Halfway through the Government's term, tensions between left and right are increasing - and poverty is the battleground
`Don't worry, I'll be voting loyally ... with the rebels," a Labour MP called out to an ashen-faced whip as the Government braced itself for last Wednesday's back-bench rebellion on welfare reform.

His words were telling. For as Tony Blair's 1997 administration enters the second half of its first term in office, his "loyal" flock is getting restless.

A testing week at Westminster has seen a 53-strong rebellion on government proposals to cut incapacity benefit; anti-hunting MPs have been unsettled by reports that ministers are beating a retreat from their promise to ban bloodsports; and the Agriculture minister, Nick Brown, appeared to be "letting the French get away with it" by shying away from a legal wrangle over their continued ban on British beef.

Elsewhere, Gordon Brown's proposals for new pounds 100,000 free share options for entrepreneurs, which would not be extended to lowlier members of a company's workforce, prompted union fury - only for the GMB's general secretary, John Edmonds, to accuse the Prime Minister of failing to understand working people and admitting he'd rather have Mr Brown leading the Labour Party.

And that is not to mention deep-seated hostility from some MPs to plans to allow more than 100 hereditary peers to stay on in an interim House of Lords, or the growing disquiet (and corresponding support for the left-winger Ken Livingstone) over the now farcical selection process to choose Labour's candidate for London mayor.

As the dust of last week settled, it even began to seem that for some loyalty to the Labour Party no longer equates with loyalty to the Labour government. And the question is being asked: do the two stand for the same thing any more? Has the leadership forgotten where the party came from and what it stands for? Has Labour lost its soul?

In the party's centenary year Tony Blair has rarely missed an opportunity when addressing the party faithful to summon up the ghosts of Labour's proud past: Nye Bevan, Keir Hardie and Ernest Bevin. These men were the leading lights of the party when it was a political force for the improvement of the working class.

They built a party committed to full employment, to introducing a minimum wage, minimum standards of working conditions and a 48-hour week. They wanted to nationalise industry; they wanted to subsidise social services through heavy taxation of large incomes and they wanted to use the balance of the nation's wealth to expand opportunities in education and culture for the people as a whole.

It was on these broad principles, and a burning desire to raise up the dispossessed and the disenfranchised, that the welfare state was created, the National Health Service was set up, council houses were built and state scholarships to universities were increased.

On the eve of the 21st century, New Labour looks ahead to the next election and the second term it so desperately craves. It has dumped some of those original principles, such as the nationalisation of industry, and introduced others, such as the minimum wage. But has the party lost touch with its roots, with the enduring beliefs of the men and women who have sustained it over 100 years? Or can New Labour still claim to hold true to its commitment to "traditional values in a modern setting"?

Some of Labour's 53 welfare rebels fear the values may have been lost. Tom Clarke, Labour's former disability spokesman, branded ministers "morally repugnant" during the Commons debate on the issue. Another rebel, speaking privately, said: "I didn't join the Labour Party 20-odd years ago to betray the disabled. That's not what we're about."

But ministers explain that, after 18 years in opposition, Labour has to work within financial constraints to keep the economy stable while "beginning" the process of revitalising and reforming Britain according to the principles of social justice.

And loyalists are adamant that things have got better for ordinary people since Labour took office.

"If I thought that, after 26 years in the party, we were letting down the people we were elected to represent, I honestly couldn't do it any more," one senior MP said. "You have to remember that we're starting from a different level than the Tories - people expect more from us. But, if I look around my constituency, things have improved for people over the past two-and-a-half years."

The discrepancy illustrates the long-running wrangle between Old Labour and New: exponents of the former want a return to the days when the poor got what they needed at the expense of the rich, and followers of the latter believe you have to encourage the rich so that there's enough money around to help the poor.

But what of Labour's "natural constituents" - do they feel let down by Labour?

The Independent on Sunday asked some of the groups representing key Labour supporters what they would like the party to pledge in the run-up to the next election. Their requests demonstrate that Labour may not be giving people everything they want but they are on the right lines.

The National Union of Teachers asked for an "extension" of the class- size initiative to all children, while the GMB union asked for an "extension" of the minimum-wage legislation to protect young people. Age Concern, rather than demanding more than the paltry 73p pension increase, said its priorities were to improve the lot of older people in employment, healthcare, television and attitudes - goals shared by Labour.

Shelter, the homeless charity, asked for no less than 100,000 affordable homes as a first step to ending street homelessness by 2005. And the Low Pay Unit wanted tax changes to provide the same work incentives for the lowest paid as for the highest.

At the grass-roots, in a place behind the headlines, there is concern about some of the measures that the Labour government is taking - or not taking - and a sense in which people's expectations have not been met since 1997. But there is also a feeling that significant strides forward have been made in line with Labour principles. The soul is still there - the only problem might be the soullessness of some of its guardians.