The End of the Party

by Andrew Rawnsley

  Some members of the Cabinet took sides; others just tried to keep their heads down. As Stephen Wall puts it: ‘Ministers would think to themselves: either I please Tony or I please Gordon, what is the safe thing to do? The safe thing is to do nothing.’151

  The same was true of civil servants. ‘All the Permanent Secretaries were like the fourteen-year-old children of parents who are divorcing. They were all trying to work out whose side they should be on.’152

  At the beginning, neither would probably have achieved alone what they did together. They were more than the sum of their parts. Two great political talents then squandered a lot in the struggle for supremacy. By the end, they were less than the sum of their parts. They could not kill each other, but the war between Blair and Brown did maim their project and wound their Government. Neither achieved as much as he might have done; nor did New Labour as a whole because so much time, talent and energy was consumed by the perpetual struggle.

  In the run-up to the Budget in the spring of 2002, there were the usual games beforehand and vital elements of the package were not divulged to Blair until just before it went to the printers. When Brown sat down to the cheers of Labour MPs, Blair nevertheless thumped him on the back in a show of congratulation. After the restraint of the first term, the spending taps were being turned on to pour unprecedentedly large sums into the public services. The NHS was awarded annual increases of 7.4 per cent above inflation over five years. Famine was followed by feast. Even Derek Wanless, the banker whom Brown had commissioned to write a report to roll the ground, concluded that these huge sums were at the extreme limit of what could be sensibly managed. A few voices cautioned that this would not be sustainable in the longer term should the economy ever turn down. But Brown confidently proclaimed in that Budget, as he did so often, that he had abolished ‘Tory boom and bust’.

  This big surge in spending on the NHS was partly funded by an increase in national insurance contributions. Brown had put up taxes before, but furtively, as if raising money for the public realm was shameful. This time he did it openly, which marked a break with their earlier taboo about arguing for explicit tax increases to fund services. Both Chancellor and Prime Minister were very nervous of public reaction. Blair even fretted: ‘This could cost me the next election.’153 To their huge relief, post-Budget polls indicated that the voters overwhelmingly approved of raising tax to improve the NHS, a very rare instance of a tax hike being popular. At the first Prime Minister’s Questions after that Budget, not a single Conservative MP stood up to attack the national insurance increase. The Conservatives were put on the intellectual defensive and felt compelled to sign up to Labour’s spending plans, a significant shift in the terms of trade between left and right.

  Several European social democratic governments were thrown out of office in 2001 and 2002. Blair was convinced that this was because ‘they had not modernised enough.’154 For New Labour to avoid the same fate, the extra resources pouring into public services had to be accompanied by radical reform to bring them up to the promised ‘world class’ standard. ‘It is reform or bust!’ he cried in one typically hyperbolic speech.155 One of the most Blairite members of the Cabinet put it this way: ‘We have this huge majority. The Tories are nowhere. If we don’t transform public services, there is no excuse for us.’156

  Geoff Mulgan, the head of the Number 10 Strategy Unit, saw Blair ‘impatient with the pace of reform’.157 This was partly frustration with himself for not making a bolder, quicker start. ‘The first few years were rather wasted,’ says Sally Morgan, and it was only now that Blair acquired ‘a clarity about the level of reform that was needed’.158 Sir Michael Barber was in charge of a Delivery Unit tasked with driving through change.

  The Prime Minister increasingly came to realise that you couldn’t improve public services to the level that he and the public wanted simply by driving them from the centre through bureaucratic fiat. They could only be improved by offering choice to the users of the service and diversity among the providers. That’s why he got into choice because then the patient or the parent is driving the service and it becomes self-sustaining.159

  Blair explained himself to me that autumn: ‘We will not maintain public services and the welfare state unless we radically recast them. Every great radical Labour government was in its time a change-maker, wasn’t a preserver of the status quo.’ The days of ‘monolithic, one-size-fits-all services’ were over. ‘There’s no way that you can have a 1948 national health service able to provide the quality of service that people want in today’s world.’

