AD 2001: he's older and greyer, but he's still in power ...

The political odyssey continues. Against all expectations John Major won the 1997 general election. Tony Blair left Britain to take up a Yale professorship. Donald Macintyre charts the new Tory agenda as the party heads for its 25th year in government
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The Independent Online
It was 2001. The silvery-haired John Major, now in sight of beating Margaret Thatcher's record of 11 years in office, had been looking back on the frenetic year of millennium celebrations. It was, he said in a pre-conference interview, a special pleasure that Saatchi's campaign to persuade the public to take up the National Lottery-funded offer of free IT training for all had been such a success. What better use of the Millennium Fund, now that the parties were over? Even the disappointment of Sir John Gummer, the distinctly green National Environmental Agency chairman, who had wanted to buy a rainforest with the money, had been short-lived.

To the deep frustration of ambitious Tories who had written him off in the runup to the 1997 election, Major was riding high. His role as doyen of European leaders had been gratifyingly enhanced by the stresses within the EU caused by the single currency. Riots over the past year in Rome and Paris and demands that Germany pull out of the EU, all testified to the good sense of his decision, after one of the longest hesitations in political history, to stay out of EMU.

And round him, as he reminded an appreciative Lord David Frost, Britain had been changing fast. The veteran interviewer could scarcely get a word in as the PM warmed to his theme of how he has made unemployment the lowest in the Western World. And after decades of Tory ministers denying that crime had anything to do with unemployment, Major boasted that the slow reduction in crime figures was directly related to the fall in the jobless total - though, of course, he preferred to use homely Tory language to do so. "The devil makes work for idle hands," he told Lord Frost, a little smugly.

It wasn't just that the job seeker's allowance, introduced back on the inauspicious eve of the 1996 Tory conference, had paid such unforeseen dividends. Off the dole queues had come three groups: those who had simply lost the will and confidence to work; those who had been vigorously functioning in the black economy while drawing the dole; and those who had made the calculation that if an unpleasant job gave them only pounds 10 a week more than benefits, it wasn't worth having.

Nor was it that workfare had been such a success. It was that the workfare "graduates" had had their chances of getting permanent jobs dramatically improved by the new employment "green zones". On new industrial estates recruits signed a contract explicitly excluding them from all those tiresome and archaic provisions of the corporate state, such as protection from unfair dismissal. The wages were low; as everyone now knew, this was a first step towards the abolition of industrial tribunals and possibly the racial equality and equal opportunities commissions as well. The jobs, in many cases, were frighteningly insecure. But for those who worked hard and didn't complain, there was a chance of moving up the income scale.

Indeed, the green zones were part of an extensive programme of deregulation which had eluded the third- and fourth-term administrations. The whole system of industrial accident compensation and health and safety at work enforcement had been privatised. So, too, had the enforcement of building and fire regulations.

Instead, it was left to insurance companies to ensure that factories, offices and housing projects were safe. Employers hadn't been too happy about this: the premiums added to non-wage costs, and to the annoyance of many bosses the insurance companies seemed even more zealous than their public servant predecessors. But given that they had been clamouring for further reductions in public spending, they couldn't complain too loudly.

Changes in education had been no less dramatic. The right, for example, of outside organisations - from churches and voluntary groups to educational entrepreneurs in league with local parents - to start new schools and then turn them into grant-maintained schools within the state system, had existed in the fourth term. What's more, Gillian Shephard had already removed the stipulation that new schools could not start when there were still vacant places in existing ones.

But nothing much happened until the huge fifth-term change of accounting within the education system introduced in 1997. Under the system of capital charging - already operating in the NHS during the fourth term - schools would henceforth have budgets which took account of capital depreciation. And to borrow money for expansion or refurbishment they had to be able to meet the interest charges on the debt incurred. If they were popular, that was fine. But if they were weak schools, they would become weaker. Equally, a new school could compete for funds on level terms, knowing that it would recover some of the capital costs of start-up if it succeeded.

There had been some problems, of course: the highly publicised collapse of some new schools. And the prospect of educational companies, some of them US-owned, taking over inner city sink comprehensives - and running them for profit with an income from the state which increased as its league table standing improved - was still strictly for the sixth term.

