Some aspects of the cuts debate are continuing under my last rejoinder, which you might want to check out. I want to flesh out an important point regarding the mythologies about class and politics that became a New Labour mainstay. These include the myth that the majority had abandoned class consciousness, instead becoming 'aspirational', and as such had embraced core aspects of Thatcherism ('popular capitalism'), moved away from social democracy and were turned off by appeals to egalitarianism and public ownership.

That these are indeed myths, I will show in due course. But they have origins particularly in the right-wing lurch in the higher echelons of the trade union leadership and the Labour Party in the early 1980s, that was sometimes known then as 'the new realism'. They did not originate from within the labour movement, but rather are an adaptation to ideas developed by the right-wing of the Conservative Party since the late 1960s, and aggressively pushed by segments of the capitalist media, most famously represented by the Selsdon Group, a 'free market' pressure group set up by Nicholas Ridley in 1973. How they came to be currency in the right-wing of the labour movement has to do with the failure of the 1974-1979 Labour government.

I've written elsewhere of how the New Left emerged in response to the collapse of the post-war consensus. It coincided with the emergence of a radical left-wing leadership in the trade union movement, and the arrival of a militant shop stewards' movement. But what it did not do was feed into a movement to build an alternative to the Labour Party, as people like Ralph Miliband thought was necessary. The forces of the revolutionary left were too small, and the numbers of people on the left prepared to break with Labourism were insignificant. Rather, it fed into a surge in the Labour Left's fortunes, whose hopes were pinned on a Labour victory, delivered twice in 1974.

Let's consider the manifesto that Labour won on in February 1974, and again in October 1974. It included the commitment to price controls, a wealth tax, caps on rents, and protection for tenants against eviction. On health, it promised to abolish prescription charges and democratise local health authorities. On racism and imperialism, it promised to eliminate racist discrimination in nationality laws, end Britain's involvement with apartheid, and reduce defence spending. On industry and employment, it committed to an exansion of public control of industry including in profitable industries (socialising gains as well as losses), making existing nationalised industries more responsible to workers and users and properly "socialise existing nationalised industries" (interesting distinction). The 25 leading companies would be nationalised, according to the Alternative Economic Strategy upon which the manifesto was substantially based. It pledged to create a National Enterprise Board to further socialise industry, the intervention of the state and notably it pledged its support for "industrial democracy", wherein (as per the Labour Programme 1973) workers would have a direct representation through trade union channels in the management of industries.

Much of that programme owes itself to Tony Benn, who took on board the New Left's criticisms of social democracy, and urged the party leadership to move to the Left in order to win the election and effect a fundamental shift in the balance of wealth and power in British society, such that no government could feasibly turn it back without facing the resistance of a powerful grassroots democracy. It is fair to say that he over-estimated the ability of a Labour government to achieve a fraction of this, and under-estimated the ability of the state and private capital to resist it. Leaving the bulk of economic power in the hands of private capital, Labour nonetheless expected them to meekly accept tax rises, more government oversight, a workers' share in the control of industry, the socialisation of profitable companies... there was no way they were allowing this to happen.

It was a utopian programme in the strict sense that no thought had been given to the range of social forces it would be necessary to assemble and mobilise in order that its goals could be achieved, and its accomplishments protected. It was simply assumed that an elected government could bring these changes about, and that once implemented the ruling class would have no alternative but to accept them. What Benn was attempting was a radicalised version of Labour's traditional mission to bridge the gap between nation and class - that is, to tie the improvement of working class living conditions to the improvement of international economic competitiveness. Even so, the ambition the programme is a tribute to the way in which successful struggles had fired up the radical imagination. The atmosphere was such that even the traditionalist, pragmatist, right-wing Labour leadership felt compelled to accept it, and millions of working class people put their faith in it.

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The 1974-1979 Labour government produced a terrible disillusionment. This opened the way for the split in the post-war Labour electoral coalition that took place between 1979 and 1983. Why? A number of things. Firstly, Labour didn't deliver. It found itself compelled to impose spending cuts to win loans and stabilise the currency, and pay cuts to restore profitability, and thus competitiveness, to British capital. Senior civil servants, the Labour Right, and the IMF worked in different ways to block the most radical of Labour's proposed reforms. Treasury officials worked to frustrate the radical policies promised in the Alternative Economic Strategy. The CBI threatened an investment strike if Tony Benn got his way, and considered illegal measures to subvert the government. That proved unnecessary in the end. 'Industrial democracy' was dropped as a policy goal, and the ambitious public ownership programme produced only a few nationalisations mainly to prop up failing businesses. Far from the rich being squeezed, it was wages that were held down.

