Duncan Hamilton: Labour at a crossroads, but can new leader take the right turn?

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AS THE coalition dominates the news agenda, both with its energy and its fragility, the Labour Party continues to seek its next leader.

The startling similarity of the main candidates – my inside sources tell me that two of them are even rumoured to have spent years sharing the same bath – should not mask the importance of the decision.

While the Miliband brothers, Andy Burnham and Ed Balls all share the description of "forty-something, Oxbridge educated, former special advisers", this election must be about much more than simply which next generation Blairite/Brownie will be thrust upon an unsuspecting public.

Some of the questions are easier to answer than others. If the Labour calculation is that this coalition will not last another 12 months, then David Miliband is the instantly credible choice. For all that he is unavoidably patronising, a quick election would require someone of substance and, having been foreign secretary, he unquestionably ticks that box. Beyond that, however, things get interesting. If the assumption is that Labour is out of office for years, then this leadership election becomes a different beast. At that stage the questions can be more fundamental, starting with: 'What exactly does the Labour Party now stand for?'

The issue has been forced because of the doomed coalition talks in the last days of the Labour government which revealed a deep chasm between the "progressive" and the traditional wings of the party. That division wasn't just about whether to do a deal with the Lib Dems, it was about a divergent approach to politics. It was about scuppering PR, preferring opposition to power sharing and refusing to countenance a more radical revision of the role of the state.

To succeed, the competing wings of the Labour movement now either need to be reconciled or agree to part.

Blair, you will remember, solved the problem by giving us the "Third Way". Vacuous rubbish as it was, it achieved the necessary short-term goal of uniting the Labour movement behind some perception of common cause. It hinted at a coherent philosophy that allowed trade unionists and free market advocates to coalesce under a single banner. But that horse has bolted. The party can't open up a genuine debate about political philosophy precisely because it would expose a movement with increasingly divergent aspirations. That is why the leadership candidates are reduced, in the main, to offering different flavours of the same product.

Alternatively, is it time to accept that Diane Abbott and Peter Mandelson simply cannot share a pew in even the broadest of broad churches? I don't agree with those who say that would be a disaster for Labour. Imagine, for example, that Labour changed its stance on PR. Yes, some on the far left might form their own party, but so what? The party might lose some votes, but there would be a near certainty of securing a progressive alliance in most elections, almost certainly with revitalised Labour as the largest party. The SDP broke away from the Labour Party nearly 29 years ago. Is it really so unthinkable that the future includes, as well as Labour, a range of other parties representing the spectrum of centre-left thought? Wouldn't that be the liberation of the Labour Party, rather than its downfall?

Moreover, wouldn't the political system benefit from greater diversity of opinion? In the wake of the banking crisis and the continuing spasms of a free market economy, wouldn't public debate be richer and more meaningful if there was a distinct left- wing voice to challenge the accepted wisdom which brought the country to its knees in the first place? That is what a vibrant democracy is all about.

Similarly, a new Labour leader has to redefine the role of the state. Given the immediate backdrop of savage spending cuts, that is now much more than an esoteric argument. Public spending cuts need not be an entirely negative experience. Real leadership from opposition means avoiding the cheap populism of opposing every cut and instead means articulating that in 2010, most of us now view government not as a monolithic service provider but rather as safety net and enabler. The first party to do so, and to build a policy platform around that proposition, can redefine the political debate.

Only the Milibands seem remotely engaged in that bigger picture. Miliband the Elder even used his launch to argue that it was time to think not about "New Labour" but "Next Labour". Were it not for the fact that the soundbite was quintessentially New Labour, it might have been grounds for optimism. Miliband the Younger was much more impressive, using his speech to the Fabian Society to launch his campaign to tackle directly the issues of political reform and rethinking the role of the state. He deserves real credit for doing so. That, together with the warm endorsement of Neil Kinnock, suggests there may be significantly more to Ed Miliband than first meets the eye.

But the serious point remains: the choice for Labour is about either changing the face of the leader or the face of British politics. There is an appetite in the country for bold reform and a chance to deliver radical change with a reformed Labour Party leading a progressive alliance at Westminster. That is a prize that should excite any Labour leader worthy of the name. I live in hope, but not yet in expectation.

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