Derek Hatton has changed. The man who once ruled Liverpool and took it to the brink of bankruptcy in his fight against Margaret Thatcher’s government is now an enthusiast about the private sector and thinks David Blunkett is doing a good job by offering parents more choice in secondary schools.

Having forced through a controversial school reorganisation plan during his time as deputy leader of the city council - which sought to produce model neighbourhood comprehensives - he later sent his youngest daughter to an independent school. He is now investing in his son’s dotcom business, which uses league tables to help parents choose the best schools.

“Life is very different now,” he says. “The politics are different - and Derek Hatton is certainly very different. The polarisation has gone; the world has changed and you’re not going to go back.

“Much as I would have willingly shot Margaret Thatcher in the eyes in those days, the reality is that she will probably go down as the most successful peacetime leader of the century. I’m not saying I agree with what she did, but she fundamentally changed our thinking, our mentality, our approach to things.”

These days, Hatton is a presenter on Talk Radio, the national station set up by Kelvin MacKenzie, the former editor of The Sun. No longer driven by ideology, Hatton thinks of himself more as “a political schizophrenic” than a pragmatist; more talk-show host than “third way” Blairite.

It is a far cry from those turbulent days in 1985 when Hatton and the Militant-infiltrated Liverpool council were denounced by Neil Kinnock at the Labour Party conference. “You end up in the grotesque chaos of a Labour council hiring taxis to scuttle round a city handing out redundancy notices to its own workers,” Kinnock declaimed.

Hatton came to power in 1983 when Labour swept in with a large majority in the local government elections. It was the first time in a decade that any party had been in sole control. At a time when the city had needed strong leadership and sound financial management to stimulate regeneration and attract new industries and jobs, the council had not been capable of providing a clear lead, according to a 1988 Audit Commission report.

During that decade, Liverpool’s economy - already in long-term decline - had been devastated by the loss of 60,000 jobs. Unemployment had risen to 26 per cent - twice the national average. The collapse of Liverpool’s docklands and manufacturing had brought poverty to a once-prosperous city.

A further turn of the screw came when Margaret Thatcher entered Downing Street in 1979 - the year Hatton became a councillor. She set about cutting expenditure in the public sector - Liverpool’s largest employer. By the time Hatton took up the reins, Liverpool was in a mess. Professor Michael Parkinson - director of the European Institute for Urban Affairs at John Moores University and author of one of the most compelling accounts of the Hatton era, Liverpool onthe Brink, confirms this: “Militant did not invent Liverpool’s fiscal crisis. It was real.”

Those problems, Professor Parkinson argues, were rooted in the coalition politics of the 1970s, when the city’s political leaders proved unwilling to put up the rates to tackle Liverpool’s many pressing problems. Thatcher’s decision to introduce a new grant system for local government, based on historic spending levels, simply compounded the problem.

Professor Robinson says: “Liverpool said, ‘Hang on, we have been fiscally responsible in the 1970s. We kept our rates down and you’re asking us to cut again. It’s not fair.’ To cut a long story short, that is what it was all about.”

Under Hatton’s leadership, the council ignored the calls for cuts and developed an urban regeneration strategy through a major public housing programme, which led to more than 4,000 flats and houses being built in four years. But the cost - about pound;90million a year - had to be met by extensive borrowing and creative accountancy. This period left a legacy that is found today in the fact that Liverpool’s council tax remains the highest in England.

Hatton was eventually disqualified from office and expelled from the Labour Party. Subsequently, more moderate Labour administrations found that Liverpool’s tarnished image meant that Whitehall and Westminster continued to be distrustful. And desperately needed private investment also proved hard to come by.

The city’s reputation for turbulent politics continued, with splits over the poll tax and in-fighting between traditionalists seeking to preserve public-sector jobs and modernisers who sought a more pragmatic approach to the city’s problems. Uncertainty and weak leadership only ended in 1998 when a landslide victory by the current Liberal Democrats brought stability for the first time in 25 years.

Paul Clein, executive member for lifelong learning under the new regime, says Liverpool schools have suffered, with money channelled into housing and social services budgets, and into repaying debts. Further education teacher and former chair of education, Neville Bann, agrees. He insists that Liverpool’s financial difficulties are partly the fault of the Conservative governments of the 1980s and 1990s, but concedes: “Liverpool did not spend what resources it had particularly wisely. We could have done better if we had been more united about what we were trying to achieve.”

Bann, who was in the minority modernising camp, supported the Liberal Democrats’ plan to switch spending to education. In 1996, the city council underspent on education by about pound;12m, or six per cent, compared with the target figure set by Whitehall. Spending on primary and secondary schools remains below government targets.

The Lib Dems have a large majority and the apparent trust of the people of Liverpool at a time when a Labour government is bringing substantial new investment to public services. Most people in the city expect the Liberals to remain in power for the next 10 years. After so many turbulent and troubled years, the real winners are likely to be Liverpool’s schools. n