From this morning's Guardian, by Larry Elliott:

The full extent of the squeeze on living standards in Britain has been revealed in a new report estimating that 20 million Britons tightened their belts in the first few months of 2011.

Registering a sharp drop in consumer confidence over the past year across eight different demographic groups, a survey by the financial firm Axa found people cutting back on going out, car usage, food shopping and holidays.

A poll of almost 2,000 people conducted by YouGov found a sharp drop in financial confidence over the 12 months to March, a period that coincided with a slowdown in the economy, rising taxes, higher inflation and the announcement of the coalition government's austerity plan.

This is hardly surprising, many Keynesians, myself included, predicted this. It is, of course, the paradox of thrift that Keynes described. Whilst as yet there have been very few real government cuts (a fact which we must recall, often) the trumpeting of their forthcoming, the continual threat of unemployment that they create, the fear of austerity that they promote, and the general feeling of economic malaise which the Tories have deliberately created, even though it is quite inappropriate as the actions of the last Labour government showed, has resulted in this environment in which fear pervades.

Of course in that circumstance people are not spending as much. It is entirely rational for them to do so even though at the macroeconomic level this behaviour, solely attributable to George Osborne and his fellow travellers, has been wholly destructive for the UK economy, the well-being of the people who live in this country, and the businesses within it. Why any now wish to tolerate his continued occupation of number 11 Downing Street is hard to imagine.

Some details within the report also significant:

Spending restraint was particularly evident among those the survey calls "the stretched" — people in their 20s and 30s on low incomes with few financial assets — and among young professionals of a similar age with no children hoping to move out of rented accommodation into their own homes.

"A striking 40% of consumers (up to 20 million people) chose to go out less between January and March this year, a five percentage point increase on the previous quarter," Axa said. "Half (48%) of those in the most pessimistic group, young professionals, cut back on going out. The proportion among the stretched was even higher at 56%."

And this is a short term reaction that cannot last for long in many cases:

The survey found that while millions of consumers were making economies in order to pay off their credit card debts, one in four of those quizzed said they were dipping into their savings to fund everyday expenditure.

It's hard not to be blunt about this: there is a a squeezed middle, and there are those living in fear of real poverty. The political agenda that results is a hard, harsh one: we're talking about how people meet their basic needs at this point of time. The froth and excitement of the era that existed before 2009 is history:  we are now talking about the lower echelons of Maslow's hierarchy of needs. Politics needs to recognise that fact: fear is pervasive, and can only get worse. The party that can address that fear and offer hope can win the next election. The risk is that if no party does so then extremists fill the void.

There is no room in this environment for Labour to pander to the relatively well off in the south-east of England: the over stretched middle in the south-east of England, and the mass of the rest of the country must be the focus now.

Mandelson's thinking is irrelevant now, as is New Labour's analysis of the past.  Unless Labour can deliver a strong industrial policy, a clear housing policy, a coherent tax policy, mechanisms to raise funding which do not destroy household income, a commitment to state provision of high-quality health and education, a policy of fare pay to those who work in the public sector, a clear program of compassion for those who suffer hard times through no fault of their own, whether young, unemployed, disabled, elderly, or discriminated against, then it has no hope of re-election.

Yes, I mean it: Tony Blair might fear that the Labour Party is moving to the left, but that is exactly what the people of this country will want it to do if it is to answer their needs, fulfil our expectations, and deliver the hope that this country rightly deserves.