Authors: Tom Bower
Another dampener came at a summit in Luxembourg. Since Britain, according to its chancellor, was not joining the euro, Blair was excluded from discussions about the currency among Europe’s other leaders. Inevitably, Campbell would brief newspapers that Britain’s prime minister had scored a victory, leading to headlines such as ‘Blair Wins’, accompanied by Campbell’s concoction that Blair and Brown were a dream team. Brown was not pleased. ‘I have to tell you bluntly’, he told Campbell, ‘that this will be very bad if it’s seen as Tony succeeding where I have failed.’
Brown’s bigger problem erupted on 29 November. Chris Blackhurst, a respected journalist, reported in the
Independent
that the fortune of paymaster general Geoffrey Robinson was linked to a multimillion-pound secret offshore trust in Guernsey. Brown had repeatedly pledged sanctions against Britons who evaded tax by burying their millions in tax havens. In their conversations together, Robinson had been unapologetic about his undisclosed trust. He had reason to feel confident.
Just four weeks after the Ecclestone affair had subsided, Blair had bowed to Brown’s advice that neither of them could demand unvarnished honesty from their benefactor. Both hoped that Terry Burns, the permanent secretary at the Treasury, would lie to protect the paymaster. To their disappointment, Burns refused. While Robinson obfuscated, Blair nevertheless defended his man. ‘Geoffrey Robinson’, he told the Commons, ‘is an exceptionally able minister.’ Without asking for an investigation of Robinson’s finances, he added that it was not
‘remotely clear’ that his benefactor had avoided taxes. ‘He has probably paid more UK tax than either you or me,’ he taunted the Tories.
By Christmas, the row seemed to be over. Newspapers retreated under Robinson’s threats to sue for defamation. Polly Toynbee described him in the
Guardian
as ‘an honest man’; Campbell declared, ‘He is staying’; while Blair said, ‘I do not want a war with Gordon.’
Since the election, there had been no respite. After Christmas at Chequers and the anguish of seeing his father becoming speechless as a consequence of a stroke, an exhausted Blair flew with his family to the Seychelles for a week’s holiday in a rented plantation lodge. On one evening beneath the palm trees, he was Richard Branson’s guest for a dinner prepared by the chef of the former Shah of Persia. From the beach, he issued a New Year’s message that Labour would ‘tackle the problems of poverty’. He returned on 5 January, saying, ‘We need a strategy for the party.’ He might have added, ‘And for its senior members.’ Three days later, while he was flying to Japan and writing a long memorandum to himself about education and welfare reform, Westminster was convulsed by the publication of a sympathetic biography of Brown by Paul Routledge.
The book’s sensational disclosure was that ‘Gordon Brown is convinced he could have beaten Tony Blair in a contest for Labour’s leadership and that the prime minister broke a secret pact between them.’ Routledge alleged that Blair had agreed before 1994 that Brown would be prime minister first, and only afterwards would it be Blair’s turn. Brown’s accusation of betrayal dominated the news. Blair called him from Tokyo. The chancellor repeated the denial he had already made in public: that he had not co-operated with Routledge. Unfortunately for him, his handwritten corrections were scattered across the copy of Routledge’s manuscript held by the publisher. ‘He’s a sad, sad man,’ Blair told Campbell. ‘He will never, ever get over it.’ He did not, however, publicly deny the story that day, although he would subsequently dismiss Brown’s version.
While Blair sat out the storm, news came that Margaret Cook had
simultaneously published a book damning her adulterous husband Robin. ‘Do you realise’, Blair said to Campbell, ‘we are carrying the whole show, you, me, one or two others?’ Referring to Cook, he added, ‘I’m surrounded by these weak vessels who can bring the rest of us down.’ Amid the media furore, trivialising what journalist Simon Jenkins called ‘an intriguing guide to the chancellor’s dudgeons and grudge’, no one highlighted that Blair’s government was being sabotaged from within. To rectify that situation, Campbell summoned Andrew Rawnsley of the
Observer
. Referring to ‘someone who has an extremely good claim to know the mind of the prime minister’, Rawnsley was soon reporting that ‘It is time, in the words of the same person, for Mr Brown to get a grip on his psychological flaws.’ Naturally, when Campbell was asked about a split, he would deny ‘silly and counterproductive’ claims of a rift. A ponderous leader in
The Times
describing ‘a chastened chancellor’ made it clear that even the media was underestimating the battle. But the primed grenade had been thrown into the room. Now Blair and Campbell waited to see whether Brown would be silenced.
