On Monday evening in a committee room at the House of Commons, Harriet Harman, Labour’s acting leader, chaired a fractious meeting of the parliamentary party. Labour has responded just as George Osborne would have wished to the Budget by descending into rancour over the proposed reforms to welfare and tax credit reductions. The divisions in the party that have been simmering since last autumn, when there was a botched attempt to oust Ed Miliband as leader, are now exposed for all to see.

The Tories wish to restyle themselves as the “workers’ party” – which means, by implication, that they want Labour, in spite of its name and heritage, to be perceived as the party of the workless and of the benefit-dependent. Those with good sense can see all too well the trap being set for them. “If we oppose everything, people will not hear those things we are opposing and why,” Harman told her colleagues, at least 80 of whom are expected to defy her instruction to abstain on a vote on the Tories’ Welfare Bill when it comes before Parliament on July 21.

It’s easy to mock Harriet Harman as the unsmiling personification of Labour machine politics. Yet for all her tribalism, she at least seems to understand the scale of Labour’s election defeat and this has informed her nuanced response to the Budget – she has also instructed colleagues to support George Osborne’s plans to limit tax credits to families with a maximum of two children.

For some Labour MPs, Osborne’s welfare reforms are nothing more than an attack on the poor; worse still, the future child tax credit limit has about it an unfortunate taint of eugenics: the state seeking to control the fecundity of women.

“I suspect the reason Harriet is being uncharacteristically strident in her views on welfare is that she has seen some of the preliminary research into why we lost,” I was told by a supporter of Liz Kendall, one of the four leadership contenders. “I suspect she’s seen the data in the marginal seats which shows we weren’t trusted on the economy or on welfare.”

There’s no doubt Labour is in a frightful mess. “We’re up against Premier League players and we’re several divisions below them,” one despairing senior MP told me.

For many, having lost an election they expected to win, the summer recess cannot come soon enough – and yet they are mired in a protracted leadership contest that has enthused few beyond the supporters of the Left-winger Jeremy Corbyn. The contenders’ hustings have all the joy of a waterboarding convention.

Ed Miliband is culpable for much of the mess, not least for resigning as abruptly he did rather than staying on to ease the party through a period of painful transition as Michael Howard did for the Conservatives after losing the 2005 election. In Miliband’s position I would have resigned as well. But sometimes leadership, in the best interests of the party, is also about doing what you least want to do, no matter the consequences for your psychological well being. By continuing as leader, Howard prepared the way for David Cameron and George Osborne to win control of the Conservative Party, just as he wished.

Had Miliband stayed on until the party’s annual conference in September, Chuka Umunna, such a gifted communicator, might still be a contender for the leadership and, given more time to reflect and build networks, Dan Jarvis, the highly-regarded former soldier, might well have jumped in as well.

In his resignation speech, Ed Miliband said that Labour had lost the election but not the argument. There are many in the party who believe as he does: believe that the electorate yearns for a return to some form of big state socialism and would vote accordingly if only Labour could find a charismatic leader, someone like Alex Tsipras, Syriza’s Mediterranean Marxist, he of the open-necked shirts and dissident chic.

As things stand, Labour has Jeremy Corbyn. The bearded radical is principled but his world-view has ossified: he doesn’t seem to have had an original thought since at least 1981 (he favours a “planned economy” and unilateral nuclear disarmament, for instance).

When Labour was desperately weak in the 1980s it was still strong in Scotland, where today it looks to have been decisively defeated. Yet I do not share the view that Labour’s crisis is existential. It can win again. There’s talent enough on the front and backbenches. The English do not crave one-party rule. They do not love the Tory party but they do seek pragmatic, non-ideological guidance as well as sound public finances. (In the grip of nationalist fervour, Scotland has become a different country altogether.)

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George Osborne told me recently that he spent his early years in Parliament watching and learning from Tony Blair: watching how he seized and then held the centre ground of British politics, forcing the Tories to the Right. Osborne is doing something similar to Labour, by forcing the party to the Left. Whoever ends up leading Labour in September ought to watch and learn from how Osborne and Cameron have modernised their party just as they learned from Blair and Brown before them.

The Chancellor and his party might seem indomitable but one should beware of overconfidence in politics, as even Nicola Sturgeon will one day discover. Labour’s time will come again, but not until it understands and adapts to how England is changing, demographically and economically – by 2018, for instance, there will be more self-employed than public service workers. Gordon Brown’s “client state” is being dismantled, and little will be left of it by 2020.

Disraeli once spoke of how the “leadership of hopeless opposition is a gloomy affair, and there is little distinction when your course is not associated with the possibility of future power”. At present, Labour seems content to wrap itself in the comfort blanket of hopeless opposition. Does it have the will to change course and move on to what Jim Murphy, the outgoing leader of Scottish Labour, calls “the hardest ground” by seeking to win over Conservative voters? And if not now, when?