John Rentoul: Mandy for deputy? Not a chance

The presence in the Cabinet of Peter Mandelson does not mark the end of the Blairite-Brownite rivalry

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Peter Mandelson is back and Labour is one big happy family again. Blairites have lain down with Brownites. New Labour is not dead; it has been updated for new times. The economic crisis has brought the party together, with Lord Mandelson of Foy and Hartlepool as the symbol of its unity.

Don't believe it. Deputy prime minister, indeed. Mandelson may be at the centre of things again. He has been brought back to life in the most implausible plot device since an entire season of Dallas turned out to be Pam Ewing's dream. Despite being written off twice as a washed-up figure of fun, he retains a teasing and playful relationship with the media trade and enjoys the limelight. As the nation was convulsed by the pre-recessionary displacement activity of talking about John Sergeant's resignation from Strictly Come Dancing, Mandelson joined in with a plea to Sergeant to reconsider.

But he is not as important in Gordon Brown's Government as he is portrayed, and he has no purchase in binding Old and New Labour except by power of suggestion.

Of course, his power of suggestion is more powerful than that of most ordinary mortals. Last week, he positively sparkled as he gave a lecture about the economy, saying that what would emerge from the crisis would be a "consolidated financial services sector" – adding, "that means smaller". When he came to the vacuous but important-sounding line, "the world of 2008 is simply not the world of 1997", he added: "That was a more innocent age, before I met ... my first oligarch."

It was a self-consciously "important" speech saying that the depth of the economic crisis has changed the normal political dividing lines. Or, as Mandelson put it, that it "will change the mindset of a generation". One of those lines was that between Labour's "smart strategic state" and the "small government" approach of the Conservatives, he said. But the other effect of the crisis was to erase the dividing line between Old and New Labour.

He said last weekend: "I have made it possible to calm nerves, cheer colleagues up and make people feel they can sit round the same table again without being Blairite or Brownite." His speech tried to give this some ideological respectability, attempting to reconcile free-market Blairism with interventionist Brownism.

Mandelson is not a political philosopher; he is an operator. And a good one. And he is a good minister. But he cannot reconcile the irreconcilable. "I want to argue not for larger government, but for a more capable, strategic state that works with markets," he said in his speech. Recalling the old saying that everything before the "but" is bullshit, he was in effect arguing for larger government. He has abolished the divide between Old and New Labour by defining New Labour as Old Labour.

There is, certainly, superficial evidence of ideological convergence. Last weekend, the Lord of Foy presided over the annual conference of Progress, the Blairite grouping. Three other cabinet ministers spoke: James Purnell, Ed Miliband and Hazel Blears. Despite Miliband's status as the fraternal delegate from the Brown camp, all four sounded as if they belonged to the same party. All expounded variations of the old German social democrat slogan, "the market where possible, the state where necessary".

Purnell, the Work and Pensions Secretary whose welfare reforms were the main event of the Queen's Speech, even said of the unlikely signs of the times: "A new Labour government signals an increase in the top rate of tax and is thought to hint that nationalisation of the banks remains an option. Peter Mandelson thinks it's all a good thing. Truly, you never stop learning."

But he went on to deny that "a fair sharing of the tax burden" marked "the death of New Labour". On the contrary, he said, "It's a pragmatic response to a crisis." Blears also supports the 45p-in-the-pound rate on incomes over £150,000 from 2011 that Alistair Darling announced last month. She told me afterwards: "People will go through hard times if they think it is fair."

Opinion poll reaction to the emergency Budget has been inconclusive, although the Brown Bounce still seems to be bobbling along. Yet the improvement in Labour's position owes little to a coming together of Blairites and Brownites, or to Mandelson's return to the Cabinet. It owes everything to the latest phase of the financial crisis, which began when Lehman Brothers went bust in mid-September.

The economic emergency has given the Government something to do. What it has done makes no sense in relation to New Labour's past, which was all about golden rules, prudent public finances and a dynamic market economy. But at least Brown has been doing things. Apart from the 45p tax rate, there is nothing principled or ideological about Brown's response to the crisis. The argument between Labour and Tory was whether to stimulate the economy by borrowing £100bn or £118bn. And most Blairites – but not, I suspect, Blair himself – accept the argument that the highest earners should bear a (mainly symbolic) extra burden when it comes to repaying the difference.

But dig down and the differences are plain. Tessa Jowell, the Blairite demoted from full cabinet status but still allowed to attend, said of the 45p rate last weekend: "It is important to make clear that this is not the thin end of the wedge."

The idea that Mandelson, the master magician, has provided a philosophy that transcends Old and New Labour is unconvincing. His one policy contribution so far has been to refloat the idea of adopting the euro. Pointless, distracting and unpopular.

Nor does it seem likely that his closeness to Brown will be sustained at the current level of intensity. He certainly sees a lot of the Prime Minister now, but so did Stephen Carter once, who lasted for nine months as Brown's "chief of strategy and principal adviser", and who is now Mandelson's junior minister in the House of Lords.

Brown's is a unipolar government: he has neither a formal Deputy Prime Minister nor a "real" deputy PM.

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