Conservative Britain is alive and kicking. All it lacks is a party

The Conservatives gather for their annual conference in Bournemouth tomorrow in a more demoralised state than at any time since they left office in 1997. This is quite an achievement. The second landslide defeat, more than a year ago, should have marked an appalling low-point. Instead, the Tories have continued to decline aimlessly. And that is what is so odd: the aimlessness of it all. At least Labour almost died in the 1980s by fighting over big policy issues, its leaders involved in titanic battles, attracting as much media attention as the government of the day.

The Conservatives' latest leader has barely registered. His party continues to squabble, but its rows are in a minor key with a whiff of fin de siècle about them. In recent months senior members of the party have been animated over the revelations that one of its MPs is gay, and that in the 1980s John Major was demonstrating his heterosexuality with Edwina Currie. This could hardly be described as an agenda for the 21st century. Nor are Lord Archer's prison diaries likely to provide much inspiration for the party's next election manifesto. Yet it is Major, Currie and Archer who dominate the headlines.

What is even more bizarre is that on one level the Conservatives should be taking a defiantly proud bow this week. With some validity, Iain Duncan Smith could lead Baroness Thatcher on to the stage – and John Major if he were able to track him down – and declare that their political ideas and policies are still potent today. The Tories, they could claim to euphoric cheers in the conference hall, are still a force to be reckoned with: look at what Labour did last week.

For at the Labour conference in Blackpool, there were flattering echoes – albeit coded ones – of the Thatcherite reforms from the 1980s and 1990s. It was she who pioneered the internal market, privatisation and self-governing schools. It was John Major who introduced the Private Finance Initiative (PFI). And last week Tony Blair and his team hailed the need for the best hospitals and schools to be free of centralised control, and underlined the benefits of PFI. The context, of course, was different. The Government has egalitarian and inclusive motives in seeking to reform public services, compared with those of Mrs Thatcher. It is also showing far more commitment in terms of investing in public services than was ever displayed during Conservative years when reforms were accompanied by inadequate funding. But in thinking the unthinkable, ministers are revisiting the past as much as coming up with fresh ideas of their own.

The Tories, though, will not take a bow this week. Instead, they will have another of their nervous breakdowns, affecting horror at the outrages being committed by the Government, while proposing vaguely similar ideas themselves. This affectation of outrage has been one of their most fundamental errors since 1997.

Instead of causing trouble for Mr Blair in his own party by congratulating him on continuing from where the Conservatives had left off, William Hague used to act as if New Labour were somewhat to the left of Lenin. The best example of this was the Opposition's reaction to Gordon Brown's first tight public spending review in 1998, the one that made Lady Thatcher seem like a manic spender. Mr Hague described the miserly spending plans as "reckless and irresponsible". That is what Mr Brown had hoped he would say. The Tories would be far more mischievous and effective if they occasionally praised the Government. Now, that would make Labour MPs feel really twitchy.

It is, of course, harder for the Opposition now than it would have been in 1997 as the Government is incomparably more confident than it used to be. Last week's Labour conference was the most successful since Mr Blair became leader, not because everyone agreed with each other, but because they did not always agree with each other. He is strong enough now, within his party and outside it, to put up with internal arguments and the occasional conference defeat. Here is the sign of a maturing party, less scared that the media are going to scream about splits. To take one small example, at The Independent fringe meeting on Europe, the Labour MP and former adviser to Mr Blair, Jon Cruddas, put a powerful economic case against joining the euro before the election. Charles Clarke, the party chairman, who spoke broadly in favour of entry this term, applauded vigorously. They are no longer scared automatons waiting to be struck down by their critics. On Iraq, public services and the euro, the conference and fringe meetings sparkled with serious debate.

This points to two significant developments. Any weighty criticism of Labour's policies is likely to come from within its ranks and, for the time being at least, the Government is more than strong enough to engage with its internal critics rather than smother them. All of which leaves the Conservatives on the margins. They have become the spin-obsessed party, neurotically preoccupied by their image rather than by policies. Last week it was impossible to move in Blackpool without bumping into a minister or adviser agonising over policy. For months, if not years, the Tories have agonised over spin. With polls suggesting that it is seen as the nasty party, Mr Duncan Smith urged MPs to help the poor for a day last summer. Shadow cabinet members slept rough or became hospital porters. The problem was that these symbols meant nothing. The Conservatives have become a policy-free zone.

There is nothing inevitable about their decline, not in a country that voted them in for 18 years. For all the self-confidence in Blackpool last week, the Government is about to embark on reforms of the public services that are still sketchy in detail, and of uncertain outcome. How to get local innovation in these vast, inefficient nationally funded services? There will be plenty of tensions from the Cabinet downwards before there are any clear answers to that nightmarishly awkward question. The motives of the Government's reforms are worthy: aimed at creating public services that will retain the loyalty of middle classes increasingly tempted to opt for the private sector. But it is possible that a consequence will be the creation of a few outstanding schools and hospitals without raising the standards of the rest, certainly not by the time of the election.

There should be some scope for the Conservatives to breathe in the new political landscape. Tory newspapers, in an increasingly manic way, continue to scream on their behalf. Taxes are still relatively low. Public services are being reformed with a nod to Lady Thatcher. We are not in the euro. But while Conservative Britain is alive and kicking, its party is disappearing in front of our eyes.