Denis MacShane: An intellectual and moderniser who showed leadership right to the end

As much as Blair, he was the architect of New Labour. He embraced market economics at a time when many thought doing so amounted to heresy

As Gordon Brown bowed his neck to say goodbye to his political life just a hundred yards from Whitehall's Banqueting House yesterday, Andrew Marvell's words on the decapitation of Charles I seemed to hang in the cold SW1 air: "He nothing common did, or mean, upon that memorable scene."

On Brown's face there was a wan smile, as if he knew that his announcement would suddenly make him a prophet in his own land and that the renunciation of his office would abruptly reveal a man once again about to be popular. In contrast to Tony Blair, who was putsched out of office by Brown's acolytes and has since lost his traction with the Labour Party in going on to make squillions, Gordon Brown is about to become a much-liked politician.

Brown breathes politics. The astute timing of his move is designed to stop the establishment-blessed march of David Cameron into No 10. The Lib Dems now have what Nick Clegg asked for – the departure of Brown. They know that on electoral reform and Europe, Labour under Brown and any possible successor are natural partners rather than the rabid Europhobes around William Hague and Liam Fox.

Cameron's offer to the Lib Dems was based entirely on a southern, English-based politics. The other nations of the our kingdom do not exist for modern Conservatism. All the clever Scottish Tories, like Malcolm Rifkind or Michael Gove, have had to find English seats, and the best Tory writers, like Fraser Nelson, editor of The Spectator, or Bruce Anderson of this newspaper (both Scotsmen), are stars of London salons who have lost contact with the wider Britain. They are so obsessed with denouncing the spectre of Europe they failed to notice they were losing touch with their own country – especially that British nation where the monarch spends so much of her time.

Brown has kept Labour a British party and gone out of his way to promote a younger generation of English Labour MPs. He has now handed the torch to a new generation and left William Hague and Lord Ashcroft looking already like yesterday's men. Of course the arithmetic is tricky. But Labour should look hard at creating a broad alliance. In the US Congress, it takes just one vote to pass or defeat a law. The Tories are short of 20 votes. Canada is governed by a heterogeneous grouping of parties. Why should anyone object to Nick Clegg becoming Foreign Secretary? At least he could speak to European partners in their own language. Vince Cable and Alistair Darling at the Treasury would calm markets. Chris Huhne at the Home Office and senior MPs from Scotland, Wales and Northern Ireland attending Cabinet would show the nation that a team of co-workers rather than a single domineering party is in charge.

Voters have made clear they are fed up with 20th-century politics, in which one party and one leader have hegemonic power over the British state and its £700bn expenditure. That is why they stopped David Cameron in his tracks. Conservatives remain a 20th-century party unable to grasp the need for compromise, coalition and contacts between different political currents.

Brown is also the quintessential 20th-century politician. But as one of the few proper intellectuals in politics – who sensibly disguised his learning, as the British public prefer a football fan as Prime Minister to someone who can discourse on Kondratiev as well as Keynes – he knows his history. Labour has always been held back when an old guard tries to stay in control of the party after a defeat. The swiftest renewal of a party is when it allows a new generation to come through quickly. Brown's record can now be examined fairly, not through the prism of hate headlines in the press.

As much as Tony Blair, Brown was the architect of New Labour. He weaned his trade union comrades and Scottish state socialism allies off the old truisms of minority politics. In 1980 there were 7.5 million industrial workers in Britain. Today there are 2.2 million. Brown knew that relying on this disappearing electorate was to keep Labour in opposition. Thus he embraced market economics at a time when many thought such views were heresy.

As Chancellor, he presided over the best 10 years of British economic success in post-war history. Yes, there were one or two years of bigger growth in the 1980s, but booms were followed by busts. The go always came to a stop. There were errors. Britain has too little social justice and too much state. Increasing tax revenues were appropriated by an amoeba-like state machine, its quangos and a self-perpetuating bureaucracy. But overall, business enjoyed its best 10-year stretch. Millions more owned homes or cars or enjoyed holidays. City centres were renewed. Britain's manufacturing sector is now bigger than that of France, yet 10 per cent of British economic activity is now in the cultural sector.

Of course Brown was blown over by the tsunami of the credit crunch and the global recession. Like Vince Cable, the Financial Times, The Economist and every respected economic commentator, Brown believed in light-touch regulation and refused to heed the Cassandras who said the easy credit and debt would end in tears. But Cassandras are never heeded. Nevertheless, when the crisis came Brown knew what to do. While Presidents Obama and Sarkozy and Chancellor Merkel were left stranded in the headlights of the oncoming economic crash, Brown moved swiftly and decisively to put in place British, European and G20 actions that stopped the recessions becoming a 1930s-style slump.

The Economic Nobel Laureate Paul Krugman said "Gordon Brown saved the world". But he could not save his Labour Party from a defeat that after 13 years in power was all but inevitable. Like a general organising a fighting retreat, Brown's campaign kept many more Labour MPs in the Commons than most of us believed possible a month ago.

After the three tenors we have had three losers in this election. David Cameron follows William Hague, Iain Duncan Smith and Michael Howard in failing to secure clear victory for the Tories. Nick Clegg won the debate but lost the election as he squandered Charlie Kennedy's 60-plus Lib Dem seats. Brown lost and is the only leader fully to accept the consequences of defeat. He has rediscovered leadership by standing down as Labour's leader. The party can now regroup under a younger generation and be a party of openings and new thinking based on more social justice but less state, more alliances and less exclusivity, more money left in the pockets of hard-working businesses and less in the non-dom bank balances of the greedy rich clustered round George Osborne.

When I was elected in 1994, Blair and Brown both wrote near-identical letters of support. Both men served their country and party well, even if the rivalry of proximity at times overwhelmed them. Brown can now relax with his children and start enjoying life again. No man in years long gone was better company over a curry and a glass or two. By resigning as leader of the Labour Party in this way, he has rendered a better service than many past Labour leaders and prime ministers. He opens the way to a new politics if Labour and its natural allies in the progressive two-thirds of British politics choose to shape it.

Denis MacShane is Labour MP for Rotherham and was Minister of State for Europe from 2002 to 2005.