Labour's adaptation to Thatcherism led to the proliferation of national mythologies, which the party leadership played no small part in popularising. These included most forcefully the idea that, whatever people told pollsters, they did not want to pay for a better funded public sector, or welfare state. They may be attracted to the abstract idea of superior public services, sentimentally attached to an outmoded form of social solidarity, but when in the ballot box they invariably sided with prudence and material self-interest. New Labour thoroughly embraced this false wisdom, and made the preservation of low taxes a cardinal principle. Once elected, amid a crisis in the public services and a general deterioration of Britain's economy and institutions, a constant circle to be squared for policymakers, especially in Brown's Treasury, was how to raise money without raising taxes, or at least without appearing to.

This led to, among other things, the fiscal calamity of the Private Finance Inititiative as a means of generating up-front revenue for new hospitals and schools without appearing to raise taxes. It also led to the culture of means-testing as an attempt to make spending constraints seem 'progressive'. The myth that the public had gone Thatcherite was obviously nonsensical. It wasn't reflected in opinion surveys, in voting patterns, or in other forms of political behaviour. New Labour's cleaving to Thatcherism cannot be seen as a reflection of what the public wants.

In The Meaning of David Cameron, I hypothesised that:

what happened to Labour was less an adjustment to psephological realities than an adjustment to socioeconomic realities. The Tories’ defeat of one union after another confirmed that capital’s power with respect to labour had increased, and that realistically it could also defeat any government that did not implement the fiscal, financial, and macroeconomic reforms that it supported, and which had been carefully elaborated in business-funded think-tanks as well as in the terror-state laboratories of Latin America. Labour thus set out to prove its credentials to businesses and the right-wing media, showing that it accepted every tenet of neoliberal doctrine even at the expense of offending or losing core voters. This culminated in New Labour’s grubby relationship with Rupert Murdoch, and Tony Blair’s crawling before the rich.

Recently, my attention was drawn to this elegant assessment of Thatcher's "Anglo-Poujadism", drawing on the Eurocommunism of Stuart Hall, the soft leftism of SDPer turned Liberal Democrat David Marquand, as well as a notable survey by the psephologist Ivor Crewe, co-author of a sympathetic review of the brief life of the SDP. It displays qualities that mark the author out as an intellectual heavyweight, a hard-hitting polemicist and a skilful prose stylist. Written in 1989, the review essay looks forward to Thatcherism becoming a "wasm", noting that for all the calamities that Thatcher had visited on the UK, she had not fundamentally shifted public opinion, which - on the NHS and welfare, for instance - had actually moved to the Left. Thatcher had won because of a divided opposition, not because of her own popularity. "The truth is that Mrs Thatcher holds power in spite of Thatcherism and not because of it." And in short order, when New Right ideology had exhausted itself in most of its host countries, people would look back and "wonder what all the fuss was about". This seems remarkably complacent in retrospect. And there is a tendency to revert to belabouring an Aunt Sally version of Thatcherism as, in a word, 18th Century economics and 19th Century politics, the better to exaggerate Labour's ideological distance from the Tories. Still, it is a robust defence of moderate social democracy as a popular and pragmatic electoral option.

The essayist, of course, was Gordon Brown. Little more than three years later, Brown et al were staring at the results of the 1992 general election in disbelief. The Tories had won a decent plurality, after poll leads at times giving Labour more than 50% of the vote, especially after the poll tax riots. The reasons for this electoral collapse really had little to do with clause 4, or the trade unions, or high taxes, or the working class, or with Neil Kinnock being a dreadful Welsh oik. In fact, the most extensive research showed that the biggest single factor in Labour's loss was still the division in the anti-Tory vote, specifically the fact that of those who defected from Labour to the SDP-Liberal Alliance between 1979 and 1983, the majority had broken for the long-term. They had broken with Labourism - not to Thatcherism, as I also note in my book, but to a centre-left politics that was more radical on 'social' and defence issues than on strictly class issues.

More fundamentally, as Paul Foot wrote at the time, electoral politics moves to the Left when the organised working class is strong, and notching up victories. The organised working class, though rumours of its death were exaggerated, was not strong, and hardly notching up victories to make up for the raw defeats of the 1980s. The only powerful social movement of the period was the anti-poll tax campaign, and it was one which Labour had done everything to stamp on. The involvement of Labour councils in aggressively prosecuting non-payers, for example, squandered any possibility that the party would make impressive gains on the basis of that.