Secondly, the supposed means of delivering a new society became the means by which working people suffered - the social contract, for example, which restricted wage increases to 5% at a time when inflation soared far higher, sometimes as high as 20%. The real terms pay cuts were deeper than those Heath had achieved. It was the institutions of the labour movement, the TUC General Council in lock step with a Labour government, that imposed this austerity, and it was more effective for that. Similarly, the idea of workers having a share of control in industry was commuted into the goal of 'participation', which basically meant that union officials presided along with management over harsh productivity deals. The victimisation and sacking of the famous Communist Party activist at Longbridge, Derek 'Red Robbo' Robinson, was driven in part by a special branch campaign against him. However, his involvement alongside management in enforcing productivity deals made his isolation possible. As did his encouraging workers to cross picket lines when the union leadership decided not to back a strike. 'Participation', far from democratising industry, coopted the union convenors, stewards and leadership in a harsher and more exploitative work regime, at just the time that wages were falling.

Thirdly, Keynesianism - upon which the Labour Left staked its alternative economic strategy - experienced a profound crisis. In theory, there was a trade off between prices and employment. As long as unemployment remained at around 2.5%, or thereabouts, inflationary pressures would subside. Therefore, it was entirely possible to spend one's way out of a recession, creating jobs and stimulating investment. But the 1970s showed that you could have high inflation, and high unemployment together. That is, there would be a rise in inflation followed by an economic slump in which inflation would only dip slightly while unemployment soared. High energy prices and the ability of monopoly capital to jack up consumer prices were jointly responsible for this. James Callaghan explained, as he was made Prime Minister in 1976, that it was no longer possible for governments to spend their way out of recession. Each time they did so, they merely added inflation to the system, and increased the level of unemployment that would follow in any future slump. As chancellor, then, Denis Healey focused on counterinflationary policies, pioneering the monetarist doctrine that Thatcher would briefly take up as her mantra. The ensuing bust-up with the labour movement, which the union leadership did everything it could to avoid, became known as the 'winter of discontent'.

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The period from 1975-77 was characterised by a lull in strike actions, with days lost in 1976 the lowest for a decade. This had been because of the cooperation of the trade union leadership. The imposition of stage IV of the social contract, which pegged pay rises at 5%, produced a flood of strike actions, with more days lost in 1979 than in any year since 1926 (though, to be clear, the general strike still dwarfed the 1979 struggles), and higher than during the miners' strike in 1984. But the high level of militancy didn't necessarily reflect strength. During the post-war period in which organised labour had been powerful, strikes had been brief because they won easily - hence strike days lost were relatively few. The high level of industrial conflict reflected an employers' offensive that, moreover, was winning - with the labour movement increasingly demoralised and fragmented.

In that year, Labour was a hopeless shambles of a government, easy meat for Thatcher's Conservatives. Having lost MPs in bye-elections and become a minority government by 1977, it had held onto power through parliamentary contrivances, including a pact with David Steel's Liberals. It had no solutions, no alternative, no hope, no way, no how. Given the failure of the main left alternative, much of the public moved to the right. Majorities supported drastically reducing trade union power, though that did not last. On an increased turnout, the Tories won with 44% of the vote.

Right-wing Labourites, who had supported Roy Jenkins in the 1976 leadership contest, were preparing a split that would end up joining with the Liberals. Their Campaign for a Labour Victory later joined with the Social Democratic Alliance, a group formed by academics and others to fight the Labour Left, and in 1981 became the SDP. The rightist split was grossly irresponsible. with damaging long-term effects on British politics, but it was not an act of malice. The problem was that the liberal wing of the Labour Party was, like the Liberal Party, committed to conserving the post-war compromise, while the Labour Left was unsuccessfully trying to transcend it. As the liberals saw it, the Labour Left's ability to mobilise the party's machinery was forcing the party to adopt wildly unrealistic policies that would never be implemented, thus leading to demoralisation and defeat. This was partially based on a paranoid over-estimation of the Labour Left's forces, which - notwithstanding the brief upsurge of Bennism as youth riots spread across British cities - was in retreat. But they also believed that the union link was preventing Labour from adopting realistic policies, and that the idea of having a class-based party was at best outmoded. Hence, their goal was to realign British politics with the balance of power held by a centrist, cross-class party.

However, they would have got nowhere had the post-war compromise not been in meltdown since the late 1960s, during which time the Liberal vote first started to recover as an alternative to the big two parties, and had the government upon which the Labour Left pinned its hopes not turned out so disastrously. The emergence of a large centrist vote in the early 1980s was the culmination of a long-term trend, but it was compounded by the bitterness with the Labour Party and disappointment with the failure of late 1970s militancy. It produced the catastrophic defeat of 1983, and marked a long term split in the post-war Labour coalition. The fact that almost a third of trade unionists backed the SDP-Liberal Alliance, and only 40% voted for Labour, confirmed the damage that the 1974-79 government had done to its base. In fact, many of the new trade unionists were 'white collar'. Though their working conditions were not fundamentally different from those of 'blue collar' workers, they emerged during the period in which Labour had been in government and imposed many of the policies which they themselves had been compelled to combat. Therefore they did not, unlike previous generations of unionised workers, automatically identify Labourism as their natural political expression.

