Ministers plot to challenge Blair

SENIOR CABINET members are to challenge Tony Blair over the direction he intends to take the Government after Peter Mandelson's resignation.

The Independent has learnt that some senior cabinet ministers plan to use the departure of the chief architect of the "New Labour project" as a cue for reassessment. They are already holding private discussions over the future direction of the Government.

The revelation comes as Mr Blair flew out with his family to the Seychelles last night for a new year holiday. He had considered cancelling the trip but was urged not to by colleagues. "He's tired and needs a break," said a key minister.

He left behind smouldering divisions within the Cabinet after insisting in a BBC radio interview that the "New Labour project" would continue without Mr Mandelson because it was "bigger than any individual".

Mr Blair's remarks were intended to distance him from Mr Mandelson. He told colleagues: "Peter will not be happy." But it emerged that Mr Mandelson had spent Wednesday night at Chequers with Mr Blair after announcing his resignation.

That left cabinet colleagues confused about the Prime Minister's intentions about Mr Mandelson, and some cabinet ministers saw Mr Blair's remarks yesterday as an open challenge to them.

Accepting the pivotal role Mr Mandelson played in modernising his party, Mr Blair said: "There will be a certain number of people who will be foolish enough to think that Peter's going means that somehow there's some blow to the project of New Labour." But he insisted: "That goes on. We got elected as New Labour, we'll govern as New Labour." And he said his promotion of three modernisers - Alan Milburn [Chief Secretary to the Treasury], Stephen Byers [Trade and Industry], and John Denham [Health minister] - was a further signal that the modernisers remain on top.

Another cabinet source said: "We support New Labour policies but we are very opposed to this Liberal-Gladstonian agenda. We are not talking about going back to the old Labour. But we want to get rid of the froth of the spin doctors."

One sticking point is the closer relations with the Liberal Democrats, as part of the anti-Tory project associated with Mr Mandelson. If this is reversed it could leave Paddy Ashdown, the Liberal Democrat leader, exposed.

Cabinet ministers said to be opposed to coalition include Jack Straw, the Home Secretary; David Blunkett, Secretary of State for Education and Employment; the Chancellor, Gordon Brown; and John Prescott, the Deputy Prime Minister. Mo Mowlam, the Secretary of State for Northern Ireland, is also said to be opposed.

Robin Cook, the Foreign Secretary and a leading PR supporter, is also seeking to strengthen his alliances in the Cabinet. He spoke to colleagues last week in search of support before the publication of a book by Margaret Cook, his ex-wife.

The Chancellor was under increasing pressure to dismiss Charlie Whelan, his spin doctor, suspected by the Mandelson camp of leaking details of thepounds 373,000 loan to Mr Mandelson from Geoffrey Robinson, the former paymaster-general, which led to their resignations.

Robert Harris, best-selling author of Fatherland and a close friend of Mr Mandelson, disclosed yesterday that he had considered buying a house in London with a flat for Mr Mandelson - which could have avoided the rumpus over his Notting Hill house - but opted for a place in the country.

Sources said Mr Mandelson would pay back the loan to Mr Robinson with interest "early in the new year" using money from his mother and his family. He could still be in trouble over his mortgage application for failing to disclose the secret loan. He has written to the Britannia Building Society, from which he borrowed an extra pounds 150,000, setting out his financial arrangements and asking for its views.

His friends said he is considering making a personal statement to the Commons when it returns next month, but did not want retribution against the Brown camp. The Chancellor checked over the content of Mr Mandelson's resignation letter with him. A spokesman said: "They spoke three or four times on Wednesday. Gordon came back with a few changes. As far as the relationship with Gordon, it is fine."