect Day" waited 22 years for a chart placing, and then two came along at once. Just before the MacColl-Dando version reached No 75, Duran Duran took the song into the Top 30 after putting it on their covers album Thank You (Parlophone). Theirs is the only remake that strays far from the original - a futuristic nightmare, with the piano largely replaced by a breathy, creepy synthesiser. It's nothing like Lou Reed and not much like Duran Duran either, but it's brave - a heroic failure.

In 1996, at last, the original appeared on a compilation album: the Trainspotting soundtrack, which introduced it to another generation, renewed its street cred, and made Lou Reed some money. The album has sold 3.5 million copies, and Reed receives one-fourteenth of the royalties: at a guess, pounds 200,000.

This summer, for about half that amount, the BBC made their film. At the same time, another cover version was under construction. The song is on Rolf Harris's new covers album, just after Alanis Morissette's "One Hand in My Pocket". "Perfect Day" proves hard to mock. Harris sings it straight, or as close as he can get, and leaves you wondering what the point is. Still, he shares Reed's impeccable diction. And his album, on EMI, almost redeems itself with its title: Can You Tell What It Is Yet?

The more you watch the BBC film, the more you see and hear. There are little jokes: Bowie, the only singer to choose his line, went for "You made me forget myself", as if he hadn't already got through a hundred selves. The line "Someone good" went to Huey from Fun Lovin' Criminals, who delivers it with evil relish, Fagin in shades. One of the repeats of "Just what you sow" goes to Laurie Anderson, who is Lou Reed's girlfriend.

When you play the song as a record, you see where the interpretation is going. The singers are from all genres, but genre in pop is more to do with backing than with vocals. The backing here is like the original, but discreetly beefed up. Early on, harmonies by Boyzone are used as fills, building up to the chorus. The lyric is about a secular weekend, but it does involve redemption - "I thought I was someone else, someone good." Later, there is heavy stress on "You're going to reap just what you sow". It's a very biblical line for a modern song, and it is treated as gospel. This "Perfect Day" is an urban hymn. "Reap! Reap! Reap! go the Visual Ministry Choir. They are there as a nod to Songs of Praise, but they act as a metaphor for the whole project. Visual ministry: BBC TV to a T.

Sacrilege is not far behind. Tomorrow, a 12-inch dance version of "Perfect Day" leaps on to the bandwagon. It is credited to Indigo, a new and faceless band. "It's very faithful to the original," says a spokesman for Euphoric Records. As faithful as you can be while howling indiscriminately, adding superfluous lyrics, speeding up the rhythm to 130 bpm, and discarding nearly everything that is good about the song.

Like all the best ideas, the all-star version nearly didn't happen. The BBC considered many songs and their first choice was "Wonderwall" by Oasis. "It was the song of the moment, maybe the song of the decade," says Steve Kelynack, the film's executive producer. "But Oasis weren't having it."

Nice one, Noel.

'Perfect Day' by Various Artists (Chrysalis; all formats) is released on 17 Nov. Children in Need is on BBC1 on 21 Nov (donations: 0181 735 5057). The book 'Lives of the Great Songs', edited by Tim de Lisle and written by Richard Williams, Nicholas Barber, Giles Smith, Ben Thompson, Nick Hornby et al (Penguin, pounds 6.99), is available via the Penguin web site at www.penguin.co.uk. With thanks to the National Sound Archive, which reopens at the British Library, NW1 (0171 412 7433), on 24 Nov.