Steve Richards: Have you heard the one about the new Labour Party and the old hat?

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Now that the Conservatives are beyond a joke, a great responsibility falls upon the Labour Party to provide some holiday entertainment. Fortunately it is doing remarkably well with some pretty thin material. After all, there are not many jokes that have as their opening gambit: "Have you heard the one about the private sector...?"

Even so, the Government has got itself into a comical scrape over the private sector's role in providing public services. Without coming up with any new detailed reforms for the public services, ministers provoked a row with the unions and others. So, were they looking to cause a row? Ministers are emphatic: they most certainly were not. Is there a hidden agenda of meticulously thought-out policies in which the public and private sectors would work constructively together? If only there was. Ministers convey a much greater anxiety over the lack of any hidden agenda. To their credit, they are committed to improving Britain's ailing public services. To their alarm, they are not entirely sure how they are going to go about it.

On the other side of this "row", nothing is quite as it seems either. Roy Hattersley raised the political temperature last month by writing a long article that was portrayed subsequently as an insurrectionist call to arms. No one was more surprised by the reaction than the great wordsmith himself, who had written similar articles many times before. When a newspaper phoned him at his Peak District retreat to tell him he was front-page news, he was taken aback, wondering what he had done. The article was based on a speech he had given at a Fabian gala dinner a couple of days before, attended by a galaxy of journalists. At the time neither Hattersley, nor his audience, had realised that they were witnessing anything of the slightest significance.

As for Tony Blair himself, he has been provoking fury all over the place when, in fact, he has largely been in one place since the election – stuck in talks to find a way out of the latest impasse in Northern Ireland. Since the election, he has not given that much thought to public services, to the euro or to Gwyneth Dunwoody. Government policy has not changed greatly in all three areas, in so far as the Government has a policy on the euro and Ms Dunwoody. Blair has had no choice but to focus nearly all his attention on Trimble, Adams et al.

The significant changes relating to the public service agenda since the election have focused on the centre – in Downing Street and the Cabinet Office – rather than on the expansion of the private sector's role. This is typical of an administration that believes the quality of services in Sunderland or Southampton can be determined by what happens in Whitehall.

Tony Blair has high hopes that Lord Macdonald will make a difference to the delivery of better public services now that he is at the heart of matters in the Cabinet Office. The Downing Street Policy Unit has been revamped so that the words "Delivery, delivery, delivery" echo around its walls. The Treasury is preparing for another public spending review with strict performance targets linked to the amount of cash available. So strict that in the last review most government departments were incapable of meeting the targets, and therefore unable to spend the money that was allocated to them. The under-spending in Whitehall, given the squalid state of most public services, has been a minor scandal.

None of this caused waves at yesterday's Labour Party Policy Forum. Instead, the meeting got heated over a party paper that stated: "We reject the ideological notion that private is good and public is bad. But we reject, too, ideological hostility to the private sector working with the public sector where it can be of benefit." How can anyone disagree with such evasive words? There are echoes here of the government formulation for the single currency. It will join when the benefits are clear and unambiguous. But when will they ever be "clear and unambiguous"? At the moment, Blair and Brown are having problems being clear and unambiguous about when and how they will decide on the clarity and unambiguity of the euro's benefits.

Roy Hattersley's unintended act of provocation and the defensive posturing of some unions should worry Blair less than the unease being expressed closer to home. As part of his holiday reading, the Prime Minister could do worse than pack the latest edition of Renewal. The so-called Blairite journal has published a series of articles about New Labour's "love affair with the markets". The Government is accused of exacerbating inequalities of wealth and income. Tony Blair is warned that in his willingness to accept his political and economic inheritance he is closer in style to Harold Macmillan than to a radical in the Thatcher style. More broadly, New Labour fails to "challenge exploitative consumer capitalism but simply offers to facilitate and manage its continuing development..."

These articles are interesting in themselves, but more so when you read who is on Renewal's editorial board. The second name on the list is none other than a certain T Blair. This is a publication that used to be mocked for its unquestioning loyalty to the New Labour cause.

Renewal's onslaught is well-timed, not just because ministers can take it with them for a light-hearted read on a beach. Its publication coincides with last week's survey that shows boardroom salaries soaring irrespective of company performance. There is one obvious way of regulating such excesses with a light touch, which is to make shareholder approval of managerial pay schemes a statutory requirement. Typically, the Government has, so far, backed off from anything other than a voluntary arrangement. It remains in awe of entrepreneurial flair, even when the entrepreneurs fail to display any flair. Indeed, when the private sector is involved, the Government is nervously keen on voluntary arrangements. CBI leaders are amazed at the number of times they have gone into Downing Street with a negotiating position, and found that Blair has given them everything before the negotiations begin.

So those old Blairites from Renewal are moving ahead of Blair, bumping into Lord Hattersley en route. As part of the complex political geography, Blair genuinely wants to save the public services from the more rampant privatisers in the Conservative Party. Brown is more committed to relieving poverty in Britain than any Chancellor for 50 years. But as reluctant pluralists afflicted by an indiscriminate deference to business, New Labour is in danger of looking old-fashioned.