PROGRESSIVE POLITICS in Britain ran into the sand in the 1970s because it could not develop a compelling view of the relationship between government, individuals and markets. On the economy, on welfare and on crime, means and ends became increasingly hard to connect. The voters became confused and disillusioned. It is a measure of the confidence of today’s Labour Party that the Political Cabinet will be told that our economic record will be at the centre of the election campaign.

New Labour has been above all a movement to overcome that confusion, to align majority values with progressive ends and effective means. We did not reverse changes of the 1980s — such as trade union law, privatisation and reduced direct tax rates — not because we felt unable to remove them, but because we did not want to.

Our role is to change the things the Thatcherite era got wrong: unstable economic policy, social division, head-in-the-sand illiberalism on issues such as sexual equality, and gross underinvestment in public services and the public realm.

The past eight years have seen progress on all these questions. As a result, Britain is now better placed to face the challenges of the future than at any time in the past 50 years. We are ready to exploit our natural advantages in the English language and our alliances around the world.

We have had the longest period of sustained growth in 200 years, and the longest period of low inflation and low interest rates in the past 40 years. During our first two years, public spending control was very tight. But tough economic decisions helped to create a low-debt, high-employment economy, generating funds for use, in part, in education, the NHS, law and order and inner-city regeneration.

The evidence of improvement is there in independent statistics as well as daily experience. International studies say that our focus on primary schools has made our 10-year-olds the third-best-educated in the world — after 40 years of little improvement. Our universal tax-funded health service has always been cheap by international comparisons; now it is increasingly effective, as waiting lists and premature deaths from cancer and coronary heart disease tumble.

This improvement is the product of investment and reform. Public spending as a share of national income has risen. And the composition of public spending has changed — as we cut the costs of debt and unemployment, which in 1997 were greater than the cost of schools and hospitals combined. By 2008, the end of the current spending round, we will at last reach roughly European levels for both education and health expenditure.

The reforms constitute what one NHS expert has called a “quiet revolution”. Supply is becoming more diverse; patient choice introduced; outdated practices and thinking left behind. Demanding performance targets can be unpopular, but they help to drive change. There is a similar process under way in our education system. In the criminal justice system, more police are working in new ways with new laws to deliver real change.

This progress is not an accident. It is born of a fundamental rethink in the Labour Party about the relationship between citizen and state.

We recognise the realities of a more individualistic age, but we do not confuse individualism with selfishness. We understand the meaning of interdependence, locally and internationally, but we do not confuse interdependence with powerlessness, either for communities or nations.

It is right to have a fundamental debate about where we go as a country, what is individual responsibility and what should be done by government.We need to continue making key investments. Four things we know. First, we need to drive higher and higher productivity from our spend. Second, as the significant increase in long-term investment — for example in capital or in staff recruitment and training — comes through, we need to deploy our resources to maximise output.

Third, our spending plans are prudent, affordable and meet our tough fiscal rules, while maintaining a competitive environment for business. Fourth, we must follow the logic of empirical evidence, which is that reform allied to investment works, so that we deepen it rather than dilute it. With increased capacity, patient choice has helped to reduce cardiac waiting times. With increased numbers of teachers and support staff, specialist schools outperform traditional comprehensives. With more police on the beat, antisocial behaviour legislation is necessary to help communities to fight back against low-level but intensely annoying disorder. As we raise social and environmental standards, reform of administrative burdens is essential, which is the significance of the Arculus and Hampton reforms set out by the Chancellor in the Budget.

It would be disastrous to cut off the investment just when it is producing results. This is the central difference between new Labour and the Conservative Party. They do not accept the direction we have set for public services.

Quite the most bizarre aspect of the Flight episode is the dismissal of a deputy chairman and MP for saying what most of the party believes. Lord Saatchi wants public spending at 30 per cent of GDP. Michael Howard and Oliver Letwin talk of 35 per cent.

The commitment to public spending cuts is the truth that dare not speak its name in the modern Conservative Party. They all believe it, but they will say it only in private. Now it is out in the open, and the choice is clear.

New Labour has resolved its dilemmas of the 1970s. We undertook fundamental and sometimes painful rethinking. But the Conservatives refuse to engage in this process. They end up with tax and spending plans that are economically risky and socially damaging. We have been there before, and must not go there again.

Times Recommends

• Britain doesn’t need a dose of shock therapy
• Why the sea eagle has no right to land here
• Let older women have a voice at the BBC