Nigel Farage was once the irresistible force in British politics. His insurgent party Reform UK thumped Labour and the Conservatives in the May local elections, gaining more than 1000 seats. An ebullient Farage began to think the unthinkable.

“I’ve never wanted in my life, never aimed to be Prime Minister,” he told Axel Springer boss and owner Mathias Dopfner, “But I now think only we can achieve change….I believe I’m the only person with the balls to actually stand up and do it.”

Now, thanks to a £5m “gift” from an offshore crypto billionaire, compounded by a party funding controversy linked to close aide and convicted fraudster “Posh” George Cottrell, Farage finds himself written off as a has-been.

Between these two extremes lies a more prosaic reality: Farage is damaged but not mortally wounded. The funding controversy cuts through because the cheeky chappie man of the people looks like he’s no different from the money-grubbing elite he’s spent a lifetime savaging. He will likely win this week’s Clacton by-election handsomely, but in the absence of serious opposition (apologies, Count Binface), Farage’s victory will be pyrrhic.

Yet Faragism will continue to thrive as long as its underlying causes remain. These are familiar but worth restating: immigration; the cost-of-living crisis; and widespread disillusionment with the Conservative party and Labour, the two mainstream parties which have dominated British politics for more than a century.

Andy Burnham grasps this. His overriding goal is to win back Labour defectors to Reform. Hence, the visit to Dover to inspect the command hub monitoring small boats crossing the Channel; the tax relief “bung” to pubs, clubs and live music venues; and the promises to devolve power to the regions, including the establishment of the admittedly gimmicky “Downing Street North”.

So far, the results look promising. At 26 per cent, still low by historical standards, Labour has moved within a whisker of Reform in the polls. Farage’s own ratings have slumped, while Labour has seen a “Burnham Bounce”. Tory leader Kemi Badenoch is also faring better, though the Conservatives are still stuck around 20 per cent.

Polls, however, are only a snapshot of a horse race which still has almost three years to run until the next general election, assuming Burnham does not call a snap election. The political landscape remains fragmented and volatile; the same economic constraints – anaemic growth, low productivity, worklessness and historically high debt to GDP – still apply.

Whether Reform has peaked will depend on Reform’s ability to connect beyond its loyal core. That turns not just on one-man-band Farage but Reform’s awkward transition from movement to party.

The shift from a private limited company with shareholders (where Farage held a majority stake, with absolute control over assets, appointments and more) to a non-profit organisation funded by wealthy donors and membership has been fraught, to say the least.

Reform claims to have more than 270,000 paid-up members but professionalising the party remains a work in progress. Aside from questionable money trails lies the question of how many disgruntled ex-Cabinet ministers (Braverman, Jenrick and Zahawi) can come on board before Reform looks like a party of Tory retreads.

Farage’s strength is an ability to read the public mood, whether on Brexit, the culture wars, identity politics or immigration. Some of his criticisms are legitimate, though often designed to inflame rather than solve problems. Despite complaints about media bias, he has GB News in his breast pocket. , and have to varying degrees been sympathetic to the cause.

On immigration, a touchstone issue, the tide is shifting. Under Home Secretary Shabana Mahmood, whom Burnham wisely kept in place at the Home Office, the number of migrants crossing the Channel on small boats has fallen dramatically, as much as half compared to a year ago. A small but growing number of migrants are being sent back under a “one in, one out” deal with France.

Desperate to regain the initiative, Reform has floated a madcap scheme dubbed “Operation Fortress”, whereby the Royal Navy would intercept small boats and, if necessary, dump migrants on the shores of Belgium and France. The plan is laden with diplomatic and legal difficulties and may simply be a distraction. Critics say it aims to protect the party’s right flank threatened by Rupert Lowe’s Restore Britain party which supports mass deportation of illegal immigrants.

The second touchstone is economic insecurity. More than two-thirds of UK adults believe their children will be worse off than their parents. The middle class squeeze has been going on for nigh 20 years, going back to the global financial crisis. Lower-income families are struggling even more to maintain living standards. The populists – both Greens and Reform – feed off this vulnerability.

The AI revolution is likely to make matters worse. In the US, the Big Tech companies are spending hundreds of billions of dollars in the race to artificial general intelligence, when machines will match or surpass human skills. Once coveted jobs in the service sector – accountancy, banking, insurance, management consultancy, software services – are at risk.

Tech titans such as Amazon’s Jeff Bezos declare that artificial intelligence will power a golden age of entrepreneurialism. But public opposition to the data centres needed to power AI is growing. On a recent trip to the US, a top pollster told me, confidently: “2028 (the next presidential election) will be the first AI election.”

Like most political waves, this one is going to cross the Atlantic. To his credit (and Cabinet Secretary Antonia Romeo’s), Burnham has grasped the need for the government to get a central handle on AI development and deployment, especially in the public sector which employs more than 4.5 million people in the NHS, civil service and local government. This is potentially fertile territory for Reform.

It is tempting to argue that populism is doomed to eat itself. In this telling, populism thrives on conflict. At some point, it will turn on its friends or find itself outflanked by rivals. Farage has had a taste of his own medicine courtesy of Restore’s Rupert Lowe who has urged him to put aside personal rivalry and work together as parties.

For now, Farage intends to sit tight. He’s been dismissed as a swivel-eyed loon before. Brexit convinced him he was on the right side of history. Reform, he insists, is a nationwide party with staying power. The next 12 months will determine whether he’s right.