The Prime Minister prepares to retire

Francis Beckett reports from an alternative universe

If you had watched closely as MPs processed to the House of Lords for the Queen's Speech on Wednesday, you may have spotted a faint smile playing around the granite features of Gordon Brown. Since almost everybody at Westminster believes that this will be the Prime Minister's final parliamentary session, the ultimate prize, Brown will have reflected, must now be within his grasp.

But he cannot be certain, since so much depends on where the present Prime Minister bestows his favours. Though it is widely assumed that he will back Brown, the PM, even over the lemonade and angostura bitters that are the nearest his doctors will allow him to get to alcohol these days, keeps his own counsel.

Over the past decade, John Smith - 64 last month - has established a mastery over the Labour Party not seen since Attlee. He could go on for ever, if it were not for his suspect heart. It's hard now to remember that before the 1997 general election his leadership looked distinctly shaky. The "modernisers" were furious at his lack of appetite for Labour Party reform. Nothing was done about Clause Four, or about the anarchic system by which any constituency party or trade union could get its pet motion on to the annual conference agenda.

Smith's 99-seat majority in June 1997 - the second-highest in Labour's history - silenced his critics. Privately, the modernisers claimed it could have been nearly twice as big if their prescriptions had been adopted, but 99 was good enough for most. It was enough for Smith to take a few instant decisions without much controversy, such as cancelling a now long-forgotten proposal to build a vast round shed in Greenwich, south London, which the Conservatives had planned as a symbol for the millennium, and for which nobody could think of a use.

The luckiest MP in that parliament was Michael Portillo. He hung on to his Enfield seat -and therefore his right to stand for the vacant Tory leadership - by just a handful of votes after three recounts. Portillo rattled the Prime Minister when, as opposition leader, he went all soft and liberal and cuddly, occasionally sniping at Smith from the left. Portillo even argued that the battle between left and right was out of date, and talked about something called a "Third Way". Labour's Home Secretary, Tony Blair, was put up to attack it - a clever choice, because he was the cabinet's chief moderniser. Blair, in an irritable speech, called the Third Way "vacuous".

Yet Labour was at times close to panic over Portillo's unexpected bid to be the Tories' Neil Kinnock. Blair was known to be frustrated at Smith's laid-back reaction. To the Prime Minister, however, it simply confirmed his instinct that Labour needed to be true to itself as the party that used state power to redistribute wealth - a road down which Labour could go much further than Portillo could hope to follow.

So the Chancellor, Gordon Brown, was persuaded, against his instincts, to agree to "hypothecation" - earmarking certain taxes specifically for schools and hospitals. Labour's pollster Bob Worcester - now back in favour after being excommunicated by Peter Mandelson in the Kinnock years - told Smith that the voters were willing to pay higher taxes if they could be sure the money was going to health and education.

The Education Secretary, Ann Taylor, tore down the distinctions between state schools. She ensured that every school was funded at the same level, and that none could select the brightest pupils. Relying heavily on a Prime Minister who thought education in the rest of the country should be run as it was in his native Scotland, she announced: "There will be no failures, and no schools designed for failures." But, to the disappointment of the left, private schools remained untouched.

The Health Secretary, David Blunkett, tore down the NHS "internal market", embarked on a hugely expensive modernisation programme, and grandly announced the end of health service rationing (a promise, it has to be said, which the government has not entirely been able to keep). The Agriculture Minister, Gavin Strang, disdaining the once-powerful farming and landowning lobby, forced farmers to increase the low wages paid to their workers, and put himself at the head of the movement to ban fox-hunting, which was passed into law just before the last election.

The Transport Secretary, Ken Livingstone, was Smith's bravest appointment, or his stupidest, depending on your point of view. So intoxicated was he with his cabinet status that, to Smith's consternation, he declined to return to London politics after the government had created a new structure of regional and local government, restoring real power to great cities such as London. The task of using the Greater London Authority's extensive tax-raising powers to transform the capital's transport and education went instead to Frank Dobson.

Livingstone is known to feel that Dobson's proposal to introduce no-go areas for cars in the capital is a step too far, but he has smiled politely about it ever since a magisterial rebuke from Smith's spokesman, the unflappable David Hill. The Prime Minister, said Hill, believes that "there is no point in regional government if central government keeps stepping in and telling it what to do". Livingstone hastily retreated to what he does best, upsetting the airlines by refusing a third runway at Heathrow, upsetting the car lobby with motorway tolls, and upsetting the left by allowing public-private partnerships to bring in some capital for his renationalisation of the railways.

The 1997-2001 parliament was generally a successful one for Labour. Some referred to "the Smith revolution", but the Prime Minister himself observed more modestly that "there were some changes which badly needed making, and we made them". It was enough, anyway, to get the government re-elected last year, though with a substantially reduced majority.

Smith's post-election cabinet changes were the most far-reaching he had undertaken. The Foreign Secretary, Jack Cunningham, the surprise success of the first term, was at last pushed into the "elder statesman" role he had resisted for so long. When he was summoned to Downing Street, he pleaded that he was only a year younger than Smith himself, but was met, according to reports, with Smith's kindest and most intransigent smile.

That interview was nothing to the torment Smith inflicted on his fellow Scot and protege Gordon Brown, now probably the most reluctant Foreign Secretary in British history, watching with quiet fury as Robin Cook sits in his old chair at the Treasury and moves with what Brown regards as imprudent haste to persuade us to join the euro.

But there was logic in it. Smith has not got on well with the new US president, who sees in the Prime Minister all the vices he attributes to louche, lazy, pinkish Europeans. Over the proposed war with Iraq, Britain has made common cause with the French, and George Bush blames Smith for his international isolation.

Brown will bring no fundamental policy change - the government has its eyes firmly on Brussels rather than Washington - but he will bring a new tone of voice. The reward for being deprived of the Treasury has been far greater independence from Downing Street than is granted to most foreign secretaries. These days, the PM is as likely to fly to the moon as to Washington.

And Brown may yet live to thank his old mentor for the move. It gives him the international stature that makes him seem even more fitted to be Smith's successor.

He will have the support of his old friend Tony Blair, now out of the running because his dislike of what he privately dismisses as "the Smith project" has become common knowledge. It will be no walkover, though. The hard left has no credible candidate of its own, but if it decides to bury its growing distrust of the newly promoted Environment Secretary, then Brown's old nemesis, Ken Livingstone, is the one minister who could mount an effective challenge.

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