Incorrect diagnosis in my view. The agenda that the Tories set during Thatcher's years, and that has continued to this day and been amplified, is one of free(ish) market liberalism and individualism. Labour moved to broadly match the general idea that the state should not intervene, and that private, individual enterprise is a greater 'virtue' than collective effort.

Unfortunately for Labour, it cannot have its cake and eat it. When the public see themselves as individual rather than as a part of a system, it becomes incredibly difficult to do the kinds of things that Labour needs to do in order to achieve its goals. I'm not talking about some kind of 'individual vs the Borg' situation, rather the focus on the idea of the state as an actor has been greatly diminished. The state is now seen as a top-down, interfering problem, rather than as a facilitator and an enabler.

It's not that Labour became Tory-lite, its that the Conservatives very successfully changed how people view their individual relationship with the state. There's nothing intrinsically wrong with that - but it is a problem for Labour which is largely a collectivist effort and which would, if given free reign, almost certainly involve higher taxes and higher public spending.

For what it's worth, I believe a greater emphasis on co-operative and devolution would help Labour. We can have the best parts of the free-market whilst ensuring that collective effort is rewarded and facilitated. For Labour to be able to do the things it wants to do, the state has to be seen as an assistant to a good job, a good economy and a good quality of life, rather than as an ever-present danger and a barrier to individual liberty. The co-operative model can help massively here. I'm not saying its ever going to be easy to start hiking taxes to pay for things, but it will be all but impossible without a significant shift in public opinion regarding the role of the state. Until the state works for ordinary people, it will be met with suspicion and will be condemned for being authoritarian.

Labour needs to convince that a co-operative model is both economically sound and individually liberating, in my view.