However, the right-wing faction in the leadership, including John Smith, Gordon Brown and Tony Blair, took a different view. They seem to have concurred with The Sun on who had really won the election. Prosaically, the right-wing of big capital had, through the press, helped mobilise an electoral coalition comprising the petit-bourgeois bedrock, much of the 'skilled working class' and a significant minority of the professional middle class. That they had been able to do so showed that the organised working class as the basis for an electoral vehicle was finished. It showed that most people were too instinctively bigoted and conservative to vote for a real social democratic party. The Labour Right decided that it was time to radically overhaul the party's structures, attack the trade union link, and refashion the party into a much more middle class, business-friendly vehicle. Socialism in both its parliamentarist and Stalinist versions - not mutually exclusive, by the way - was out. Market liberalism was in. And that is exactly what Thatcher set out to accomplish. She had always said that her aim was to destroy socialism in Britain - by which she meant social democracy. Labour's capitulation, wholly unjustified on purely psephological grounds, falsified Brown's diagnosis that Thatcherism was a flash-in-the-pan aberration, consecrating it as political common sense. And so here we are.

PS: Sunny Hundal has written the first response to my article about the cuts yesterday. Further responses follow over the next few days, and my final rejoinder will be published on Monday.

I spent the afternoon at what the BBC dubbed the "fourth debate" between David Cameron, Nick Clegg, and Gordon Brown. The organisers of the debate were a 'civil society' group called Citizens UK. This involved an array of church groups, community organisations (notably TELCO, which has led some incredible and successful campaigns on the Living Wage), and trade unions. It was also co-sponsored by the Contextual Theology Centre, and had an insufferable air of happy-clappy dippiness about it. I could have done without the smug pieties, and I could certainly have done without the multi-faith choir and its acoustic guitar. Still, it was appropriate, as the logic of the religious service was being reproduced at the level of politics. I'll explain why in a minute.

The group had developed a six-point "manifesto" that it asked each leader to discuss and respond to, and this involved an interesting triangulation. The underpinning ideology was basically Cameronite. The first manifesto point, championing civil society vs the government and markets, is pure 'Big Society'. The demand for a government framework to support community organisers is close to Cameron's idea of government-sponsored 'social entrepreneurs'. The demand for a cap on 'usurious' interest and its replacement with micro-credit is most congruent with Phillip Blond's distributist agenda of capitalising the poor. The introduction to each leader's contribution made it clear that the organisation favoured 'free and competitive markets'. The demand for community land trusts to facilitate cheaper owner-occupied housing was specifically opposed, by one of the speakers, to the alternative of building more council houses. The ambivalence-cum-suspicion toward socialised provision was palpable. Despite this overall ideological thrust, there were some laudable policies, and most of the specific proposals were probably closest to Liberal Democratic policy. These included an amnesty for illegal immigrants, and the end of detention of migrant children. They also included demands for the implementation of a Living Wage (set at £7.60), which every leader evaded in different ways, though all said it was an attractive idea. So, the ideology was Cameronite, and the policies Cleggite. But the leader that was most popular, by far, was Gordon Brown.

Cameron's performance was confident, but ultimately flat and salesy. He made as much as he could of the fact that the ideological presuppositions of the organisers were so close a match for his own 'compassionate conservatism'. "I talk about the Big Society," he enthused, "you are the Big Society." Oh, Jeez - really? I had thought of that line while I was still an epididymal pre-life form. There are extinct species that saw that line coming. He spoke insistently of his 'progressive goals', emoted about the need for greater 'equality of opportunity', made some vague nod in the direction of capping interest rates on debt ("we'll start with store cards, then see from there..."), sounded firmly in favour of a Living Wage, and even took credit on behalf of the Tories for having implemented it in London - I believe it was actually initiated by Livingstone. But though the 'Big Society' stuff was an open goal for him, he had great difficulty connecting his goals with those of his hosts. Clegg, though he had a clear political advantage over the other leaders, was eerily weightless. He was cheered to the rafters when he agreed to an amnesty for illegal immigrants living in the UK, and to an end to child detention. But other than that, my impression of him as a lacklustre candidate who happens to be in the right place at the right time was confirmed. His much vaunted sincerity and directness was belied by the evasiveness of his responses on issues such as the Living Wage - asked about whether his vague murmurs approving the idea of a Living Wage meant that he would legislate it, he said something to the effect that he wasn't sure if it should be compulsory as he didn't know if the money could be found for it.

Brown, who entered to wild applause and hooting of a kind I haven't seen since I was a WWF fan, revealed himself as an effective manipulator and button-pusher. He simulated passion and urgency, laid it on thick with references to the anti-slavery struggle, the civil rights movement, the suffragettes - to whom Citizens UK were compared. When asked about introducing a cap on usurious interest rates, he quipped "well, we all know what the Bible says about the moneylenders! They should be thrown out of the temple." Thrilled applause, as if no one had noticed the last thirteen years go by. Then he gave a very general nod to the idea of capping interest rates on loans. He mentioned a few modestly decent policies such as child tax credits, and said that the Tories inheritance tax plans would hand £200k to the 3,000 richest families (this is true, but it was also true of his own government's earlier inheritance tax cuts). He reminded the audience who had introduced the minimum wage, and spoke of the 'vawlyews' that his father had imbued him with. And he would have completely evaded the issues on which he was at odds with the assembly, such as child detention and immigrants, with the complicity of the organisers, had one contingent of the audience not heckled and demanded an answer. He still didn't really answer, and the organisers didn't press him even though they had, politely but firmly, pressed the other candidates for more specific answers where necessary.

