Peter Hain: Gordon, you are without a narrative

Will the next election be a moment when the whole paradigm in British politics shifts as it has done every 30 years or so? And if so, can Labour still win?

It's only weeks away from the 30th anniversary of the last such moment when, in May 1979, Britain turned its back on the post-1945 welfare state consensus, and opted for Margaret Thatcher's free-market mantra and a much-reduced role for government.

After three subsequent defeats, New Labour judged it had to go with the grain of that new consensus to win in 1997. But the global financial crisis means the next election could make a decisive break with that consensus, as the public opts for a new settlement where government intervention and regulation to protect its citizensare dominant.

That's what happened with Barack Obama's victory. US voters turned their backs on right-wing Reaganism and Bushism which had held sway since 1980, and which Bill Clinton's new Democrats had to tack toward to win. America wanted active government. Obama caught a big tide of cyclical change, whereas Labour has to represent that change as the incumbent – tough after the ups and many downs of 13 years in power.

Yet the opportunity is still there, because Cameron's Tories do not actually offer the progressive change which Obama represents. To the extent that they stand for anything at all, it is for less government intervention, public investment cuts and even more reliance on free-market forces.

Despite Cameron representing himself as "change", he actually stands for more of the very same policies which got the world into its current mess: deregulation and smaller government, leaving citizens to fend for themselves in economic blizzards.

His is a blueprint for a "hollowed-out state" with cuts in public spending and contracted-out services reflecting the Tories' enduring hostility to government. He has sought to camouflage this by speaking of "capitalism with a conscience". But while he may not be planning a 30th anniversary waltz, he is still dancing to a Thatcherite tune on fiscal policy with his relentless attacks on higher government borrowing – exactly what Thatcher did in the Tories' 1981 budget. Then, rejecting Keynes, they responded to recession not by stimulating the economy, but by cutting government borrowing by fully 2 per cent of GDP, producing three million unemployment and devastation to many areas.

Cameron's rejection of the lesson of Keynesian economics – that recessions are best fought by governments using fiscal and monetary policies to stimulate spending and borrowing more in the process – has left the Tories in splendid isolation. The Institute for Fiscal Studies assessed that this do-nothing option would lead to even higher government borrowing.

However, in, say, a 2010 election, Labour will find no appetite among those on low and middle incomes to pay higher taxes; indeed, there is a case for tax cuts if they can be funded. Nor will there be support for the public sector inefficiency and wasteful bureaucracy which saw its nemesis in 1979. Voters want value for money. They are willing to pay for public services but only if they are high quality and citizen-serving, not bloated and self-serving. Equally, the Old Labour reliance on state bureaucracy has had its day.

So, if the tide of political paradigm shift is with Labour, can the party catch it? The latest polls make this extremely difficult. But the Tories still do not have the kind of consistently commanding lead to be sure of victory. Furthermore, writing off the Liberal Democrats is not sensible; I believe they will get at least 20 per cent. To win, Labour must be seen as the credible force for change. That means changing itself – and there is not much time left. Although a return to "Old Labour" would be disastrous for the party, it needs to move on from New Labour as well. The best of New Labour needs to stay, including its recognition that business and competition are not automatic enemies but potential allies in the mission for social justice. We must also retain a broad appeal to Middle Britain, including those many voters Tony Blair won over in 1997.

But equally, there is no escaping that New Labour has lost five million voters, and not simply because of longevity in power. On basic core vote issues of affordable housing, job security, employment rights, crime and migration, Labour has to do much better and much more. The same is true of progressive issues: human rights, the environment, international policy and respect for the public service ethos.

Despite Gordon Brown's best efforts, Labour has not had a clear enough narrative right across government. Ministers have developed a habit of making technocratic speeches where the very purpose of Labour gets lost. On TV and radio, some now sound more like managers than politicians.

Whatever their individual policy merits, identity cards, Trident, nuclear power, Royal Mail part-privatisation and Heathrow's third runway do not add up to a programme to get the pulse of potential Labour voters racing. They may each reflect the hard politics of very difficult choices that credible, serious government for the long term always requires – and where Cameron's hypocritical posturing just demonstrates how unfit for power he is. But where is the story in all that; where is the distinctive Labour narrative; where are the Labour values of social justice and freedom?

Above all, Labour must be ready with a much more compelling prospectus for progressive government that covers our plans both for overcoming the current financial crisis and for using the power of the state and international co-operation to build a better society.

A fourth-term Labour government needs to be active and enabling, rather than centralising and controlling. It needs to empower individual citizens and local communities to take control of the decisions which affect their own lives through a much more radical approach to devolution of power and budgets.

House of Lords reform must be completed and the alternative vote introduced for a fairer electoral system. There should be more investment in job-creating infrastructure: affordable housing, public transport, new micro-generation and renewable energy.

The economic crisis should be a reason to redouble efforts to end child poverty and improve employment rights rather than retreat from these. As Barack Obama has said, there is no false choice between our safety and our ideals, and hard-won individual freedoms should be respected and protected.

Perhaps above all, Labour must remember how starkly the Stern report demonstrated not just the huge environmental threats from climate change, but the costly economic ones too. Instead of lagging behind, Labour must take the lead on the green agenda.

Such a vision of a progressive Labour government protecting people will starkly contrast with the Tory vision of a "limited state", of government downsizing and turning its back on the people it is supposed to serve. The choice will then be between a government that is on your side rather than one that says you are on your own.

If Labour can do that, I think Gordon Brown can confound the dismal polls and still win.

Former cabinet minister Peter Hain is MP for Neath