A long goodbye: the inside story of why Blair chose to go on

After the extraordinary events of last week the Prime Minister solved some of his short-term problems by vowing to seek another full term. But with an angry Chancellor and others wishing he would quit, has the pain merely been postponed? Andy McSmith and Francis Elliott reveal the PM's thinking

It was a relaxed, cheerful-looking Tony Blair who left Downing Street yesterday for a quiet weekend in Chequers. Dressed casually in jeans, blue open-necked shirt and blazer, the Prime Minister grinned broadly at the reporters and photographers penned in behind the barrier across the road, and called to them that he was feeling "excellent".

On the telephone to close colleagues, the reinvigorated Prime Minister used a different word to describe himself. He told them that he was a "liberated" man.

In his speech to the Labour conference last week, Tony Blair had a good-humoured dig at journalists who habitually report that he is facing his "toughest week". He told delegates: "Here we are again: my toughest week yet, since the last one, until the next one."

Actually, last week could not by any stretch be described as Tony Blair's "toughest". The simmering friction between him and the Chancellor, Gordon Brown, did not break out into the open; after much wheeler-dealing, conference delegates were persuaded not to issue an embarrassing call for troops to be pulled out of Iraq; the Prime Minister dealt smoothly with the hecklers who interrupted his own speech; and Labour just managed to avoid a by-election disaster in Hartlepool. Then on Thursday evening, Blair managed to spring a genuine surprise with his announcement that he intends to stay until the general election after next - but no longer.

It would be true to say that the Prime Minister has had an exceptionally trying year, particularly the spring and early summer, as he wondered whether he could ever shake off the shadow of Iraq and asked himself how long he wanted to carry on.

The surprising part of Thursday's announcement was not that he intended to carry on through the next Parliament. The Independent, for instance, had forecast it a week earlier. But no one had foreseen that he would publicly put a time limit on his own time in office - the bombshell prompting the "lame duck" jibe.

One of those closest to Tony Blair said: "People will see as the dust clears that this is a liberating situation for a Prime Minister to be in, and it has actually put him in a strong position because he is free to act as he believes. And it's not about him and his ambitions any more; it's about what is good for the Government and the country. If he had said he was going on and on, people would have said it was arrogant, especially in the current climate." A small number of advisers and trusted colleagues knew that the Prime Minister had a hospital appointment on Friday, that the Blairs had been house-hunting, and that he had made up his mind what to say about his long-term plans.

They included one Downing Street adviser who nearly blurted out the secret at about 2am on Thursday, after spending several hours at a convivial party thrown by the Daily Mirror on the last evening of the Labour Party conference, where the drink was plentiful and free and a band named The Commitments was blasting away at one end of the room.

When it was suggested to him by a fellow reveller that he looked a little tense, the adviser remarked: "If you knew what I know, you'd know why I don't look relaxed." If he recalled saying those words when he woke up later the same morning, he must have wanted to bite off his tongue in mortification.

Despite that indiscretion, the three grandees of political journalism - Andrew Marr of the BBC, ITN's Nick Robinson and Adam Boulton of Sky - turned up at Downing Street early on Thursday evening, unaware that they were being offered anything more than a routine post-conference interview with the Prime Minister.

After their camera crews were all set up and ready for action, the three were called aside by Tony Blair's press secretary, David Hill, handed a doctor's statement about the Prime Minister's heart condition, and told what he wanted to say.

He had made up his mind during the August holiday that he would stay in office for the duration of the next Parliament, assuming Labour is re-elected, but no longer. The Prime Minister had decided not to declare his intentions during his conference speech because he wanted the theme of the conference to be the Government's plans for the next five years, rather than his own future.

With the conference over, the announcement could not be delayed any longer. Mr Blair feared the hospital visit would trigger another round of speculation that his premiership was drawing to a close. He also knew that, having secretly exchanged contracts on a £3.6m house in Connaught Square, London, the previous June, and being about to complete, he couldn't keep the deal secret any longer. In fact The Independent had learned of it on Thursday morning. The news was bound to rouse suspicions that the Blairs were expecting to move out of Downing Street.

However "liberated" Mr Blair may feel by Thursday's cathartic announcement, he could quickly become a prisoner of political circumstance. Not only is his authority bound to fade the closer he comes to his stated departure date, but Mr Blair will probably find it increasingly difficult to recruit cabinet allies for his more radical proposals. "Which potential leadership candidate is going to help to push through unpopular market reforms?" asked a close ally of Mr Brown last night. "Nobody who wants to challenge Gordon is going to want to take on the unions and the constituencies. His third-term programme is going to be hobbled from the start."

Much, of course, will depend on the size of a third-term Labour majority. Smaller than 100 and Mr Blair will struggle to force through another dose of reform in the teeth of internal opposition. His difficulties on public service reform pale into insignificance against the hurdle represented by the issue of the European constitution, however.

One minister predicted a referendum on the issue within 18 months. "We don't want any chance of it becoming seen as a mid-term referendum on the Government, so the thinking is to have it as soon as possible after the election," he said.

The position of Rupert Murdoch, an avowed opponent of the constitution, is becoming critical in this regard. Mr Murdoch's media stable may begin to shift allegiance away from Mr Blair as his time runs out. Mr Brown's allies point to a recent article by Irwin Stelzer, Mr Murdoch's go-between, as evidence that the tycoon may be preparing to switch to his cause. Although critical in part, the article was full of praise for the Chancellor.

The flirtation may well blossom into something more in the course of a referendum campaign on a European constitution. A number of Labour MPs are already committed to campaigning for a "no" vote and more may join if they sense an opportunity to drive Tony Blair from office.

