The Week in Politics: Blair's few crumbs of comfort as Midas touch deserts him

As cabinet ministers gathered in Downing Street for a three-hour meeting on Thursday, they were already composing their excuses in the expectation of a humiliating defeat in the Brent East by-election.

Recalling previous Labour victories when the Tories were in power, ministers found a crumb of comfort: at least the Liberal Democrats, rather than the Conservatives, would win Brent East. "The Liberal Democrats are not the alternative government, they are just an alternative opposition party," one cabinet minister said.

But it is only a small crumb. Although governments often suffer a bloody nose in mid-term by-elections - and Labour has enjoyed a remarkable run in avoiding a by-election defeat for 15 years - something has changed, probably for ever. Tony Blair's unique selling point to his party has been his invincibility in elections.

If Labour had scraped home on Thursday, Mr Blair's Midas touch would have been intact. Now it has gone, and so more Labour MPs and party activists will ask the question already on some lips: "What is Tony Blair for?" Many sceptics were prepared to swallow their distaste for what they regard as a vacuous New Labour project because Mr Blair was a vote winner.

Of course, the Brent result will not be replicated at the next general election. But the timing is bad for Mr Blair. His enemies are already circling over the Iraq war, the David Kelly affair, foundation hospitals and university tuition fees. Now they have another stick with which to beat the Prime Minister.

Labour MPs who campaigned in Brent believe the party was hammered over Iraq rather than public services. Their verdict is that anti-war sentiment mixed into a dangerous cocktail including lack of trust in Mr Blair and complaints about "spin".

All of this unfurls a difficult backdrop for Labour's annual conference in Bournemouth, starting a week tomorrow. Mr Blair will have two messages: while there will be "no retreat" on his reforms, he will emphasise that the aim is to deliver the traditional Labour goal of "social justice".

The Prime Minister knows he must tackle the criticism that injecting market forces and choice into the public sector will result in two-tier services. His aim, he insists, is the opposite. "We will only tackle inequality among the poor and in public services if we reform services in order to tackle under-performance and under-provision," a Blair aide said yesterday.

This message rarely comes over and Mr Blair believes the Government must work harder to ensure it reaches the public and the party. He has also signalled that he will "listen more", run a more collegiate system giving the cabinet more influence and stop being a one-man band. Ministers will try to turn the Labour conference into a choice between Labour and the Tories. But they admit privately that the media will focus on Labour's internal divisions. "We want to make it red versus blue, but it will look like red versus red," said one Labour official. Mr Blair could suffer a string of defeats on issues such as Iraq, hospitals, university fees and workplace rights.

In an attempt to reconnect with his party, Mr Blair will promise to give it a real say in the Labour manifesto for the next election. Party activists will be sceptical, and rightly so. He has made similar noises in the past but little action has followed.

When the conference is over, the ominous shadow of the Hutton report will eclipse "normal" politics until November. Mr Blair, who acknowledges he has devoted too much time to foreign affairs, tried to return to domestic issues last week. But the Queen's Speech on 26 November is seen in No 10 as the first available launchpad for a fightback. "We are in a state of suspended animation until Hutton reports," one minister told me.

In contrast, the Liberal Democrats are flying high. Brent East provides the perfect platform for their annual conference in Brighton, starting tomorrow. Although Charles Kennedy's party came third at the 2001 election, the territory in Brent enabled them to appeal to disenchanted Labour supporters to the left of Mr Blair and people who opposed the war, notably in the Muslim community.

It will still be hard for Mr Kennedy to translate this into more seats at the general election, when his party's best hope of advancement lies in winning more Tory rather than Labour seats. Many Tory MPs will have a nervous shudder after Thursday, but I doubt the Liberal Democrats are yet in a position to become the real opposition.

The Tories' poor showing in Brent has already prompted new rumblings about Iain Duncan Smith's leadership. One senior MP said: "This wasn't an opinion poll, it was real people casting real votes at the ballot box. It is appalling that we weren't even in the race." But as yet, no Tory MP is ready to leave his fingerprints on the dagger.

a.grice@independent.co.uk