The middle classes drink too much. They're in debt. They worry about their health. They agonise over their children's education and are prepared to tell porkies to get their kids into a good school. And they're all of us. Or rather, that's the line that seems to have solidified into fact in the 11 years since John Prescott swept the working-class chip from his shoulder and declared that “We're all middle-class now”.

It's a loaded term, of course. That's why, although we throw it around liberally as a badge that confers acceptability, we rarely talk about what it means. We think we know because we recognise people like ourselves, but we are also aware that definitions of class hark back to the days of upper, middle and lower - encapsulated in the famous 1966 Cleese, Barker and Corbett Frost Report comedy sketch - when class defined superiority and inferiority. In these politically correct times we are required to think that we're more equal than that, and if we acknowledge that we're not we may have to do something about it.

Yet, as any sociologist or marketing buff will tell you, the Prescott line may be politically and socially convenient but it's not true. So who are the middle classes in Britain today? What does class mean? Does it hinge on occupation? On appearance? Behaviour? Is it that unspoken thing - attitude? Or is it just about money?

In a sense class has always been about money, ever since kings rewarded loyal henchmen with titles and land. But over the centuries that has been glossed over by the idea that class is about breeding. After talking to several dozen people from different backgrounds and in different parts of Britain, what strikes me is that this pretence has now gone. However much the middle classes relate to those who share their values - and they do - it is money, or the lack of it, that underpins their identity.

Not that everyone sees class that way. Sociologists regard it as something to be calibrated objectively according to occupation and the terms of your employment. It isn't a matter for judgment, they say. Marketing people have discovered that they can target specific groups more accurately when they assess attitude as well as employment status. Then there are the codes that we have devised for judging other people, and for sniffing out those who are like us and who give us a sense of belonging. Sometimes these rely on convention and cliché because we just can't help ourselves.

Brighton College is a bastion of middle- class privilege. The atmosphere is underpinned by Gilbert Scott's grand Gothic architecture, though these days the place also has a contemporary sense of purpose that cannot be unconnected to the fees: £14,000 a year. These are paid by professional parents, some of whom are prepared to stretch themselves to find the money, says Richard Cairns, the headmaster. Remortgaging is not uncommon for parents for whom education is a priority.

They are buying access to academia - and they want their children to be able to navigate adult life in the middle classes with confidence. To this end older pupils attend dinner parties where they learn social etiquette and how to handle conversation when you know nothing about the topic raised by your host. “Sometimes I just want to talk to them about EastEnders but I think it's important to say, ‘What do you think about what's going on in China?'” says Cairns. “They learn to talk in a polite way to someone senior and that gives them confidence.”

They learn to bullshit?

“Yeah. That's the art of confidence. If they go into the City they will be judged on their behaviour at lunch as well as at interview. It seems responsible to prepare them as best we can for it. It's saying, even if you choose to put your elbows on the table, at least you know the expectations. We're so obsessed with being multicultural that we try to say it doesn't matter. Actually it does matter. We have a dominant culture in England, these are its expectations, and we have to prepare children for it.”

Cairns is a pragmatist. How, primarily, does he think we judge each other? “We judge people by voice first; the way we look is second,” he says. “If they're overweight you tend to think working-class. You shouldn't. When you interview people you try not to make it matter, but if you have an unfortunate voice, that's held against you. We are very flawed.”

Vicky Prince is one of the Sussex parents who is prepared to pay for this detailed easing of her three children's passage into adult life. She doesn't think it's right that such a privilege should depend on having money, but she wants the best for her children and when she married her husband Jonathan, a financial consultant who, like her, is from an educated, middle-class but not affluent background, they agreed that they would make private education a priority for their children. She likes the sense of academic certainty that she gets from the school, she likes the discipline, and she believes it is preferable that her sixth-form son has to wear a suit and can't turn up in grunge. “I just want them to be able to cope with situations they may come up against, to have the confidence I haven't got.”

The family live in a vast and beautiful farmhouse with a 16th-century core, a dramatic contrast to the one-bedroom flat that was the Princes' first home more than 20 years ago. They slept on the floor for the first year because they couldn't afford a bed, she recalls.

