Resurrection Mandelson: Born survivor back in power

It's almost 10 years since Tony Blair's closest ally was forced to resign – for the first time – from the Cabinet. Now friends and foes alike are amazed at the power he has managed to attract to himself

For Peter Mandelson, this Tuesday is special. There will be little by way of celebration, but it will not be the mournful anniversary he once feared. On 23 December, it will be 10 years since Lord Mandelson cast himself out of Tony Blair's Cabinet over his extravagant home loan from Geoffrey Robinson. How are the fallen, now, mighty.

"I can scarcely believe I am writing this letter to you," the outgoing Trade and Industry Secretary wrote at the time in his resignation note to Mr Blair, as he careered out of the New Labour project. "In the future," the Prime Minister responded, "you will achieve much, much more with us." Neither could have predicted that the arch-Blairite's contribution would – eventually – be from a position of unrivalled influence in a Gordon Brown government. He might even allow himself a John Sergeant-style sashay into work at the Department for Business, Enterprise and Regulatory Reform (BERR).

The return of the Prince of Darkness to the Cabinet was as improbable as his explanation that his new role is to make Brownites and Blairites laugh together again. Apart from the fact that few can remember when anyone from the feuding houses of New Labour ever shared much of a laugh, the new Lord Mandelson of Foy and Hartlepool was never the party's most likely unity candidate.

The political calculation behind his resurrection was simple: at a time when the Prime Minister's future was under threat, it would buy off mounting Blairite opposition and allow a tottering Mr Brown to concentrate on the economic crisis.

The desperate gesture appears to have worked – for the moment at least. The Blairite rump is becalmed and Mr Brown's personal standing in the country has improved. "Now the press brief thuds on to my desk with page after page about what Peter did and what Peter did next," said the Liberal Democrat peer Lord McNally. "One day he is Mephistopheles, the next day he is John Travolta."

The downside for many of the Prime Minister's most loyal camp followers is that, in under three months, his former deadly rival has managed to expand his sphere of influence to a point where he is Mr Brown's deputy in all but name. Rivals for that position, notably Jack Straw and Harriet Harman, are already suitably miffed, as the Prime Minister's circle of close confidants has effectively shrivelled to two – the loyal Ed Balls and the man he once considered his worst enemy.

"Calling Mandelson back could have been seen as a masterstroke if it was about offering a sop to the Blairites," a veteran Brownite glumly observed last night. "But it looks more and more like an act of desperation that has backfired completely."

Mr Mandelson has quickly become the ubiquitous face – and voice – of the Government on issues that often extend beyond his ministerial responsibilities. Now, however, his growing authority within the Cabinet and the party at large is being put to the test by two hugely divisive issues that are directly within his sphere of influence.

Lord Mandelson has come into conflict with the Chancellor over the prospect of a bailout to rescue the foreign-owned luxury car-maker Jaguar Land-Rover. The Secretary of State for Business has insisted he is not wielding an "open chequebook", but he is believed to support a rescue plan that could involve more than £1bn of taxpayers' money. Sources within his department claim Lord Mandelson favours an agreement whereby the Government would underwrite the firm's loans to allow it to continue trading, without necessarily requiring an injection of public funds.

"This firm represents 75,000 jobs and £3bn in R&D investment," a source at BERR stressed last night. "It would be astonishing if we ignored it."

But Mr Darling is stridently opposed to what the Treasury fears would be a "rushed" rescue. The Independent on Sunday understands that the Chancellor has challenged the idea because of the precedent it would set for other potential claimants. A Treasury official explained: "At the very least, we want to wait to consider this in a more measured way" – which would rule out a resolution before Christmas.

The spat will have consequences far beyond the workers at Jaguar and Land-Rover: it may force Mr Brown to rule between two of his most senior ministers, effectively a choice between the old guard and his new friend.

The Mandelson effect is also being felt outside the Cabinet. Late last week, the Business Secretary sat down with five worried senior Labour backbenchers to discuss his proposal for a part-privatisation of the Royal Mail.

Old-style MPs reported that the meeting got "pretty heated", as the minister refused to budge on their concerns and failed to answer questions over the timing of any legislation.

Lord Mandelson, who expressed a hope that the campaign against the "sell-off" would not get too personal, is unlikely to get his wish. Government whips report that some 50 Labour MPs are now poised to vote against the plans – and that the minister is a central target of their campaign.

His enemies should have learned by now that while Lord Mandelson never lost his knack for attracting controversy, he remains equally accomplished at attracting power to himself.

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