Brown is not the shambling sadsack that he sometimes appears to be on television. He was a smooth, calculating performer, very adept at deflecting potentially problematic issues with off-the-cuff remarks and the invocation of struggle. He said that those struggling for 'fairness' would always find a 'brother' in him, and he finished his speech with this line: "When Cicero made a speech in ancient Rome, they said: 'good speech'. But when Demosthenes spoke in ancient Greece, they said: 'let's march'!" I don't know if it was wise for an incumbent PM whose government has been embroiled in several imperialist wars to compare himself to an insurgent against Alexander the Great.

In the end, what I had thought might be a Cameronite 'Big Society', and then a collective Cleggasm, turned out to be a Labour rally. The organisers, though noisily non-partisan and offensively civil toward their guest speakers, were ultimately facilitators for the Prime Minister's travelling stage show. Their questioning of him was laughably meek, and laudatory. The only moment of real interest in the event was when a protester, whom I have since learned was an anti-nuclear campaigner, disrupted Brown's speech. The protester was pretty roughly man-handled and the audience booed the poor chap as he was being bundled off, before going on to chant "Gordon Brown, Gordon Brown, Gordon Brown..." until it reached a critical mass of embarrassment and everyone shut up. The sympathy for him was unreal. It was like: "first Gillian Duffy, now this...". Brown eventually recovered from the shock and said, "I've had worse". And I watched in bewilderment as thousands of people laughed and cheered as if it was the funniest thing ever. It was like being stuck in a Joe Pasquale gig. It was like being stuck in one of those 'British Comedy's funniest moments' videos, with the scene of Del Boy falling over being played on a continuous loop, and the same galactically disproportionate canned laughter repeating itself ad nauseum. It was gruesome.

So, to return to my original point. There was definitely something of an evangelical atmosphere about this event. If religion is the sigh of the oppressed creature, the heart of a heartless world, and the spirit of spiritless conditions - in a word, the opiate of the masses - then this event could be said to have had the same function. Just as with the previous debates, and doubtless all the hustings going on up and down the country, there was a conspicuous absence from the proceedings of any realism about the devastating social upheavals that are ahead of us - what with unprecedented and corrosive spending cuts, and the consequences that shall have. It was airbrushed out, and instead the party were asked to discuss some basically humane policies in an antiseptic atmosphere. The assembly wasn't designed to discuss urgent policy matters in a direct and challenging way, no more so than the fiascos hosted by Sky, BBC or ITV. It was designed to pump up the assembled viewers, simulate democratic participation (though the only participation from the audience that was welcome was applause - no questions or contributions were accepted from the floor), and finally provide a fairly decisive religious and 'civil society' mandate for one Gordon Brown.

This obvious fix-up, by the way, is being reported as a "triumph" for Gordon Brown.

Cutting the debt is not even particularly good for profits. Chris Dillow argues that the budget deficit is, in fact, what is sustaining healthy profits despite the slump for the service industries. The former Monetary Policy Committee member David Blanchflower warns of dire consequences if spending is cut:

The time for cutting public spending is not now, not next year and not the year after… Unemployment is going to continue to rise this year and may keep on rising … If spending cuts are made too early and the monetary and fiscal stimuli are withdrawn, unemployment could easily reach four million If large numbers of public sector workers, perhaps as many as a million, are made redundant and there are substantial cuts in public spending in 2010, as proposed by some in the Conservative Party, five million unemployed or more is not inconceivable. They could be our lost generation...

What the likely next government is promising to do is raise the retirement age, so that people aged 65 have to work for another year, or claim benefits at a rate well below what their pension entitlement would have provided. This brings forward plans already outlined by New Labour, which weren't supposed to come into effect for a decade. More people on incapacity benefits will be forced onto Job Seekers Allowance too, thus costing them £25 a week. Companies will be paid to 'employ' people on benefits, though they will not be expected to pay them a wage - again, a Tory version of something New Labour has already contemplated. And public sector workers can expect pay freezes which, in real terms, amount to pay cuts. In general, if Brittan's analysis of the statistics holds, then we're talking about an average of 3% cuts across all departments on the basis of current Tory plans. That's probably going to involve a lot of privatization, with Royal Mail in the frontline. The cumulative effect of all this will be to reduce aggregate demand at a time when the economy is still weak and susceptible to sudden collapse; reduce employment at a time when unemployment is already soaring; and, ironically, probably increase the cost of labour in the long-term by driving up the costs of previously cheap, socialised services. In a particular light, this doesn't even work by capitalist standards. Even the CBI is deeply dubious about this whole business of rapid, savage cuts, not least because the public sector is one of the big customers for the private sector.

