Blair takes the battle beyond Clause IV

The new leader's biggest fight with Old Labour is virtually won. Donald Macintyre and Paul Wallace ask: What happens next?

One reason for Tony Blair's decision to inject some urgency into Labour's election thinking at the Shadow Cabinet last night is that he is the victim of his own success. It was always clear once the argument about Clause IV was over that his opponents both within and outside the party would turn to the issue of policy, or "where's the beef?" But that moment has come earlier than anyone dared expect. There are still battles to be won between now and 29 April over Clause IV, but the decision of the stubbornly old-Labour Scottish conference now makes a Blair victory next month a certainty.

The predictable, and traditionally Labour, response would be a rush of policy documents from every member of the Shadow Cabinet. But that is to misunderstand the Blair strategy: there will certainly be a development of policy this year, which we have speculatively outlined in the accompanying chart. And, after the Clause IV announcement last year, who can rule out a stunning surprise at this year's conference? But at present the message from the Blair office is less "let a hundred flowers bloom" than "no hostages to fortune". Much of the policy this year will speak to specific and difficult internal problems like regional government, grant-maintained schools and hospital trusts. Much of it will be incremental, building on past policies and themes. The economic document will not specify tax rates. And all of it will be tightly disciplined, under the control of Blair and the new Brown-Cook-Prescott triumvirate he set up last night.

For the stubborn view of the brainy young turks in Blair's circle remains that Labour's problem has never been a shortage of policies. Instead it needs, in chronological order: identity and self-belief (already transforming itself, they say, through the catharsis of the clause IV change); diagnosis of what one adviser calls the "hurts and hopes" of the British electorate; and prescription. "We've had policies coming out of our ears," said one senior Blair aide yesterday, "but policies are no good unless you have a story." Blair's message throughout the Clause IV campaign has been that ends should not be confused with means. But what applies to the 77-year- old party constitution also applies to a programme for government. After all, was not Thatcher's certainty in 1979 of what she wanted to do with the country matched by an equal determination to travel light towards that goal?

Last weekend's Dimbleby interview was an excellent example; Blair identified two goals: ending the growing problem of the underclass and modernising the industrial base. But he revealed little headline-making policy beyond a clear hint that a minimum wage target might be undesirable. Last night's Spectator lecture was not dissimilar. Policy references sparse and narrowly specific; but language on the duties of individual citizens breathtakingly unfamiliar in any Labour leader since the 1940s.

This is scarcely a wasted endeavour; the polls suggest that just as the clause IV campaign - in which the Labour leader has met 10 per cent of party members - has helped to connect Blair with his party, so this repositioning, according to the polls, is reconnecting the party with the voters. According to one party source, some voters in focus groups now refer unselfconsciously to the "new" Labour Party.

It is nevertheless important to stand back and recall that there are some big, prosaic problems ahead. The decision not to make advance commitments on tax and spending doesn't mean that it isn't an issue for the party this year, let alone next. What does Labour, having stamped itself as the low-tax party, say in response to possible income tax cuts in the November budget? Does it lamely approve them? Or does it first argue that they reflect the wrong priorities, risk the economic recovery and could be reversed as easily after an election.

One of the five themes currently circulating in the Blair office for the coming year, along with economic renewal, opportunity for the individual, community and social cohesion, and democracy, is leadership in Europe. But despite the excellence, and boldly pro-European rhetoric, of Blair's speech in the confidence debate this month, there is a lot to be filled in. Where does Labour, to take just one example, really stand on powers for the European Parliament? Even more intriguing are the issues that arise from Labour's support "in principle" for the single European currency, such as its long-held opposition to a truly independent European central bank? This could just be an issue for Blair in his important Mais lecture on 22 May.

And what of an independent Bank of England in the meantime? A Labour policy of independence for the Bank would give it a cast-iron anti-inflation policy; on the other hand its deflationary potential could precipitate an internal conflict which would make the Clause IV debate look like a WI coffee morning.

And that's not all: does Donald Dewar go public this year with some detailed thoughts on the targeting of benefits, the mechanics of basing the welfare state on a hand-up rather than a hand out - or is this too controversial to tackle so soon? And how to answer the West Lothian question now that English regional assemblies look inceasingly unlikely to be part of Labour's first term thinking?

But it isn't to underestimate the scale of these problems, or the potential tensions within the Shadow Cabinet over some of the possible solutions, to say that Blair is already showing himself more capable than any of his predecessors since 1979 of solving them. And his modernising mantra, not so different from that of the transfomational leadership of Margaret Thatcher between 1975 and 1979, remains intact: set the ideological compass and the policies will follow.

