He fools those who should know better with his Thatcher imitations

It was Tony Blair's "Bobby" moment all over again. Ten years ago, on the afternoon of 21 July 1994, Blair celebrated his election as Labour Party leader with a party at Church House, the cloistered headquarters of the Church of England across the road from the Palace of Westminster. He thanked his wife, his staff, supportive MPs and went on: "A particular thank-you to a friend of mine called Bobby, whom some of you will know. He played a great part and did so well." Like most of the people in the room, I was puzzled. It wasn't until I read the newspapers the next day that I discovered Peter Mandelson's code name. It was used by the inner circle of Blair's campaign team to conceal his role from those among the outer circle, such as Mo Mowlam (who writes on page 25) who were suspicious of him.

It has long struck me since as one of the odder things Blair has done - and the most eccentric thing about him is his total lack of eccentricity. It was a public declaration of secret loyalty, not much more statesman-like than a public school in-joke. By it, Blair revelled in his power as leader. It was arrogant and defiant, because he must have known that the Mandelson-haters in the Labour Party would quickly find out who "Bobby" was.

Thus it was last week, when he nominated Mandelson as Britain's sole European commissioner. Just two weeks ago, journalists were speculating feverishly about the Prime Minister's future. On Tuesday, he trounced Michael Howard, who had unwisely allowed the press to write up the Butler debate as his "Westland" moment. On Thursday, he trounced journalists at his monthly news conference, with a presentation on the theme of "Five More Years". Like a sportsman finding himself winning a surprisingly easy victory, he then taunted his critics, in the media and in his own party, by rewarding his unpopular friend Bobby - knowing there was nothing anybody could do to stop him.

As it happens, it is a clever appointment. Mandelson showed in Northern Ireland that he has the capacity for hard work, attention to detail and political skill to do a good job in the bureaucratic quagmire of Brussels. It rewards a loyal friend and ally while taking him out of Westminster. And it forces Blair to deal with the hole at No 10 left by Alastair Campbell's departure last autumn. Since then, Mandelson has been bobbying in and out of Downing Street, but he did not want to fill the gap fully. Blair has told friends that he wants to make decisions over the summer about strengthening his office.

It may be clever, but it is provocative. Yet that very provocation is a measure of just how strong Blair's position still is, 10 years on. Despite all the damage done to his standing among journalists and what remains of the Labour Party by the Iraq war, the squawks of indignation at Mandelson's appointment are those of impotence.

This was brought home to me recently by Dianne Hayter, a member of Labour's national executive who is working on a PhD about the party's darkest hour after defeat in 1979. She records that when James Callaghan was Prime Minister, the national executive carried motions condemning the government at 23 consecutive meetings. Only on the day of the confidence vote in the House of Commons that brought Callaghan down did it desist.

For all Blair's difficulties with his party, the mild tussle at Labour's national policy forum this weekend does not even begin to register on the Wilson-Callaghan scale of internal strife.

How does Blair do it? The secret is the "third way". The last time the Prime Minister used the phrase itself was in February 2003, in an article entitled "Where the third way goes from here" for a journal called Progressive Politics - edited by one Peter Mandelson. The answer appears to have been: "underground". The term attracted so much mockery that its use as a public rallying cry was limited, especially after Bill Clinton left the White House.

But as a political strategy it still carries all before it, in this country at least. Its essence is simple: it is the selling of moderate social democratic policies in conservative clothing. That is what the five-year plans are all about. They are the basis on which Blair is comfortably placed to win the next election.

The "five-year strategy" for education was a classic example. The substance - most of which was leaked in advance - was: lots of money for city academies to try to turn round sink schools, and no extension of selection. The elements that had been held back were the traditionalist trappings that caught the eye of The Sun and the Daily Mail: putting pupils in uniforms and houses.

Last week it was the five-year plan for the Home Office. Blair seized the headlines with his declaration that it marked "the end of the 1960s liberal, social consensus on law and order". This was mere rhetoric, of the kind with which we should be familiar after more than 10 years of "tough on crime, tough on the causes of crime". He suggested that policy was moving away from offender's rights, protection against miscarriages of justice, and "understanding the social causes" of criminality. This produced a wonderful spate of commentary about how he was copying Margaret Thatcher in blaming the permissive 1960s for all social ills. But the actual policies unveiled by David Blunkett, the Home Secretary, were generally liberal.

Blair is so good at impersonating the language and style of Thatcher that he fools all sorts of people who should know better. Conservative MPs watched their leader in silent despair in Tuesday's debate on Butler because they find so much to admire in Blair's conduct of the Iraq war and his defence of it. Michael Howard's lawyerly obfuscation was the sort of thing for which they used to mock the Labour Party.

When the Prime Minister let slip the word he was trying not to say - "rejoice" - the liberal press relived Denis Healey's indignation at Thatcher's "glorying in slaughter" during the Falklands War. I don't know if that charge was ever fair to Thatcher, but it certainly isn't to Blair. After the Kosovo conflict, for example, he carefully said: "We end it with no sense of rejoicing." I think he meant the same this time, but his supernatural powers of verbal discipline failed him.

He is no Thatcherite, as the Powerpoint presentation by his progress chaser, Michael Barber, at last week's news conference proved. You did not have to buy all the bar charts - many of which were not zero-based, giving a more dramatic impression - to recognise that this is a government that believes in higher taxes to pay for public services. And that it is beginning to make the kind of headway, especially in the health service and schools, that the voters notice. Peter Mandelson is a joint architect of this, the most successful proposition in British politics since Thatcherism - and it is definitely a different proposition, not a continuation. Blair, at least, recognises the debt the Labour Party owes him. The party itself, I suspect, never will.