So, what is going on? The centre-left criticisms rightly focus on the threat of the Tories, but they are just the most aggressive exponents of the slash-and-burn doctrine. What accounts for this extraordinary cross-party consensus on spending cuts and privatization? The answer can only be that the deficit is a pretext for other priorities. All three parties are committed to removing whatever blockages there are for capital accumulation in the UK, to make it more competitive and more powerful in the world system. The growth formula to which they still cleave says that a low-tax, low-wage economy produces more investment, more jobs, higher growth and ultimately more revenues for the state. That means a shared commitment to reducing spending on pensions and welfare, for which purpose successful businessmen like David Freud have been recruited. It means a shared belief that the private sector should take on as any of the traditional roles of the public sector as possible - and, indeed, such accumulation-by-dispossession does provide opportunities for profitable investment. It matters less what the parties' ultimate goals are in this respect than that they are all committed to a healthy capitalist economy, and all accept the received wisdom of neoliberalism.

Take the issue of industrial relations. We are about to hear a lot of moral blackmail on this question, as the postal workers' strike will be used to show that strong trade unions frustrate necessary reforms, and cause businesses to retain outmoded and inefficient practises. We will be told that unions erode price competitiveness and discourage investment, and that if the more recalcitrant elements of the labour movement can be broken, then the more 'sensible' trade unions can be integrated into a new model in which they help facilitate reforms and increased labour productivity, smoothing out differences between workers and management rather than waging class struggle. That, the Tories will say, should lead to resumed growth with low inflation and more foreign direct investment. (This isn't actually true, of course - see David Coates' Models of Capitalism for a survey of the evidence). All of the terrifying stories about 'bankrupt Britain' give this neoliberal narrative some much needed support. Even if big business is alarmed by the speed and savagery of proposed spending cuts, moreover, the overall approach is one which they applaud, as is evidenced by the CBI's demand that students should have to pay more to fund the education system. And perhaps there is an attempt to set the bar too high as far as cuts and rollbacks are concerned, so that there is less resistance and perhaps even some relief when the cuts turn out to be less immediately savage than was promised.

The Prime Minister's speech to the TUC today conceded the ground that everyone expected him to concede: there will be cuts in state spending and public services. This has been flagged relentlessly for weeks, and the announcement has allowed the shadow chancellor to claim that the Tories have won the debate on this issue. Phillip Hammond, the man the Tories have trusted with the spending axe, also welcomed the basic thrust of Brown's remarks, while lamenting that he did not go further.

Brown's attempt to square the circle of shoring up core support in the labour movement while moving toward cuts, privatization and asset sales, is to say that "frontline services" will be left unharmed. Even if this was good enough, even if cuts of any sort didn't clash with the commitment to support employment, this claim is disingenous. It is disingenuous in part because Lord Mandelson, the business secretary, has already announced that frontline services will not be spared. I doubt that he did this without backing from the rest of the cabinet. But the real reason it is disingenuous is that Labour aren't going to win the next election, and Brown knows this. This speech was always about how Labour would position itself in opposition. When Mandelson attacked the "big state" and called for "far-reaching" privatization, he affirmed that New Labour was committed to restoring the neoliberal status quo. And this will make them as useless in opposition as they have been nasty in government. Whatever the Tories do, the shadow cabinet will not be able to pretend that it has a principle opposition to very large cuts in the public sector, and it will thus not be able to claim any credit if (most likely, when) the cuts contribute to another economic plunge. With Vince Cable demanding even more cuts from the government, we now have a cross-party consensus that substantial cuts to the public sector are in order. One might add that Brown's mention of "realistic" pay settlements signals the intention to push through, or support from opposition, real terms pay cuts for public sector workers.

Now, note the reactions from the trade union bureaucracy. The current joint leader of Unite, Tony Woodley, says Gordon Brown has "got it absolutely right here". Derek Simpson, the other joint leader of Unite, said that Brown had "put clear water between Labour and the Tories". Paul Kenny of the GMB, Dave Prentis of Unison, and Brendan Barber, the head of the TUC, also welcomed the speech. The only sceptical reactions came from Mark Serwotka of the PCS, Matt Wrack of the FBU, and Bob Crow of the RMT. Now, the TUC has been predicting social mayhem if Cameron's proposed cuts, ostensibly to reduce the budget deficit, become policy. They may be right. But are they really confident that Brown's cuts and sell-offs won't increase unemployment, reduce demand, and increase the scale of social misery? Of course they aren't. They are not stupid or naive. But the majority of trade union leaders see New Labour as 'their' government, and they have evidently decided to defend it in advance of the next election. Notwithstanding the militancy that is breaking out in various, often unofficial, channels, the commitment to supporting New Labour at all costs remains a hugely conservative force in the labour movement.

