By Brian Wheeler
Political reporter, BBC News, Labour conference in Manchester
Deputy leadership challenger Jon Cruddas says he cannot look his constituents in the face and tell them things have got better under Labour.
Mr Cruddas became an MP in 2001
The Dagenham MP said wages were falling - driven by migrant labour - and there were shortages of low-cost housing.
This picture jarred with the successes trumpeted by Tony Blair who he said was "living in a parallel world".
Mr Cruddas called for a debate on issues such as immigration and housing to stop people turning to the BNP.
Mr Cruddas, a former Downing Street aide, told a fringe meeting at the party's annual conference in Manchester that Labour faced "tough" decisions about its future policies.
"I go round and talk to my constituents and I cannot look them in the face and say another year of outstanding, relentless achievements.
"They look at you and they think you are trying to mug them off. They think 'hold on, our real wages are in decline'.
"Their housing pressures are growing. We have the worst-structured health inequalities in the whole country and we have just been hit by a £13m cut in our own primary care trust budget."
He said many of his constituents' earnings were falling - "and that is tough stuff when you sit talking about the 10th year of a Labour government".
Taken together, he told the meeting, "you cannot say things are getting materially better".
He said it was no longer enough to brand the BNP racist and ignore the real concerns of people about migration and the "race to the bottom" in wages caused by globalisation.
His constituents had seen their wages undercut by migrant workers, he told the meeting, and he cited the case of a "gang of Lithuanian blokes" he discovered who were earning £15 a day working on a public contract.
"Migrant workers have been tacitly used to deregulate Labour markets.
"This celebration of this flexible modern labour market that we have is not a panacea for a lot of the people I represent.
"It means that there is a race to the bottom of the labour market occurring," he told the meeting.
The Dagenham MP, 44, has said he will run for the deputy leadership as and when a vacancy arises - something his campaign say they expect to happen by the summer.
He says he wants to distance the role of deputy leader from the deputy prime ministership.
Other declared contenders for John Prescott's job include Alan Johnson, Peter Hain and Harriet Harman.
Mr Cruddas was Tony Blair's deputy political secretary between 1999-2001 and has been MP since 2001.
He said he was first approached by members of the party wanting him to stand a few weeks ago.
Despite his work for Mr Blair, he is seen as on the left of the party and has rebelled against the government over the imposition of university tuition fees.
Mr Cruddas says he planned to open a campaign office within the next seven days and is expected to name the MPs, members and trade unions who back his bid in the coming weeks.