PROFILE: But do they really believe in it?

We were elected as New Labour. We will govern as New Labour." With those characteristically ambiguous words Tony Blair strode into 10 Downing Street after his historic win in May 1997. Why are the words so ambiguous? Surely they are crystal clear: New Labour won, New Labour would govern. But like many of Blair's famous soundbites the apparent clarity raises more questions than it answers. How much of the party which Blair led to victory was really "new" and, anyway, what does it mean for the Labour party to be "new"?

The answers are more complicated than the Blairites' apparently unassailable position suggests. For sure, Blair persuaded his party in opposition to scrap Clause Four from the party's constitution by a big majority. The campaign and the result was a triumph for the new Labour leader. The media and Labour's political opponents wanted real evidence that Labour had changed. Blair, the best opposition leader Labour has had (better, even than Harold Wilson who was a stunning performer as he guided Labour back to government in 1964), produced the coup de theatre that some of his predecessors could only dream about. Nor did he stop at that point and, with a new, squeaky-clean constitution, take the primrose path to election victory. Blair sought further proof that new Labour was really new. A year before the election he balloted his party members again, this time on his draft manifesto. Even more thumpingly than in the Clause Four ballot the modernisers were triumphant. Nearly every party member voted "Yes" in a chorus of approval for the evasive, cautious, Blairite document placed in front of them.

So Blair had all he wanted to prove to Middle England and anyone else who asked whether New Labour really was new. First the party voted him in as their leader. Then it scrapped Clause Four. Finally the Blairite manifesto got the thumbs up.

But consider the political context in which all three of those ballots were held. Each of them took place when Labour - at every level from shadow cabinet down to the most humble of activists - was aching for power. Nor, after four successive election defeats, was anyone taking it for granted. Blair was not alone in refusing to believe the polls. Blair had the good fortune of taking over a party in July 1994 that would do just about anything to win.

Now fast forward from those heady days leading up to the last election. With Labour safely in government, some old Labourites are creeping out of the woodwork and starting to assert themselves. In Wales the party activists made it clear, and are still making it clear, that they resented the imposition of Alun Michael, Blair's candidate for First Minister. In the elections to the party's National Executive after the election triumph, Ken Livingstone beat Peter Mandelson. It is of course, the "Livingstone factor" in London which poses the biggest question of all about the newness of New Labour. If the party had been transformed, why would the leadership be in such a tizzy about Livingstone standing in the election of party members to choose a mayoral candidate? Surely a truly new Labour party, stuffed full of noble Blairites, would take one look at the Livingstone candidacy and turn up their noses. Instead the party HQ dreads the prospect of Livingstone winning, to such an extent that they will probably block him from standing.

Then there are the trade unions which still, it is easy to forget, retain 50 per cent of the votes when decisions are made (increasingly rarely) at the party conference. The unions have changed as the party has over the last 20 years, but many of their leaders still hold views which place them at odds with the business-loving Blairites. This week several of them will attack the Government's programme of welfare reform, a series of proposals which, in their emphasis on rewarding work and penalising the workshy, are emblems of New Labour's philosophy. In reality what we are witnessing is a remarkable phenomenon, the making of a new party within an existing one. And the process was far from complete at the time of the election. Tony Blair acknowledged as much when he said at the TUC conference two weeks ago that "some of you supported New Labour because you thought it was necessary to win an election, rather than because you believed in it". That observation extends beyond the TUC.

Even some in the Cabinet are far from convinced about New Labour, detecting too many echoes of Thatcherism. In a revealing interview recently the ultra-loyal Education Secretary David Blunkett (one of Blair's favourite Cabinet ministers) was pressed by an interviewer over whether he would prefer tax cuts or more spending on education. Blunkett replied, diplomatically, that a government had to weigh up how much it could spend against the need to get re-elected. In other words Blunkett did not defend the "prudent" economic policy on its intrinsic merits, but because of the electoral benefits that arise from it. Blair and Brown, on the other hand, are true believers. Indeed Blair said publicly in an interview with the Independent a year ago that governments were likely to tax less ("That's the way things seem to be going," he observed, as if he could do nothing about it).

Before the election Clare Short was much more explicit than Blunkett in suggesting that there was more to New Labour than met the eye. In an interview which became famous for her attack on Blair's spin doctors, "the people in the dark", she made an even more damning observation which attracted less attention. Speaking of the Blairites' strategy for winning the election, Short said, "They are saying: 'Vote for new Labour. We all agree the old one was absolutely appalling and you all know that most of the people in Labour are really the old one, but we've got some who are nothing to do with that: vote for us!' One, it's a lie. And two, it's dangerous."

More recently Tony Benn put it more provocatively, exaggerating to make his point and to raise a laugh. "New Labour is the newest political party on the scene and the smallest. It has a membership of around five people."

But all these dissenting voices, while revealing that Labour is a broader church than the Blairites would like to admit, belong to party which is unrecognisable from the one which lost to Margaret Thatcher 20 years ago. It has become the "one nation" party, making an appeal which extends way beyond Labour's old urban heartlands into the most rural parts of England. Business leaders these days are more likely to be Labour supporters than backers of the Conservative party. Even some newspapers trumpet the cause, although New Labour's sway in the media has been greatly exaggerated (just count the number of newspapers who are anti-Europe).

What is more, the Blairites have invented a new party with a distinct and fresh identity. The term "the Third Way" may not have caught on, except in the courts of Blair and Bill Clinton (who has been a huge and still underestimated influence on New Labour thinking; Clinton was talking about the Third Way, higher standards in education and welfare to work while Labour was heading for its fourth election defeat), but the Government has come up with a set of policies which are neither Thatcherite nor old corporatist Labour. Controls on spending which the former chancellor Kenneth Clarke described as "eye-wateringly tight" are combined with mildly redistributive tax policies and a range of reforms from the minimum wage to welfare-to- work which would never have been contemplated by a Conservative government.

Nevertheless what it actually means to be New Labour is still hazy. This cautious Government (contrary to much of the frenzied reporting, caution is a bigger problem than arrogance) has failed to make the most of its own mighty majority and define itself more clearly. On Europe, Blair occasionally puts his head above the parapet, only to disappear again after the Sun expresses its fiery disapproval. The Government has embarked on a massive programme of constitutional reform, but appears frightened of the consequences. "A Scottish parliament is fine as long as it does what we tell them to do" appears to summarise the confused attitude in Downing Street. The Lords seems likely to end up as a place for convenient Prime Ministerial patronage, while electoral reform for the Commons has disappeared from the agenda now Labour is safely in power. As for the huge Transport and Environmental agenda, nothing must be done to hit the Middle England car lovers or the pockets of any voter in a seat which Labour holds or could win. Policies which could make a spectacular difference in the long term, but have a hint of short-term danger about them, tend to be postponed for another day.

So big questions posed of New Labour in the run-up to the last election still persist. Tony Blair once said that he would seem old-fashioned one day, and a new moderniser would be required to take on the mantle. Perhaps New Labour will only become truly new when it is led by someone wholly at ease with devolution, entirely convinced that Britain's future lies in Europe and the single currency, and who recognises that transport and environmental crises demand radical and brave thinking. In spite of his remarkable achievements, Blair has still to prove that he is such a leader and that New Labour is such a party.