Labour took another crushing blow as it lost Copeland. It held Stoke-on-Trent Central but retaining both seats should never have been in doubt. Each crisis is met by a surge of anxiety and excuses. Then our party sinks back into inertia and continues a relentless slide toward electoral oblivion.

It need not be this way. There is an alternative. It is not a return to New Labour, nor collapse into electoral failure and recrimination. This essay sets out an alternative direction for Labour. It is not a policy programme. It invites a debate about how we renew our politics for a new generation and how we plan a new social and economic settlement for Britain. It is a route back to a Labour government that will create a more equal and fairer country.

The Brexit vote last year has left Britain at a crossroads. Do we reaffirm the Thatcherite laissez-faire settlement with its market orthodoxies as many Conservative Leavers wish to do? Or do we recognise the demands for change that came from working class communities and build a new social and economic settlement? There have been two such moments of change in recent history. In 1945 a Labour Government led by Clement Attlee and inspired by the political economy of J.M. Keynes ushered in the post-war consensus of full employment and the welfare state. In 1979 the government of Margaret Thatcher championing the "neo-liberal" free market liberalism of F.A Hayek brought that consensus to an end and, for the next 30 years, free market forces transformed our economy and society and unleashed the power of globalisation.

So this is an historic opportunity for Labour to shape a new era – to build a new settlement for democracy and equality in a divided country. But we are running away from this challenge. After seven years of Tory austerity and now a major funding crisis in the NHS, Labour is polling at 25 per cent. We are 15 points behind the Tories among working class voters. Apathy and indifference to Labour are making substantial inroads into our historic support in the North. In the South outside London, Labour is a few pinpricks of red. We have lost the trust of older voters. The towns and villages are turning their backs on us. In Scotland the party has been wiped out. As long as the spectre of continued Tory government hangs over the UK due to our weakness in England, Labour will never recover in Scotland.

During the 2010 general election I was the new parliamentary candidate for Streatham. We had a good local story but little to say about the future of the country. In 2015 I was a member of Labour’s shadow cabinet and spent much of the time campaigning in the marginal seats of England. Here, in the heart of the country, Labour’s growing disconnection from the people was becoming brutally obvious. In the towns and villages, in the post-industrial regions still riven by the social destruction of the Thatcher years, growing numbers did not believe Labour understood their lives.

Labour’s historic role is to be the party of the national labour interest. Our purpose is to represent working people and to redress the imbalance of power between capital and labour. And we provide protection for those who cannot work or support themselves. We have lost this role. Reciprocity was once at the heart of the relationship between the Labour Party and working people. In return for their support, our obligation was to use the power of government to protect and further their interests. This mutual sense of obligation has broken down.

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The tragedy is that Labour’s values are the values of the British people: hard work, family, community, and a sense of fairness and decency. But they do not see them in the direction the party is being taken. Without these values we cannot fulfil our mission to end the inequalities of power, wealth and opportunity that blight our country.

Globalisation – the amalgamation of countries’ economies, the flow of people, capital, goods, services and ideas across borders – has raised the standard of living of countless millions of poor people around the world. But in Britain it has brought wealth to too few and insecurity to millions. Jobs have disappeared as new technologies transformed work, and factories were shut down or moved overseas. Wages have stagnated. Too many employers took the easy option of cheap immigration over investment in skills and training. The organisations created by workers to protect themselves and their families from the power of capital - trade unions and community organisations - have disappeared or been weakened. Rapid and extraordinary demographic change has transformed the country. We have seen nothing like it in our modern history. Tory policies have made life very much harder for many people but ending austerity alone will not solve these problems.

Outside London and the South East no region has recovered from the Great Recession. Across the UK, globalisation has seemed like a whirlwind threatening livelihoods, ways of life and, for millions, their sense of a national identity. Nobody asked their opinion about these dramatic changes. So in June 2016 the country voted to leave the EU. A clear majority of Labour supporters voted Remain, but two-thirds of Labour constituencies voted to leave. Labour’s necessary coalition of supporters and the voters it needs to attract was split within its own constituencies and it was split between its city-based remain voters and its ex-industrial heartlands. Both groups of voters demand to be listened to.

Labour can meet this challenge. Our first step toward recovery is to bring together Labour Remain and Leave voters and rebuild our coalition. I represent Lambeth which scored the highest Remain vote in the country. But as Chair of the All Party Parliamentary Group for social integration, I have spent a lot of time in places like Boston and Dagenham that registered the highest Leave votes. Labour’s leave voters share much in common with their friends and neighbours who voted remain. They want change to bring more security and stability. They want an economy that works for them and their family: good jobs, fair wages and a decent place to live in. They want to give their children a better future. Both groups want to recover some control over their lives, to feel pride in who they are, in where they live, and in their country.

