Patrick Diamond: So where are the new ideas?

New Labour has reached a fork in the road. The party now faces a brutal choice. It can be born again with new leadership. Or division and in-fighting will exhaust it. That would make election defeat next time around inevitable.

The challenge Labour faces is more fundamental than executing a "stable and orderly transition" of power from Tony Blair to Gordon Brown - though that will be far from easy. There will be a long line of former ministers to placate. It will be necessary to construct governing machinery that reflects the style of the new leader. Labour MPs, already anxious about electoral prospects, will have to hold their nerve.

The Conservatives are salivating at the prospect of Labour disarray. David Cameron's leadership should not be under- estimated. His audacious pitch for the centre has not yet provided a compelling reason for Britain to turn to the Tories: compassionate conservatism has no coherent underpinning theme. But the Conservatives have recovered their appetite for power.

Labour has to face the reality that its problems go much deeper than the unpopularity of Blair. Yes, the Iraq war has done lasting damage to Labour's reputation. But the Government looks increasingly bereft of new ideas. There is bold new thinking around as David Miliband has shown on climate change, and Gordon Brown and Alan Johnson have articulated on the next steps for education reform. But the spirit of optimism that provided momentum in the early days of New Labour has all but evaporated.

Britain is a richer and fairer country 10 years on. The nation's schools and hospitals are getting steadily better. Real incomes are rising, as the minimum wage and tax credits give help to the poorest families. There is a renaissance under way in cities like Leeds, Manchester and Newcastle.

But the Government seldom gets much of the credit. Meanwhile, the tectonic plates of public opinion shift beneath it. Labour has been slow to recognise that the world is moving on: work-life balance, the competitive threat of China and India, and the looming crisis of climate change increasingly define the political landscape. Globalisation poses a new set of challenges.

The contours of British politics are being transformed. The right will argue that the best way to guarantee opportunity and security for all is to cut back the state. The left must show that globalisation makes the case for enabling government ever more compelling, protecting people from insecurity while giving hope for the future.

Gordon Brown's task is not just to show how he would govern. It is to open up a debate about how governments should advance the interests of individuals and communities in the age of globalisation. If the openness on which the world economy depends is to be sustained politically, it is self-evident the winners will have to be prepared to share more of the gains with the losers. Regurgitating the New Labour mantras of the Nineties will not be sufficient.

This insight has profound implications for the next generation of domestic and international policy. At home, should the state cut taxes for the lowest paid, rewarding work and cutting back dependency? Is there more that we could do to reduce regulation for small and medium-sized businesses? Does massive inherited wealth promote economic efficiency, let alone social justice? How should Labour spread the benefits of home ownership? And what are the next steps in education reform, breaking the link between class and educational achievement?

Abroad, is it feasible to reduce climate change through co- ordinated international action? And how should Britain manage its global relationships after Iraq, especially in Europe and the United States?

These long-term challenges won't be resolved by quick fixes, or rapid lever-pulling from the centre. There will need to be a new kind of politics based on engagement and debate between citizens and government, building consent for controversial, even painful decisions. That means rebuilding the progressive coalition that defined Labour in 1997, inspiring the Government's natural supporters while winning the confidence of the liberal middle classes.

As the Chancellor has implied, he will need allies well beyond the Labour Party to sustain momentum for another decade of progressive government. He recognises that ideas matter. If Labour wishes to govern for a fourth term, it will have to re-think, not recite the stale mantras of the past. Otherwise, the future inevitably belongs to Cameron's Conservatives.

p.diamond@lse.ac.uk

The writer is a former special adviser in the Prime Minister's Policy Unit