The confidential document that surfaced in Tuesday's Guardian was written by Philip Gould, a Blairite political consultant, and it pulled few punches. Labour, it warned, is not yet ready for government, needs a centralised command structure under the personal control of the leader, and a complete elimination of union power. All this on the day Mr Blair entered the den of old Labour with his first address as leader to the TUC.
By the time Mr Blair reached the conference, union bosses were queueing up to damn the document. Rodney Bickerstaffe, associate general secretary of Unison, suggested that Mr Gould should follow his namesake Bryan (the former Shadow Cabinet minister) into exile in New Zealand. An interview for the BBC by John Edmonds, general secretary of the GMB union, had to be re-filmed because the first take was judged libellous.
Worse than the one-day embarrassment at the TUC, the memo exposed tensions at the heart of the Labour leadership as well as raising doubts about party unity. Nor did it help when, two days after the speech, one of Mr Blair's frontbench colleagues resigned, criticising his modernising agenda. When the Labour leader addresses a special meeting of the Shadow Cabinet tomorrow the mood will be the most muted since he took office more than a year ago. The Blair honeymoon is over.
IT WAS hardly the start to the political season that Mr Blair wanted. When he returned from his holidays he needed to reassert his authority after a summer of backbench bickering. The leader's office had been accused of Stalinism, Mr Blair's close ally Peter Mandelson, MP for Hartlepool, had been targeted, and there was bitter criticism of the party's tactics in the Littleborough and Saddleworth by-election. Roy Hattersley, the former deputy leader, had attacked the Opposition's policy on opt-out schools.
Mr Blair went on the offensive. In his first interview after his return he told David Frost there was no going back on modernisation. Then he went further, denouncing his critics in uncompromising terms. "I am a politician, not a psychiatrist," the Labour leader argued in an interview in the Observer, "but if people seriously think that by going back to where we were 10 or 12 years ago we are going to win power, then they require not leadership but therapy." But a timebomb was being primed. Seamus Milne, the Guardian's industrial correspondent, was sitting on a document which would bear out all the fears of the party's left, and of those not close to the leader who felt themselves excluded.
Mr Gould's critique had been prepared more than six months ago, before the reform of Clause 4. Its conclusions were sweeping. A brutal self-assessment argued that Labour "is not ready for government", that it did not have "a campaigning operation that can ensure victory" or a "political project that matches the Thatcher agenda of 1979, nor one ... to sustain Labour in government". Worse, the memo said, Labour was "not yet a cohesive, integrated political party sharing the same political ideology".
Mr Gould is one of the backroom engineers of Labour's modernisation. The last interview he gave was five years ago. And that was unlikely to have had wide circulation in leftish circles, appearing as it did in Harpers and Queen.
He was recruited by Mr Mandelson (then director of campaigns and communications) in 1984 as an advertising expert. An aide in the 1987 and 1992 elections, he became a prime mover in the Shadow Communications Agency which orchestrated Mr Kinnock's election strategy. His role at the heart of the Labour machine was boosted by participation in the Clinton campaign in 1992. Mr Blair, according to one insider, finds him "simpatico". They have children of similar ages and share metropolitan concerns such as the state of inner- city schooling.
If the average Labour activist is worried that Mr Blair's New Labour is easing itself away from the party's roots, Mr Gould epitomises the threat. He lives in a five-bedroom house in the central London district of Bayswater and is married to Gail Rebuck, one of the most successful women in publishing and no uncritical fan of Labour, "new" or otherwise. But Mr Gould has a direct line to the Labour leader. "There is," a senior party figure said, "barely a day when Philip doesn't send in a piece of paper."
It may have been a matter of time before one went astray, but the publication of the memo, and its presentation in the Guardian, provoked fury in the Blair camp. Mr Milne's track record as a left-winger and opponent of modernisation fuelled suspicion in the Blair camp, and the party leader's office came close to a declaration of war on the paper. One source close to the leader argued that "a hard- left clique has increased its influence since Peter Preston [the former editor, now editor-in-chief] stepped down as editor". Mr Blair told Jimmy Young that the Sun had given a truer picture of the TUC conference than the Guardian.
Meanwhile, the leaked document was causing trouble in another corner. That it had found its way to an industrial, rather than a political, correspondent suggested the source was in the union movement. This in turn indicated that the memo had been leaked through a third party. Suspicion initially fell on the offices of two of Mr Blair's closest colleagues - Gordon Brown, theshadow chancellor, and John Prescott, the deputy leader. Mr Gould's paper had been sent to a small circle of senior advisers and politicians, although Labour refused to state precisely who had seen it.
Bizarrely, the Guardian followed up on Wednesday with an article speculating about the source of its own scoop (although this was written by a different journalist). Mr Brown, it pointed out, stood to lose the chairmanship of a daily strategy meeting and, the Guardian added, "the proposal [in the Gould document] for a single command structure under Mr Blair might have been taken as a potential snub to Mr Brown". This, reading between the lines, might be a motive for him to leak it. Mr Prescott, regarded as the traditionalist conscience of the leadership, had also been seen by some as a potential leaker. By Tuesday night he had made it clear that he had not been sent a copy of the document. There was further comment about a meeting at the party's advertising agency in February to which Mr Prescott was not invited.