Yes, the country has voted to leave the EU but we will still be a major European power. Labour must campaign for a post-Brexit settlement in the interests of working people. The Conservatives’ time and energy will be consumed in the transactional process of concluding a Brexit deal. The country will lay the blame at their door for their failure to deliver. Labour’s priority is to look ahead to 2020 and plan how to shape the future of the country.

We must become the party of national renewal that unites our country. Theresa May and the Conservative Party cannot fulfil this role. They are the party of capital and the moneyed interest committed to the free market orthodoxies of the old order. Labour must once again embody the values of work, family and community, and support those unable to work. We must build a broad popular coalition around a democratic settlement committed to ending inequalities of power, wealth and opportunity. This will provide the foundation for a post-Brexit strategic approach at home and abroad.

How we build this new settlement will be determined by our understanding of why Labour has lost the trust of the country.

How did we get here?

In 1979, Labour was ejected from office. The "Winter of Discontent" symbolised a Labour government presiding over industrial decline and social conflict. Britain was "the sick man of Europe". Labour had lost the confidence of the people and so it lost permission to govern.

Michael Foot succeeded James Callaghan. Labour’s 1983 manifesto committed the party to unilateral nuclear disarmament, withdrawal from NATO and what was then called the European Economic Community. It called for the state control of much of the economy. The party believed that it knew what voters wanted better than the voters. Twenty eight Labour MPs gave up and left to form the SDP. The Falklands War boosted Mrs Thatcher’s popularity and Labour went down to a crushing, humiliating defeat with 27.6 per cent of the vote.

Neil Kinnock’s courageous leadership saved the party and it finally began to claw its way back toward government. It developed policies in favour of a mixed market economy. It dropped its commitment to unilateral nuclear disarmament and embraced the EEC. The party began to professionalise itself and adopt new campaigning techniques. In 1989 the Berlin Wall fell and Communist regimes, brittle and hated, began to collapse.

Labour was slow to change. It lost again in 1987 and again in 1992. The party had a big heart - no-one doubted that. But was Labour capable of economic competence? Could it be trusted to take tough decisions? The answers were still no. Neil Kinnock handed over to John Smith. In May 1994 Smith said that all Labour wanted was "a chance to serve, that is all we ask". The day after he tragically died from a heart attack.

A grief stricken party chose Tony Blair as Smith’s successor. The party was rebranded "New Labour". It embraced the market. It would marry together economic competence and social justice in a new kind of Third Way politics. Its 1997 election campaign pledged to cut class sizes in primary schools, fast track punishment for persistent young offenders, cut NHS waiting lists, get 250,000 young people off benefit and into work, cut VAT on heating, and not increase income taxes. Inflation and interest rates would be kept as low as possible.

New Labour delivered on these promises and much more, attacking the neglect and inequalities which had been the Tory legacy. It built new schools and hospitals and improved existing ones. It established a nationwide network of Sure Start children's centres. It legislated for the first ever national minimum wage. It brokered peace in Northern Ireland. It introduced civil partnerships and outlawed discrimination on the basis of sexuality and religion. It devolved power to Scotland, Wales and London, and set up Regional Development Agencies across England. Above all, New Labour built a coalition across all classes, races, generations and regions of the country. It resonated with popular values and so it went on to win landslide election victories in 1997 and again in 2001.

Where we went wrong?

New Labour left the country a much better place to live in. Even David Cameron accepted this. Three Labour governments was an extraordinary achievement and down to the hard work and commitment of thousands of party members. But its success was limited by the failure of Third Way politics to challenge the power of capital. New Labour failed to challenge sufficiently the neo-liberal market order of Margaret Thatcher. It did not do enough to reform Britain’s economic model to deliver better outcomes for people in all parts of the country. It failed to rebalance an economy over-reliant on the financial services sector in the South. It did not take the action required to dampen bubbles in the property market, nor to redress the lack of savings, nor to act against the rise in household debt.