In 2005, Ian Gibson won Norwich North for Labour with over 21,000 votes. Today, in a bye-election resulting from Gibson's resignation over the expenses scandal, Chris Ostrowski lost it for Labour with a pathetic 6,000 votes, approx. That means Labour shed more than two-thirds of its vote. The Tories are down 2,000 votes on their 2005 level, but won the seat because the collapse of the left vote. The Greens put on two thousand votes, but one would have expected them to do much better - and UKIP outdid them, adding about three thousand votes to their previous tally. Craig Murray probably didn't expect much better, but at least he beat the BNP. On this basis, the 2010 general election will see a Tory landslide and surge for other right-wing parties, including possibly the fascists.

It's all too easy to blame this on Gordon Brown's outstanding inadequacy, the MPs expenses scandal, and Blairite plotting. These are all important factors, and the vapidity of challenges to Brown - James Purnell, of all people - can't inspire Labour voters with much hope of seeing a change in the future. But the collapse of social democracy is not a specifically British phenomenon, as the results from the recent Euro elections demonstrate. That was a continental cull that spared only a few forces to the left of social democracy. Nor is it recent. The decline in party identification is long-term, and the principle reason is that these parties have largely succumbed to neoliberal policies that accelerate inequality, undermine the unionised public sector from where many of their votes come, and erode the income and working conditions of their core supporters. The Labour Party has dealt with this by trying to construct a new electoral coalition that includes sectors of the middle class and the rich, and it was this coalition that once made New Labour seem so indomitable. Their ideological catchphrases were aspiration and enterprise. They courted a culture of conspicuous consumption. But this was based on unsustainable private sector borrowing, and soaring house prices. With the 'credit crunch' and ensuing recession, New Labour no longer looks as if it can meet the aspirations it has volubly acclaimed.

There is an obvious question, though: why don't left-wing voters turn out in greater number to back preferred alternatives? So far, disaffection with New Labour is producing passivity and disengagement rather than electoral insurgency. I can only think it is related to the absence of a general mobilisation against job losses in this recession. Despite very brave stands in particular localised settings against job losses, despite the militancy of the construction workers, these have not yet become part of a mass movement. This could change very quickly when the axe falls on the heavily unionised public sector, but neither the government nor the union leaders want a fight on this territory before the election. The left is right to assume that any one of the struggles going on now, over Vestas for example, could be a trigger for a much wider revolt. But institutional factors don't favour it at the moment.

Aside from this, there is a sort of cultural production of passivity. The reification of socially produced institutions is such that, in the news spectacle, we experience them as almost god-like forces controlling our lives without reason or accountability. There's a surge on the Dow Jones today - phew! - and then it collapses. Asian markets are up - fingers crossed - and then they're down again. GDP figures are falling less rapidly than before, then we learn that it's a false dawn. Investors are confident, then they're fleeing in droves. Our future seems to depend on forces beyond our ability to understand them, much less control them. One of the great challenges in trying to rouse resistance to the loss of jobs and livelihoods is that the very idea of ‘resisting the recession’ can seem incoherent in light of its spectacular autonomy. I assume that this is a powerful factor where working class organisation is weakest, although that ain't necessarily so.

Your diagnoses, correctives, complaints and grievances in the comments thread, please.

How to respond to such a serenade? Even as his colleague Jack Straw is busily pandering to our primitive passion for punishment, and while Blears is patronising the 'white working class', Chancellor Darling promises he will cut taxes for the poor and raise them for the rich. VAT will supposedly be cut from 17.5% to 15% and income tax on those earning £150k or more will be raised from 40% to 45%. These are not huge shifts, but I must advise the Chancellor that he risks being associated with the dread word, 'redistribution'. It is, as Nick Robinson of the BBC says, of "huge symbolic importance". Listen to me, Darling. New Labour's pact with the rich was that it would not touch their property. For a decade, it has stuck with that promise, freezing higher rate incomes taxes, slashing corporation taxes and cutting inheritance taxes. It has contained trade union pressure and implemented a public sector pay freeze. It threw tens of billions at Northern Rock in a desperate bid to maintain the institution as the private property of rich investors. Even when the government nationalised the bank, it appointed business managers to run it down, cut jobs and prepare it to be returned to the private sector. And now you tell us that you intend to cast prudence aside and embrace a minimal meliorist agenda comparable to that of, say, the Liberal Democrats or Barack Obama. What could possibly be motivating this minute shift away from kapitalist realism?

