Ministers used to resign because they had misled the House of Commons. Now, it seems, they resign because they have misled the Prime Minister's press secretary, thus elevating the public relations functions of government to a new constitutional dignity. Image is all; and the supreme image-maker had to go because his own actions had damaged what he had so carefully built up. But Peter Mandelson's many enemies in the political world would do well to pause before they indulge their schadenfreude.

The dilemma in which Mr Mandelson found himself over the Hindujas is one that must be familiar to almost any modern holder of political office. Indeed, it is one that Tony Blair himself experienced when Bernie Ecclestone, who made a substantial donation to the Labour Party and who is a boss of Formula One, wished to lobby against proposals to ban the sponsorship of sporting events, including motor racing, by tobacco companies. Mr Mandelson was the Dome minister; the Hindujas were on the point of making a £1m donation to a project in which the government had invested significant political capital; they wanted British passports; they came from a part of the world where (let us be honest about this) people in public life are not always fastidious about trading small favours. It would be too much to argue that Mr Mandelson would have interrupted his busy life to make "inquiries" on behalf of anybody who had asked - say, the relatives of a Calcutta street beggar. But it would have seemed churlish of him not to offer a little assistance, and, probably, perverse of the Home Office - in the circumstances - to refuse a passport. Once can even imagine the outraged headlines if the Hindujas' request had been lost amid Home Office bureaucracy, and they had then gone off in a huff: "Straw's pen-pushers lose British jobs", that kind of thing. (The brothers' alleged corruption was not then widely known.) The truth is that people do not donate or sponsor except for a purpose, even if they only want a dinner invitation. If we really wanted to put our politics above suspicion, ministers would have to tell donors and sponsors, in future, that they will actually receive less favourable treatment as a result of their largesse. That is plainly unrealistic, though it is not so very far from what Labour now says to its trade union donors.

The difficulty is that the overlap between the worlds of politics and business is now far more extensive and far more complex than it was even 20 years ago. This is not just a matter of the need for parties to raise election funds when their membership figures are in decline; it is also the growth of contracting-out, of sponsorship, of regulation. Access to ministers, the quiet word in the ear at a social event, the sense of being part of the "in crowd" - all these have become more crucial than ever to business people, not just in their own countries, but on an international scale. The opportunities for a great deal of nepotism, mutual back-scratching and general trading of favours, if not outright corruption, were once greatest in local government, particularly in the "rotten boroughs", where a single party held a monopoly of power. This was one reason why local government lost the confidence of the public and went into decline. Now, local councils' powers have drifted towards central government, and the latter faces a similar crisis of confidence. The public, and many MPs, feel uncomfortable with the increasingly incestuous relationship between politics and business and uncertain as to what rules should apply. Nobody, in truth, expects ministers to volunteer the full details of their dealings with business people (except where their personal interests are involved), but they should always come clean when questions are raised. It is here that Mr Mandelson has failed. He cannot conveniently "forget" a telephone call to a fellow minister, made on behalf of billionaires, and then plausibly argue that there was nothing wrong with it.

The paradox of Mr Mandelson is that he cannot be accused of hypocrisy. He has not espoused a green agenda, while running two Jaguars; and though his house purchase got him into trouble, he did not buy a dozen houses while criticising owners of second homes. In an odd way, he is all of a piece: a man who has never disguised his thrill at mixing with the rich or his contempt for the little people. In that sense, he was new Labour writ large. This was a party that, in its post-1994 rebirth, wished to speak the language of business, to gain its confidence and respect, to rub shoulders with its leaders. Mr Mandelson has paid the price because he took it all too far.

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