Blair poaches Treasury star for key Downing Street role

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The position of Alan Milburn as Tony Blair's right-hand man was consolidated yesterday by the poaching of Ruth Kelly, one of the rising stars in the Treasury, from Gordon Brown.

Ms Kelly, 36, who was moved by Mr Blair from the Treasury where she was financial secretary to become Mr Milburn's deputy at the Cabinet Office, is widely tipped to be the next woman to join the Cabinet, if Labour wins a third term.

A former journalist specialising in economics, she was described yesterday as "a mother and economics genius''. She has four children, with the first being born 11 days after she won the Bolton West constituency in 1997. Although loyal to the Chancellor, she is regarded as a supporter of the modernisation agenda, of which Mr Milburn is now firmly in charge.

As Mr Blair put the finishing touches to a limited reshuffle, it emerged that Mr Milburn will have an office in Downing Street with ready access to Mr Blair, in addition to taking over at the Cabinet Office. This is an unprecedented bonus, denied even to Peter Mandelson, and is seen as hard evidence that Mr Milburn is taking over Mr Mandelson's role as Mr Blair's most trusted adviser while Mr Mandelson, Britain's new European commissioner, is in Brussels.

Downing Street came under fire for allowing Mr Milburn to draw his cabinet salary of £133,347 from the taxpayer, rather than from the party. Tory MPs protested that the Labour Party should pick up the bill, given the political nature of his role. Senior Tories were considering challenging his salary and a former Labour cabinet minister also said it should be paid by the Labour Party.

Andrew Mackay, a former Tory minister, said: "There are a number of precedents where someone who has held that position and has been doing party work has been paid for by the party and not the taxpayer."

Peter Hain, the Leader of the Commons, rejected the criticism, saying: "The Chancellor of the Duchy of Lancaster is undertaking important work for the Government."

There was a double blow for Mr Brown with the refusal by Mr Blair to give an enhanced role to his former speechwriter and researcher, Douglas Alexander. Mr Alexander, 36, whose title and role as campaigns co-ordinator were handed to Mr Milburn, was moved from the Cabinet Office by Mr Blair to become Minister of State for Trade at the Department of Trade and the Foreign Office.

Mike O'Brien, who previously held the trade post, was moved to become Minister of State at the Department of Trade in charge of e-commerce, energy and competitiveness. Stephen Timms will move from the energy post to take up Ms Kelly's former job as financial secretary in Mr Brown's Treasury team.

Kim Howells, the outspoken former arts minister, who once led a student sit-in at Hornsey College of Art, was rewarded by Mr Blair with the high-profile post of Minister of State for Higher Education, which had been held by Alan Johnson, who was promoted to the Cabinet. Mr Howells's post as Minister of State for Transport went to Tony McNulty, another popular minister, who promoted the Crossrail project for London as Parliamentary Under-Secretary for Transport. Mr McNulty's promotion made way for Charlotte Atkins, an assistant whip and former press officer with the health union, Unison, to gain her first departmental role as a junior transport minister. Tom Watson, a former AEEU national political officer who won his West Bromwich East seat in 2001, was given an unpaid promotion to the whips' office.

In the Lords, Baroness Ashton of Upholland, an education minister, exchanged roles with Lord Filkin, a constitutional affairs minister.