The new dividing lines between Labour and the Conservatives arising out of the global economic downturn have provided a lifeline for Labour activists, who this time last year were finding themselves increasingly despondent. The Conservatives are floundering to find a response to what will become the major challenge for politicians in the next decade. While Labour has provided a surefooted, economically literate response to these uncertain times, Cameron’s team look inadequate. They have failed to see that the right approach for a party in waiting for government is to bury political ideology and support key measures such as nationalising the banks and borrowing to provide fiscal stimulus. It is hard to see how the Conservatives could stick so dogmatically to opposing a course of action which is being copied by governments across the world.

But as the New Year polls have shown, public support for Labour’s swift action in the pre-budget report is volatile. As the recession begins to bite, the blame will, albeit erroneously, start to shift on to the government. So what should be the government’s strategy both in the short and long term? First, in the short term it is obvious that there will have to be ongoing efforts to protect jobs and get the banks lending again. But this on its own will not be enough. Even though by putting tax cuts and cuts to public spending at the centre of their economic strategy the Tories have effectively abandoned their attempt to keep to the progressive centre ground, Labour’s response must also acknowledge that the new economic circumstances require a different approach to government spending.

While it is of course important to protect vital frontline public service jobs, in a time of economic frugality the public expects to see the government reassess its spending priorities and look again at the size of Whitehall. This is not the same as tackling waste, which the Tories are so keen to see in every area of state activity, but recognising, as we have emphasised in these pages before, that the role of the state needs to change, with less control of public services from the centre. With the backdrop of the economic crisis, Labour is presented with an ideal opportunity to shift its approach to achieving the next stage of public service excellence. As Liam Byrne suggests in this issue, there is congruence between the need to tighten public finances and create a smaller state which acts more strategically.

But what should Labour do in the longer term if it is to have a shot at winning the next election? Barack Obama’s victory shows us that we must find a way of embodying the kind of change the public demands while we remain in government. After 11 years in power this is understandably a difficult task. Some in the party would like to see that change represented by Labour rediscovering the language of class politics and what they see as a return to ‘true’ Labour values by making the party’s central focus one of tackling poverty. This strand of argument, which is becoming steadily more attractive to some, suggests that the economic situation has changed the nature of political debate to such an extent that the New Labour paradigm, with its supposed emphasis on the concerns of big business, can be thrown aside. But this open season on profit makers and rich people risks changing Labour’s politics not into one of Obama-esque hope, but one of envy.

Of course, it is vital that we keep the pressure up to ensure the government acts on issues such as the child poverty target next year, but the public will not forgive us if we only focus on issues that appeal to Labour’s core values and ignore the voters’ current concerns. As Bobby Duffy highlights in his piece in this issue analysing the findings of Ipsos MORI’s recent economic polling, the biggest issues for the public at the moment, after the economy, are crime and immigration, not poverty or inequality.

One of the reasons why the Tories are continuing to dominate Labour in the polls could be because they have some convincing – if broadly untrue – narratives that appeal to voters on these issues of insecurity. They point to a broken Britain which we know does not exist in statistics, but that still resonates in the mind of the public.

And there is one thing we know about economic downturns – they are accompanied by a rise in crime. So Labour needs to act quickly back on the home front to rediscover a way of acknowledging and acting on the concerns of ordinary citizens. One of the reasons Boris Johnson won in May last year was because he connected with Londoners’ fear of crime. Introducing a ban on alcohol on public transport seemed like nothing more than a populist ploy which wouldn’t have much effect on the actual levels of crime. But in the end the message was important in itself. In government, Labour has achieved real change in communities with an emphasis on empowering local police and residents to root out antisocial behaviour. But what we now need is a strong lead from Labour politicians to show that the party understands people’s concerns that society has become less civil, even if there are not always state solutions to some of these problems.

A powerful speech early in 2009 by the prime minister on the issue of crime wouldn’t be a bad start.