“You were judged on your postcode, it was very materialistic and we didn't really cut it. Financially we have climbed rapidly from where we were. I don't think about class that much, though you are aware of it. I think money is more limiting than social class. If you have friends who are sometimes hard up it can put more of a strain on friendship than the class thing, even though you don't want money to matter.”

It's hard to imagine a middle-class person saying this 30 years ago without sounding precious or patronising, and Vicky Prince is neither. But money, once unmentionable in polite society, is now something we discuss, partly because of the middle-class obsession with education - and the exorbitant cost of public-school education - and partly because the middle classes have been confronted by ludicrous property prices and terrifying mortgages, making debt socially acceptable. For the majority for whom finances are limited, these things are contributing to seismic changes in the ways in which we define our sense of belonging.

Michelle Harrison is chair of the Institute for Insight in the Public Services, and a director of the Henley Centre, which observes social trends in Britain. “The idea that we are all middle-class now - well, there are lots of middle-income people and there are plenty of highly educated people who are socially middle-class,” she says. “But lots of these people now can't afford their own homes, or can't afford to live where they would like to live. So one of the characteristics of class has been eroded.

“Society is becoming more complex as sub-groups emerge where the old values of the classes and the identity badges have got mixed up. There are the educated middle classes who can't afford the big-ticket items that they would have had a generation ago - and, rather than what they own or whether they live in a big house, it's now the everyday consumer choices they make that are characteristic of where people see themselves from a class point of view. They express their values and attitudes in what they buy at the supermarket, especially with green and ethical choices. And their taste comes out in where they holiday, what they read. And there is another group, the people who don't have the education associated with the middle classes, but who do have money.”

To York, then, where I know of a street of Victorian terraced houses that has been colonised by the middle classes over the past 30 years. The front doors open on to the pavements but it's only a ten-minute walk from the city walls and these days the parked cars are Skodas, Seats and Golfs, sensible middle-class choices. There I find the Horburys: Roger, a 44-year-old copywriter, and Lucy, 43, who has decided to suspend her professional career while their two children are young - they used to live in London, where she was in merchant banking and then worked for a charity - though she is paid to taste chocolate at Nestlé on a couple of mornings a week. They are degree-educated, confident and, by their own admission, financially stretched, and we drink proper coffee from chipped mugs in a room with stripped doors and an impressive original range.

“I remember first seeing the street and going, I'll never live here, it's horrible, like Coronation Street,” says Lucy. “And the prices started rising and we wanted to be central and have a garden, and this fitted the bill. Before, people would scrimp and save but they had a nice house and professional jobs and they were deemed middle-class. My mum was a teacher, we didn't have a car, all those things that are now a given. We were posh, though, because we had books in the house. The professional classes were respected and given a high status even if they didn't have lots of money. They had pensions - that isn't necessarily the case now. These days we spend more money but the true middle classes are stretched.”

We consider the stereotypical authority figure, Captain Mainwaring of Dad's Army, and decide that it was his autonomy that made him powerful. Targets and league tables have eroded that within the professional classes; the internet is now the source of all knowledge, and professional disposable incomes have shrunk. The Horburys can't afford private education for their children but talk of putting them through university. It is their values that define them as middle-class, they believe, and that sense of belonging is imperative.

“I'm not what I earn, I'm what I think,” Roger says. “It's your attitude, your culture. Class is about softer things, like how you relate to other people, what your values are. That's what appeals to me about people. Are they on my wavelength? Are they my kind of people? I used to think education didn't matter but as I've got older it seems to come down to that. If you had that period for reading and reflecting at college it seems to come out later. The people I'm closest to have some creative thing going on, they have books. It's finding your tribe, isn't it?

“If you think about the working-class lad made good - let's say he has managed to get off his council estate, and he may or may not have updated his values to match his income. Money gives you access to certain parts of the middle class but it's all on the surface. You can't buy the deep stuff, you can't buy the attitude. I'm profoundly uncomfortable with people from other classes. I don't like posh people and I don't like people on the estate. I don't look down on them, I'm just uncomfortable.”

The Horburys took their daughter out of a primary school where they felt that the other children's values revolved around façade, especially brands of clothes. “We put her in a school that's got lots of people like us in it,” says Roger. “What a relief!”