Blair sat at the next Cabinet meeting with a rictus smile. One of his strengths was his ability to conceal his anger. His even temperament betrayed no stress. Along the table was Harriet Harman, who ‘complained interminably’ and was ‘impossible’. Then there was the preening Cook, failing to apply himself to the grind of governmental work, and near to him was Brown, furiously scribbling and refusing to participate. Behind him sat Richard Wilson. The Cabinet secretary had advised Blair to strengthen his position by forging alliances with other ministers in committees. Blair had ignored the suggestion. He was untroubled by his tendency to divide rather than unite his Cabinet, or indeed his party. Besides eight Cabinet ministers and his loyal Downing Street staff, he had little interest in those regarded as his obedient flock. He would drive all his reforms from his office. ‘Tony was not a natural chairman,’ wrote Powell. ‘He didn’t as a rule feel bound to follow an agenda or sum up the discussion.’ Modernising depended on destruction. He was bored by process. He feared descending into the world of delegates
at the UN reading out prepared briefs. He would not allow tedium to prevent change. No minister would dare challenge him, except Brown, and he was even refusing to discuss his Budget. To show his contempt, the chancellor let Blair discover his thoughts by reading the
Guardian
, and rather than mend fences, displayed his resentment by authorising Charlie Whelan to express his intention to ‘put the boot into the bastards to prevent them getting away with murder’.
Those sentiments reflected Brown’s predetermined reaction to Robertson and Guthrie as they enthusiastically unveiled a draft of the defence review in late February 1998. Their script recounted the military’s ‘strategic mobility’ to provide ‘power projection’ across the globe. The two new aircraft carriers were described as indispensable because, ‘in almost all operations, maritime forces will be essential to help deliver ground forces to the theatre’. Britain’s military would be equipped to fight simultaneously a major battle and a small engagement of limited duration, or fight two medium-sized conflicts concurrently.
All this appealed to Blair. Unlike Margaret Thatcher and John Major, he had not required his staff to provide a comprehensive briefing to explain Britain’s military capabilities. Since his election, he had sat only once with the chiefs for a ninety-minute discussion and, as they themselves later noted, he had not asked the kind of technical questions posed by his predecessors. Blair appeared uninterested in scrutinising the consequences of fundamental changes.
Thirty years earlier, Britain had withdrawn its military from any engagement east of Suez. Now, Blair ordered a return, without asking about the additional cost of protecting his aircraft carriers from an attack by a land-based missile. His principal adviser remained Guthrie, whom he had grown to trust over drinks. ‘Charles,’ a voice from Downing Street would say, ‘would you come over? The prime minister wants a word.’ During their conversation about the strategic defence review, the two men never discussed the carriers. The undiscussed dilemma, Guthrie must have known, was finding the additional billions of pounds to organise an unprecedented naval task force.
The next step caused some trepidation. George Robertson was required to present the defence review to the Cabinet for their approval. As Blair feared, it was John Prescott’s question that exposed his minister’s weakness.
‘Why do we need the bugger?’ he asked, referring to the nuclear deterrent. ‘How many targets can we even hit?’
‘Four,’ replied Robertson, muddling up warheads, missiles and targets and ignoring his briefing paper, which showed that Britain’s missiles could hit about 150 targets. Nevertheless, the new policy was approved. After the meeting, Blair told Robertson, ‘It’s best if you don’t brief the Cabinet again.’
Robertson was due to present the final draft of the review to the Overseas Policy and Defence Committee (OPX) chaired by Blair on 27 March. Although Brown had already made a habit of not attending OPX meetings, refusing to discuss budgets except on his terms, this one was too important to ignore. In anticipation of the chancellor’s disapproval, Admiral Essenhigh had been asked at the last moment to make the twenty-minute presentation rather than Robertson. His staff, ‘helped by a bottle of sherry’, had prepared the PowerPoint slides about the expeditionary forces. At the end, Brown burst from his sulk and snapped, ‘I thought we’re here to discuss the budget, not this stuff.’
‘Brown sent me looks which could kill,’ Essenhigh would recall. ‘Filthy and grumpy.’
‘Any money spent on defence’, volunteered Clare Short, ‘is wasted.’
Blair looked helpless. He had not read his brief nor discussed the restructuring of Britain’s defence and foreign policy with the chancellor. ‘Before they get to the money,’ he said, ‘they need guidance on core principles.’
‘We need to save money,’ said Brown.
The meeting was heading towards the buffers. ‘Prime Minister,’ interrupted Essenhigh, ‘could we just look at this slide again to remind the committee? It is the heart of the argument.’
‘Yes,’ said Blair, ‘and leave it up.’
