City & Business: It's a big, bad world - so let's change it

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NOT LONG after I moved to London from New York 16 years ago, my wife and I developed the habit of dropping off our four-year-old son at my mother-in-law's Friday nights, then going to a film. Tom loved it. My mother-in-law, Joan, worked as a housekeeper in the City. Tom did the rounds with her as she checked the offices in her building, twirling himself around in the chairs of various chief executives as she did so. Then he settled down beside his grandmother with chocolates and fizzy drinks for an evening of ITV.

Christmas morning each year the three of us would drive from our politically correct household in Islington through the empty City to my mother-in- law's building in the Minories. City housekeepers' flats fill to the gunwales at Christmas. Gigantic boxes of Black Magic. Crates of booze. Other more elaborate gifts as tenants say their annual thank- yous. Each year as I ducked under the strings of business Christmas cards criss-crossing the ceiling, I would stop and absorb the spectacle of this overstuffed flat with my Puritan American eye and fail to come to terms with it - fail to come to terms with my British working-class in-law.

Eventually Tom outgrew his Friday night visits to his grandma. Several years ago Joan retired as a housekeeper and moved from the City to Canvey Island. This year we made no Christmas visit to her home. My wife, son and I went skiing in Meribel with two other families. It was in a tabac in Meribel that I read about Peter Mandelson borrowing pounds 373,000 from Geoffrey Robinson to buy a fancy house.

At first I thought: You idiot! Aren't you just New Labour to the core? Talking about modernising Britain in one breath, then with the next moving out of your flat in Clerkenwell into the nest of luvvies in Notting Hill. One of the men with whom I was skiing is a working-class boy made good as an NHS pulmonary specialist. The day before the news about Mandelson's loan broke, we were talking about New Labour. The doctor reluctantly accepted the logic of New Labour's economic policies. But still he could not stomach the New Labourites. They were, he suggested, too quick to take the agony of decades of class struggle on which Labour is founded and sweep it under the rug.

On the slopes the next day I wondered how the news had broken and began thinking about treachery. It was easy to suspect that someone in Chancellor Gordon Brown's camp, or one of Mandelson's other enemies in government, had leaked word of the undeclared loan to the Guardian. When I returned to London on 28 December, the news was going the same way. It seemed a given, in the way crucial facts here bubble up without ever actually getting reported, that Brown spin-doctor Charlie Whelan had done the deed on the Prince of Darkness.

THEN on Wednesday I read an interview with deputy prime minister John Prescott in The Independent. He called for a reversion to Old Labour values. Substance rather than rhetoric. What, he wondered, was so bad about a little more old-fashioned Keynesianism? What was so bad about a little more public spending?

Jesus, I thought. New Labour's project ends here. The effort to learn from the mistakes of the past really is going down the plug-hole. The Government really is going to tear itself apart. New Labour is performing open heart surgery on itself, and the patient is going to fall victim to internal feuding.

On Thursday Prescott went on Radio Four's Today programme. He lashed out at the media for twisting his words. He pledged everything short of his bare behind to Tony Blair. But he sounded as if someone had poured boiling water on his head and told him to shape up. He sounded unhappy. His charm - that signature mix of cunning calculation and fast-patter, blokey down-to-earthness - seemed forced and unconvincing.

As I listened to Prescott I imagined the series of conversations leading up to the interview: Prescott and Brown agreeing that Mandelson was a wanker. The former ship's steward and the son of the Church of Scotland minister agreeing that Mandelson had not the least inkling of the blood, sweat and tears upon which the Labour Party was founded. I imagined the two Cabinet ministers tacitly agreeing to create a new New Labour project. Prescott would confer the bona fide working-class instincts. Brown would provide the economic policy. I imagined the two men in their innocence and treachery shaking on this pact then bracing to face Tony.

Then I imagined Tony on the phone to John from his holiday encampment in the Seychelles pointing out home truths. Like, the mess the Government had landed itself in threatened everything for which the Party had been working since 1979. Like, the new New Labour project - however honestly felt - was founded on an act of treachery.

I believe in the fundamental thrust of New Labour: lift the trend line of economic growth in the UK by making better use of more of the country's human capital; and use a higher rate of economic growth to modernise the welfare state and so create a virtuous circle of prosperity underpinned by a greater sensitivity to social justice than the markets-rule-all philosophy of the past 20 years.

But Bill Clinton was elected US president in 1992 on a variant of this theme, and look what happened to him. Why shouldn't New Labour's project end badly, too?

WATCHING Rory Bremner's savagely funny satires of Blair, Brown, Cook, the Millenium Dome and New Labour on Channel 4 on New Year's Eve, I wished I could be savagely funny rather than po-faced and earnest about economics. After all, haven't the events of the past 10 days justified a savage, satirical response to New Labour's pretensions?

But then I thought savage satire is the easy way to go. It's the response to events created by the best minds of the Sixties - one that has become ritualised, if degraded, since then. I also thought about my mother-in- law on Canvey Island - watching not Rory Bremner but Stanley Baxter in Person then Happy New Year from Edinburgh.

The New Labour project is about reconciliation - reconciliation, among others, of me, the politically correct hack, with my Thatcher-supporting mother-in-law who grew up working in clogs in the Lancashire mills. In policy terms this project is difficult but imaginable. Modernise the welfare state. Minimise its drain on the exchequer. Maintain a sufficiently decent standard of public services so the middle class stops opting out.

At the level beyond policy, however, New Labour's project is difficult beyond imagining. Break down the boundary lines dividing society - the lines endlessly turning this society into one based on the principle of exclusion. I exclude; therefore, I am.

Given the breathtaking ambitions upon which New Labour's project rests, it is hardly surprising there should be backsliding. Continued alienation between not only me and my mother-in-law but also Mandelson and Prescott is far easier, certainly more reassuringly familiar.

The surprising thing is that Blair has hoicked up out of nowhere to even attempt such reconciliation. The bookmakers have to give him long odds. But do we really want to give up yet? My New Year's Resolution is to go to Canvey Island more often and, in the company of the woman who made a life for herself in spite of steep odds, to talk about everything - business and economics included - more openly.