  If they failed to reform, ‘people will say: “You’ve put all this money in, it hasn’t delivered the change we wanted, so we’ll go for the Tories”, who will take the money out and chuck it into the private sector.’160

  The choice and diversity agenda for public services put Blair on a collision course with a significant section of his party and with his Chancellor. ‘The running sore was public sector reform,’ says the Number 10 official Tom Kelly. ‘Education, health, pensions, you name it. On any kind of reform, the first issue was: how do we square Gordon?’161 The battleground in 2002 was the NHS. For Blair, what mattered most was what it delivered. For Brown, the health service was defined more by the people who worked in it. ‘Deep in Gordon’s psyche is the saving of his eyesight and deep gratitude to the NHS for that,’ says Andrew Turnbull. ‘He was much more committed to the NHS as an institution. Tony was more consumer-focused.’162

  Brown’s Budget speech pointedly did not mention the creation of new ‘foundation hospitals’ which Blair and his ally Alan Milburn saw as ‘the battering ram’ for reform of the health service.163 Milburn, like many of the New Labourites, spent his early political career far to the left of where he ended up. He was brought up by a single mum on a council estate in a north-eastern mining town. It became his passionate preoccupation that Labour had for years let down the people it was supposed to be most dedicated to helping. Someone from his background, he would often say, could no longer hope to reach the Cabinet. His flashy suits and a swaggering hairstyle could make him seem less thoughtful than he was. For too long, Milburn believed, the benefits of choice had been enjoyed only by the middle classes. Public services expected the less affluent to simply put up with what they were given. He made the case in left-wing terms, arguing that ‘in Britain we have allowed choice over schools or health provision to be the exclusive preserve of those who can pay directly.’ The answer was to break with the ‘overly centralised, paternalistic’ model and allow ‘choice and diversity of provision’, as was the case in social democrat Scandinavia.164

  The idea was to give much more autonomy to hospitals. ‘If you’re going to genuinely get what is needed, which is local public services to improve their performances, then they’ve got to own responsibility.’165 They would also diversify the providers of services by extending the use of the voluntary sector and private companies. The theory was that freedom would encourage innovation, extend patient choice and pump up performance. Milburn envisaged the best hospitals being treated more like universities and enjoying a similar degree of control over their finances.

  This aroused the implacable opposition of the much more statist Gordon Brown. The Chancellor attacked on all fronts. Elite hospitals threatened to create a ‘two-tier’ health service, he argued. He was not against the use of private capital, having been the progenitor of the Private Finance Initiative, but he had a traditional Treasury objection that giving hospitals financial autonomy would weaken the Chancellor’s control over spending. What if a foundation hospital went bust? The Government would end up picking up the pieces. This was the weakest brick in Milburn’s proposals so Brown kept smashing away at it. ‘Gordon just dug his heels in,’ says the Permanent Secretary at the Treasury, Andrew Turnbull.166

  There was a temperamental aspect to this clash. ‘Gordon is intrinsically more cautious,’ observed a member of the Cabinet. ‘Tony is more swashbuckling and flamboyant.’167

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nbsp; Brown also saw this battle as a means to make himself more popular within the Labour Party at Blair’s expense. The Chancellor’s opposition to the NHS reforms, says one of his own inner circle, ‘allowed him to play to a constituency’.168

  It was also a raw issue of control. ‘Gordon wasn’t necessarily against reform. He was against any reform proposed by Tony. It was about authorship as much as anything,’ later reflected one senior New Labour figure.169 Brown did not offer much by way of an alternative vision or theory of reform. He just knew what he didn’t like. What he didn’t like was anything coming from Blair. ‘Gordon thought Tony was shallow,’ observes one of the Treasury ministers of the time. ‘By definition, any idea coming from Tony had to be reckless and unworkable because it was Tony’s idea.’170 Brown would tell his friends that ‘Tony doesn’t think more than an inch deep.’171

  At a reception at Number 11 that summer, the Chancellor called his guests’ attention to the portraits of Gladstone and Disraeli that they passed on their way up to the state room on the first floor. Such was the iron certainty of Gladstone, ‘it was said that people left him thinking they had just been listening to the wisest person on earth.’ Such was the dazzling charm of Disraeli, ‘people left him thinking they were the wisest man on earth.’172 With Brown, even the jokes were not to be taken lightly. He was implanting the notion that he was the deep and principled Gladstone and the smiler who lived next door was the shallow and convictionless Disraeli.