He at last began following Essenhigh’s briefing note, which highlighted the questions he should ask, and also the script for his concluding remarks. Both the review and the budget were approved. Brown appeared to have been defeated. ‘You saved the day,’ Robertson, who had floundered against Brown’s unanticipated attack, told Essenhigh as they walked across Whitehall after the two-hour meeting. The military officers were unimpressed. Neither the prime minister nor his ministers seemed able to run or lead.
The following day, Brown insisted on saving a further £200 million a year from the defence budget. Robertson appealed to Blair. ‘Sort it out with Gordon,’ came the answer. Robertson was unprepared to challenge Brown as his officials lacked the Treasury’s computer models to analyse their own budgets. To try to help his beleaguered minister, Blair called Brown early one morning but was rebuffed. The defence review was paralysed.
‘It’s an absolute disgrace,’ Guthrie told Blair in Downing Street, three months after the OPX meeting. ‘We did what was required.’
‘Oh, it’s not as bad as that,’ interrupted Jeremy Heywood, Brown’s principal private secretary.
‘You’re not important,’ said Guthrie sharply. ‘You’re the Treasury erk [
sic
].’
‘Yes, we must do something,’ said Blair. ‘This is putting me in an extremely difficult position. Please go to Gordon and fix it.’
‘It’s your job to get Brown to deliver what he agreed,’ countered the general.
‘Politics doesn’t work like that,’ concluded Blair. He had decided to limit the number of arguments about money with Brown to ten per year.
‘Brown’s against it’, thought Guthrie, ‘because Blair’s for it.’
Guthrie confronted Brown. After a bitter exchange, he left No. 11 with the promise of a nine-figure increase to the defence budget. ‘The £100 million soon disappeared,’ Essenhigh would later say.
‘Enough is enough,’ declared Robertson, knowing that Blair had
refused to become further involved. Essenhigh was asked to produce a final budget. After all the grandiose promises about a new era, the review was reduced to horse-trading between the three services. Over a weekend in July 1998, Essenhigh made what he would call ‘heroic assumptions’ to bridge the funding gap. Instead of a £200 million shortfall every year, he calculated the annual gap was over £2 billion. He squared the circle by making cuts based upon untested efficiencies and aspirations of ‘smart procurement’. The sorry result was endorsed by Blair.
Those invited by Robertson to celebrate the publication of the strategic defence review booklet at a party in Whitehall spoke about a new era. ‘A change of flavour,’ said one admiral, thrilled that the British fleet would once again be sailing east of Suez. A government spin doctor conjured the hymn for the new dawn: ‘Go first, go fast and go home.’ No one questioned the revival of imperial expeditions or mentioned the obvious weakness: the military had not been ordered to devise plans for any stated objective. An army sent to war without a goal was doomed to fall off the cliff. But the abundant mention of ‘strategy’ satisfied Blair that the nation’s defence was in safe hands.
By June 1998, Blair had realised the error of many of his ministerial appointments, not least at the DTI. That month, he accepted an invitation from Michael Scholar, the permanent secretary at Trade and Industry, to visit the demoralised department for half a day. The principal problem, he soon realised, was Margaret Beckett, a tribal politician whose hallowed status within the Labour family fed his fear that she would join with others to revive old Labour.
Blair had arrived in Downing Street with little thought about an energy policy. Having served briefly as the shadow minister, he believed the subject was uncontroversial. Oil prices were low in 1997 – about $18 a barrel – and most experts assumed that the world would continue to enjoy an oil glut for many years. To please the party’s left wing, he could afford to appoint John Battle, a former councillor in Bradford, as the relevant minister serving under Beckett.
During his first telephone conversation with Blair, Battle was told to stick to the party’s election manifesto. The formula was bland. ‘We want secure, diverse and sustainable energy at competitive prices,’ Battle would say. Although the party was committed to reducing carbon dioxide emissions by 20 per cent by 2010 – a tougher target than would be agreed at Kyoto – the high costs had deterred Blair from giving government support to renewable energy from wind and solar panels. For the same reason, he approved the moratorium on the building of new nuclear power stations, as announced by the Tories in 1989. Accordingly, other than platitudes about conservation and greener power stations,
Blair’s only instruction to Battle was to protect the coal mines’ supply to the stations for as long as possible. That, he knew, would be a problem because, compared to other fuels, British coal was expensive and un-green.
Battle’s first days at the DTI’s headquarters had ruffled feathers. The new minister had instantly denounced his officials, although there were few to criticise as the energy section had been run down by the Tories. Those few experts who remained found Battle immune to the complexities of the electricity market and the generation of power. ‘He was’, noted Michael Scholar, ‘strangely blinkered and distrustful of civil servants.’