They don't holiday in Spain, they go camping, Lucy says drily. Yet, while they seek philosophical and intellectual parity in their peers, Lucy notes that her tribe has its own way of dealing with façade, which it calls taste, and again this relates to money - or, rather, to not having quite enough. “Everybody can look in a magazine and see a footballer's home and furnish it with all those white things, so now the trend is to find a £25 antique and place it, which distinguishes you from ‘I've got loads of cash but no taste'. Taste is how you show you're different from somebody else and somehow better.”

On the other side of the Pennines, I am informed by an estate agent (21, sharp suit, company BMW, no money but everyone thinks he has, he tells me) that the place to live in the Warrington area is Winwick Park. If you live there, you've made it, and that's why people - including a few footballers and, at one time, the former singer Kerry Katona - pay a premium of between £90,000 and £100,000 for the privilege, taking prices as high as £575,000. He also makes me promise not to quote him, saying that you'd be surprised how much of the finance here is “secured”.

Built eight years ago on the site of a former psychiatric hospital, the estate is bordered by a stone wall, but up close many of the houses are far from generously proportioned, and have London-sized gardens. The interiors I glimpse as I knock on doors and peep through windows seem modern and minimalist. Everything - people, cars and gardens included - looks immaculate, with the exception of the door furniture, which is starting to tarnish.

Most people look uncomfortable when I say that I'd like to talk to them about class - I seem to have interrupted the entire estate just as its residents are changing their babies - but, remarkably, two people invite me in. The first is Paul Leybourne, 43, who was made redundant as a telecoms manager last year. He has watched his house more than double in value in eight years, he drives a Mercedes with a personalised numberplate, watches TV courtesy of Bang & Olufsen and is happy to wait for a credible job before he returns to his career. His accent is unadulterated Liverpool, though his parents - his dad was a lorry driver - moved to Warrington when he was a teenager. He did business studies at college, worked his way up in sales and these days his neighbours are professional people, though there is some new money, he says. You can tell by the cars.

He has never really thought about class, though he would describe himself as working and aspiring to be medium. “That desire to have nicer things around you, like being able to live in what's classed as a nice neighbourhood and to have some nice possessions - mmmm.”

How do people judge each other in Winwick Park? “Some are aspiring to get something bigger and nicer.” Appearance matters, then? “I think it does,” and he smiles because he's wearing a YSL fleece.

“I don't see many people in this development who you would look at thinking they've not taken any care. The packaging of an image, yes, it does matter. Sometimes you can't tell whether something is designer or from a supermarket, but it matters as an individual because you feel more confident that you can be part of that environment because you've got these things. It makes you feel like you've achieved.”

Across the road, Andrea Marsh, aka Andrea Lesley, a singer, is making tea for the man who is building her a Japanese-inspired back garden. She is in her late thirties. I admire her Christian Louboutin boots and the pretty jacket that she picked up in Italy, and we sit at her glass-topped table in the kitchen- diner, where she serves tea in a Harvey Nichols mug. She loves the estate and thought of moving to a bigger house next door until she realised that it was silly to move just to get more wardrobe space.

Certainly she has a taste for the finer things in life, she says, and has had since she was a girl growing up in her parents' pub. She even sends back her magazines if they arrive scruffy, though she doesn't really know why she reads them. But class isn't about money, it's about whether you're a nice person, she declares.

“To me it doesn't matter what you do or what you've got. It's the person you are. I've got a professional job but I've worked hard for what I've achieved. I've always done your marquee weddings, your five-star hotels, your casinos, as opposed to the clubs. I'm probably middle-class.”

She is. So are the Horburys; so are the affluent parents in Sussex. What distinguishes the contemporary middle classes is that they have established new ways of identifying themselves. The affluent are middle-class because they have money, the educated are middle-class irrespective of whether they have money, and we live among people like ourselves because that way we belong. It's instinctive as much as anything.

