In Britain 8% of our population is made up of families who have come to these shores, mainly from south Asia, the Caribbean and Africa but increasingly from other areas too. These changes are having a profound effect on British society.

A survey of electoral wards in England and Wales in 2005 found the number of racially mixed neighbourhoods – where at least 10% are from an ethnic minority – had increased from 960 in 1991 to nearly 1,100 in 2001, and it will be at least 1,300 by 2011 – one in five throughout England. The data also show a contradictory picture – increasing integration for most people, in most areas, but increasing segregation for some in others.

The State of the English Cities report a year ago highlighted this divergence. It showed that segregation fell between 1991 and 2001 in 48 of the 56 towns and cities studied. But segregation had increased in eight areas, significantly so in my own constituency of Blackburn.

The trend towards greater segregation is most marked in some areas with large Asian, principally Muslim, populations. This paradox of increasing integration on the one hand, and hardening segregation on the other is replicated abroad.

Today the most fundamental world divide is between liberal democracy and certain narrow misinterpretations of religious belief. The most frightening expression of that is a brand of terrorism that uses religion to justify its evil.

Democracy is incompatible with any such identity. This, as we know, is a particular problem for certain fringe minority Muslim groups. These groups hold democracy as unacceptable. Instead they favour an unelected caliph who dictates rules set by God. Such groups often argue that Muslims cannot be Muslims and British at the same time.

These people represent an extremely small fraction of the Muslim community, but the problem for the vast majority of Muslims is that while they feel that they are unfairly associated with these extremists, they may be uncertain about how best to articulate their views in the face of such dogmatism. We need to assure them that nationality does not require individuals to give up distinctive cultural attributes, such as their religion.

Here we can learn much from countries that have a more developed sense of citizenship, and what goes with it: notably from the United States, Canada, Australia, and those in western Europe who have had to develop the idea of citizenship to survive as nations, or indeed, simply to be nations.

We are the only European nation – the only one – that has not within memory faced an existential crisis of dictatorship, occupation, defeat or the moral hazard of neutrality in a just war. A large part of what we describe as Britishness in our story traces back to our own civil war, its resolution in 1688 – and the Treaty of Union in 1707 – but we have not had a crisis of identity like that since, and it shows in the lack of precision of what it means to us to be British.

This was illustrated in a survey of British social attitudes in January, which found that respondents struggled to identify typically British values. The strength of British national identity appears to be weakening, with more people describing themselves as Scottish, Welsh or English, than British.

We have to be clearer about what it means to be British, and to be resolute that what comes with this is a set of values that have not just to be shared but accepted. Yes, there is room for multiple and different identities, but there has to be a contract that they will not take precedence over the core democratic values of freedom, fairness, tolerance and plurality that define what it means to be British. It is the bargain and it is nonnegotiable.

A “British story” must be at the heart of this. It must place stress on the importance of democracy, how it developed here and how it can allow different groups to live together in relative harmony. Above all, British nationality is not about blood and soil, but about common civic values.

You cannot transmit these ideas without stories. Other countries that do better than ours in defining their sense of citizenship – again, the US is the best example – do so by heroic stories of, for instance, how America came to be America. We must do the same, bringing out the freedom that lies at the heart of the story.

That means freedom through the narrative of the Magna Carta, the civil war, the Bill of Rights, through Adam Smith and the Scottish enlightenment, the fight for votes, for the emancipation of Catholics and nonconformists, of women and of the black community, the second world war, the fight for rights for minority groups, the fight now against unbridled terror.

There is a complicated side to this story – that in seeking to secure our freedom through greater prosperity and greater security, we looked like and often were oppressors to the Irish and to many of the peoples of the British Empire. But the very creed of freedom that we preached abroad, if sometimes did not practise, ensured that our colonial episode collapsed under its own very British contradiction, and with less bloodshed than many other decolonisation struggles.

The values I have talked about are not exclusively British or indeed western: they are common human values reflected in the charter of the United Nations. What is uniquely British is the process by which these principles and ideals were gradually applied here.

A full version of this article appears in the May issue of The World Today, published by Chatham House tomorrow.

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