A hard core cannot wait even that long to chase him from Downing Street. Peter Kilfoyle, the former defence minister and long-standing critic of Mr Blair's Iraq policies, said: "There has been for some time a body of opinion which wanted to trigger a challenge to Tony Blair. It wasn't enough. Whether it is now, in the light of Tony Blair's declaration, we will find out when we get back to the House."

Tam Dalyell, MP for Linlithgow, repeated his calls for a challenge. "Ten years as the leader of a political party in Britain is long enough," he said. "I'm very open about it. I want a change of Prime Minister."

The unhappiness about Mr Blair's pledge to serve another four or five years was not limited to the "usual suspects", however. Soundings of Labour backbenchers taken by The Independent on Sunday identified significant unease on the question of Mr Blair's authority after the next election.

David Kidney, MP for Stafford, agreed that Mr Blair could become a "lame duck" premier. "It all depends on the third term. These referendums on Europe do make for a lot of uncertainty, so you can't take anything for granted."

Jim Knight, MP for South Dorset, said: "It depends on the size of his majority in the Commons. If it's a reasonable size, factions won't be able to wield undue influence, and his authority would hold. If it's not, there might be trouble."

One MP willing only to be identified as serving a constituency in the East Midlands said: "I am very disappointed because the party needs a change of leader sooner rather than later. For the forthcoming elections it might now be too late, but after the elections I would like to see a change in leadership."

Stephen McCabe, MP for Birmingham Hall Green, was critical of the announcement itself. "I think it was completely pointless," he said. "Rather than stopping speculation it stirred it up."

The biggest question of all is where this leaves Tony Blair's troubled relationship with his Chancellor. To the catalogue of grievances and frustrations logged by the Chancellor in the past year, there is now the fact that he did not know about Tony Blair's announcement until he stepped off an aircraft on Thursday in Washington DC, where he had flown for a meeting of the International Monetary Fund. To add to his exasperation, it was leaked out that there were others who had been in the know for as long as three weeks. "This claim about who was in the know and who wasn't - this is just the usual stuff being used to divide the Labour Party," one ally of Mr Brown claimed.

It was so very different from what the Chancellor and his circle had hoped for and expected. They thought that Mr Blair's conference speech would be his farewell address, and his hospital appointment would be the start of a new, more restful phase in his life, while the new house in Bayswater would be the Blairs' new home, as the Brown family took over Downing Street.

Only three people actually know what was said when Tony Blair and Gordon Brown had their now famous dinner in John Prescott's flat in Admiralty Arch nearly a year ago. What is certain is that Mr Brown thought he heard Mr Blair say that he was thinking of handing over.

Last April or May, a number of factors combined to make it appear that the Blair resignation was imminent, not least the Blairs' decision to look for a house.

Mr Brown sent out word to his people that they should do nothing to antagonise or undermine the Prime Minister, so that he was given time and space to leave with dignity. A queue of other Cabinet ministers, including the Secretary of State for Education, Charles Clarke, and the Secretary of State for Culture, Tessa Jowell, lobbied him to stay.

Even as the summer holiday began in July, Mr Brown's people clung to the fading hope that Mr Blair might yet resign, having found a secure berth for his little-loved favourite, Peter Mandelson. It was only as the summer ended that they were finally disappointed.

Not only disappointed, but - in their view - insulted and attacked without provocation by the appointment of Alan Milburn to take Mr Brown's place as the election strategist. Last week's events added further unprovoked injury, in their view.

Still, those closest to Mr Brown say that the Chancellor does not want anyone to open up a public rift which could damage the Labour Party when there is a general election pending, a claim reinforced by the comments made by the Chancellor in Washington yesterday, when he called for "unity of purpose".

But they also warn that the week's events have made the mood among Labour MPs more volatile, and that when the Commons returns next week it may not be possible to keep the lid on open dissent. Yesterday's comments from Labour MPs suggest that they may be right.

Five questions the PM must answer to secure five more years

1. Can you see off your rivals?

There's Gordon, of course, and others including Jack Straw and Charles Clarke. Alan Milburn was talked of as Blair's "anointed" successor when he returned last month, but has little support and is likely to make more enemies in the future. If Blair manages to cling on for another five years, the clever money is likely to shift to younger figures such as David Miliband, the Schools minister, as the Blairite candidate.

2. Can you carry the party?

To do so Blair will have to win over the disaffected backbenchers lining up to say he has put his place in history first. Aides say the announcement was the "less bad option". The PM had to say if he was going to serve a full third term at some point. If re-elected Blair, having de-coupled his fate from his party, can do what he likes and not fear the electorate. His relationship with his party is less stable as a result of his notice to quit.

3. Can you escape effects of Iraq?

Last week's non-apology was widely mocked but it is unlikely that Blair will go any further in expressing remorse for the Iraq adventure. Indeed, in a recent interview he likened the situation in the country to the "dark days" of the Blitz, suggesting that he is still in war-leader mode. He will have been heartened that Iraq did not cause more trouble last week but he knows events abroad could still hound him from office.

4. How healthy are you really?

The key question is whether the atrial flutter was a simple problem that has now been corrected or a symptom of more serious heart disease. He has a family history of circulatory problems. His father, Leo, had a stroke at the age of 40, which put an end to his political ambitions. Bill Clinton, the former US president, suggested that Blair's problem is of a more long-standing nature than officially acknowledged.

5. Oh and where's the cash from?

Challenged over the purchase of two flats in Bristol in December 2002, Cherie Blair said the sum of £615,000, raised from the 1997 sale of their house in Islington, was "our only remaining capital with which to buy another property for our family". Even if they already have a deposit of £1m, the Blairs need £2.6m, not including stamp duty - well beyond the income stretch normally allowed by mortgage companies.