WHATEVER happened to social inclusion? It was the idea that was going to distinguish a New Labour Government from rival brands, the project whose celestial priority was anointed with a special cross-disciplinary unit in the highest ranks of government (''the most important innovation in government we have made'' - Mandelson, P).

The phrase continues to crop up, certainly. It embellished Donald Dewar's ''vision statement'' on Friday, even if a trailed soundbite about making education more about inclusion and less about competition failed to materialise. It is usually around somewhere when Calum MacDonald announces more money for transferring housing out of municipal ownership. There was a consultation paper a while back.

But you look in vain for anything resembling an over-arching strategy, still less a crusade. Public agencies dutifully insert inclusion sections into their annual reports, though the Scottish Enterprise one is fairly typical in amounting to little more than a few aspirational phrases and some numbers left over from the Skills chapter. This is hardly the fault of the agencies. Directed, where not conceived, in the eighties to pursue the accountants' grail of ''value for money'', they have forgivably found reason in subsequent budget cuts to concentrate on their core activities.

The unit itself arouses interest as a prototype for the sort of holistic policy-making that the think-tanks hanker after, if necessary over the civil service's dead body. It has no budget, no authority to make taxation or benefits more progressive, no power to direct investment. What it has is a licence to meddle: to bend disparate policies towards a cohesive end, to bypass Whitehall demarcations and get things done.

Yet the risk, particularly in a Government not noted for its indifference to perceptions, was always that it would prove better at badging than doing. You can brand anything, while changing nothing. As Frank Field learned, the grander the design, the more important it is to insist on being shown the working as well as the press releases.

Last week's Human Development Report from the United Nations meanwhile provides a stark account of the challenge the project faces. The UN compiles a poverty index, based on life expectancy, knowledge deprivation, income deprivation and social exclusion. It shows 15 per cent of Britons to be living in poverty.

Translating that into an equality ranking, Britain comes a pitiful 15th out of 17 developed economies, just below Spain and ahead of only Ireland and the US. Almost the only area where we score tolerably is life expectancy. The mortality rate for under-60s is, at 9%, pretty average in the developed world. Three cheers for the NHS - mitigated only by a

new report from the National Consumer Council suggesting

that the way Britain delivers healthcare increasingly alienates the poor.

What's striking is how immune British poverty seems to the general prosperity of the nation. Our average income is on a par with the Dutch, yet they come second top in the UN equality ranking, with a poverty count of 8.2% against our 15. Now, that noise you hear is Millbank Tower falling over itself to point out that these figures relate to 1995, two years before the Ascension, and are therefore nothing to do with us, Squire. Certainly, they stand as the final rebuke to any fond souls who still tend a light by the trickle-down theory of social economics. In 1995 the economy was going like the clappers. For a significant proportion of the population, it was all happening to other people.

But would 1998 figures look markedly different? Can you put your finger on any initiative that might have made a radical, as distinct from a marginal, difference? For sure, there are benign bits and pieces. But equally, there's Stirling Council, reprimanded by consultants for putting ''social obligations'' ahead of budgetary prudence. The unwillingness to use fiscal

policy as an effective instrument

of redistribution leaves a

vacuum which the Social Exclusion Unit, however well intentioned, cannot fill.

Who could? Private finance, the present and previous governments' preferred recourse, demands that social obligations be tailored not merely to budgetary imperatives but to shareholder dividends.

In an essay in this week's New Statesman Ian Hargreaves suggests a most unfashionable alternative: the so-called ''Third Sector'' of non-profit organisations - charities, co-operatives, mutual societies and the like. Housing associations apart, the Third Sector has featured little in recent public policy, do-gooders being presumed inherently unentrepreneurial.

Yet it accounts for 4% of GDP

and, depending on how you

count, almost a million jobs.

More to the point, it is morally committed to a social agenda, unlike Proles-R-Us Plc.

could the Third Sector be a third way? What it lacks is the private sector's access to large-scale finance. Still, voluntary bodies have had to become good at raising money. Hargreaves suggests a combination of social capital banks and fiscal hypothecation to channel money to a rationalised and better-regulated Third Sector, which could progressively take on delivery of social policy, in accordance with ground-level knowledge of where need lies.

This is a radical agenda, but one which the Scottish Parliament is well-equipped to explore. Scotland has a remarkable vigorous civic sector, whose quasi-political role in upholding collective values through the Thatcher years

should count as a positive reference. A good start would be to formulise the sort of civil forum planned for the Welsh and Northern Irish assemblies, and encourage its engagement in policy-making.

There is no powerful reason to doubt the Government's sincerity

in wanting the wider social inclusion to which it gave such nominal priority.

But it still needs to find the means to match the rhetoric. Because, to promise gold and deliver ashes is a bigger insolence than promising nothing at all.