Andrew Grice: Back in the frontline – and revelling in it

When Peter Mandelson attended his first Cabinet meeting after his surprise recall, he left his Department for Business at 8.30am and did not return until 3.30pm. As his officials wondered what on earth he was doing at Downing Street, the word went round the Whitehall grapevine that he was "being Peter".

On the day, he was heavily involved in the Government's unprecedented scheme to rescue the banks, which was announced the following morning. His presence in Number 10 confirmed that he is much more than a Cabinet retread brought back to fight the recession after his experience as Europe's Trade Commissioner, as Gordon Brown said on the day of his reshuffle. Despite their famous14-year feud, he is now the Prime Minister's right-hand man, a trusted member of his inner circle.

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If the transformation of Mr Brown during the financial crisis has been remarkable, then so has been the rehabilitation of the newly-ennobled Lord Mandelson. Although some Labour MPs are wary of the man called the "Prince of Darkness", he is more popular than in his previous two Cabinet incarnations. "The Blairites are delighted to see him back and the Brownites think he will keep the Blairites off Gordon's back," one minister said.

Lord Mandelson is also popular with his officials at the Department for Business, many of whom were sad to see him go in his first Cabinet resignation in 1998, over his £373,000 home loan from the Treasury minister Geoffrey Robinson. He told senior officials last Thursday that he wanted to refocus the department's work so it gives top priority to helping business. He will relay the same message to the department's entire staff at a meeting on Wednesday.

Some things have not changed and his unexpected popularity is not universal. Since his return, newspapers have run articles questioning his friendship with Oleg Deripaska, Russia's richest man, who benefited from trade concessions worth up to £50m a year from the European Commission. Lord Mandelson stayed on the tycoon's yacht in Corfu this summer.

Yesterday, he accused the Tories and Tory-supporting newspapers of trying to "smear me with innuendo". He told the BBC's Andrew Marr Show: "You cannot do business as a European Trade Commissioner in Russia, India, China, South Africa, Brazil, all the big emerging economies of the world, without having contact with the big business and economic figures in those countries, as well as the political figures. I make a very clear distinction indeed. I do not allow any conflict of interest to arise between the contacts I have with these individuals and how I do my day job."

Lord Mandelson also spoke about his new friendship with Mr Brown. "It's not been a perfect relationship; it has had its rocky moments. Both of us, looking back, would say we wasted a lot of the energy and time that we could otherwise have devoted to the success of the Government by not repairing our relationship sooner. But it has been repaired."

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