Some Kossacks have wondered why the Tory Party, the most effective vote-winning machine in Western history, has become so disliked by the British electorate that they only increased their share of the vote 0.6% from 2001, despite facing a vastly less popular Government. As someone who grew up under the government of Thatcher, whose shadow the Tories haven't really escaped, here's my analysis...
The main reason why Thatcher was so successful, despite never being the most popular of people, was due to her skill at weaving together contradictory strains of British public opinion.
Thatcher managed to form a coalition of free-marketeers and those who responded to a call for Britain to return to 'Victorian values,' 'the values that made our country Great' and enabled to rule the waves etc. etc. Whilst Britain has pretty strong strains of collectivism and social democracy, voters were prepared to tolerate the perceived nastiness and greed of many Tory policies because of this appeal to influential moral traditions.
However, whilst Victorian Britain did have very strong notions of self-reliance and a minimal state, this always existed in very fertile tension with the very successful class-system that was insulated from market pressures and had strong commitments to noblesse oblige and an ethic of public service, and these ideals permeated far beyond the 'boarding school, then Oxbridge' class they were supposed to be incarnated in- they were deeply embedded in the idea that the Civil Service could be trusted to run nationalised industries effectively, for instance. By Thatcher's time the class system had lost almost all its power, and unfettering capitalism had the effects of both undermining its remaining traditions that constituted their form and breaking the power of the nationalised industries that now effectively embodied the content of the ideals of the 19th century class-system. Thus the free-market aspect of her coalition destroyed the 'Victorian values' aspect.
Although Thatcher's successor, John Major, attempted to evoke the same sense of Old England, as in his reveries on an England of cycling maids, warm beer and shadows lengthening over the cricket ground, he was lampooned because people no longer saw any connection with their own sense of what Britain was. Likewise, when he launched his highly moralistic 'Back to Basics' campaign, a now far less deferential culture took great delight in uncovering Tory MPs' kinky sexual proclivities, susceptibility to bribery and infidelities (although, alas, Major's own affair with a somewhat coarse former Minister wasn't discovered until fairly recently.)
Therefore the Tories could no longer trade on the 'moral values' appeals that had made their free-market ideology seem palatable to British voters, and just seemed like 'The Nasty Party.' But people still supported them because the consensus was that Thatcher's reforms were necessary and we couldn't go back to the widescale nationalisations called for by Clause 4 of the Labour constitution.
Then Blair came along and removed that clause, accepted Thatcher's reforms, and declared that these reforms could be married with social-democratic, i.e. 'Nice,' concerns such as reducing inequality etc.
So the Tories ended up with an appeal to older British values that no longer resonated and were perceived as being highly hypocritical, whilst the mantle of 'economic competence' that was the bedrock of the Tories' pragmatic appeal was taken over by Labour. They can't propose major pro-market reforms because their motivation is assumed to be self-interested and greedy, especially since the economy has been doing fine under Labour, and they can't appeal to their conceptions of Old England without sounding out-of-touch and verging on the racist and/or reactionary.
In short, it seems that unless they completely reinvent themselves or something goes drastically wrong with the British economy and/or social fabric, Labour will continue to entrench themselves as 'the natural party of government' and increasingly find that the Liberal Democrats are their most serious challengers.