Major was now confident that he - or his successor as Tory leader - would win again. After all, with Labour split in two by the defeat, and Tony Blair now President of Yale University and Bill Clinton's most intimate and prominent adviser, how could he fail?

But with money following the pupil, an internal market was already generating a new energy in the education system. In some cases teachers had bought into the new freedom to form schools within schools - language and NVQ academies for example. Indeed, the fact that teachers had started to run their own institutions - often sharing facilities with the mother school - was at last beginning to weaken the centralising, politicised NUT.

On the critical issue of welfare reform, progress had been slower. Still an old-fashioned universalist by instinct, Major had resisted ending child benefit for the better off. Indeed, it was hard for him to do otherwise after the fuss the Tories had made in the election campaign about Gordon Brown's plans to take it away from the parents of 16-to-18-year-olds.

But he had given his increasingly radical Social Security Secretary Stephen Dorrell his head, in announcing the first step towards what in the long term would revolutionise our concept of the welfare state: the progressive privatisation of the basic state pension. In a move closely based on the Chilean measure of 1981, employees would now be invited, in return for sharply reduced national insurance contributions, to save a proportion of their earnings - in Chile it is between 10 and 20 per cent - in a pension account, redeemable only when they retire, and managed by competing and state-regulated private-sector pension providers. Instead of the basic state pension they would then get the whole of their contributions, plus interest, in the form of a retirement annuity .

The value of the pension and the date for retirement would depend on the level of contributions. Existing workers could stay within the state system, but new ones would have to insure against their retirement in this way. And though Dorrell's announcement had been limited to pensions, it was increasingly clear that the manifesto for the next term would extend the principle to unemployment and sickness benefit.

Suddenly, the far-reaching agenda, worked up in the fourth term by the Adam Smith Institute's Dr Madsen Pirie, of replacing state social insurance with the private sector-run individual "Fortune Account", was becoming a reality.

And, of course, privatisation. The newly privatised London Underground was now running so well, combined with a swingeing parking tax in city centres, that commuters were beginning to turn back to public transport. Postways PLC, the 60 per cent Dutch-owned company which had taken over the Royal Mail, was waging a fierce price war with their rivals DHL, whose ugly but ubiquitous yellow letterboxes had become such a feature of the urban landscape.

There was much more, of course. Major was proud of the revival of local democracy now that he had ended capping and pinched from Labour the idea of annual council elections. The uniform business rate had been abolished, and a new, locally-decided rate introduced - directly relating the location of business investment to the efficiency of local authorities. In the North West, a pilot scheme in locally-raised sales taxes was under way.

There were problems, naturally. Major had resisted his friend Ian Lang's advice to set up a Scottish parliament and the Scottish National Party was growing daily in strength. Sir James Goldsmith, undaunted by the Referendum Party's indifferent showing in the 1997 election, had bought the newly privatised Channel Four and was now seeking to fight the next election on the hot protectionist issue of keeping imported programmes off digital and cable television. And the lifestyle sections of glossy magazines were filled with stories about the new generation of rich layabouts who didn't have to work at all because of the wholesale abolition of inheritance tax. But, all in all, there was plenty to be satisfied about. Having won not one but two elections against the odds, Major was, truly, the comeback kid.

Complete fantasy? At one level, no. There isn't an idea in this scenario which hasn't been considered by ministers and policy wonks with at least some access to the manifesto-making process. A good deal of it - privatisation of the Royal Mail and the London Underground - is a near certainty if Major were to win a fifth term. He apparently wants to abolish inheritance tax. And if he could widen the sources of school provision within the state sector, he would.

On another level, of course, it's just a dream - or nightmare, depending on your tastes. It deliberately assumes uniformly benign consequences for a range of utterly untested and potentially explosive policies. Freed of any obligation to appease a right wing which had in 1995 written off his chances of winning, he would - or should - be his own man. And even if that were not his instinct, which it is, Kenneth Clarke, also riding high as the architect of an election-winning budget, would be there to warn him against going too far. Clarke recently pointed out that Chile was a military dictatorship when it privatised its social insurance system.

Nevertheless, there's much in this fantasy that will keep the more zealous of the party representatives going in Bournemouth as they struggle to suspend their own disbelief that their party can win. If fantasising about a fifth term can't sustain them this week, what will?