  That July, the Chancellor presented a three-year spending settlement which he boasted was the most sustained investment in public services ‘in a generation’ and which Blair hailed as yet another ‘defining moment’.

  Behind the scenes, their struggle over the health service intensified. The battle stirred together a potent brew of personal antagonism, political ambition, ideological difference and technical argument. Both sides saw this as a high-stakes struggle for how the Government would address parallel reforms in education, housing and transport. Brown’s aggression was spurred on by Ed Balls. In the words of one of the Chancellor’s aides: ‘Ed said ad nauseam to Gordon that he could not afford to lose this battle.’173 On the account of members of the Brown camp, they took ‘inflammatory actions to ramp it up’, even going so far as to supply rebel Labour backbenchers with information which could be used to damage the Prime Minister and his flagship reform.174

  Alan Milburn fought back. He was a ‘take-no-prisoners type’ – just like Brown himself.175 The Health Secretary bragged to friends that he was adopting a ‘flying fuck strategy’ towards the Chancellor, as in ‘I don’t give a flying fuck what he thinks.’176

  Though Blair urged him not to do battle with Brown in front of colleagues, the Health Secretary took on the Chancellor at Cabinet. Milburn said: ‘If it is good enough to devolve power over the economy to the Bank of England, it is surely good enough to devolve power to independent hospitals.’ Brown growled back, unable to see Alastair Campbell sitting behind him giving the thumbs up to Milburn. This was not because Campbell was interested in the policy, but because he enjoyed seeing one of the Cabinet sticking it to the Chancellor.177 That summer Milburn placed an inflammatory piece in The Times which framed the conflict as a struggle between radical ‘transformers’ and reactionary ‘consolidators’. Milburn was positioning himself as the leader of the bold ‘transformers’ and casting Brown as the backward ‘consolidator’.

  Brown was infuriated to be portrayed as a dinosaur. He raged to his circle: ‘Fucking Mandelson is behind this!’178 His deadly enemy was out of the Cabinet and it was almost universally assumed that he could never return. Yet to Brown ‘Peter’s hand was seen behind everything.’ The Chancellor viewed Milburn ‘as a puppet on Peter Mandelson’s strings’.179 This perception was not accurate, but it was highly illustrative of Brown’s state of mind.

  For months, he was in and out of Number 10 or yelling down the phone complaining that Mandelson was plotting and demanding a gag on Milburn. When Blair refused, Brown escalated the conflict. In September, on the eve of the Labour conference, the Chancellor produced a fifty-page document tearing into foundation hospitals and had it copied to the entire Cabinet. In the context of the Blair Government, this was an extraordinarily belligerent act. Though it had been common in previous Cabinets for papers to be circulated, it was virtually unheard of in this one. Brown was notorious in the civil service for not wanting to commit himself to paper. So Number 10 assumed that the document could only have been produced with the intent to leak it to the press in order to discredit the health reforms, damage the Prime Minister and destroy the Health Secretary.180 Blair told his officials to ring round departmental private offices and order them not to show the paper to their ministers. Some Cabinet members had already got Brown’s document. They were instructed to pretend that they had never received it. The battle between Blair and Brown had reached the surreal stage where the Prime Minister was secretly ordering the shredding of a document produced by his Chancellor.181