These structural faults of the British economy, a legacy of the Tories, were obscured by the long economic boom. Wealth spiraled upwards. By 2004 wages were beginning to stagnate. The share of national wealth going to wages had peaked at 65 per cent in 1973. By 2008 the TUC calculated it had dropped to 53 per cent. The labour market was the shape of an hourglass; high wage jobs at the top, low wage jobs at the bottom and the middle squeezed by stagnant wages and the loss of skilled workers. At the same time under Britain’s short term, fast-buck business model, the pay of company directors and the senior workforce of the financial houses soared upwards. In 2007 bank bonuses totaled £14bn.

In its later years, New Labour sometimes gave the impression that its view of human nature owed more to economic textbooks than to the real lives of individuals. Individuals were treated like entrepreneurs of their own lives, investing in their human capital in order to maximise their self-interest. Individual rational choice became the driving force of market-based reforms in the public sector. New Labour politics became increasingly managerial and transactional. Too hands off with the market and too hands on with the state became the dominant approach to governing. The pursuit of targets replaced the pursuit of social justice. There was no inquiry into Orgreave, and blacklisting continued.

In many ways New Labour was a politics for the good times. Instead of overhauling the system, it taxed and redistributed the profits of the financial sector to compensate for its failures. Yet without institutional reform the gains were vulnerable to the vagaries of the economy and a Conservative government. In 2009, after the crash, New Labour finally woke up to the problem of a low skill, low wage, low productivity economy. The New Industry New Jobs Initiative of Gordon Brown’s administration encouraged active government to nurture jobs and new industries in every region. It came far too late. When the crash happened, it broke the Labour Party politically, intellectually and emotionally. At the 2010 election Labour suffered a shattering defeat.

Ed Miliband succeeded Gordon Brown. To his great credit, he recognised the need for a new economic model. The system was failing the majority of working people. It needed fundamental reform. The Coalition government was drastically cutting back state spending with the aim of reducing the deficit and the state itself. People who had fallen on hard times were being abandoned to fend for themselves. But renewing the Labour Party so soon after our time in office proved too difficult. A premium was rightly placed on party unity but it was at the expense of political definition. What and who did Labour stand for? No one quite knew.

There was no proper reckoning on Labour’s record in office, nor a concerted drive to face up to the huge political and sociological changes in Britain. The public did not trust Labour to manage the country’s finances and the party failed to change its view. Like its sister social democratic parties across western market economies, Labour struggled to build a popular coalition. An effort was made with One Nation Labour but it was not followed through and we ended up with a shopping list of retail offers. We failed to understand the political salience of culture and belonging and became increasingly estranged from working class voters. Labour took too little notice of the bonds of mutual obligation that bind individuals into society. Our politics of equality had become small, technocratic, and unattractive. In truth, we saw people as needy, greedy or irrelevant.

New Labour did not do enough to protect people from the downsides of globalisation. When people sought the shelter of their social identity to defend themselves, too many labelled them as xenophobic and nostalgic. When they wanted the political representation of their local and cultural identity they were rejected as bigoted, little Englanders. But as they understood and we had forgotten, being anchored in a sense of local belonging is about finding a place in the world. To be a citizen of somewhere is the first essential step to being a citizen of the world. As the Irish poet Patrick Kavanagh said, "all great civilisations are based on parochialism". Unable to engage with these issues of identity and belonging, Labour changed the subject.

By 2015 Labour had lost its identity. In the general election we had no story to tell the country and we had failed to regain public trust in our economic competence. We suffered a second, shattering defeat.

The shadow of this recent past hung heavily over the two leadership contests in 2015 and 2016. The debates in those contests did not move us on. There rightly were huge expectations amongst Labour supporters of the party's time in government. But the unrealised domestic ambitions of Labour in office combined with the misguided and utterly disastrous war in Iraq has left a profound rage in parts of the Labour family. In spite of many socialist achievements in office, Tony Blair and New Labour were both rejected by many of its own members as out of step with the traditions of the Labour movement. The party membership rightly understood that the party needed a new direction. But instead of returning to our traditions to rebuild Labour’s connection with the electorate, the party has been led into a politics of repudiation, protest and abuse.

We need a new direction. There is an alternative to Labour’s growing political irrelevance and a deviation from our current path does not mean a return to New Labour or to neo-liberal market capitalism. Commentators like to claim that there is no significant new thinking going on in the party. But the movement is rich in ideas and policies. Jon Cruddas’s 2012-14 Policy Review, although largely rejected by the then leadership, has provided the groundwork for an alternative Labour politics. It is now being built on by think-tanks, in conferences, and in projects across the Labour movement. In a speech in 2013 to the Resolution Foundation, Jon called for a Labour politics of earning and belonging. Labour can rediscover its sense of historic purpose with a national popular politics around work, family, the places people belong to, and a pride in country. We must not cede this political ground to the Conservatives to exploit for their own interests.