Scholar’s initial unease had been placated six days after the election by Blair’s introduction to all the permanent secretaries at the Wednesday-morning meeting. Like most of his colleagues, Scholar had walked back into Whitehall afterwards feeling inspired. In calculating his own priorities, he assumed that Blair intended to continue the policies designed in 1982 by Nigel Lawson.
Lawson had believed in allowing competition to dictate Britain’s supply. The welfare of consumers, he said, was better served by the market than by a government. After the miners’ strike was defeated in 1985, the Tories, supported by Labour, privatised the gas and electricity industries. Both were subject to regulators who encouraged the new companies to earn high profits in the hope that the ‘market for energy’ would attract investors and spark competition. Those expectations did not materialise.
The new owners had inherited an excess of power stations – nuclear, coal- and gas-fired plants. They invested very little and pocketed huge profits. Then electricity prices plummeted. Convinced that the halcyon days of gas supplies from the North Sea were permanent, in 1992 the Tories abolished the Department for Energy and inserted the remnants into the DTI. Everyone was satisfied. Britain’s economic growth was based on cheap electricity, and its suppliers continued to earn good returns. Both Blair and Gordon Brown endorsed Britain’s market as
the most open in the world. Their one act of retribution on the ‘benign neglect’ of the Tory years was to impose a £5.2 billion windfall tax on all the privatised utilities, including the power-generating companies, in order to recover some of their excess profits and to finance three of Brown’s passions: the introduction of winter fuel payments for the elderly; the New Deal, a welfare-to-work programme for the long-term unemployed; and the financing of a University for Industry, which developed into an expensive flop. The only outcry was Battle’s tribal criticism of the free market for causing ‘havoc’ to the coal industry.
British coal’s fate was threatened by the construction of new gas generators. The Tories ‘dash for gas’ meant 41 per cent of the nation’s electricity was now generated from coal, down from 74 per cent. Britain’s coal mines faced bankruptcy. ‘Irresponsible’, was Battle’s judgement to the Commons. ‘I have stopped it,’ said the new minister.
Coal’s fate was first considered after the election by a Cabinet committee chaired by Brown. The single meeting (it did not meet again) ended without a decision. Disdainful of the Cabinet machine, Blair summoned another gathering in March 1998 to hear Anna Walker, the DTI’s director of energy, describe her plans for a review. Blair, the chief executive of Britain plc, sat in shirtsleeves holding a latte; his ministers, he expected, could settle the dispute with quick decisions.
By then, any confidence he had in Battle had evaporated. The junior minister, he was told, lost official briefing papers in his chaotic office and struggled to distinguish between the important and the trivial. Beckett seemed unwilling to compromise. She asked few questions, proposed no original policies and denounced her civil servants for any mistakes. Her officials replied that ministers were always presented with options. In the DTI, however, the traditional practice had been interrupted ever since Beckett had written insulting comments to one official for advancing an argument supporting the free market for gas. She suspected he was a Tory and, despite Blair’s support of markets, displayed her disagreement through earthy comments. The result was a stand-off that encouraged Beckett to sidestep her department. Senior
civil servants discovered that she and John Prescott were meeting without their knowledge to discuss the fate of the nuclear industry.
‘This is absolutely, deeply shocking,’ Scholar told Beckett.
‘Well, that’s the way I’m doing it,’ she replied.
‘It’s going to be a disaster if you carry on like this without information.’
‘Where would I get information from?’
‘From the experts in this department.’
‘I don’t trust them. They’re in the pockets of the nuclear industry.’
Scholar knew that was untrue but, to prove his mettle to Beckett, he threatened his experts, ‘I’ll fire the lot of you if you’re in the pockets of the industry.’
Nothing transpired except further distrust. A review of Labour’s policies delivered by Beckett’s staff in May 1998 persuaded Blair that the department was dysfunctional. He was angry that Battle, with Prescott’s support, believed that the use of gas to generate electricity was part of a Tory plot to destroy the coal industry. Battle and Prescott advocated rigging the market in favour of coal. The review recommended that the construction of gas-powered generators should be halted, and that the government should subsidise new coal-fired power plants. ‘They just don’t get it,’ Blair raged. Old Labour and the trade unions, he cursed, wanted to reverse privatisation and undermine New Labour’s support for markets. He was prepared to give coal a chance, but not with more taxpayers’ money. William Rickett, an energy expert working in the Cabinet Office, was asked to assist Mandelson in orchestrating old Labour’s retreat. The bid failed.
The natural solution would have been to reprimand Beckett and Battle. Instead, Blair summoned Brown, Geoffrey Robinson, Beckett, Battle and Geoff Norris, Downing Street’s energy adviser, to decide whether Britain should subsidise its coal mines. In his role as chief executive, he expected his precise focus to resolve the disagreement.
