We stopped listening, says Peter Hain as he outlines people-power plan

A close ally of Ed Miliband has admitted that the previous Labour Government stopped listening to anyone.

Peter Hain outlined the party's plans to close the "chasm" between politicians and the public. He said proposals to give members of the public who sign up as "registered supporters" a say over party policy and electing its leader were bigger than Tony Blair's abolition of Clause IV and amounted to the most significant shake-up in Labour's 111-year history.

The Shadow Cabinet member, who heads a "Refounding Labour" project to rewrite Labour's rulebook to "open up" the party, told The Independent there is "enormous potential to attract hundreds of thousands" of registered supporters, who will not have to pay the party's £44 a year subscription. "People are not joiners any more; but they are prepared to be supporters," he claimed.

The changes are expected to be endorsed by Labour's national executive committee tomorrow and by the party's annual conference in Liverpool when it opens on Sunday. The conference theme will be "fulfilling the promise of Britain" and Mr Miliband will symbolise the party's "reaching out" process by opening up the event to the public for the first time. He will answer questions from some of the 2,500 non-party members who will attend next Wednesday.

Mr Hain argued the shake-up would be "more dramatic" than Mr Blair ending Labour's commitment to old-style public ownership because that was a top-down process, while bringing the public into the party could only be delivered through organising in the community.

The shadow Welsh Secretary admitted: "In government we lost touch with too many voters. In the 1990s we listened to our party activists. In the 1990s we listened to the public. In office in this century we listened to neither. Voters and party members stopped trusting us."

Mr Hain said: "All parties in my view are now obsolete. They operate in a way that reflects an old politics. There has been a dramatic collapse in party membership. In the 1950s, over 4 per cent of the electorate were members of parties. Now it is about 1 per cent."

He denied that Mr Miliband had backed down over his plans to reform the trade unions' role in the party. The package to be debated in Liverpool will not include a cut in the unions' 50 per cent share of the votes at the annual conference.

Mr Hain insisted the issue "certainly hasn't been shelved" but needed further dialogue because the party had "run out of time". He said: "There is an emerging consensus around that... I think the Liverpool conference will signpost the way forward."

Mr Miliband wants to use the event to start mapping out Labour's alternative, not least on the economy. Mr Hain said the conference should not become a "virility test" over the unions' role and the party had no intention of spending the next few years "contemplating our own navels". He insisted the Refounding Labour project was never about "watering down" the unions' influence and Labour was "proud" of the "huge asset" of the 2.7 million affiliated members who pay the political levy.

On Mr Miliband's performance, Mr Hain took a sideswipe at critics who had wanted his brother David to win the leadership a year ago. "When he was elected, Ed was almost unknown to the public. He was very far from the finished product," he said. "He has increasingly shown his mettle, as he did on [phone hacking at ] News International. He was very brave and showed good judgement.

"He is gradually establishing himself. That takes time. His critics, including those who can't forget or accept the result of the leadership election, under- estimate the depths to which we had fallen in voter support and trust. No Labour leader – even Tony Blair reincarnated—could suddenly get sky-high poll ratings within a year of such a catastrophic general election result."