Milburn agrees election role as Blair faces down Brown

Alan Milburn returned to the Cabinet to take up a new post in charge of Labour policy last night as Tony Blair sought to get his ill-fated reshuffle back on track.

Alan Milburn returned to the Cabinet to take up a new post in charge of Labour policy last night as Tony Blair sought to get his ill-fated reshuffle back on track.

The countdown to a general election began as both Mr Blair and Michael Howard reshuffled their frontbench packs in an attempt to sharpen their parties' performance.

Mr Milburn was appointed Chancellor of the Duchy of Lancaster after Mr Blair persuaded him to return to frontline politics less than 15 months after resigning his position as Health Secretary to spend more time with his family.

Blair aides said Mr Milburn would be Labour's "policy supremo" in the run-up to the election expected next May. The move threatens to create tensions with the Chancellor Gordon Brown, who is due to take overall charge of the party's election effort.

In negotiations with Mr Blair, Mr Milburn demanded a "proper job" which would give him control over the Labour manifesto. But this would infuriate the Chancellor, a long-standing foe of Mr Milburn.

A dispute is simmering between Blairites, who want a "bold" blueprint setting out a new round of reforms, and the more cautious Brown camp, which does not want a range of ill-thought-out policies that would blight a third term.

Mr Blair hopes that Mr Milburn's appointment will ensure a radical, Blairite manifesto. But Labour MPs fear it could be a recipe for damaging conflict between the Blair and Brown camps. One cabinet minister said: "Alan will be in charge of the manifesto and play a major role in election planning. Tony recognises Gordon's talent in election strategy, and this will ensure a radical manifesto with progressive policies based on Labour values." He added: "These things are like squalls but we will move on from this very quickly."

The Tory leader took Westminster by surprise by announcing changes to his front bench. The Tories contrasted Mr Howard's decisiveness with Mr Blair's dithering. But the shake-up ran into controversy as furious party moderates accused Mr Howard of "lurching to the right". He recalled the Thatcherite John Redwood, who becomes shadow secretary of state for deregulation (cutting red tape), and removed two moderates, Damian Green and John Bercow, from their posts at transport and international development respectively.

Alan Johnson won promotion to the Cabinet as Work and Pensions Secretary. A former postman who became leader of the Union of Communications Workers, he moves from Higher Education minister to take over from Andrew Smith, whose resignation on Monday caught Mr Blair off guard.

The Prime Minister was deeply impressed with Mr Johnson's performance in heading off a dangerous backbench Labour rebellion over university tuition fees.

Although the man who replaces the Brownite Mr Smith is a Blairite, he is seen as a conciliatory rather than tribal figure and the Brown camp appeared to be relaxed about his appointment.

The Chancellor is heavily involved in welfare policy and the Department of Work and Pensions has been seen as an arm of the Treasury. Mr Brown will now need to work closely with Mr Johnson at a time when welfare is rising fast up the political agenda.

Ian McCartney, the Labour Party chairman, saw off a move by Mr Blair to appoint Mr Milburn to his post, as The Independent disclosed on Tuesday. Mr McCartney won heavyweight support from Mr Brown and John Prescott, the Deputy Prime Minister.

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