Mandelson fires his cruise missile

His little black book contains a list of telephone numbers and favours to call in. He will need it now

AS THE bombs fall on Baghdad, another battle of wills is being fought out closer to home. It may not be in quite the same league as Clinton v Saddam, but the Westminster skirmish between Peter Mandelson and Gordon Brown has the potential to escalate into all-out war.

This week the Secretary of State for Trade and Industry fired another salvo in the shape of his White Paper on competitiveness. It was an attempt to wrest back the high ground from the Chancellor, who is intent on making Mr Mandelson play second fiddle wherever the economy is concerned. He has, for instance, decided that the Treasury, not the Department of Trade and Industry, should lead the Government's drive to raise productivity levels in British industry.

As a retaliatory strike, Mr Mandelson's White Paper partially hit the target. He has coined the idea of "the knowledge-driven economy" and is determined that the DTI should be in the vanguard of the move to turn that concept into reality, with a spot of pump-priming here and a taskforce there. The DTI is launching a fusillade of new schemes to beef up Britain's science base, get inventions out of the laboratory and into commercial use and reform the regulatory climate so that it is pro-competition and entrepreneur-friendly.

Of course the Chancellor saw to it that Mr Mandelson was not able to keep all his powder dry for this week's White Paper. Many of the initiatives were carefully trailed in Mr Brown's pre-Budget statement last month, to the anger and frustration of the Mandelson lobby.

The origins of the mutual antipathy are said to go back to the 1994 Labour leadership contest, when Mr Mandelson switched horses and backed Tony Blair, not Mr Brown.

Whatever the truth, the antagonism runs deep and it is fuelled on a regular basis by the Chancellor's press secretary, Charlie Whelan, and his economics adviser Ed Balls, who is known in Mandelson circles as Mr Brown's "FT- trained gorilla".

Relations between the DTI and the Treasury are said to be "workmanlike" at official level. But the further up the respective departments you go, the frostier becomes the atmosphere, until you reach the offices of Mr Mandelson and Mr Brown, where the air is positively glacial.

For an example of how vicious the hand-to-hand fighting can be, you need to go back no further than the Post Office review earlier this month. A senior Brown aide, generally assumed by the DTI to have been Mr Whelan, told the Daily Mail that Mr Mandelson's package of reforms was "garbage and rubbish". The source went on to accuse the Trade Secretary of "bottling out" under union pressure by not privatising the organisation.

Not surprisingly, this version of events is alien to the DTI. In fact it is rather the other way around. Mr Mandelson met the Chancellor the day after he began his new job at the DTI and asked Mr Brown what his view was on the Post Office. He replied that the sale of any shares, even a minority holding, was out of the question because of its political sensitivity.

Far from "bottling out", it is also known that Mr Mandelson had to fight Mr Brown every inch of the way to secure even the limited commercial freedoms the Post Office will now get. The Treasury had wanted to put "the most appalling hurdles" in the way of the Post Office's ability to borrow, and at one stage suggested that all investment decisions be authorised by a committee chaired by the Prime Minister.

Finally, Tony Blair had to be called in to "dig a tank trench to repel the Treasury" as one senior figure at the DTI put it.

The episode is instructive. Mr Mandelson's predecessor at the DTI, Margaret Beckett, enjoyed no such patronage. A remnant of old Labour, she too often found herself on the wrong side of the argument in Cabinet.

The result was that when Mr Brown's tanks began advancing, she had no way of reinforcing her defences with the help of the Prime Minister.

Mr Mandelson comes from a different tradition. His critics may accuse him of lacking any fixed political abode, but he is one of the architects of New Labour and has the ear of Downing Street. His little black book contains a list of telephone numbers and favours to call in.

He will need it. For all his powers of persuasion, Mr Mandelson knows that the levers of power lie elsewhere. The DTI's budget is modest, even though it has wrung an extra pounds 1.4bn out of the Treasury for science, while privatisation has robbed it of the power it once had as a sponsoring department for vast industries.

Officials still recall with a chill how Nicholas Ridley walked through its glass-fronted doors a decade ago and asked what the department was for.

If Mr Mandelson's vision of a knowledge-driven economy is to be realised in full, it will require important changes in the education system, in Britain's planning policy and, ultimately, in taxation. But education is the province of David Blunkett and planning rests with John Prescott, while tax, of course, lies with the Treasury. One reason, perhaps, why it rated just one short paragraph in a 66-page White Paper.

The DTI is Mr Mandelson's first "proper" job in Cabinet. But perhaps he has his eyes set ultimately on the Chancellor's office. In the meantime expect plenty more combat.