Government looks very different from the outside. In the six months since I resigned from the Cabinet I have watched my former colleagues increasingly burdened by their day-to-day responsibilities. Now I am released from the tyranny of the ministerial red box, and at one step away from the drama of Whitehall, I've had the opportunity to reflect on the Government's record and the action that will need to be taken over the next few months to seize this once-in-a-generation opportunity to change our country for the better.

For the Government is at a turning point. It has just begun its most difficult period in office since its election in 1997. An awe-inspiring range of difficult issues are simultaneously crowding in: Iraq; the reform of higher education funding and student support; the debate over Public Private Partnerships; the creation of foundation hospitals; a decision on the five economic tests in relation to the euro; the Government's relationship with the trade unions; slowing economic growth; and the need to tackle the growing problem of pensions. In government it can be easy to lose sight of the longer term and simply end up muddling through. I know how daunting big decisions can be. Major policy issues which are politically controversial can put your ministerial career literally on the line.

Look what happened to me with Railtrack. If it is your job to make fundamental change - which will inevitably be unpopular, because nobody likes change - then you become personally vulnerable. It can be extremely tough in the firing line and tempting to seek refuge in easy but dangerous shelters; to consolidate and slow the pace of change, or walk away from painful but essential reform.

We must, therefore, have the courage of our convictions - that alone will keep us on the right course. We must be progressive, not protectionist. In public services in particular we need to respond to the new demands made by the public who simply won't tolerate second best. So when we talk about investment leading to reform we do not mean just higher standards and improved services but greater choice, diversity of provision and the delegation of decision-making down to frontline staff.

A failure to act, or dilution of our ambitions, would be a sell-out and a betrayal of the hard fight to lay the foundations in our first term. Success will require political leadership. The way that the Prime Minister has set out an unpopular policy on Iraq, defended and argued for it, and won the people round, shows how it is possible to shape rather than simply follow public opinion.

Government is a race against time. If we do not press ahead now - on health and education reform, on the economic tests over the euro, on pensions and new working models of Public Private Partnerships - then we drop out of the race. We have a 12-month window of opportunity. A year from now, we shall probably be two years from the next general election; it will then be even more difficult to take tough and potentially unpopular decisions. There is, too, always the possibility of being tripped up by events.

In my time out of government I've identified two areas in particular where we could have done things better. First, the language used in the debate about the role of the private sector in the provision of public services. The impression has been created that the Government thinks in terms of public - bad, private - good. This is simply not the case; the reality is far more complicated. There have been notable private sector failures, including Railtrack and a whole series of big IT contracts that went wrong.

Secondly, the Government has been unnecessarily defensive about its relationship with the trade unions. Of course we should come down hard and resist proposals which serve only the special interests of a union and its members and work against the national interest. The firefighters' dispute is a classic example. But we need to give more credit to those trade unions that do play a positive role, whether in promoting partnership, protecting their members from exploitation, improving productivity or supporting training and skills development.

Some in the Labour Party have never fully signed up to the changes we made - in particular the replacement of Clause Four - but tolerated them as the price for winning elections. With the Opposition so weak some people will see an opportunity to hold back the pace of change and modernisation and deny the need for reform.

What they fail to recognise is that new Labour was never just a clever marketing device; it marked a fundamental change in our party that was necessary not to lose our identity but to keep our relevance; not to betray our principles but to fulfil them by being in office.