Cutting Tony down to size

The Blairite hegemony is over; there is a new ideological battle at the heart of Labour, with Clare

Forget the talk of stalking-horses, of leadership challenges, of the Tories about to catch up in the polls. Tony Blair can stay at the helm for as long as he likes. What has changed is the balance of forces inside the Labour Party. For the first time, ministers and MPs believe that the hegemony of the Blairite cell at the heart of government is on the wane.

The rivals are taking stock. The jockeying for power and influence in the cabinet is no longer purely personal. A new ideological battle is taking place, with several cabinet ministers hoping to wrench the government away from Blair's chosen path of ultra pro-Americanism and what the French call "capitalisme sauvage".

There is a paradox. The direction that many in the cabinet want to head towards is a new variation on social democracy. When Blair first espoused the term early on in his leadership, this was regarded as a sell-out. Now it is seen as a salvation, a new spiritual home for what, to many Labour MPs, is now a government of the centre right.

Even ministers loyal to Blair believe that his public affinity towards Italy's prime minister, Silvio Berlusconi, signals a point of no return. The Spanish have dubbed it "BAB" - Blair, Aznar (their own prime minister), Berlusconi. One cabinet minister suggested to me that Blair's warm relations with the Italian leader are not merely an act of realpolitik: "Tony's warmth towards Berlusconi is not pragmatism. He genuinely likes the guy. He respects the fact that he has become so rich - and regards the criticism of him as carping."

The BAB axis is no accident. This is an alliance of European Christian democrats and conservatives. It is not a pure Anglo-Saxon model, but it is the nearest to Atlanticism that exists on the Continent. It now seems a long time ago that Blair launched his joint Third Way document with Gerhard Schroder. That tentative venture posed a considerable risk for the German chancellor, and ultimately it did him little good within his own party. Today, being seen to be associated with Blair does not provide the cachet of old. Beyond these shores, his personal project is now regarded as rudderless in its ideology and listless in its implementation.

Downing Street is keenly watching the elections in France in April and Germany in September. Relations with the conservative Jacques Chirac have consistently been warmer than with Lionel Jospin, his Socialist prime minister and now rival for the presidency. Jospin resented Blair for the unflattering comparisons made in the French press in the late 1990s. Now, however, with Blair's growing problems with public services given full media coverage in France, Jospin is said to feel that his "social market" approach has been vindicated. There is much crowing about the sight of British patients going to France for treatment, and about the calamity that railway privatisation has brought. As for Germany, Schroder is still respected, but the possible arrival of a right-wing government under Edmund Stoiber is not out of the question.

As regards the US, Blair's relationship with George W Bush is working extremely well. The inner Blair core sees Bush's environmental vandalism as a small price to pay for deregulation and promoting "competitiveness" in the global economy.

Blair's international priorities overall have brought a belated clarity to his domestic agenda. They have forced him to show where his heart really lies. In so doing, they have stretched an already huge divide between him and many in his party. A centre-left caucus, for so long dormant, is now coming out into the open in and around the cabinet. As so often in new Labour, its main problem is that its protagonists have their own agendas. It is an inchoate and fractious bunch, encompassing Gordon Brown, David Blunkett and Charles Clarke, as well as Robin Cook, Clare Short and Margaret Beckett. The first three have leadership ambitions, the others do not.

The issue that is flushing them out is Iraq. At the recent cabinet awayday, the reservations of Cook, Blunkett and Beckett were widely reported. Although Short wasn't at the meeting, she made her concerns clear later, with her threat to resign if we helped the Americans invade without the backing of a United Nations resolution.

Brown kept his counsel at that meeting, according to those present, writing himself notes furiously whenever reservations were made. He has consistently provided political cover and support for Short on development issues, but on other major international decisions has remained conspicuously silent. The tactic has worked well. He has been able to maximise his options. But as tension grows in the Middle East, the Brown approach will be stretched to the limit. Does an ardent supporter of the American approach to work and economic management necessarily back US foreign policy priorities? Not necessarily.

Blunkett's quiet positioning on Iraq is significant. He is far too wily to stray very far off the Blairite course, but he has put down a marker. So has Cook, but his motives are different. As Leader of the Commons, Cook has so far confined his rediscovered radicalism to constitutional issues. Publicly, he is confining his utterances purely to that theme, although he has quietly signalled his reservations on Iraq. And while his distance from the Blairite project has been seen in the past as a disadvantage, it may well come in handy for future battles.

The last of the three possible successors, Clarke, is shrewdly marking out territory of his own. The Labour Party chairman and his chosen general secretary, David Triesman, are letting it be known that they want a new ethos around party headquarters. They want to show that the move from Millbank Tower marks the end of the control freakery of the previous decade. "The mood music is better," says one minister. "They say they want to listen more, to have more participation from MPs and activists. That's long overdue . . ."

They may still be clutching at straws, but Labour MPs cite one particular incident in recent weeks as a sign of the changing relationship between the Blair cell and the party. It came on an apparently minor issue - the row over the £28m sale of an air traffic system for Tanzania.

For the first time in the history of this government, a cabinet minister has defied the Prime Minister not through words, but deeds. Clare Short's decision to freeze a £10m aid package to Tanzania was a brazen act of rebellion. She was quite relaxed to have it portrayed as a slap-down not just to the Foreign Secretary, Trade and Industry Secretary and Minister of Defence, but to Blair, too.

Short's actions have left several people seething, but apparently unwilling to act. "Sure, Clare has always had a certain leeway," says one government aide. "But by doing and saying nothing, we've allowed her to put down a market for others to follow." Not only was Short not admonished, but Jack Straw, the Foreign Secretary, was forced, in an uncomfortable appearance before the Commons committee that deals with arms sales, to agree that she had the right to do it.

Short's allies in the Parliamentary Labour Party say she will try not to make waves for the next few months. The bigger battle lies ahead, presumably in the autumn, when the decision over Iraq is expected to take place. If she did quit then, the impact would be immeasurably greater than at any point in Blair's leadership. Already, her cause is being championed by the right as well as the left, each with its own agenda. Her departure would not deal a mortal blow to the project, but it would severely dent it. She knows it, and so does Blair.

A challenge exists. It should not, however, be exaggerated. Blair can help wage war on Iraq without the support of 130 Labour MPs, and without Short, if he needs to. He can shrug off the criticism of his Berlusconi attachment. He can continue to run the government the way he wants.

The next month should bring some relief. He is likely to win back plaudits from within the party for the Budget on 17 April, which could easily be portrayed as the most pro-public service and the most redistributive that new Labour has presented. Blair is still regarded by the party at large as an electoral asset, but not as clearly as before. Life after Blair and life after the project is no longer the topic of idle chat. Those around him know it, and they know that he knows it, too.

See Charlie Whelan, page 36