This awful defeat vindicates what Compass has been saying for three years - that the coalition that brought Labour to power in 1997 has been shattered. Between 1997 and 2005, the party lost 4 million voters - and this time we saw a further pulling-away of the working-class vote that New Labour has always ill-advisedly taken for granted. Meanwhile, people across all classes and social groups are turning away from the party. Particularly in England the Tories are on the march; partly thanks to the sense that they are engaging with concerns that lie at the centre of people's lives.

Needless to say, Gordon Brown's stiff, remote style of leadership doesn't help. But there is a more fundamental political problem that is destroying the Labour Party. Even at a time when the credit crunch and rising prices mean that the post-Thatcher settlement is being questioned as never before, a supposedly progressive government refuses to address the way that the unrestrained free-market is damaging people's lives in no end of areas: from housing and rising fuel bills, to crippling consumer debt and insecurity at work, and on to the dysfunctional inequality that defines so many of the UK's current problems.

Others may be distracted by New Labour kremlinology, and the question of whether one of Brown's cabinet colleagues might somehow be persuaded to replace him. For us, there is no point in talking about such changes if the conversation isn't fundamentally about a change of direction that will revive people's confidence that the government is in touch with modern concerns, and in control of the forces that shape them.

There is little money left to spend and less than two years before the likely date of the next election, but that still leaves room for measures that would signal a change of direction and show that Labour understands the challenges of the 21st century. We would argue in favour of:

- A windfall tax on energy and oil companies to help those struggling with escalating fuel bills.
- A fairer tax system with a new top rate and a cut in taxes for the low paid with all new revenues ear marked to boost benefit levels for the poor. Some have suggested that those earning under £10,000 per year should pay no tax. This is clean, simple and very appealing.
- A new drive to build council houses. By 2010, 5 million people will need social housing, but this year, a start will be made on only 100,000 new homes. With private construction apparently in freefall, the state has to step in.
- A high-profile drive to improve people's working lives via government setting new standards. As a minimum, we need a new fair employment clause in all public contracts, to make sure that the public sector points the way out of the low pay culture that ensures - contrary to recent headlines about welfare reform - that work is still no guarantee of an exit from poverty. The government should take the lead of London and roll out a living wage nationwide in all public procurement contracts - which even Boris Johnson has raised in London in his first months in office.
- A moratorium on Post Office closures, and new protection for the universal service obligation of the Post Office.
- Abolishing the youth exemptions in the minimum wage.
- Help close the gender pay gap - with statutory pay audits for equality.
- Access to all local authority sports facilities free for children under 16 to confront the issues of obesity and anti-social behaviour head on.
- Across all these policy areas, if money is needed to deal with rising insecurity and anxiety then we should rethink the renewal of Trident and scrap the ID cards scheme. Government insiders claim that the latter is effectively being left to wither away, but where is the political advantage in that? On this, as with so many policies, a clear change has to be demonstrated.

Over the summer and beyond, Labour has to begin a conversation about all of this and take clear action, or face long years in the political wilderness. Compass intends to act as a catalyst for that process and play an active role in it.