After Mr Blair's speech on Tuesday, he returned to his suite in the Metropole Hotel. Mr Prescott, who travelled to Brighton for the General Council dinner that evening, saw Mr Blair in the hotel both before and after the meal. He emerged with an assurance that elected politicians, not spin- doctors, would keep control of the general election campaign. That, Mr Blair insisted, had always been his intention.
Mr Brown, who had seen the document, was holidaying on the Cote d'Azur, so his press secretary, Charlie Whelan, met Mr Blair separately. He, too, was formally absolved of the leaking by the Labour leader. Officially at least Mr Blair now blames the saga on cock-up rather than conspiracy.
Yet whoever was responsible had given an intriguing snapshot of life in the highest echelons of the party. Mr Prescott hardly enhanced his reputation as the man at the centre of the party - he, after all, had never been sent the document in the first place. By contrast Mr Mandelson, who took the brunt of the summer attacks on the Blair office, was reported to have seen it. Mr Brown, too, was made to look vulnerable, with his chairmanship of the strategy committee challenged by an unelected consultant like Mr Gould.
Nor is this the full extent of the turf wars. "The truth is," an insider said, "that the three most senior politicians surrounding Mr Blair - Mr Brown, Mr Prescott and Robin Cook [shadow foreign secretary] - cannot stand each other."
A careful reading of the document revealed more. It suggested that Jonathan Powell, a former Foreign Office official who joined Mr Blair's office as chief of staff, should chair a fortnightly polling meeting. Mr Gould also argued for a separate gathering to take place, not at the Commons, but in the offices of Labour's advertising agency, BMPDDB Needham. The chief executive of BMP is Christopher Powell, who helped to run Labour's last two general election campaigns, and happens to be the brother of Jonathan and an ally of Mr Gould. All this exacerbated fears on the left that the party is being taken over by unelected apparatchiks.
True, all Labour leaders have had to deal with the suspicion of their party, and most have been accused of listening too much to unelected advisers or kitchen cabinets. Gerald Kaufman, for example, was viewed in Harold Wilson's day as Mr Mandelson is now. Moreover the calibre of Mr Blair's private office is generally regarded as being higher than that of his predecessors. Nevertheless many traditionalists feel excluded. One senior Labour source said: "There really are people who believe there is something called the New Labour Party, which began when Tony was elected and they began playing a full part."
Modernisers see these as surrogate attacks on the leader and his modernising agenda. Mr Blair rejects the criticisms of his staff but recognises the resentment. He has ordered a revamping of internal communications, both to party members through the headquarters at John Smith House, and to MPs, through the whips' office.
That, however, seems unlikely to satisfy the left. One MP said: "Tony is surrounding himself with people who are clever, able, upper-middle- class and arrogant, and who do not respect the Labour Party."
Does Labour need to carry on modernising? Bob Worcester, chairman of Mori, argues that "from a psephological point of view they have done enough. Nothing can beat Labour except Labour itself. Labour now beats the Tories on all the issues about which the public is most concerned." It is a view echoed on the left, but Mr Blair's allies reject it utterly.
They are deeply influenced by a piece of research by the MP Giles Radice last year, entitled Southern Discomfort, which found continued resistance to Labour in the south of England. Party studies still show, according to one source, that the public wants to know that "we care about education and health and that we will do something about unemployment". But also, "time and time again there is a need for reassurance that Blair is in charge, that we can run the economy, that they won't be taxed out of existence". Another added: "The British public know the world has changed, and the Labour Party has a reputation for living in the past. We have polling evidence of this coming out of our ears."
This cuts to the heart of Mr Blair's relationship with his party. He recently suggested to a colleague that the Tory plan is to divide him from it.
THERE are signs of strains on the ground as well. Modernisers complain of their inability to get selected for Labour seats where the activists on selection committees prefer an anti-Blair line. "The party out there is not Blairite," one said last week.
On Thursday there was another reminder, when Kevin McNamara quit Mr Blair's front bench, primarily over Northern Ireland policy. Among his grumbles he listed the distancing of the party from the unions. Labour's job was not, he said, "to be an ambulanceman to capitalism or to prop up the markets".
Against this background Mr Blair will tomorrow tell the Shadow Cabinet that the time is ripe to move away from structural reform of the party and towards the policy agenda. In short, the first half of the "New Labour, New Britain" slogan has been fulfilled; now work must be done on policies to offer the country.
That message will relieve those on the left worried about further inroads into the party's links with the unions. But policy formation could prove more divisive than the constitutional changes of Mr Blair's first year. Shadow ministers face an acute problem in framing a tax policy acceptable to the middle classes. Education policy has proved highly controversial following Mr Blair's decision to send his son, Euan, to a grant-maintained school. Health, too, presents potential pitfalls, as does welfare.
Much of this is not natural terrain for the Opposition. As Simon Crine, general secretary of the Fabians, puts it: "Coming to terms with the emerging social market means understanding competition policy and regulation of markets. These are relatively new areas for Labour."
As yet Mr Blair shows little sign of losing his nerve. Last Wednesday he hosted a press breakfast for union leaders at the Metropole Hotel. Seven days on he will share a morning fry-up with 600 leading businessmen at the International Convention Centre in Birmingham. Later this week, the entourage moves on to do the same again at the Forte Crest Hotel in Gatwick. The revolution goes on.
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