The Week in Politics: Blair welcomes union strife to take focus away from Hutton

So that's all right then. The prospects of a euro referendum will not be affected by the crisis that has enveloped the Government since the death of David Kelly. This is what Tony Blair told us at his press conference on Thursday, when he struggled but ultimately failed to give a "business as usual" message.

My hunch is that Gordon Brown had already prevented a referendum before the next general election anyway when he delivered his "not yet" verdict in June, five weeks before Dr Kelly died. The euro "roadshow" the Chancellor promised then seems more like a cul-de-sac; I haven't noticed it yet.

My point remains valid: how could a Prime Minister who has patently lost the trust of the British people possibly ask them to trust him to take the country into the euro? An already difficult referendum would surely be impossible to win now; it would offer the voters a free hit at Mr Blair without changing the Government, which people do not yet want to do - a sorry reflection, incidentally, on today's Conservative Party. Referendums on European issues in France and Ireland were eclipsed by domestic matters. The same would almost certainly happen here.

Whether Mr Blair likes it or not, the Hutton inquiry has changed the terms of trade in British politics. When he returned from his summer holiday, the Prime Minister resolved that it was too dangerous to leave politics in suspension until Lord Hutton's report in October. He was determined to switch the spotlight back to bread-and-butter domestic issues.

The focus group reports by Philip Gould, his pollster, offered some comfort: although people are worried about spin and trust, they are bored by the mind-numbing, conflicting details of the Hutton inquiry, and want the Government to get back to health, education, transport, crime, asylum and so on.

Mr Blair admits privately that he has "lost a year" of his premiership to Iraq; indeed, the first meeting to discuss the "September dossier" on Iraqi weapons took place a year ago yesterday. He is determined to "move on", although the long list of questions he faced on Iraq and Hutton at his press conference showed how difficult that will be.

The Prime Minister believes that the way he can regain people's trust is to address the issues that concern them. At a summit with his closest advisers at Chequers this week to plan his long-term strategy, Mr Blair said they needed to work much harder to explain the reasons behind his public-sector reforms.

The annual conference season, starting with the TUC in Brighton on Monday, may help him to redirect the political spotlight. Normally, Mr Blair would not relish divisive attacks on his reforms but at least the controversy about them at the TUC and Labour conferences will get his domestic policies up in lights. Left-wing unions sense, correctly, that Mr Blair is in his weakest state since becoming Prime Minister and are flexing their muscles. But they may well be disappointed. The Blairites believe the union hardliners are "whistling to keep their spirits up". Far from being a concession to the union barons, the setting up of a forum to discuss public services with the unions is seen by Mr Blair as a way of replacing their implacable opposition with dialogue. He is quite happy to do business with Brendan Barber, the TUC's new general secretary, a moderniser who needs to mind his back with the brothers but who persuaded the TUC general council to back the forum.

Mr Blair believes the departure of Alastair Campbell, although regrettable, will enable him to change the way he runs Downing Street for the better. Mr Campbell was such a powerful - and effective - figure that there was a tendency for decisions to be put off so that colleagues could "ask Alastair". The Prime Minister also wants to change the informal way of working in No 10. While admirable and popular with staff, it has a downside, with loose ends not tied up and decisions not followed through. Mr Blair wants to bring more discipline, focus and "grip" and the shake-up of his Downing Street staff announced this week is designed to provide it.

Andrew Adonis lost his title as head of the No 10 Policy Unit but will concentrate on his first love, education, as well as public-service reform and constitutional changes designed to restore trust. Geoff Mulgan, the new policy chief, is expected to revitalise the policy effort in the run-up to the next election as well as oversee "blue skies" thinking. He will be helped by the arrival of a new player on loan - Matthew Taylor, a happy gadfly who heads the Institute of Public Policy Research think-tank.

The Civil Service will play a bigger role, not just in overseeing the No 10 communications team. Mr Blair wants to see closer integration between the political and civil service parts of his administration, to improve the overall performance of the government machine.

It sounds fine on paper, but no amount of reconstruction can wash away the unflattering portrait of the Blair regime painted by the Hutton inquiry. And attempts to draw a line under Dr Kelly's death will surely prove impossible until Lord Hutton reports. Meanwhile, the serious problems in Iraq will again force Mr Blair to address foreign affairs.

At the Chequers summit, some advisers told the Prime Minister he had two options: to press on with radical reform but alienate people or play safe but fail in his long-term policy goals. Mr Blair dismissed that as a false choice, and will press on with radical reform in the hope of achieving his aims. For the time being at least, The Project continues.

a.grice@independent.co.uk