LEADING ARTICLE : Britain's new mood sets a task for Blair

Britain feels like a subtly different country this morning. "As a result of what happened, we have changed," the Prime Minister said yesterday, as he sought to define the effect of Diana's death on how we see ourselves. As he said, the people of Britain want to be part of a more compassionate nation. They responded to the pomp and ceremony, but wanted it done differently. They insisted it should reflect their feelings, rather than be imposed on them. The observances of the people's funeral - the flowers, the books of condolences, the clapping - were improvised to fit the people's mood.

What happened over the past week also crystallised changes which have already taken place. The Labour landslide in May revealed a willingness to change, an ability on the part of Britain to re-imagine itself, to embrace a different identity. If we reflect on the last time we were, as a people, so self-aware, it is abundantly clear that we are no longer the nation that Margaret Thatcher tried to imagine us to be.

Compare the public response to the royal wedding in 1981 and the Falklands war in 1982 with the election of a Labour government and the mourning of Diana in 1997. In the early Eighties, Mrs Thatcher wanted to use images of the relatively recent past to create a sense of national identity: she used Churchill. It was a sentiment which recalled past greatness and saw greatness in the future as an extension of what went before, with the monarchy underwriting that continuity. Sailing to fight the aggression of a dictator on far-flung British soil recalled both the Second World War and earlier imperial duty.

In the late Nineties, the mood is quite different. No less self-confident, perhaps: there was nothing diffident about the crowd on the streets last week. The people seemed sure of what they wanted - it was the old institutions of the Royal Family and the Church that were unsure of themselves. But the mood is much less reliant on the crutches of past glories.

We have, then, a huge opportunity to define and promote a new, more forward- looking national identity. The Demos paper published today on the "rebranding" of Britain is interesting in itself, but the more so because it has caught the eye of the Prime Minister (Geoff Mulgan, the director of Demos, is now a part-time adviser in Downing Street).

It starts from the observation that Britain has a confused and somewhat jaded image abroad, its advertisement as a heritage theme park often undermined by the reality of dirty streets, poor food and surly service. It is true that the way to change Britain's image is from within. In marketing-speak, the product has to be right. You cannot simply invent a brand image or impose a reputation on a country that does not earn it. Good marketing can only highlight and bring together elements of reality.

So, as we re-imagine our nation's future, it has to build on the past without being trapped by it. Britain is capable of being a compassionate nation: it has a long tradition of fair play and support for the underdog. And there are legacies of the Thatcher revival which remain important: Britain as an open, trading economy, the hub of financial markets and of communications. The principal inheritance of our imperial past is rarely commented on and yet gives us an important competitive advantage: the fact that English is the global language. Its domination of international business is so great that it is even the official language of the single European currency, even though Britain will not be a launch member. It is overwhelmingly the language of the Internet. Britain has given up an empire of territory for an empire of consciousness.

Linking the themes of compassion and openness is the image of a country that is open to ideas, tolerant of diversity and eccentricity, and above all creative. Mr Blair is right to draw attention to the economic success of British creative industries: media, music, fashion, design, advertising, film, computer software, retailing.

The Prime Minister's rhetoric of Britain as a young country is apt. And, as a rhetorician, Mr Blair is supremely qualified to articulate our emerging new identity - a new identity which must include a real willingness to reshape our political institutions, not merely in the form, but also in the substance. An open, confident Britain would have no trouble with greater self-government for parts of its realm: Mr Blair sometimes manages to give the impression of wanting to keep as many powers as possible in Westminster. Even more worrying is our report today of the full extent to which the network of Conservative patronage has simply been replaced by a Labour network of cash for titles. And for the Labour Party to have accepted a donation from Ian Greer, the lobbyist who was the go-between in the cash for questions scandal, simply beggars belief.

Let us hope these are the fading instincts of inertia, rather than harbingers of an imperial premiership to come. Because Mr Blair is uniquely equipped to shape our sense of ourselves, and to present a new image of us abroad. He is a shrewd judge of the public mood and a superb communicator, able to find the right words and strike the right pose, as he showed last week.

Unlike Baroness Thatcher - and despite modelling himself on her - he is better at reflecting public opinion back to the public than he is at giving a lead. And that it what we need in Downing Street now: an enabler and facilitator, someone who can articulate and project the national mood.