  By the party conference, this battle was noisily unrestrained. In his speech on the Monday, Brown spoke of a historic rebuilding of the welfare state based on traditional Labour values. Ed Balls was explicit in briefings to journalists about the Treasury’s dissent from the direction being pursued by the Prime Minister. In his riposte on the Tuesday, Blair told his party why radical reform was imperative. ‘At our best when at our boldest’ was the striking line from his speech.182 One of Blair’s aides confidently told me afterwards: ‘We’ve dealt with all that Gordon bollocks that he’s the lord of the domestic agenda.’183 This turned out to be something of a feint. It was often the case with Blair that he sounded the bugle of advance most loudly when he was trying to cover a retreat. By now, not least because of the aggressive spin and counter-spin from the two sides, the row was all over the press. Blair was alarmed by that and increasingly diverted by the looming confrontation with Saddam Hussein. Milburn’s position was undermined because the argument came to a head a fortnight after the collapse of Rail-track. This bolstered Brown’s contention that the state would always end up bailing out nominally autonomous institutions that went broke. What would happen if a hospital went bust? ‘Milburn hadn’t got an answer,’ says Andrew Turnbull. The Cabinet Secretary was brought in to draft a ‘peace treaty’. Being a former Treasury man, Turnbull believed Brown to be ‘intellectually right’ about not allowing hospitals control of their borrowing.184

  The Sunday after the conference, Milburn got a call from Blair. ‘Oh God, this is out of control,’ groaned the Prime Minister. ‘We’re going to have to reach a compromise.’ The Health Secretary was angry: ‘You must be fucking joking.’ He knew he would look humiliated at the hands of Brown. Blair insisted they had to make concessions. ‘Fine,’ said Milburn. ‘But understand you’ll not get the full benefit of the reforms.’

  The warring parties were brought together in Blair’s den a few days later. John Prescott, a natural ally of Gordon Brown in this sort of argument, was slumped in an armchair, his belly cascading over his trousers. Blair, looking tense, sat in an upright chair. Brown and Milburn sat beside each other on the sofa, radiating mutual contempt.

  ‘I know what this is fucking all about,’ said Milburn who was convinced that Brown was politicking to hurt a rival and curry favour on the left. ‘You know what it is fucking all about.’

  Brown barked back: ‘You shouldn’t have fucking done what you did in the summer.’185

  A compromise was eventually reached. Blair and Milburn won on the principle that the best performing hospitals should be given much more independence to manage their own affairs. Brown was not obstructive about the plan for a steady increase in the number of NHS operations being delivered by the private sector. But the Prime Minister caved in to his Chancellor on the crucial question of the central control of budgets.

  ‘Alan was annihilated,’ in the view of one sympathetic member of the Cabinet.186 ‘Gordon just dug his heels in and won,’ observes Turnbull.187
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br />   Blair soon came to believe that this retreat was a mistake. He told Milburn so. ‘Within a matter of months, it was a compromise that Tony regretted.’188 The Prime Minister would kick himself for his weakness in front of Peter Mandelson, who says: ‘He regretted not standing by Alan Milburn in seeing through those reforms. He shouldn’t have retreated, he shouldn’t have stepped back in the way that he felt forced to do.’189 The message, damaging for the Prime Minister, was that colleagues could not rely on him to stand steady under fire in a hot battle with the Chancellor. For Blair’s closest allies this was a much too typical example of him flinching in a power struggle with Brown.

  Cherie continued to be a nagging voice in her husband’s ear telling him to sack his mighty and predatory Chancellor. By now, though, even she was beginning to see that it was advice that he was never likely to follow.

  ‘Her anger was an anger which knew it wasn’t going to be satisfied,’ says Barry Cox. ‘She knew it wasn’t going to happen.’190

  Even as the umbilical cord between him and Gordon Brown throttled his premiership, Tony Blair did not feel psychologically or politically strong enough to sever it.

  Moreover, he was increasingly preoccupied by the relationship with a different GB, one who was even more powerful than Gordon Brown.

  5. Oath of Allegiance

  ‘Look,’ Tony Blair told his agitated Cabinet, ‘I do want to assure you that the management has not lost its marbles.’

  At the meeting around the coffin-shaped table in Number 10 on Thursday, 7 March 2002, there was a sudden eruption from his senior colleagues which caught the Prime Minister by surprise. It was not so much an outburst of dissent as a spasm of anxiety. Many ministers, and not just those Blair found habitually difficult, wanted to put down markers of their concern that they were being pulled towards a war in Iraq. David Blunkett, usually a reliable ally to the Prime Minister, went over the top first. The Home Secretary worried that a conflict would inflame tensions between Muslims and non-Muslims in Britain.