Joan Smith: This is how Labour can get itself re-elected

The last thing Labour needs in this inclement political summer is a by-election. Even worse, the sad death from cancer last week of the Labour MP John MacDougall means a contest in Scotland, offering voters another opportunity to demonstrate their disenchantment in Gordon Brown's backyard. If Labour loses Glenrothes, where Mr MacDougall's 10,664 majority looks extremely vulnerable, the Prime Minister may soon find himself the last Labour MP in Fife, a former party stronghold that has shifted its allegiances decisively since 2005.

The by-election is bad news for Labour for another reason, keeping the focus on a tired Prime Minister about whom there is little left to say. Labour desperately needs a new story – not a rancorous falling-out but a decisive break from the worst aspects of Blairism – and there are two reasons why Mr Brown is not the man to do it. One is his own fault, the other merely bad luck on his part, in that it is his misfortune to be confronted by a Conservative leader who is everything he is not. The voters are bored with Mr Brown and David Cameron is charming, youthful, relaxed and quick on his feet.

The Prime Minister's other problem is that he is so closely associated with policies which repel wavering voters after 11 years of Labour government. Politics is an emotional business, at times barely rational at all, and the miscalculations of the Blair years have cast a cloak of invisibility over the good and decent things Labour has done since it came to power in 1997. There are many of these, from setting up civil partnerships for gay couples and partial reform of the House of Lords to successful interventions in the Balkans and Sierra Leone, where Robin Cook's decision to send British troops put an end to a savage civil war.

But it isn't easy to knock on doors and persuade people to return to Labour when they are still angry over the UK's involvement in the Iraq war which Mr Brown, who held the purse strings in 2003, was uniquely placed to prevent; it isn't easy to win the trust of people on low incomes, battling with rising energy prices and interest rates, when they want to know why Mr Brown failed to foresee the credit crunch when he was Chancellor.

This is tragic because what Labour needs to do isn't exactly rocket science. I don't underestimate the scale of the task facing the party, but I do know where it should start: it must get rid of the impression that it's managerial, pragmatic to the point where it has lost sight of principle, and useless when it comes to delivery. This means sacking ministers who incarnate those faults – I don't think many MPs would lose sleep over the defenestration of Des Browne or Ruth Kelly – and allowing leading figures such as Alan Johnson, Harriet Harman and David Miliband to set out the party's values clearly and confidently. It also means using language that doesn't sound as if it comes from an IBM training manual, circa 1988. Lots of erstwhile Labour supporters no longer know what the party stands for, other than a vague aspiration to be a bit nicer than the Tories; and even that modest ambition has been hobbled, in practice, by anxieties about what it might cost, and fear of upsetting the public service unions.

The Government should take a deep breath and appoint a minister for delivery, who would try to match spending levels with visible improvements in public services. Huge pay increases to GPs have not been matched by better access for patients, for instance, while the principle of a national health service has been undermined by local decisions about which drugs should be available to cancer patients.

Last week's A-level results show that some teenagers are coming out of state schools with excellent qualifications, but they still tend to come from middle-class backgrounds, not families living on council estates. The Government's insistence on expanding state-funded faith schools has put electoral advantage before principle, despite widespread anxiety about divisions between people of different ethnic and religious backgrounds, while its authoritarian tendencies have alienated millions of Labour voters without convincing the undecided that it can do a better job of protecting the country from terrorist attacks than the Opposition.

The Tories have been placed in the gleeful position of being able to outflank Labour at every turn. Sometimes they take a more liberal position – on ID cards, for example, or Labour's thwarted plans to make mocking religion an imprisonable offence – while continuing to employ right-wing populist rhetoric on Europe and immigration. A Conservative parliamentary candidate in Wales was suspended recently for describing Italians as "greasy wops" but there is a sense that the Tories can get away with anything, short of a leading member of the Shadow Cabinet being caught having sex with rabbits in an S&M club.

It's striking that the sleaze allegations about politicians' expenses have been driven almost exclusively by the conduct of Conservative MPs and MEPs, while this newspaper has exposed the financial links between leading Tories and Robert Mugabe's loathsome regime. Yet the response of the public has been a pained assumption that "they're all at it", creating a dangerous atmosphere of contempt for elected politicians but letting the Tories, weirdly, off the hook.

Mr Cameron is getting away with the political equivalent of murder, highlighting nasty but isolated phenomena such as knife crime – it isn't clear from published statistics that it's got worse in recent years – and using them to bolster his claim that we live in a "broken society". This is a slur on millions of people who don't carry knives, cheat on benefits nor abuse their children, despite not living in traditional families, and it's a bit much coming from a party whose leadership is a triumphant declaration of inequality. If a dozen members of the Cabinet had been educated at my state school in Basingstoke the media would be incredulous; last year, when it was revealed that 14 of Mr Cameron's spokesmen were Old Etonians, along with several of his closest advisers, barely an eyebrow was raised.

It isn't so much Mr Cameron's policies that are objectionable (we haven't yet seen all of them), as the Conservatives' underlying philosophy. After decades of contracting out the business of running the country to the people whose families used to serve them and run their shops – Ted Heath, Margaret Thatcher, John Major – Mr Cameron's suave multimillionaires have taken it back into their own hands.

Under a different leader, this should be Labour's moment, an opportunity to declare itself a modern party that stands for fundamental values: equality, fairness, individual freedom and an end to the old class system. If Mr Brown is irrelevant in 21st-century Britain, as the voters of Glenrothes will probably decide in the next few months, Mr Cameron's Conservatives really are history come back in a shiny new form.

Joan Smith's novel 'What Will Survive' is out in paperback