London mayor Ken Livingstone also attacked Tony Blair's political advisors saying, the prime minister should "cut himself free" from them as they are causing problems for the government.
Roy Hattersley said Mr Blair should use the Chancellor's recent £43bn public spending announcement to re-focus on basic socialist principles.
Speaking on Radio 4's World This Weekend programme, he said he believed Mr Blair had been forced to follow flawed policies on issues such as asylum seekers because of his fear of offending popular opinion.
"I'm full of hope this week that he (Mr Blair) will turn his back on the soap-salesman view of politics," Lord Hattersley said.
His comments come after a week in which the government's image took a battering.
Leaked Downing Street memos have suggested Mr Blair is increasingly concerned that his government is perceived as "out of touch" with voters' instincts.
London mayor Ken Livingstone also attacked Tony Blair's political advisors saying, the prime minister should "cut himself free" from them as they are causing problems for the government.
Mr Livingstone said he was concerned that many of Mr Blair's aides were hard-line New Labour obsessives who were isolating him from ordinary party members and voters.
He made his remarks in an interview for BBC Two's Around Westminster programme screened on Sunday.
'Devoid of humour'
He said some of the people surrounding the prime minister are "like a mirror image of the old militant tendency".
"They have no life outside politics, they require total compliance with the line and they are devoid of humour," he said.
"If the prime minister was to cut himself free of that we wouldn't have many of the problems we've currently got," he added.
The government has been hit by a run of embarrassing leaked memos prompting suspicions that there may be a mole in Downing Street.
On 9 July, it was disclosed that Deputy Prime Minister John Prescott had demanded a weekly inquest into why the government had lost its grip on the media.
Eight days later, a personal memo from Tony Blair showed that he was worried the government was seen as "out of touch with gut British instincts".
On 19 July, a memo from top advisor Philip Gould to Mr Blair and other high-ranking colleagues found its way onto the front pages of national newspapers.
In the correspondence, Mr Gould warned that Labour is not getting its message across.
'Rotten campaign'
Later in the BBC interview, Mr Livingstone expressed bitterness about Labour's tactics during the mayoral contest.
The Brent East MP was expelled from the Labour Party for five years for standing as an independent against official Labour candidate Frank Dobson.
"It was the most strenuous year of my life. People who 15 years ago were my best friends were stabbing me in the back. Everything that was rotten about politics condensed into one contest," he said.