Class? I don't take much notice, cause we're skint'

There is a middle-class assumption that everyone is striving, that everyone wants to climb the ladder, buy a bigger house, drive a better car, go on more expensive holidays. It isn't true of everyone who is middle-class, but that doesn't stop the premise being extended to the working class. When we bemoan the lack of social mobility in Britain, this is often predicated on the belief that working-class people share middle-class values. This means that they must wish to better themselves - which must surely involve becoming middle-class.

Harlow is an Essex new town built after the Second World War to rehouse Londoners in local authority stock. It has locked on to the growth of the service industry, and Thatcherism ensured that many of its council houses passed into private ownership, but the town retains the greyness of a place that doesn't breed aspiration. Not that it is full of misery: there is resentment about Eastern European immigrants taking local jobs, and about teenage mothers fast-forwarding themselves on to the housing list, but most people are friendly and unassuming.

I want to talk about social mobility, so I begin by asking estate agents if they know of any first-time buyers who have bought through sheer graft. There aren't any, I am bleakly informed: no one here can afford to get on the housing ladder unless they have help from family. The market is down, repossessions have doubled in the past year, agents are making their commission on lettings. I try restaurants and find a 30-year-old who bought through a compensation payment. All his friends rent.

Eventually, after ringing round employers, I talk to Allied Healthcare, a nursing agency, which employs Carina James, 28, a former care worker, as a co-ordinator. She lives with her partner of eight years, Chris Mason, 38, a warehouse worker. Last year, thanks to a legacy from her grandad, they managed to borrow £118,000 to buy Chris's mum's council house. Buying the house matters because it is security for their son Jordan, 7, they explain. “It means a lot,” says James. “If you're renting you're just throwing money away, and wages aren't excellent in Harlow. We'd like Jordan to have a better life than us. We struggle.”

There is no sense of injustice in this household, rather there is acceptance. Their home is modestly furnished - no big flat-screen here - and they manage a week's holiday in Great Yarmouth each year using tokens from The Sun, but they will not have a honeymoon when they marry this summer. “We're boring,” says James. “Boring and skint,” says Mason. “You get your wage and after the mortgage and the HP for the car you've got £200 a month to live on. Our friends are the same. Your aim is just to keep your head above water. We get by day to day. We look no farther than that.”

Sometimes James gets knock-off shoes and handbags (designer copies). “At least we appreciate what we've got,” she says. “Can't have it all, can you?” says Mason. “Class? There's no in-the-middle now. You've either got lots of money or you've got nothing. I don't take too much notice because I've got no money. I don't see people as any better than me or any less than me. We're just normal straight people. Ain't going nowhere. Could be worse.”

At Tye Green Community Centre I meet Poppy Feast and Jayne Poulson, both pre-school assistants. Feast is 28 and lives with her husband and two children in a council maisonette. Money is tight, they don't have holidays and there's no hope of buying a home, but with other residents she takes pride in keeping the communal green near their homes tidy. She'd have the same problems wherever she lived, she says. “Doesn't really matter where I am, it's who I'm with.”

Poulson, 45 and a homeowner, agrees. When I ask if she is comfortable being working-class, she says that as long as she can pay her bills every month she's fine, and things are easier now that her sons are grown-up. “I did move out of Harlow when I first married. When I got divorced I could have gone anywhere but I went back to Harlow because I had family there and that's where I felt safe. People know each other in Harlow. They stay. It's like a comfort blanket.”

Paul Andreotti is a local estate agent. His work ethic comes from his lower-middle-class parents, he says, and he plans to build a portfolio of rental properties, though at 25 he has yet to buy his first.

“I don't think the class system is dictated by your upbringing any more. It's what you aspire to,” he says. “Middle-class people have more opportunities than lower-class people, though you still don't have the money behind you. But I wouldn't want to be given anything. You've got to make it yourself.”

It is possible to sniff out opportunity in Harlow, then, though if you are working-class and living hand-to-mouth you are unlikely to find it. But what the people I met seem to confirm is that, while the sense of difference between working class and middle class remains as distinct as ever, the superiority and inferiority that once defined the class system has dissipated.

If you're working-class you are likely to remain so because of the middle class's ability to fill professional jobs from within its own ranks, and its habit of handing on its assets to its offspring. An equally important factor is your sense of community, and that makes class an irrelevance. It's money you need, not a new peer group.

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