Put it in gear and get somebody to see if the rear prop is spinning freely when you let the clutch out (or indeed the front one!) Assuming the rear is spinning, then the problem is in the axle. The most likely problem is that the splines are stripped on one of the rear halfshafts (common failure and tallies with the increased backlash) in which case you will need a new halfshaft and new drive member but the good news is that it is a roadside fix which takes 5 minutes and assuming you have steel wheels doesn't even need the wheel removing - undo the five drive member bolts, slide out the old halfshaft and member, shove the new one in and do the bolts up (not forgetting a gasket!). Change the other one too because it won't be far behind.
To check if it is the halfshaft splines, take off both dust caps from the hubs (assuming you have steel wheels - not possible with alloys!) and try and drive it with somebody watching. If the splines are gone you will see the shaft spinning in the middle of the drive member so it is that side that needs changing.
It should move in difflock or when the handbrake is applied because either option directs the drive to the front wheels.
It may be the diff, unlikely if it is a Salisbury axle but possible if it is a post 2002 vehicle. If neither of the propshafts are spinning then it could be all sorts of things - clutch or gearbox mainshaft snapped but again those things are relatively unlikely on a Td5 age vehicle.