Mark Seddon: Vague words can no longer disguise Tony Blair's betrayal of Labour

'It is his unofficial compact with business which is driving the unions from the party they created'
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Flutter! Flutter! Cluck! Cluck! What is this we hear? Surely not the sound of chickens coming home to roost? Actually, yes – a mighty flock of them.

The softly spoken TUC general secretary, John Monks, warned the Government this weekend that it could face a "haemorrhage" of trade-union votes in the polling booths at the next election. Mr Monks was speaking at a Unions 21 Conference – a more moderate assembly of the union clans it is impossible to imagine. Such genteel company allowed the Secretary of State for Trade, Patricia Hewitt, to caution the TUC leader "against conducting rows through a hostile media without so much as a slow handclap".

Ostensibly, the two had come to blows over that most tendentious of issues which is now pitting the union movement against New Labour, Tony Blair and his new ally, the Italian Prime Minister, Silvio Berlusconi. Mr Monks is opposed to the development of a "two-tier workforce". Outsourced public service workers will lose pension and workplace rights once they have transferred to private contractors – now busily hoovering up secure government contracts throughout the public sector. Ms Hewitt says that the Government will adhere to the deal announced by her jinxed colleague, Stephen Byers, at last year's Labour conference to safeguard those workers being transferred.

So far, so good. But it's just that Ms Hewitt and her colleague, Lord Gus Macdonald – who have been given the task of administering this sugarless pill – keep on prevaricating when it comes to the rights of new workers recruited directly by private companies. The CBI and business don't want these extra "burdens". The TUC, the bulk of its membership now in the public sector, knows that if it cannot halt wholesale privatisation, it must, at the very least, gain some protection for members or risk becoming irrelevant.

Mr Monks is far too polite to say that he doesn't believe Ms Hewitt or Lord Macdonald. But his colleague, Dave Prentis, the General Secretary of the mighty Unison public services union, has become less circumspect. He has read the text of a document agreed by Mr Blair and Mr Berlusconi at a meeting on 15 February. It baldly states that "modern, flexible labour markets require a new approach to employment and the regulation of labour law" (that is, fewer mandatory rules and more "soft" regulation based on benchmarking and best practice).

Cut through the technobabble – as Prentis has – and it is hardly surprising that the union leader fired off this volley late last week: "It is outrageous that Blair is lining up with Berlusconi to attack workers' rights. It is ironic that all Britain can export is privatisation." The French and the Germans, who will most likely oppose the Blair-Berlusconi compact at the Barcelona summit later this week, have not missed this irony. Nor has it been lost on the British Chancellor, Gordon Brown, who is becoming increasingly alarmed by Mr Blair's love affair with neo-liberalism.

This affair has cost Labour dear. It was Mr Blair who wanted to distance New Labour from union funding in favour of "high value donors" such as Bernie Ecclestone and Lakshmi Mittal. It is Mr Blair's unofficial compact with big business which is driving the unions away from the party they created.

Unsurprisingly, the official Opposition has failed to get a handle on all of this. In so far as Iain Duncan Smith has a blueprint for Britain's ailing public services, it is to privatise even more of them. Mr Monks taunted Ms Hewitt over the weekend with a scenario designed to shock her and her fellow ministerial apostates into line. "If the Conservative leadership had the wit to embrace a strong defence of good pensions, and maybe did their own clause four and went for rail renationalisation, they could occupy space to the left of Labour and probably gain huge electoral advantage" .

Wishful thinking, John. There is as much chance of the Tories repositioning themselves as Old Labour, without the socialism, as, well, Theresa May landing more than a glancing blow on Stephen Byers during Transport Questions.

Charles Kennedy, on the other hand, has been actively courting disaffected trade unionists – even going so far as to pen an article for the Labour theoretical magazine, Renewal. "I am certainly willing to have a dialogue with the trade unions," said Mr Kennedy to his spring conference on Sunday, "and I am not sure that you can say the same about Labour any more."

Good old Charles! His party was the receptacle for many disillusioned ex-Labour votes at the last election. Doubtless he will be hoping for more at the next. The trouble is that his party is currently reviewing all of its policies. Fortuitously, the media's tortuous infatuation with Stephen Byers and his errant spin-doctors meant no one noticed that one review had ended the Liberal Democrat's long standing opposition to the private finance initiative. Mr Monks should be warned to sup with a long spoon when he meets Mr Kennedy.

But it is Mr Blair who now finds himself in that most difficult of positions. He may not realise it yet, but the Prime Minister is caught between a rock and a hard place. Attacked from both left and right, he has attempted that old formula of appealing in language that is so general and inoffensive that no one can be offended.

"Reform" and "modernisation", these words graced the swish-looking Government handbook on the future of public services released last week. Those words will have been heard again at Chequers over the weekend – where the Prime Minister still presides over the most united, or some might prefer, supine, Cabinet in a generation. On Tuesday, Mr Blair will take his message directly to handpicked Labour Party members in a venue to be decided in central London.

Once upon a time, that warm glow of New-Labour-speak was enough to calm the palpitating hearts of all but the serial doubters. Not anymore. The Blair-Berlusconi axis has become a triumvirate, with the right-wing Spanish Prime Minister, Jose Maria Aznar, backing the new deregulatory agenda. And Mr Blair hopes that no one is noticing. This is the stuff of scorched-earth politics; no wonder Mr Monks is feeling the heat.