Earning and Belonging

Between 1945 and 1979, J.M. Keynes provided the framework for the social democratic consensus; the state dominated. Between 1979 and 2008, during the neo-liberal market consensus, F.A. Hayek provided the framework; the market dominated. Today we need an economy that works for the majority in our nation with the forces of capital held accountable by our democratic institutions. In a democratic society reciprocity - the moral practice of give and take - ensures a fair balance of interest between capital and labour and between parties in market transactions. But in the last few decades the interests of capital have dominated the labour interest.

Reciprocity is necessary for a system of social security to command popular support. But the public has lost faith in the system and the government’s treatment of people with disabilities or long-term illness who claim benefits has broken the golden rule: do not do to others what you would not want done to yourself.

Labour needs to restore the practice of reciprocity. It needs to develop a new political economy to rebuild the coalition of the labour interest and to provide the foundation of national renewal. Everyone must have a stake in the future. The political economy of earning and belonging begins with the everyday life of work, family and the places people belong to. A good place to start is with the idea of a foundational economy.

The foundational economy is made up of the services, production and social goods that sustain all our daily lives. It forms a major part of Rachel Reeves’s project on a Labour political economy. The academics at the Centre for Research on Socio-Cultural Change at Manchester University who came up with the idea estimate that it employs up to one third of the workforce in England and Wales across the private, public and social sectors. Its activities include transport, child care and adult care, health, education, utilities, broadband, social benefits, and the low productivity, low wage sectors of retail, hospitality, food processing and supermarkets.

Everyone regardless of income participates in this foundational economy and it is distributed across all regions of the country. A productivity strategy for the foundational economy could provide the basis for the economic regeneration of regions and the more equitable distribution of income and wealth. At the moment industrial strategies tend to concentrate on the cities as engines of growth, on property development, technological innovation and high value sectors for trade. While these are necessary they ignore the middle and low paid in the non-traded sectors and can exclude the suburbs, the towns on the periphery of major cities, and the country. This bias only reinforces the class and cultural fault lines dividing Labour’s coalition.

Boosting pay in low productivity sectors means creating skills and training in a high quality system of vocational education. People’s connectivity is central to their own livelihood and to both economic and social renewal. The opportunities of a networked economy require connection. As Chi Onwurah has pointed out, ‘Digital can create social value if more people can take part in the digital revolution’. And we need affordable integrated public transport and ways of reducing the costs of motoring to build connectivity across the country.

A political economy also includes the traded sectors. The UK cannot compete internationally without producing the new goods and services that the world wants. As Liam Byrne argues in his book Dragons, innovation, entrepreneurship and access to capital are crucial to Britain’s global competitiveness. So monopoly control over markets, which penalises consumers and stands in the way of start-ups and new entrants, has to be tackled. And a properly capitalised British Investment bank with regional banking can help build the capacity of our SMEs in the regions.

Work

Work matters to people. The majority like what they do. People’s sense of belonging in society is through the contribution of their work and in collectively providing for those unable to support themselves. It is the way we make a society together and it gives individuals self-esteem and respect. Putting the value of work at the centre of our economic policies is the way we will fix our economy. Eighty three per cent of workers are employed in the private sector. Trade union membership in the private sector is down to 13.9 per cent. Full time workers work on average 37.5 hours a week and earn £24,800 a year. They are not entitled to in-work benefits. The interests of a majority of working people have been missing from much of Labour’s approach to working life. This is changing.

Tom Watson is leading a research project on the future of work. The Fabians have set up a Changing Work centre and the Smith Institute have a focus on the world of work, too. We should support employees having more control in their workplaces through stronger trade unions and participation in corporate governance. In the age of Uber, growing self-employment and the gig economy, we need new models of labour solidarity. And by supporting a growing social economy we can pioneer new forms of ownership.

Some predict the end of work as new technologies destroy jobs. They argue that a Universal Basic Income is the solution. But this response individualises the problem and perpetuates a neoliberal approach in which everyone is left to their own devices. Under the Tories the workless and those on low incomes would be left to sink and whole regions of the country would be abandoned to social exclusion.

