If you've been away, I'm sorry but you've missed the general election

In case you missed it, that was the general election. What follows is 10 weeks of phoney war before the Prime Minister goes to Buckingham Palace on 7 April, followed by four weeks of even phonier war known as the election campaign. But last week the parties settled on the policies over which the election will be fought. The Conservatives published their spending plans. Charles Kennedy gave a speech saying that the Liberal Democrats were the real opposition. And the two wings of the Labour Party had a scrap over what to put in its manifesto.

In case you missed it, that was the general election. What follows is 10 weeks of phoney war before the Prime Minister goes to Buckingham Palace on 7 April, followed by four weeks of even phonier war known as the election campaign. But last week the parties settled on the policies over which the election will be fought. The Conservatives published their spending plans. Charles Kennedy gave a speech saying that the Liberal Democrats were the real opposition. And the two wings of the Labour Party had a scrap over what to put in its manifesto.

The struggle over the Labour manifesto is what matters most because that will decide what the election will mean if Tony Blair is re-elected. Nothing is certain, but it would take the equivalent of the foot-and-mouth outbreak to shift the date of the election, and it would require the equivalent of the ERM crisis of 1992 to derail the progress to victory of the Labour juggernaut. If the opinion polls are right, Blair's majority will be around 120. Given that they tend to over-estimate the Labour vote and under-estimate the Lib Dems, it may be more instructive to look at where betting people are prepared to put their money. The bookmakers currently expect a Labour majority of 70 to 80.

If a third Labour term is what we are likely to get, what will it mean? That has now been more or less decided. The Prime Minister gave us a clue in his New Year interview with Sir David Frost, when he used the curious phrase "unremittingly New Labour" to describe the manifesto. Silly me, I thought he meant that the party's programme would be an uncompromising attempt to get up the noses of Gordon Brown and John Prescott. I should have known, after studying Blair for so long, that what the phrase really meant was that the policy battles were going in Brown and Prescott's favour. What it meant was that Blair was trying to put a modernising gloss on a string of victories by the forces of conservatism over his vision of New Labour.

Two victories in particular. One, the more ambiguous one, was the scaling back of the planned introduction of a real internal market in the health service. Starting in April, most of the income of NHS hospitals was supposed to come from a system of "payment by results" under which they would receive a fixed fee for each course of treatment. With less than three months to go before the expansion of this experiment, John Reid, the Secretary of State for Health, decided not to risk such an ambitious change. The new system will now be so phased that it covers only about 30 per cent of hospital income rather than 70 per cent.

Reid has insisted that, although the first phase will be more gradual, the end point of the payment-by-results reform must be completed to the original timetable. And it makes sense to proceed cautiously, given the scale of the health service and the unpredictable effects of reform. Opening up the NHS to a range of providers, most of them currently part of the NHS but many of them coming in from the private sector, is a vast undertaking.

The reforms were always bound to meet resistance from those with an interest in the existing structure. Now they have. Reid faces a coalition that stretches from Unison, the public service union, through the BMA, the doctors' union, to the strategic health authorities, who can see their planning functions withering away as power is devolved to patients.

What was surprising was that the Department of Health announcement was made in the middle of the huge fuss over the Chancellor's alternative vision for the country set out in Robert Peston's book, Brown's Britain. The book re-states Brown's hostility to the use of market forces in healthcare. Yet no one related it to what was happening in the real world. The Chancellor must have been on his best behaviour because no one sought to claim on his behalf that the postponement of part of the health reforms vindicated his view.

We shall see whether it does or not, because the reforms will go on. We are hitting a crunch point, as New Labour finally meets the forces of conservatism, both inside and outside the party. Reform is never going to go as fast as it should. But the argument has been essentially won in the health service.

Not so in housing, the scene of the conservatives' second victory. John Prescott has beaten off the other deputy prime minister, Alan Milburn, over the right-to-buy for housing association tenants. This may seem a minor dispute but it is fundamental. In health, the guiding principle is "the patient, the patient, the patient". In the plans to be published tomorrow, the principle is not going to be "the tenant, the tenant, the tenant", but "protecting the stock of social housing". Some kinds of tenants are not going to be allowed to buy the homes they live in, even at market rates, because that would be sacrilege to the Old Labour faith. If middle-class liberals with mortgages want more social housing, they should argue for that on its merits, instead of trying to stop other people having the same benefits of ownership as them. Some of the ghosts of Eighties Bennism are proving surprisingly difficult to exorcise.

Hence Blair's recourse to the clever use of language to hide his failure to secure as much of a New Labour manifesto as he wanted. It was interesting, too, that last week Ruth Kelly, the new Secretary of State for Education, used her first interview to say two things: "Every school should have the chance to manage its own assets to become autonomous." And that she wanted to "use competition to find the best provider of new schools". Unremittingly New Labour, indeed, but merely rhetoric at this stage. The policies have already been decided by her predecessor, Charles Clarke, who gently resisted Downing Street's rush to have as many autonomous city academies as possible.

More than Blair will represent, therefore, Labour's manifesto will be a compromise between radicalism and consolidation. It may seem surprising that there is such conflict within the Cabinet so close to an election. But Blair has learnt the lesson of drift last time. Before the last election, he gave too little attention to working on the policies for the second term. This time, he was determined to press for "market-based" means of achieving the party's egalitarian goals. The muffled sounds of conflict within Whitehall are evidence that the real result of the election is being decided. Blair has got less of what he wants than he pretends, but he has got much more than last time. He has pushed the New Labour envelope as far as he dared, so that the direction of change is clear, even if the pace is too slow. The process of negotiating the compromise is almost complete. If you define an election as a moment of choice when the future course of the nation is decided, that was the general election. You missed it.