One thing this government appears to have lacked for the last year was the elemental instinct for survival. It seemed there was not a challenge it could not fluff, not a 'heartland' it could not lose, and no limit to its prevarication and deer-caught-in-the-headlights inaction in response to the economic crisis. Yet, of late, it has been rising in the polls. Labour appears to have recovered at least 5% of its vote since the Summer, and the Tory lead is no longer in double figures [pdf]. Compared to September, when the Tory lead was a whopping 24%, today's 5% looks manageable (see tracker poll [pdf]). In a recent poll taken just before Cameron abandoned his promise to match Labour's spending commitments, Mori put the Tories just 3 points ahead. Brown's personal rating has increased from 17% in May to 41% today [pdf]. And they managed to retain Glenrothes, in part because the collapse of Scottish banks necessitated a bail-out for London, which rather undermined Salmond's claim that Scotland could be part of an arc of prosperity alongside (whoops) Iceland. The government's psephological advisors have presumably recognised that the economic crisis that was killing the them last year is now redounding to their benefit. The hopeless flailing that characterised the initial response to the crisis, and the desperate clinging to neoliberal orthodoxies that even a right-wing Republican administration discarded without hesitation, were replaced after the collapse of Lehman Brothers by what looked like a far more decisive set of interventions including part-nationalisations and some curbs on the City's extravagant pay and bonuses. These were still basically pro-business policies, and they still transferred money from the public sector to the rich, but it looked far better than the Northern Jelly episode. And unlike in the US bail-out, the government insisted on voting rights in exchange for the money invested. Meanwhile, David Cameron's promises of tax cuts for businesses and big public spending cuts are probably not resonating far beyond the rabid Tory base.

Whatever is announced today is unlikely to be equal to the crisis. It will be a heavily politicised budget, however, sending out signals in advance of a 2009/10 election. A few tax cuts targeted at the poor will not substantially improve consumer spending ahead of Christmas, and the tax increases proposed for the wealthy will not raise much money, but an overall package of moderate wealth redistribution means that Darling is betting on a political realignment. And that is an interesting story in itself: it shows that the government, in its weakened state, is highly susceptible to public pressure. It shows that now is no time to relent on struggles for decent public sector pay, for better pensions, for an emergency house-building and debt-relief programe, and for public investment to protect jobs. Now is the time to push aggressively and confidently for a radical alternative programme.

Ingratitude, if Madeleine Bunting's apologia for New Labour is any guide, is what is the matter with Sunderland. The city has been ploughed with an avalanche of development cash. A school is to be rebuilt every year for the next fourteen years. Health centres, children's centres, business parks, new development zones with the marina (below right), fancy apartments and coffee shops... And the locals react by sputtering "you've done nothing for me", slagging off immigrants and voting Tory. There is some weird "disconnect" between Labour's actually loveable behaviour toward one of its most loyal constituencies and its dismal status in the popular perception. Working class Toryism, in the form of support for a set of sentiments including 'individual self-reliance' and 'community' and 'family values', is on the rise once more, a la 1979. The obvious conclusion is that the left must rally behind the government. Some version of this is likely to be the overall diagnosis of the soft left as Labour loses its so-called heartlands: regardless of all the disappointments and betrayals, despite the warmongering, privatization, pandering to employers and union-bashing, the real problem is the basic inability of the working class to recognise its true allies. The root problem is its affectless indifference and disloyalty, its susceptibility to racism and nationalism, and its gullibility as regards Tory propaganda.

So, what is the truth of the matter? What is the matter with Sunderland? What might Madeleine Bunting have found out had she not been relying upon the word of Chris Mullins MP? One of the most pressing issues facing working class areas in this country, without question, is housing. In Sunderland, as elsewhere, the government has been pressing for the complete privatization of housing stock. Sedgefield Borough Council, for example, having lost a vote in favour of transfer in 2005, has been trying to persuade residents yet again to go with privatization. What is causing the residents to doubt the word of council chiefs is that the company that would take over the houses - Gentoo, formerly the Sunderland Housing Group (eulogised here) - has a track record of failure. The company was awarded an £80m contract in 2002 to regenerate a poor estate called Doxford Park, some six years ago, and it has only recently begun work. Similarly, when thousands of council houses were transferred to the group in 2001, Gentoo/SHG invested millions in new private homes, and neglected to build the rented accomodation it was obliged to build. 6,200 council houses were demolished, sold off or left empty, but the company only built 111 new houses over the next four years. The number of people seeking a home rose from approximately 5,000 to over 19,000. Meanwhile, it did successfully build the private developments, including maritime housing and the Athanaeum - the sort of investment and development that Bunting lauds, albeit with a grudging admission that "critics say" it may not seem of much use to single mothers and those on incapacity benefit.