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As always, the Labour right used the defeats to argue for a conservative retrenchment. In this, they were backed by the 'Eurocommunist' faction of the Communist Party, including luminaries such as Eric Hobsbawm. The capture of the NEC by the right-wing in 1981 was followed by Neil Kinnock and Roy Hattersley taking the leadership for the Right in 1983, and thus began the process of crushing the Left, witch-hunting the Militants, and abandoning policies with a left-wing semblance. Just as the trade union leadership embraced a 'new realism' with respect to industrial relations, emphasising cooperation with the Thatcher government, so Labour embraced a 'new realism' with respect to its key policies. Ron Todd, head of the TGWU, was cited by Kinnock in support of his right-wing stance: "What do you say to a docker who earns £400 a week, owns his own house, a new car, a microwave and a video, as well as a small place near Marbella? You do not say - let me take you out of your misery, brother."

It was a complete fabrication. No docker earned that much per week. But it perfectly encapsulated the narrative of 'popular capitalism', developed by the Thatcherites in the 1970s and repeated ad nauseum by the mass media in the 1980s. People owned shares now, or wanted to. They owned property, or aspired to. Rather than advocate public ownership of industries, it was better to support public private partnerships or share options for employees, as the Liberal-SDPers advocated. Workers, they said, were accustomed to high living standards, and thus less given to solidaristic politics. They were doing well, or confident about doing well - even in an era of mass unemployment, growing poverty, and the re-emergence of homelessness. The forward march of labour was not only halted, but in reverse, because the comforts of capitalist society had led to an embourgeoisement of the proletariat, such that they aspired not to socialism, but to greater capitalist success. Labour had no choice, according to Kinnock, Hattersley, Hobsbawm, and the right-wing union leaders, but to adapt to this emerging situation and craft policies to appeal to the aspirations of those workers.

The sociologist Huw Beynon has written of how pro-government advertising campaigns in the 1980s, often by public bodies, sought to convey the impression that Britain was becoming a classless nation of consumers. These campaigns appropriated the reassembled iconography of the Left, and working class counter-culture, using images of miners or Karl Marx, to communicate the new 'popular capitalism'. At the same time, the government changed its gathering of data, so that the Office of Population Censuses and Surveys announced in 1987 that it was no longer going to collect data on classes - a decision that was later revoked. (New Labour came up with a more subtle initiative in 1998, simply changing the definition of class so that the great majority would fit into the category, 'middle class'). In short, these myths were self-consciously created to obscure the deep unpopularity of Thatcherite policies, and the surprising resilience of core left-wing ideas.

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Contrary to the myth of popular capitalism, only 4% of workers owned shares in 1987, and only 13% of the population as a whole. Today, individual share ownership accounts for 10% of total share values, with most accounted for by overseas owners in the US and EU, and institutional investors such as banks and financial institutions. The Department of Work and Pensions maintained in 2005 that 20% of households owned some shares but, as the UK Shareholders Association pointed out to its members, "the vast majority hold only a few shares".

Home ownership is one thing that did spread a little with 'right to buy', but it was not much more widespread in 1990 than it had been in 1980, and home ownership had been rising at a steady rate since the 1950s. What Thatcher did was not to radically increase the number of homes owned, but to ration housing, so that prices continually rose and so that the housing market could become a speculative entity enabling owners to borrow against the soaring value of their property to sustain consumption. But even this did not fundamentally affect people's voting habits.

The British Social Attitudes Survey of 1987 found that attitudes on the conflict between workers and management, on class conflict, on welfare, price controls, job creation, import controls, defence spending and a whole array of topics, remained basically social democratic, and this was especially among working class voters. Rather than evincing enthusiasm for a party of 'popular capitalism', most people thought the Tories represented only one class, and this was reflected in the fact that most did not vote for Thatcher. Majorities continued to self-identify as working class, and continued to believe that, as the social attitudes survey question has it, "there is a class war going on in this country". As Gordon Brown acknowledged at the time, Thatcherism never made much of an impact on British public opinion.

The myth of popular capitalism was allowed to take hold largely because the Labour Party itself abandoned the politics of redistribution and public ownership, and embraced Thatcherism. Public attitudes on class, inequality and welfare didn't fundamentally change in response to 18 years of Tory rule - in fact, the evidence is that they moved to the left somewhat. However, the Labour Party has a decisive ability to shape popular attitudes because of its relationship to working class voters, the trade union movement, and its hegemony over most forces left-of-centre. New Labour shifted public opinion to the right on, eg, redistribution, welfare and race, far more successfully than the Tories did. Even so, it was unable to shift opinion to the right on everything. For example, its privatization agenda was never popular, and 67% of people favour renationalising all public utilities privatised in the last 25 years. The point, though, is that the politics of abandoning and de-emphasising class, prevalent among the centre-left in the New Labour era, has been built on myths prepared by the Right. It was supposed to enable the renewal of social democracy with the possibility of an electoral coalition between Labour and the Liberal Democrats - such was the aim of Labour's right-wing 'modernisers'. But far from consolidating a progressive twenty-first century coalition, it has led to the profound degeneration of social democracy, the entrenchment of reactionary social policies to cope with the fall out from rising inequality, crackdowns on civil liberties to contain protest movements, and ultimately the emergence of a shabby ConDem coalition that could - if the Orange Liberals have their way - realign British politics further to the right. Reinstating class as a central heuristic and organising principle for the left is vital.