Andrew Grice: The Week in Politics

Education is one battle that Blair cannot win
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Ten years ago, I asked Tony Blair on a flight back from Washington whether he would introduce streaming in schools if he became Prime Minister. He didn't get the chance to answer because Alastair Campbell, his press secretary, interjected: "If you do, I resign."

Mr Campbell was half-joking. But he was also half-serious. Mr Blair's instincts told him that streaming by ability would improve the performance of schools by ensuring that the brightest pupils were not held back. But he never made streaming Labour's policy. The opposition in his own party, voiced by Mr Campbell, forced him to settle for "setting" - streaming by subject rather than general ability.

A decade on, the same arguments still rage. As Mr Blair enters the final stage of his premiership, he no longer wants to settle for second best. He is determined to push through reform of schools before he departs. But he again finds himself battling against the contradictory instincts of his own party.

The Labour rebellion against his reforms extends to Mr Blair's own political family. Mr Campbell's presence at Thursday's packed Commons meeting to oppose the Blair reforms was highly symbolic. His partner, Fiona Millar, a former aide to Cherie Blair, co-authored the critical report launched at the meeting. What would have hurt Mr Blair even more was the rousing speech at the event by Neil Kinnock, the grandfather of New Labour. As he bravely tried to modernise a reluctant party, Lord Kinnock did not always get the loyalty from his senior colleagues he deserved. So for him to be disloyal to Mr Blair at this critical moment shows how worried he is about the Schools White Paper published last October.

Labour passions run deep on education. When Charles Clarke, the then education secretary, proposed neutering the power of local education authorities (LEAs), John Prescott threatened to resign over the issue. Again, Mr Blair backed off.

When it came to drawing up the White Paper, one option in front of Mr Blair was to go for the nuclear option of abolishing LEAs. He was persuaded to drop it by Ruth Kelly, the Education Secretary. She is underestimated by Labour MPs. Many see her as a Blair clone who is robotically pushing through a Blair blueprint for schools. But one Downing Street insider told me: "In private meetings with Tony, Ruth put up a feisty performance to defend the role of LEAs. She fought her corner very hard."

That the White Paper could have been even worse will bring little comfort to the growing ranks of Labour rebels threatening to defeat the Schools Bill due next month. Mr Blair regards LEAs as a roadblock to his desire to level up the poorest schools to the standards of the best.

But he will have to offer safeguards about the LEAs' role in ensuring local accountability to save what he sees as the most vital plank of his proposals - allowing schools to become independent trusts with more freedom. He should be able to convince his backbenchers he does not want a free-for-all on selection - probably by making the existing admissions code statutory for all schools. Resolving the role of LEAs to the satisfaction of enough Labour MPs may prove more problematic. One compromise being studied in No 10 is to give councils the power to appeal to the adjudicator who upholds the admissions code.

Mr Blair's scepticism about local authorities makes him look like a great centraliser. Yet a quiet revolution is taking place in the Government's attitude towards the town halls. Mr Blair wants them to "run less but supervise more". They would not provide as many services directly but would potentially have more clout as an upholder of standards, ensuring that a smaller number of performance targets are met.

A fundamental review of government spending, a bridge between the Blair and Brown eras, is likely to tidy up the many overlapping budgets between different public bodies and agencies. Councils could get an enhanced role. For example, budgets for transport projects could be devolved so local authorities decide their own priorities instead of sending endless shopping lists to Whitehall.

The more immediate problem for the Prime Minister is how to make enough concessions to Labour rebels without watering down the Schools Bill so as to make it completely meaningless, which would beg the question: "What is the point of Mr Blair?"

Similar arguments apply over welfare and health reforms to be unveiled over the next two weeks.

The stakes could hardly be higher. Blairites believe the fate of these proposals will define whether the Blair era changes the country permanently or is seen as wasting the opportunity created by his three election victories.

While maintaining his reformist rhetoric, the Prime Minister will compromise - up to a point. He does not want to rely on the votes of the Tories to get his Schools Bill through, which would surely mean his days in Downing Street were numbered. Equally, he cannot afford a humiliating defeat, which would spell an immediate end to his tenure.

Allies say Mr Blair will not repeat his reckless strategy on the Terrorism Bill. "He is not in kamikaze mode," one said yesterday, "but he has a bottom line. He is not going to rip the heart out of his reforms."

The Blair message will be: defeat for the Schools Bill would not put the Prime Minister's head on the block but the heads of Labour MPs with marginal seats, since it would hand the centre-ground reform agenda to David Cameron's revived Tories.

Mr Blair's long battle with his party over education is one he cannot win. But it is also a fight he cannot afford to lose.