Donald Macintyre

Like the Fighting Tmraire, the rotting old hulk of Clause IV is due to be towed out to sea and sunk to the depths of history. But mists worthy of a Turner seascape continue to swirl round the shape of New Labour's economic policies - mists which the new Clause IV does little to dispel.

We know now what Labour doesn't stand for: old-fashioned commitments to public ownership and full employment. But what does it stand for in positive terms? Does New Labour have a new economic policy?

The Shadow Chancellor, Gordon Brown, claims the party has just that: "After 20 years of being on the defensive, we are now on the offensive." He plans to spell out Labour's new economic agenda in a series of keynote speeches this spring. These will pave the way for a crucial report this summer from the Economic Commission which is considering policy proposals for the autumn party conference. More than any other document, bar the manifesto, this is expected to set out Labour's economic stall.

Perhaps the most important of Mr Brown's speeches will concern the party's approach to managing the economy. How will it ensure inflation stays low? How will it prevent a boom-and-bust cycle? For all the Government's mistakes in the past 15 years, the issue of inflation, in particular, is one where Labour is likely to remain on the defensive in a world of trigger-happy bond and foreign exchange market vigilantes.

The party's present position is not far removed from the Government's anti-inflation approach which it hastily cobbled together in the wake of the ERM dbcle. Mr Brown insists that Labour will have a tough inflation target: "We have no intention of walking away from the current monetary arrangements" which have handed much greater de facto power to the Bank of England.

Yet these arrangements are described by one source close to the Economic Commission as "neither stable nor sustainable". If Labour wants to be bold, here is one way in which they could outflank the Tories. If it is in favour of a European Monetary Union whose centrepiece is an independent central bank, there would seem good reason to back an independent Bank of England in the run-up to a single currency. So it may be significant that Mr Brown is contemplating ways of making the Bank more accountable to Parliament -which would enhance its claim for operational autonomy.

This is one way forward for a party anxious to present convincing credentials on macro-economic policy to markets with atavistic suspicions about Labour, suggests Andrew Britton, director of the National Institute for Social and Economic Research. He believes the party is looking "for a way of tying its hands" in power to enhance its credibility. But the principal way Labour sought to bolster its credibility in the run-up to the last election was through backing entry into the ERM - hardly the most propitious of precedents.

No doubt that is why the Shadow Chancellor will be keen to stress in another of his keynote speeches that an inflation target must go hand in hand with one for growth. "A national effort" is needed to raise the sustainable rate of growth. All the problems with boom-and-bust cycles and bursts of inflation can be traced back ultimately, he argues, to the lack of quality productive capacity: "that's the great truth about the British economy".

Enter "post neoclassical endogenous growth theory", a phrase that captured the imagination of the tabloids, if not that of the public. One thing we may be sure about in Mr Brown's forthcoming speeches is that he won't be using those words lightly again. But the central idea - that increased levels of investment in education and infrastructure can lift the long- term growth rate - remains crucial to Labour's claim that it will be able to improve the supply side of the economy.

The trouble is that this emphasis on growth sounds hauntingly like another Mr G Brown, with resonances of the National Plan's objective of a 4 per cent growth rate in the mid-Sixties. You can hardly get more Old Labour than that. Gordon Brown may put his faith in investment and the supply side, where George Brown put his faith in planning and demand. But the harsh reality of the post-war period is that politicians of all colours have found it exceedingly difficult to raise the underlying rate of growth.

If growth cannot be relied on to square the circle, a Labour government will be unable to duck the harsh questions of priorities in public spending together with their implications for taxation and borrowing. This is one area Gordon Brown will not be covering in his spring speeches. We will have to wait until the manifesto - so goes the injunction from on high.

This self-imposed purdah may be understandable, given Labour's past burnt fingers. But it opens the field to damaging speculation about whether the party will be able to hold to the line of no increase in taxation. Andrew Britton of the National Institute warns that "this guessing may lead to more anxiety than is worth the game".

The Labour Party has shed many of its old beliefs. But it is far from clear that it has been able to find a genuinely new economic approach. Stealing your opponents' clothes on sound finance and market-friendliness and presenting yourself as the consumer's champion on competition may make for a better prospect in elections. But New Labour still has a lot of work to do to convince that it can combine this with left-of-centre radicalism.

None of this may concern Tony Blair unduly. The Conservatives ruled for 13 years on a compromise called Butskellism. He may be happy to settle for a plagiarism called Blajorism.

Paul Wallace