Gordon Brown is resisting pressure from senior Labour figures to allow Ken Livingstone to fight the next election for Mayor of London as the party's candidate.
Supporters of the move – including formerly fierce anti-Livingstone campaigners – argue that it would be demoralising for the party to field a candidate to challenge a popular mayor. They also say that a new Labour-Livingstone battle would only boost the campaign certain to be launched by the Tory Steven Norris.
But the Chancellor and Charles Clarke, the party chairman, are opposed to an early end to Mr Livingstone's five-year exile from Labour.
Party strategists have already held informal talks over handling the "Livingstone problem". The biggest difficulty is that his expulsion runs out in April 2005 – 11 months after the next mayoral election.
Supporters of his readmission argue that he has done much better in the job than the party forecast and has proved himself capable of working with ministers. And the stumbling block of his opposition to the Treasury proposals over the future funding of the Tube could vanish if the Government's scheme is abandoned or modified in the next few months.
A government source conceded that most party members in London supported Mr Livingstone's readmission. "He has shown himself to be pragmatic," he said. "We have to face up to the fact that our dire predictions haven't materialised."
The source said Tony Blair had learnt a "bitter lesson" about the dangers of trying to impose Labour candidates from above but admitted that Mr Brown remained an implacable enemy of Mr Livingstone.
"Ken has attacked his economic policies for 10 years and called for him to resign. You can't underestimate the amount of animosity," he said.
However, another government source said the expulsion would be served, and added: "My understanding is that we will look for a candidate."
Mr Livingstone raised the stakes earlier this month with a call to Labour members to support him as leader of the "non-Tory majority" in 2004.
Challengers for the Labour mayoral nomination are likely to include Trevor Phillips and Tony Banks.Reuse content