Politics - John Kampfner unmasks Gordon Brown's enemy

Gordon Brown's allies believe that Alan Milburn is cultivating the role of supreme reformer so that

Relations between Gordon Brown and Alan Milburn are, once again, toxic. The Chancellor and Health Secretary are embroiled in a battle not just over the provision of public services, but also the future of the Labour Party.

Brown is said to be still "hugely exercised" by the way Tony Blair's cohorts are trying to reinterpret the basic tenets of public service reform, using Milburn as a proxy. The Chancellor sees universal provision of healthcare being eroded by stealth and he is determined to resist it. He is even prepared to challenge what has been a given in new Labour discourse for almost a decade: that consumer choice is always a good thing, whatever the context.

The dispute over foundation hospitals, which burst into the open in July when Milburn revealed his battles with Brown in an NS interview, seemed to have been settled when the Prime Minister intervened in October. Blair secured a truce, but that was all.

In the next week or so, Milburn will publish a guide to the new type of hospital, which will be able to run itself, set its own pay rates, and borrow as much as it likes from private sources - although, in the one concession to the Chancellor, Blair has agreed that all borrowing remain on the Department of Health's balance sheet.

Milburn's prospectus will fire the starting gun for a new National Health Service, moving unashamedly away from the 1948 settlement. In January, ten or 12 of the 46 "three-star" hospitals will be named as the first foundation trusts. By April 2003, they will be operating in shadow form - even before the legislation has completed its passage through parliament - and by April 2004 they will be fully operational.

Brown is waiting to see the detail. He is anxious not just about the ramifications for the health service, but for what the changes say about the government's priorities. He believes a single, one-tier NHS provides not only more equity, but also greater efficiency. He believes that the large injection of funds into health and education needs to be given time to work, rather than ministers constantly tinkering with structures. And he regards the emphasis on "consumer" choice as a superficial interpretation of the role of the public sector. At a recent cabinet meeting, he warned of the limits of the market in public services.

Brown believes offering choice to patients, while a perfectly reasonable aim in itself, is diverting attention from the main task - bottom-up improvements across the board. "People want one good hospital, not a choice of three," says a government member close to Brown.

The battle over "choice" was obscured by the more public row about foundation hospitals. But during the Labour conference, I am told, it came to a head. Milburn had wanted to announce a major expansion of "patient choice" on the day of his conference appearance. Under a pilot scheme, which has been running since July, heart patients who have been waiting for more than six months are being allowed to choose where they want to be treated - within the NHS or privately.

Milburn announced that patients waiting for cataract surgery in London would be able to do the same. He had wanted to broaden the scheme much further, but according to one insider it was scuppered by Brown." The idea ground to a halt because the Treasury refused to give the go-ahead in time. The Treasury jealously guards the fact that they have to approve every initiative. I doubt Gordon would have stopped it if someone else had been in charge."

Brown argued that choice might be appropriate in limited specialist areas, but not for general hospital services. First sort out capacity constraints, he argued. His people make the comparison between the privatisation of the rail companies, which they see as beneficial in keeping costs down and providing competition, and the privatisation of Railtrack as a monopoly, which turned out to be such a disaster.

What particularly riles them is the tendency of Blairites to reduce the policy differences to easy labels - Brown "the consolidator", as distinct from "transformers" such as Milburn. The whole concept of investment for reform was, they say, created in the Treasury.

Brown's objections are described by the Blairites as a "constant irritant". Both Downing Street and the Health Department say the foundation hospitals argument has been won. They say that, as with specialist schools, the new self-governing hospitals will become the norm, rather than the exception, so that concerns about a "two-tier" health system will over time become redundant. They argue that they are just as committed as Brown to tackling health inequalities, but that a uniform service built on a 50-year-old model has failed in that task.

"We're proceeding full steam ahead, with the endorsement from the top," says one aide, pointedly noting the close relations between Blair and Milburn.

There is more to this dispute than the deeply held differences in philosophy towards the public services. Some of the Chancellor's friends suspect that Milburn has cultivated for himself the mantle of supreme reformer as a first step in an attempt to challenge for the leadership whenever Blair stands down.

They believe that the modernistas around Blair are happy for Milburn to take this role, and if that needles Brown, all the better.

There has long been an assumption that Brown's adversaries would rally around a single candidate. The only two other possibilities among the current generation (there are several in the next generation coming up) are Charles Clarke and David Blunkett. The Blairites' money is now on Milburn.

This may account for Milburn's confidence in taking on the Treasury. By contrast, relations between Brown and Blunkett are said to have improved markedly. Since taking over as Education Secretary, Clarke, too, has made an effort to get on with the Chancellor, with whom there has been little love lost in the past.

The Milburn-Brown froideur is different from the cabinet rivalries Brown has previously had. With Robin Cook and Peter Mandelson, the tensions were a carry-over from arguments rooted in the past. Between the Chancellor and the Health Secretary, that argument has only just begun, and it is rooted firmly in their plans for the future.