Steve Richards: We are about to see the true colours of this government

The fuel crisis is putting New Labour on the spot. But it's not a simple choice between principle and popularity

The gods are taunting Gordon Brown. The Chancellor has spent much of his political life preparing for this pre-election period, for the moment when he could declare that Labour had demonstrated a vote-winning competence. With an almost agonising prudence he avoided an early reckless spending spree, the downfall of previous Labour governments. Unlike Nigel Lawson in 1988, he has not moved from boom to bust. And what happens?

The gods are taunting Gordon Brown. The Chancellor has spent much of his political life preparing for this pre-election period, for the moment when he could declare that Labour had demonstrated a vote-winning competence. With an almost agonising prudence he avoided an early reckless spending spree, the downfall of previous Labour governments. Unlike Nigel Lawson in 1988, he has not moved from boom to bust. And what happens?

Out of the blue comes a different sort of crisis. One for which he had never planned, one for which the past offers no guiding path. So close to the finishing post, the fuel dispute threatens to wreck his best-laid plans. With a Shakespearean flourish, the equivocating gods told him to avoid the mistakes of the past, only to present him with a crisis for which there is no precedent.

That is why Mr Brown has been spending much of his spare time meeting lorry drivers. Some of the meetings have been scheduled. Occasionally Mr Brown has caught the hauliers by surprise, like Michael Aspel appearing behind a door with his big red book. So when the Transport minister, Lord Macdonald, arranged his own meeting with the lorry drivers one Friday afternoon, Mr Brown unexpectedly cleared his diary and popped in, too. It has been the same with the farmers. Several have completed their morning duties, the cows milked and fed, to look up and find Mr Brown beating a pathway to their door.

No doubt these were all meetings for a purpose, or several purposes. Mr Brown only meets for a purpose. He will have wanted to listen, and to show that he was listening. He will also have wished to explain the wider constraints on the Government, although the subsequent statements from some of the hauliers suggest that, on this front, he made little impact. I imagine, also, that the Chancellor was testing out his own initial instincts, that the hauliers' leaders making the most extreme demands in September were unrepresentative; that the self-appointed People's Protesters were speaking only for themselves.

Now he has to act on his findings. On the surface it appears to be an agonising dilemma, testing to breaking point the two sides of Mr Brown's personality. Yes, he is prudent, too prudent at times. But he is also the Government's great strategist. He does not just think in terms of balancing the books. On every issue he seeks to outmanoeuvre the Conservatives, to secure the broadest range of support for his policies. Just as much as Tony Blair, he wants to win a second term.

There is no doubt in my mind that another fuel crisis, combined with the appalling state of the railways and the dreadful weather, would jeopardise the prospects of a big majority. Even the more optimistic Cabinet ministers have been saying to me in recent days that, for the first time, voters are raising questions about the Government's competence. The Dome, the petrol crisis in September, the railways, have all contributed to a sense that Britain has virtually ceased to function.

For this government the competence question is the most damning of all. The aim of the first term, the justification for the caution, has been to demonstrate that Labour can govern competently.

The other aim, the other justification for the caution, has been to hold on to New Labour's broad support. Mr Brown has been as vehement about this as Mr Blair although he has somehow managed to convey the impression that he is more ideologically driven than the pragmatic Prime Minister. When Peter Kilfoyle resigned from the Government, protesting about the neglect of Labour's heartlands, it was Mr Brown who told the Cabinet not to fall into a trap. Labour must be seen to govern for the country, not just the heartlands, he said.

Presumably by this Mr Brown meant, partly, that New Labour must be seen to govern for the car lovers, the train passengers and the environmentalists. Again, as much as Mr Blair, he has tried to keep nearly everyone happy. After all, it was Mr Brown who, in his last Budget, with the motorist in mind, scrapped the fuel escalator.

So, how does he please nearly everyone now? There are times when Mr Brown's prudence and his desire to win a second term march as one, when to be financially prudent is the correct course politically. Strangely, this is the case with the fuel dispute. To remain popular with the People, the Chancellor must take on the People's Protesters.

The panic petrol buying of recent days, with mad car lovers rushing to fill their tanks as if they were feeding starving babies, distorts the picture, giving the false impression of impending doom. In reality this is a battle the Government can easily win.

If the protesters attempt to cause disruption for a second time, they will receive no support from any political party or a single newspaper. The protesters' leaders are split over tactics and lack the capacity to surprise. This time the Government has had time to prepare.

Politically, the Tories are in no position to gain from a fresh confrontation. Their offer of a 3p cut in fuel duty is nowhere near what the protesters seek. What is more, the proposal put some additional strain on the Hague/Portillo relationship. It was William Hague who insisted that the Conservatives proposed a specific cut in fuel duty, against the instincts of Michael Portillo. The shadow chancellor wanted to appear more "prudent", a word he uses almost as much as Mr Brown. He did not wish to respond with such unseemly haste to the chaos caused by the protesters. The Hague entourage sought some blazing headlines, although it failed to get many.

On all fronts the ground is clear for Mr Brown to stand firm and offer a small package of relatively inexpensive measures. My worry is that, for all the spin of recent days, he will be excessively generous; that the spin is aimed at making the Government appear more defiant than it really intends to be.

So far Tony Blair and Gordon Brown have conducted a deceptively artificial debate, explaining why they can't meet the protesters' demands of a cut in fuel duty of 26p. But no one, not even the most extreme protester, expects them to make such a sweeping reduction. The protesters admit that the 26p cut is a bargaining position. On the other side, while Mr Blair sounded tough at Prime Minister's Question Time last week, he also added that "We will do what we can."

Mr Brown's successful stewardship of the economy means that, in theory, they could do quite a lot. But the Chancellor has better causes on which to spend his money than cheaper petrol, as the flooding this week has demonstrated (who was surprised that anti-flooding devices in most areas were bought on the cheap and found to be virtually useless?). Reviving Britain's public services and infrastructure should be Mr Brown's priority. The fuel dispute is a great big red herring.

On one level the equivocating gods are smiling on Mr Brown. They have presented him with weak opponents who appear stronger than they really are. They will not be so kind if he concedes more than he has to this week.