Steve Richards: New Labour fell in love with business. But the relationship has come back to haunt it

The reasons for the early success of New Labour are now the causes of its undoing. In the mid-1990s a few people seized control of the party and imposed a forbidding discipline. They pulled all the strings, including those that led for a time to bucketloads of cash from business leaders.

More recently, an even smaller sub-group of the tiny number running Labour appear to have sought ways around the need for transparency in party funding. In the latest case, it is claimed that Labour's general secretary alone knew what was happening, although yesterday it emerged that Gordon Brown's new fundraiser was informed. These claims are treated sceptically by Labour's opponents, but such secrecy is part of a pattern. Under New Labour, pivotal decisions are taken by a few rather than the many.

The origins of the current crisis can be traced back to the 1970s and 1980s. During those stormy decades, Labour's leadership was accountable to its party, almost to the point of madness. The monthly meetings of the party's mighty National Executive Committee were big national stories. Even when in power, a Labour leader was expected to attend for the full session and fight his corner. In Tony Benn's diaries, he reports one meeting in the 1970s when, in the midst of a raging economic crisis, a red-faced Jim Callaghan lost his cool at a lengthy NEC gathering, asking why they did not lock the doors and hold a "never-ending meeting".

Blair, Brown and a few others resolved to apply the reverse approach, dismissing the rigid accountability demanded of leaders as being "Old Labour". Instead, they spent their energies paying homage to newspaper editors and business leaders while demanding of their party a supine unity at all times. They also sought alternative donors in order to be less reliant on the unions. Blair was not embarrassed by his relations with business leaders, but regarded the rapport as vindication. Brown seeks similar vindication as he hints at changes to his latest tax policies after business leaders' protests. If union leaders expressed a similar discontent, they would be ostentatiously rebuffed.

There was much that was genuinely outdated about so-called Old Labour. During its seemingly eternal period in the wilderness, the leadership was too rigidly accountable, making it almost impossible to reach out to the wider electorate. The bodies holding it to account were not especially representative of Labour members, let alone those voters the party needed to woo in order to win an election. But in their insecure desperation, New Labour leapt too far in the other direction. Now there are few internal checks and balances, a dangerous background to an indiscriminate love affair with business.

For Blair, his party was little more than a mild irritant. In the current BBC series on his decade in power, he refers constantly to decisions that he took alone because he believed them to be right. He looks back as an autocrat. There is no reference to struggles with his cabinet or his party, but only with Brown, the co-founder of New Labour. Not surprisingly, Blair appointed his own personal fundraiser and acted behind the back of the party's treasurer, who apparently had no idea what was going on. The already diminished internal checks and balances were ignored.

Brown is more immersed in the culture of the Labour Party than his predecessor, but he has spent much prime ministerial energy looking beyond his party, bringing in outsiders to his Government, having tea with Lady Thatcher and seeking to lead the biggest of big tents. Brown knows that he leads at a time when parties are in decline. He was much struck by the success of Make Poverty History and noted that if he addressed one of its meetings the hall would be packed, while if he made a similar speech to a Labour gathering the attendance would be small.

Yet this awareness, and the need to widen support, leads to a neglect of his party. I have no doubt that Brown speaks truthfully when he insists that he knew for the first time about the nature of the controversial donations last Saturday night. This is not an issue about Brown's integrity, but about a seemingly reckless culture close to the top of his party. He should have known earlier. So should other senior figures. If they had known, someone would have warned of the dangers and the current mad soap opera would have been avoided.

In spite of Labour's much-analysed nightmares in the 1960s and 1970s, there are advantages in a more robust party machine. Whatever its other flaws, the funding calamity would not have happened under Old Labour, where every move by leaders and officials was scrutinised internally and when big business was not viewed with uncritical awe.

Brown is not indifferent to the state of his party. Of course he is not. No leader can be. Blair was not either. But the overwhelming priority of New Labour is to focus more on those outside the party. This is symbolised vividly by the revelation that Blair had two long phone-calls with Rupert Murdoch during the week in which the Iraq war began, while party membership shrivelled.

Murdoch was also a guest at Chequers on the weekend that Brown called off the early election, a cock-up that sparked Labour's latest decline. Newspapers are very powerful. New Labour has been right to pay them attention and Brown must continue to do so. But its leaders have worked on the complacent assumption that as long as their party let them get on with it, all would be well.

I am told that far from being sunk in gloom, Brown is trying almost too hard at the moment. One senior cabinet minister senses that Brown feels guilty for letting people down. He knows that hopes were high in the Labour Party when he took over and now there is gloom. He will not give up and nor should he. Most of the crises are not directly his responsibility, and none of them is as defining as it seems. In this case, Labour's general secretary has resigned and Brown has fought his corner robustly in the Commons and at his press conference on Tuesday.

There is, though, an illuminating symmetry in his response to the latest debacle. Brown has appointed Larry Whitty as the main investigator in the inquiry. Whitty was removed as general secretary of the Labour Party shortly after Blair became leader, seen as too much part of "Old Labour". But if such an experienced figure had been at the helm I doubt if any of the recent funding disasters would have taken place.

New Labour looks ahead by turning to someone associated with the past. There are other lessons from the past that it must learn about the value of holding leaders and their allies to account. The alternative is for powerful individuals to act alone, making colossal misjudgments that taint them all.

s.richards@independent.co.uk