John McDonnell and John Denham agree that government should speak out about pay at the top, but not on the policy response which should follow.

That the Labour government should no longer ignore excessive 'fat cat' pay in the City was common ground between former Minister John Denham and the Campaign Group leadership contender John McDonnell at the Fabian New Year Conference. But the agreement between MPs, from different wings of the party, did not extend to the right approach to deal with the issue, as the 'Left Outside?' session chaired by New Statesman political editor Martin Bright asked how a progressive coalition could be rebuilt.

McDonnell, a fierce critic of New Labour on the left of the parliamentary party, said that the government's failure to deal with inequality was highlighted by the 'obscene' Christmas bonuses paid in the City at a time when 23,000 people died of hypothermia in Britain during the winter and homelessness is on the increase. Labour was losing support because it had lost its mantle as 'the compassionate party', he argued.

Denham was more sceptical about the government's ability to regulate executive pay. But he said that a critical public stance by Labour politicians was important, in reflecting public unease at the scale of excessive pay and because this could encourage corporate self-regulation and restraint to avoid the possibility of government action.

Martin Bright of the New Statesmen, opened the session by asking whether, after three consecutive election victories the Labour party needed to rebuild the coalition. 'After all, it has won three elections while breaking it up', he said. But paneliists responded with a resounding 'Yes'. Labour needed to hold voters who had switched from the Conservatives but could not succeed electorally without also persuading its core vote to turn out and winning back disaffected liberal-left voters attracted by the LibDems or Greens. The situation after a decade in power was very different from that in 1997 after eighteen years in the cold. The progressive vote could not be taken for granted next time around. All three panellists emphasised the importance of winning these votes back, but disagreed on the best way to achieve this.

McDonnell highlighted the lack of power of local parties, which meant that activists soon lose their drive when nothing gets done. Members should have a greater say in policy-making. "Consultation is not enough', he said, 'what we need is democracy."

But Denham argued that policy decisions made by education workers about education or public sector workers about the public sector are not always right because they cannot see the weakness of the service they work in. Instead he focussed on the need for greater power in local government, declaring that we "have to revitalise local government and you cannot revitalise something that doesn't have power." Denham suggested that people will not attend meetings that don't change anything and that "what we call 'apathy,' is a rational response to powerlessness."

Stella Creasy, Head of Research & Development at INVOLVE, stated that we should "caution against seeing local level government as the vehicle for engagement in progressive politics." She stressed instead that there needed to be a "cultural change" in the way the labour party operates at a local level. She asserted that being a labour member, attending local meetings, and participating in the less glamorous side of party membership did not receive the recognition it deserved and put people off getting involved. Creasy said that, instead, we should be "thanking everybody and anybody that takes part in progressive local campaigning."

All three members of the panel acknowledged the failure of the Labour Government to retain large sections of its support. For McDonnell, the Labour Government has "systematically alienated, section by section" the coalition that elected it in 1997. He identified a series of groups, including public sector workers, students, civil rights campaigners and trade unions, who he believes the Labour Government had 'let down' during its two and a half terms in government. He called for a wholesale shift in the government's agenda, stating "it's the policies, stupid!"

John Denham said that Labour's loss of 4 million voters since 1997 demonstrated the scale of the problem. Denham connected this loss of voters to Labour's focus on middle Britain and marginal seats. He argued that Labour should return to the broad message it offered in 1997, stating that the Labour party needs a "language for the whole of our society, not for a section."

Stella Creasy talked about the loss of labour supporters to single-issue pressure groups. She observed that most of the electorate that failed to vote in 2005 were labour sympathisers who are "choosing between Labour and not to vote at all." She stated that 40% of the 40% of the electorate that did not vote were members of some kind of campaigning group. In other words, these people are not politically apathetic, but they have stopped voting for the Labour party.

The session finished on a point of agreement with the speakers highlighting the importance of the local labour party. Stella Creasy re-emphasised the need for a cultural change, and the suggestion that the Labour society could learn from the way single-issue pressure groups engage with their members. John McDonnell agreed, stating that it was important that the Labour party valued its own people and that those within the party respected each other. John Denham finished by stating the need for Labour to emphasise what the Labour Government has done well rather than concentrating on the negatives, declaring that Labours time in office "has not been a waste of time.

'Left Outside: how can a progressive coalition be rebuilt? with John Denham MP, John McDonnell MP, Stella Creasy, INVOLVE and chaired by Martin Bright, New Statesman. This panel debate took part at the Fabian New Year Conference 'The Next Decade; on January 13, 2007, at Imperial College London.

Event report by Leigh Marshall.