Bear in mind that Gentoo/SHG is a Registered Social Landlord (RSL), exactly the kind of landlord that the government says we have least to fear from. An RSL is answerable to the Housing Corporation, and supposedly behaves better than other private landlords. If the Housing Corporation doesn't hold them accountable, then those co-responsible for sealing the deal should. In fact, the behaviour of Gentoo/SHG had been noted before by local Labour councillors Mike Tansey and Brynley Sidaway, and they did try to alert residents and fellow councillors to the problem. Both Sidaway and Tansey rejected stock transfer because the result, where the government had been able to impose its scheme, was a rise in rents and an increase in homelessness. However, by 2006, they had been driven out of the Labour Party for their pains. They became independents, and on the back of a successful campaign against stock transfer a lively local Respect group was built. What they had to say was important, and their actions benefited the people they represented. By contrast, Labour policy at both a local and national level pitted it against its traditional working class supporters. There is a clue right there: those elected Labour Party members who try to represent their constituents effectively have been punished and expelled.

It is important to understand the rationale behind the government's transfer policy. It wants to fund housing, but it is committed to a taxation structure that cannot raise the necessary funds without hitting the poor harder. So, either local authorities would have to borrow, thus breaking the government's fiscal rules, or they would have to neglect housing, thus destroying the working class voting base. By transferring homes to private housing groups like Gentoo/SHG, they can allow huge amounts of money to be borrowed for investment, because the costs will be formally borne by the social landlord. If the government were not so committed to a neoliberal policy mix, it could raise taxation on upper income brackets and on corporations, to fund such investment. The ugly side of this neoliberalism is a tendency to blame the poor for their plight. One of the government's recent proposals, dreamed up by Housing Minister Caroline Flint, was to compel unemployed recipients of council housing to sign degrading "commitment contracts" which compelled them to agree to actively seek work if they wanted to be allowed a council house - thus blaming the unemployed for their situation and forcing them to humiliate themselves in a lifeless labour market at pain of losing their home. Local Labour Party loyalists felt compelled to distance themselves from Flint's ideas. There is another clue: the government has been complacent about its core working class vote, assuming that they had nowhere else to go, and therefore has scapegoated working class people for its failures.

Another of the government's prominent policy agendas, so dear to its heart that it made this a central plank in the 2001 election despite over 80% public disapporval, is the private finance initiative. I have written enough about its obscene wastefulness here before. Once again, the rationale behind the policy is that it appears to provide something for nothing: money for investment without incurring debts or driving up taxes in the short-run. But the net result is almost invariably a poorer quality of service and a higher cost. For example, in Coventry, two hospitals were replaced by one hospital, with fewer beds and staff overall, and a final cost of £900m, 30 times higher than it would have been to simply renovate the two existing hospitals and keep the beds and staff. In Northumberland, four fire stations were closed and replaced with two under a £10m PFI scheme. One could go on at some length. In Sunderland, as elsewhere, local government functions including in health, education, road-building, street-lighting and waste management have all been outsourced to private companies under expensive PFI and PPP schemes.

Perhaps the most controversial application of the PFI model is in the national health service. Patricia Hewitt announced in 2006 that there would be big cutbacks in public spending on the NHS. She said that the reason was that generous government investment had not been spent on reforms but on salaries for greedy public servants. In fact, as Allyson Pollock pointed out, the government's market-driven reforms had created the crisis. The costs of this marketisation consumed between 6% and 14% of the NHS national budget, on a conservative estimate. As a result, thousands of NHS staff were shed in hospitals up and down the country. The impact has, predictably, been to alienate Labour's usual supporters. One of the main campaigners against the government's NHS cuts in Sunderland has been a well-known local nurse named Kathy Haq, who had been lauded in 1999 for embarking on an unpaid, voluntary mission to improve healthcare in Bangladesh and who had run a support network for victims of a doctor who had raped patients. Haq might have been exactly the sort of person whom New Labour would wish to win over: a devoted public servant and campaigner, who had worked for the NHS for forty years. But she joined Respect when it was launched in the area in 2006, and became the branch secretary. One reason is that City Hospitals Sunderland Foundation Trust ran up debts of over £5m and therefore made plans to shed 10% of its staff, particularly in the Sunderland Royal Hospital. Patients were also angered when local hospitals started to charge for parking, following the lead set by PFI hospitals across the country. Problems within the NHS have been a prominent theme in the local press. In fact, although Bunting refers to the Tory capture for the Ryhope constituency in a bye-election with a low turnout, she does not notice that a surprisingly large component of Labour's vote, perhaps more than a third, appears to have been redistributed over some years to an independent local campaigner and former journalist known as Patrick Lavelle, who made his name by campaigning on the NHS. Another clue, then: investment isn't the same thing as provision, and one cannot disaggregate the money supplied from the way it is spent and the policies underpinning it. If working class voters experience a decline in service, the fact that a large amount of money has been spent on producing the decline makes it even worse. The PFI was originally a Tory policy, but by adopting it, the government has handed the Tories one of their main propaganda planks: higher spending equals more bureaucracy and less efficiency.

