Leading Article: Mr Blair and a bold new Labour Party

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TONY BLAIR may feel tempted to steer clear of controversy when he formally joins the Labour leadership contest today. Given the party's by-election successes on Thursday and likely spectacular gains in the European elections, many of his supporters might prefer a campaign that is no more than a thinly disguised victory parade. They can accept a little shadow boxing but may be reluctant to open debates that fundamentally challenge unity and expose the party to Tory attack.

The Blair camp knows that its candidate has already done enough to win. John Prescott can huff and puff, Margaret Beckett may snipe from the left, but Mr Blair faces no serious competition. Why disturb such an effortless rise to the top?

Labour's heir apparent should be wary of accepting complacent advice. Mr Blair must do more than just look photogenic today. It is not enough for him to mark himself out as the politician best able to lead Labour into the future as a social democratic party. This is his opportunity to secure an unprecedented mandate from up to 5 million voters for the reform of an out-of-date institution that is instinctively resistant to change. He should use the campaign to tackle his party on painful issues. That may prove divisive. But the task is vital if Labour's current popularity is not to evaporate by the next general election, as it has done before.

A priority must be to win acceptance that markets are the route to Britain's prosperity. The left remains encumbered by vestiges of Marxism. Many Labour politicians still pay only lip-service to the value of market economics. Mr Blair should seize this opportunity to establish that markets are more than a necessary evil. They are a prerequisite of achieving many Labour aims: better opportunities for all; well-funded, efficient public services; and the reduction of poverty.

Mr Blair could signal his radicalism by promising to finish a project that Hugh Gaitskell embarked upon: removal of clause four from the party's constitution. This section, dating from 1918, commits Labour to common ownership of the means of production 'to secure for the producers by hand and brain the full fruits of their industry'. Today, it is all but a dead letter since much of the party regards nationalisation as at best an anachronism. Yet removing clause four would be of tremendous symbolic significance. It would represent recognition that Labour's traditional statist policies no longer provide the answers for left of centre progressives.

Mr Blair cannot afford to ignore reform of the welfare state. In the 1992 general election, pledges to uprate the state pension and child benefit, regardless of income, cost Labour dearly. The promises left little room for innovative alternative policies and pushed John Smith, then shadow Chancellor, into advocating unpopular tax increases. The would-be new leader must fight for targeted benefits.

Reform cannot stop there if concern about unemployment is to be more than a half-hearted slogan. This week's excellent OECD report on European unemployment points to a bigger issue. It highlights a need to use the welfare system to encourage companies to hire more staff, and unemployed people to take jobs. This could involve a dramatic transformation of state benefits. A politician like Mr Blair should be developing bold new ideas.

Finally, there is constitutional reform. This is perhaps the most difficult area of change for Labour leaders who consider themselves to be on the threshold of Downing Street. A Bill of Rights is fine and so is Scottish devolution. The problem is proportional representation. Mr Blair may be reluctant to give the Liberal Democrats a boost, and the defection to Labour this week of their by-election candidate, Alec Kellaway, can only have reinforced that unwillingness. Yet if Labour really wants to steal the clothes of Paddy Ashdown's party and draw in Liberal Democrat supporters, Mr Blair should adopt some form of electoral reform.

His commitment to constitutional change will be regarded by many people as the measure of Labour's move to become a modern, radical force in Britain. These voters, attracted but not yet fully won over, still need to be convinced that Labour has a reformed character. Mr Blair's greatest test is to give them proof of that. He should start today.