Family

The household is the centre of the foundational economy. It is the heart of labour and of our moral values. It is the focus around which services are organised. Family life and emotional relationships are the building blocks of community and society. Research has demonstrated how poor parenting undermines children’s capacity in adulthood to cope with life’s stresses. There is a wealth of evidence that poor attachment or emotional trauma in childhood affects long term health and life chances. The family is our most important social institution. When it goes wrong it can cause social havoc and a lifetime of personal unhappiness. But the great majority of families in all their shapes and sizes pass on our cultural heritage and so give structure, meaning and resilience to people’s lives.

Families in their variety thrive when there is teamwork amongst adult relations. The role of fathers at home should be valued as much as mothers at work. Government policy can help support and strengthen family relationships. Lucy Powell and Alison McGovern have argued for the integration of a national system of childcare in industrial strategy. Luciana Berger’s campaigning and policy work on mental health has prioritised children and postnatal depression. Families need a properly funded adult care system. Labour needs to promote local innovation to find sustainable models of care that do not rely on cheap immigrant labour and the profiteering of private equity firms. And we need to encourage innovation in the health and welfare services to reduce levels of chronic illness, and to provide proper protection and support to those unable to work.

Place

Labour’s 2015 manifesto defined the party’s governing mission as breaking out of the "traditional top-down, Westminster knows best approach" and devolving power and decision making to people and the places they belong. Government over the last 30 years has often failed to meet the challenges of our time. The old mechanical model of top-down public administration will not be so effective in a future of complex problems. We need more democratic forms of local government and devolution. MPs who have been council leaders like Steve Reed and Jim McMahon, and city leaders such as Leeds’ Judith Blake and Newcastle’s Nick Forbes have pioneered these new approaches.

Labour should adopt the principle of subsidiarity to resist the centralisation of capital and the state. Wherever there is a case to devolve power and resources, we should be required to have a very good reason to say "no". Labour can use the authority of government to help enable people’s participation in reform. For example, the land market needs reforming to give communities the power to tackle our acute housing crisis. Immigration needs to be brought under democratic control with decision making devolved to regions. The decentralisation of power to take decision making closer to people’s lives requires a more democratic model of the state and a genuine redistribution of capital and funding. Whitehall departments need joining up and the Treasury needs a collaborative not autocratic approach to local government.

Instead of imposing change on communities, Labour can use their insights and experience of what works and what doesn’t. The forthcoming Mayoral elections in Manchester, Merseyside and Birmingham are an opportunity to embrace a radical, democratic approach to local government.

Home and abroad

Britain will continue to be a major European power but Brexit raises fundamental strategic choices about our role in the world. We will not be able to redefine our role abroad if we do not create a more just and fair settlement at home. The local and the global, home and abroad are inextricably linked together by immigration, by the threats of terrorism, and by the media and new technologies of communication.

The liberal global order established after the Second World War and underpinned by American power is undergoing major changes. America is scaling back its foreign policy ambitions. The peoples and governments of non-western countries, with China at the fore, are asserting their national interests. The failures of western market economies have produced a right-wing populism led by a generation of nationalist, anti-immigration politicians. The liberal global order is being challenged by its illiberal adversaries and undermined from within.

Much as many dislike the new American administration, simple anti-Trumpism is not a foreign policy. Labour’s task is to establish ways for Britain to build relationships, exercise power and defend its interests in a destabilised, multipolar world. There can be no question mark over Labour’s commitment to national security. In 1948 Labour’s Foreign Secretary Ernest Bevin - a central figure with Attlee in the creation of NATO - defined Britain’s moral leadership in the world as an appeal to the "broad masses of workers". He believed that the basis for Britain to project its democratic values in the world starts with a fair and just settlement at home.

For Theresa May, Britain’s role in the world is to be a forceful advocate for business, free markets and free trade rather than on the freedoms of speech and religion, and freedom from want and fear. We cannot let the Conservative Party decide the future of Britain. Reasserting the principles of neo-liberal market capitalism will only increase inequality at home and instability abroad. We allowed the Conservatives to define our future in 1979. We know the cost. Labour must not accept failure in 2020. There is a Labour alternative. It is growing out of defeat and failure. It is being built now.

In the years following Brexit, remaking Britain’s place in the world will begin at home with a fair and just settlement. It begins with Labour’s traditions as a democratic party of the labour interest and in our belief that what matters to people is their family, their work, their sense of belonging, and a love of country. Labour must build a democratic covenant with the people of England and the UK and help put reciprocity back into society and the economy. In this way we will begin to eradicate the inequalities of power, wealth and opportunity that blight people’s lives and limit our national prosperity. If we take this direction we can rebuild Labour’s coalition and achieve a Labour government. Where there is a way, there is a will.