Sunderland is one of the poorest places in England. Mainly as a result of the destruction of its extraction and manufacturing industries, it has suffered a declining population, particularly among working age males, and this trend is projected to continue at least until 2023. That means a smaller tax base for the city, especially as those who remain are likely to be those with the least resources. More than fifty percent of its children live in low income families, according to the Child Poverty Action Group, which is well above the national average. Even official unemployment is almost double the national average according to the Office for National Statistics, while a total of 31% of the working age population is estimated to be out of work. Large numbers of people are kept on long term incapacity benefit to conceal the real rate of unemployment, albeit incapacity among older males in former mining areas is in fact quite widespread. The government has a number of solutions for the industrial hinterlands, but among them is not a revival of the manufacturing base or of the unions that can maintain decent incomes. One of the few big manufacturers in Sunderland is the Nissan car plant, which was built in 1986. The plant is symbolic of a supposedly 'new' high-tech economy vaunted by neoliberals of all stripes. But Nissan has repeatedly threatened to close the plant or slash thousands of jobs, and has repeatedly been bailed out with millions in government grants. And while it does employ thousands of local people, who are unionised, it is hardly a substitute for the massive industries of the past. The government is committed to a City-based growth policy with a strong pound, and as a consequence has seen well over a million manufacturing jobs lost on its watch. As has been widely noticed by now, this is one reason why the UK economy is particularly exposed to the chaos in the financial markets, and why it stands least prepared to withstand a crash.

Under New Labour, the remaining mining pits in Sunderland were allowed to disappear, with nothing to replace them. Today, the biggest employer in Sunderland is the government, while the services industry is the biggest sector of employment in the city. The council has sought to rejuvenate the economy by gentrifying it, making it into a more tourist-friendly zone, and building up a financial services industry, which is today almost as big as the manufacturing sector. All of these factors make Sunderland particularly susceptible to the toxic situation that we now face: public sector pay cuts, cuts in spending, a crisis in the financial sector, and higher food and energy prices. In addition, while Bunting mentions a disproportionately high rate of single motherhood and incapacity in Sunderland, she does not mention the government's policies of rolling back single mother benefits and incapacity benefits. These, in addition to a vindictive plan to force the long-term unemployed to do 'community service' as if they were criminals, are poison for a local Labour Party seeking to gather votes. Further, in a city with life expectancy well below than the national average, the government's plans to raise the retirement age and privatise the pension system - while demanding that people save money they don't have to invest in a pension scheme that floats on the oh-so-reliable stock market - is asking for trouble. To that should be added a recent rise in pensioner poverty, when a fifth of pensioners already lived on less than £5,000 a year.

Sunderland is supposedly an example of where the government has genuinely tried to help the poor, yet is losing support from voters who fail to recognise New Labour's loyalty to them, while imprudently flirting with the Tories. In truth, while New Labour has delivered some very mild reforms, there could hardly be a more dramatic example of its policies failing the working class on the one hand, and punishing them on the other. The story of Sunderland is typical in this respect. There remains one question: will Sunderland go Tory, and if so, will it be for the reasons Bunting suggests? Sunderland still has a majority Labour council, and will probably return a Labour MP even on a relatively low turnout. The worst wipeouts for the government will be in the south-east, while the polls show the Tories making least headway in core Labour areas. Further, there is nothing to support the claim that once heartland Labour constituencies are won over to right-wing sentiments, and Bunting offers no evidence for this assertion. There is certainly nothing comparable to 1979, when Thatcher won on a platform of aggressively right-wing and anti-union policies. David Cameron is successfully appropriating the centrist language and sentiments of New Labour, even positioning themselves to the 'left' of the government on some questions. In Wales and Scotland, where there are centre-left and sometimes radical left alternatives, the Tories are not reviving at anywhere near the rate that they have been in England. And while the Tories are likely to be the beneficiaries of government unpopularity in England, the process of party identity breaking down is advancing rapidly for both Labour and Conservative parties. What is the matter with Sunderland is what is the matter with the UK as a whole. The system is failing, the neoliberal solution doesn't work, parliament is increasingly impervious to our needs, and we're facing a crisis in which we find elected officials happy to pour money into the City, but extremely reluctant at best to do anything which alters the fundamentally unfair distribution of wealth and power in the society.