A Conservative revival could be good for Mr Blair

'The curious aspect of the Blair hegemony so far is that it has lacked just such a challenge for so long'
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If you wanted to dream up a script for the beginnings of a Conservative recovery, you'd be hard put to improve on the last few days. It's not just the helpful self-eclipse of Margaret Thatcher, the poll last week showing a sharp drop in Labour's lead or the successful Spring conference in Harrogate.

Yesterday was as difficult for New Labour, in relation to unrest in its own ranks, as they come. Leave alone Post Office cuts. Stephen Byers, whose main claim to protection by the Labour faithful was his steely deafness to the claims of the Railtrack shareholders, was obliged to announce to a Commons ominously empty of Labour MPs that £300m of taxpayers' money will, after all, be used to bale them out.

So things are looking up for Iain Duncan Smith. Nor is his good fortune wholly dependent on the many self-inflicted wounds suffered by the Government. The debt to George Bush is acknowledged; but he has also learned, as Tony Blair did before him but William Hague failed to do, that after humiliating defeat only a wholesale change in the way the party is perceived can begin to restore his party.

Some context is nevertheless needed. Almost any other government in recent times would be delighted to have had an 8 per cent lead over the opposition at this stage in a second term. Even in Labour's darkest days, when, during the 1980s, it was in direct competition with the Social Democratic Party, it was normal for it to be level with or leading the Conservatives. It isn't yet clear how firm the foundations of the Tories' progress are; as the polling expert Professor John Curtice puts it, the evidence so far represents a definite swallow, but not yet a summer. The very best the Conservatives can hope for – and that still looks some way off – is a return to the kind of competitive politics that were normal even through the Thatcher years but haven't been since 1997.

But let's suppose it comes to pass. What would be the effect of that on a Government, and a Prime Minister, as unused to electoral competition as this one? On one reading, total panic. After all, if MPs are grumbling about the leadership when Labour is still well ahead, what would it be like if it wasn't?

How dangerous are those grumbles? Anyone who dismisses the possibility of a "stalking horse" outright should recall the cautionary tale of how the late Tony Bevins, when he was the first political editor of this newspaper, reported repeatedly that one would emerge against Margaret Thatcher, only to be scoffed at – until his Cassandra-like prophesy came true. That said, it's difficult, to put it mildly, to see one emerging now with any credibility.

Denzil Davies, a popular, intelligent ex-Treasury minister, has ruled himself out. Tam Dalyell, who has publicly predicted it, is furious with the Government for reasons that have nothing to do with the polls, and everything to do with foreign policy. He regardsGeoff Hoon's suggestion that Britain could go to war with Iraq without UN backing as a violation of everything that has sustained him in politics. But he wouldn't run himself, I suspect, because he would regard himself as vulnerable to attack as an Old Etonian. Indeed, according to one paid up member of the awkward squad, Bob Marshall Andrews, a challenge isn't "even on the radar".

But in any case, an alternative reading of a Tory recovery is that it might in fact be the best thing that could happen to the Government – and to Mr Blair. Maybe it would not heal the fissures that continue to disfigure this least-collegiate of governments. Dark mutterings among a few middle-ranking Blairistas are that Gordon Brown isn't too unhappy to see the signs of discontent. Even if true, this proposition would be hard to prove. But at the least, a plausible Tory threat would concentrate minds, particularly of MPs in marginal seats who retain a memory of the divisions which made Labour – and in the end the Major government – unelectable in the past.

Secondly, influence and audibility accrues to oppositions doing better in the polls. The quiet, unstrident, effectiveness of the Oliver Letwins, the David Willets' or the Damian Greens, would raise the tone of the political debate and, unless the Government has really lost the will to live, make it hang together more coherently. It would also help – a little – to erode the self-appointed role of much of the press as Her Majesty's unofficial opposition.

A great deal of thought is going on in government circles about a "new settlement" with the media; it remains to be seen whether ministers are really ready for the greater openness and less soundbite-dominated debate some of them say they are willing to offer in return for the more grown-up coverage they claim to yearn for. But a more credible opposition might help to unravel the convergence of media attacks on the Government from both left and right.

But there's something bigger than all this. An electoral threat from the Opposition – even if partly illusory – would require the Blair Government to define more sharply what is for, and how it differs from an opposition which has sought – at least in part – to move on to its own territory. The curious aspect of the Blair hegemony so far is that it has lacked such a challenge for so long. To take just one example, a virtue of Mr Duncan Smith's appeal to the "vulnerable", however vague and electorally calculated, is that it invites the Government to concentrate part of its message on just how much it is already seeking to do for the kind of tenants Mr Duncan Smith visited in Easterhouse – and what it proposes to do in future.

This isn't remotely to abandon its Blairite principles. On the contrary, there is a positive incentive for the government to explain more vividly why – for example – it sees the private sector as important to the improvement of public services: because the alternative to wholesale reform – and with it some loosening of union power – is the kind of true privatisation the Tories look increasingly likely to seek. Not an abandonment of New Labour at all but a more robust attempt to build what the minister Douglas Alexander describes in an interesting article in Renewal as a "progressive consensus" behind the modern social democratic – rather than merely managerial – values New Labour at best embodies.

The easy proposition, of course, is that Tony Blair's main virtue for some in the Labour Party – and only virtue for a few – is his capacity to win elections. And that, if and when the Tories become more popular, particularly if they do well in the local and territorial mid-term elections, he becomes dispensable. It's much likelier that the opposite is true. He hasn't yet been tested in such circumstances, of course. But his attitude to the quite different question of a euro-referendum – confidence that he can win it against a powerful press and hugely vocal Tory party provided that the economic tests are squared – suggests that he relishes just such a fight. Something of a Tory recovery, in other words, would be good for democracy, good for the Government, and oddly, good for Tony Blair.