‘Is the market rigged against British coal?’ he asked Anna Walker.
‘No,’ replied Walker, who explained that British coal was plagued
by disadvantages, not least that the mines were so deep. Britain could import much cheaper coal.
Blair waited for his ministers to join the discussion. None spoke. Fearful of angering Labour’s backbenchers, Brown and Beckett resisted putting their heads above the parapet.
Robinson broke the silence. ‘I’ll sort it out,’ he offered.
‘Right,’ said Blair.
Over the next days, Robinson telephoned and frightened DTI officials in what Michael Scholar would describe as ‘the most monstrous way’ to urge the department to provide financial support for Britain’s mines.
‘I don’t like this,’ Walker told Robinson after consulting a government lawyer. ‘You haven’t got the legal powers to do what you want.’
To avoid potential illegalities and a judicial review, Blair ordered Robinson to let up. He summoned Walker back to Downing Street. As they went through the options, Blair refused to approve any pit closures. Coal should be given a chance, he told her, by stopping the ‘dash for gas’. Then he was told that Brown was unexpectedly waiting outside his office. ‘Call him in,’ he told his private secretary. ‘We need his brains on this.’
The official returned, saying, ‘Sorry, Prime Minister, the chancellor says that he would prefer not to be involved.’ Blair’s face fell, but he made no comment.
To delay any pit closures, he decided that coal should be protected for another five years. Simultaneously, to make coal appear more attractive, no more gas plants would be built and the subsidy for nuclear power (which produced 25 per cent of Britain’s electricity) would be reduced. The meeting ended. ‘It’s a fudge,’ concluded Rickett.
Blair had ignored the contradiction created by subsidising coal at the expense of championing the environment and providing cheap electricity. Party politics overrode his better instincts. The government was now committed to sending more miners down the pits to produce expensive coal, in so doing irrevocably damaging their health. At the
same time, the trade unions were complaining that the DTI was not distributing the £6 billion of compensation the government had allocated to sick miners with sufficient speed.
Taking up their complaint, Battle and Beckett castigated their civil servants for applying statutory safeguards too rigorously. ‘It’s undignified for the claimants,’ said Beckett. The tests were modified and payments accelerated. Within months, unscrupulous lawyers were accused of pocketing taxpayers’ money. Blair voiced no concern. He did not mention that appointing Battle was a mistake or ask for new thoughts about producing energy, but he did succumb to Mandelson’s criticism of Beckett for failing to promote British business. In early July 1998, he agreed that she would be replaced – by Mandelson. Blair would have preferred to keep his political genius in Downing Street, but Mandelson’s demands to prove his abilities beyond political intrigue had become irresistible.
The new minister’s arrival at the DTI delighted the civil servants. Working with a serious player close to the prime minister was stimulating. The first day’s preliminaries were routine. ‘You need to disclose to me’, Scholar told Mandelson, ‘any material interests you have which could influence your position as chief regulator in the land.’
‘I have nothing except a few savings,’ answered Mandelson. Scholar wrote the reply down.
Mandelson proceeded to show a minimum of interest in energy. No one was surprised. Other than urging the advantages of an even more competitive market to lower prices, he made little comment in October about the publication of his department’s White Paper, ‘The Review of Energy Sources for Power Generation’. The policy was mentioned in Cabinet but there was no discussion. Few took the government’s commitment to decarbonise Britain’s energy supply seriously because Blair refused to raise the necessary taxes to finance the expensive restructuring required. Ministers realised that the important decisions had already been taken. Like so many White Papers, it disappeared into oblivion.
Mandelson was more interested in commissioning a White Paper about competition to show how high-tech businesses could be revitalised with government subsidies and looser planning and immigration rules. This was the heart of New Labour. Although its authors in the DTI condemned their own work as ‘a worthless confection, a complete waste of time’, Alastair Campbell gave the publication show-biz promotion. ‘The prime minister’, he told journalists, ‘is thrilled.’
However, the publication was overshadowed by Mandelson’s riposte to an American journalist about Labour’s traditional prejudice against the wealthy. ‘We are intensely relaxed’, he said, ‘about people becoming filthy rich, so long as they pay their taxes.’ Those who questioned how rules and subsidies would improve the economy were told, ‘Don’t worry. We’ll have a bill on this.’ In New Labour’s lexicon, legislation was the equivalent of governing.
With Blair’s blessing, Mandelson was already anticipating how British industry could be reshaped, unaware that Gordon Brown was intent on exacting revenge for Mandelson switching his support to Blair in 1994.