The Government is playing down the European election result. But behind the scenes it's in turmoil
Peter Mandelson walked into Merton College - the one in Morden rather than Oxford - last Tuesday evening to make a constituency speech in fighting spirit. That morning's papers had been full of speculation that he would soon be returning to front-line politics, and possibly back into the Cabinet, to take charge of campaigns. Guests at the long-arranged fundraising dinner were intrigued to hear what the elections supremo would say about the disastrous European poll result - especially as Margaret McDonagh, Labour's general secretary who presided over the campaign, was sitting at the top table with her sister Siobhain, the local MP.

The former trade and industry secretary was careful not to criticise the Millbank operation in the run-up to 10 June, but he did not mince his words. It was "baloney" to suggest - as some left-wingers have been doing - that Labour's core voters had abandoned the party because Tony Blair was concentrating too much on Middle England, he said. The coalition between middle- and working-class voters was crucial to Labour's overwhelming victory in 1997 and it would be so in future. But, he told the activists tucking into their coq au vin, the party had to do more to explain its policies to the country - it was impossible to win elections without a message.

Publicly, Labour is playing down the significance of the Euro-election result. Strategists point out that it was skewed by the fact that less than a quarter of the population bothered to turn out and vote. They blame public lack of interest in the European Parliament, fuelled by recent scandals at the Commission. But privately serious questions are being asked about what went wrong and how such a result can be avoided in future. Tony Blair is all too aware that if the results were replicated at the next general election, Labour would lose 122 of the 144 seats it gained in 1997.

Even before the results were formally declared a week ago, the rethink was under way. The Prime Minister summoned the party's most senior figures to Downing Street the day after the election. Jack Cunningham and Margaret Beckett were already shooting straight to the top of the blame hit list - the Leader of the House, accused of taking three days off during the campaign she was meant to be running, later joked to cabinet colleagues that perhaps she should have set up a polling station in her caravan. Dr Cunningham was accused of being ineffective. But Mr Blair said everybody was at fault - the party had to do more to encourage its activists to go out and promote the party, in order to get the rest of the public to vote at all.

Ministers had to go back to the days when politics was a fight, he said. They had to put their allegiance to the Labour Party before their loyalty to their departments, emphasise the political message rather than getting bogged down in policy detail. The Prime Minister repeated the instruction at last Thursday's cabinet meeting, telling his team that they should use every opportunity to remind people that this was not just a government, it was a Labour government.

By the end of last week his instructions were already being obeyed, with Gordon Brown reappearing after weeks of silence to attack the Tory peers' attempt to change legislation on the working families tax credit. More is being planned to beef up the political activity of ministers - the proposal to import a party chairman is part of this and Labour is examining all the links between Whitehall and its Millbank HQ. No 10's strategic communications unit is likely to be given a more political role and the army of special advisers encouraged to co-operate more with Millbank.

All this will be controversial as the Cabinet is already under fire for politicising the Government - but Mr Blair is convinced that ministers must become more aggressive in the approach to the next general election. "We have got to go back to linking the successes to the party," one senior Labour insider says. "In opposition, anybody who went on to the Today programme would talk about what Labour was doing, now they talk about `the Government'. That's got to change."

There are two audiences for this message. The first is the so-called "core vote". Some, such as Peter Hain, the Welsh Office minister, and John Monks, general secretary of the TUC, argue that the party has abandoned its working-class supporters in favour of Middle England. Modernisers justify this by pointing out that at the local elections the "New Labour" councils did better than old-fashioned ones such as Sheffield. There is agreement across the board, however, that the grassroots activists, whatever their political background, must be given more of a feeling that they are involved.

Ian McCartney, the popular Trade minister, has been put in charge of solving the "heartlands problem". He wants to give the activists a greater say in policy, and make the party more outward-looking. "People didn't go out canvassing this month because they hadn't even had anything to do with what the leaflets would look like - they were all produced centrally," one minister says. "We've got to give people a reason to go out there and fight."

Matthew Taylor, assistant general secretary at the last election and now head of the think-tank the Institute of Public Policy Research, says there is an ambivalence about such democracy at the heart of New Labour. "It's like a matrix, with the words passive and active, supportive and oppositionalist," he says. "In the 1960s members were passive and supportive, in the 1980s active and oppositionalist - we need to find a way of getting into the box that's active and supportive, and I don't think Labour's cracked it yet."

But, perhaps more importantly for the Government, strategists have also identified the lack of political message as one of the main failings of the Euro campaign. They say there was, in marketing lingo, no "USP" - "unique selling point". Europe was a particular problem because, unlike the Tory party - which urged voters to "save the pound" - or the UK Independence Party - which proposed leaving the EU altogether - Labour maintained its pragmatic line on the single currency. Questioning of focus groups on the evening of the election found that, although many people did not vote at all, some who had supported Labour at the last general election voted Tory on this issue alone. Downing Street knows this is going to be a problem at the next election.

Robin Cook, the Foreign Secretary, has acknowledged privately that it would be impossible to go to the country promising to call an imminent referendum on the single currency without saying whether Labour would advocate joining. But Mr Blair insists that the policy of saying that Britain should sign up to the euro, but only when the economic conditions are right, should not change. He is terrified of throwing his weight fully behind the single currency while the opinion polls show such public hostility to it. There is no way he will attend the launch of the pro-single currency Britain in Europe campaign.

One option being floated in Whitehall is to delay the referendum until 2003 or 2004. This would allow the Government to keep its existing line at the election. But ministers say that there will have to be a change of emphasis, if not of policy, over the next two years. Labour's polling has shown that although most people say they would vote against joining the single currency at the moment, they are not necessarily opposed to the euro in principle. Ministers argue that the Prime Minister will have to tackle the problem of Euroscepticism head on, if necessary standing up to the spectre of the Sun, well before the next election. As Peter Mandelson said last week, it is impossible to win without a message - and the strategists are beginning to worry that that could apply to Europe, too.