Ministers brassed off in the battle for the future of new Labour

We will govern as new Labour, Tony Blair said. But whether on pay or coal it doesn't come easy

GOVERNMENT HAS its great games, like EMU or the slow waltz which could finally reunite the centre left around a seismic change in the electoral system. And it has its gnawing, chronic, problems which preoccupy the waking hours of ministers and fill the papers which stream endlessly between the departments.

Forget the big picture for the moment and consider two decisions, one announced yesterday and one coming next week, which demonstrate what a permanent struggle is involved in governing as New Labour. Each will severely test the loyalty of traditional party supporters. Each involves one of the least glamourous of ministries, the Department of Trade and Industry presided over by Margaret Beckett. And each, curiously, tells us much about the character of the Blair administration.

The dilution of the Low Pay Commission's recommendations on youth pay follow a good old-fashioned Cabinet row between Mrs Beckett, who wanted to implement the pounds 3.20 youth rate proposed by the commission in full, and Gordon Brown, who didn't. At one heated meeting chaired by the Prime Minister earlier this month, Mrs Beckett told the Chancellor that she would not be prepared to go to the House of Commons and do what she did yesterday on the basis of the economic arguments furnished by the Treasury.

But her allies made what may prove to have been a fatal mistake by leaking accounts of the meeting which suggested that she had won the argument. And since Chancellors cannot be publicly seen to be defeated this served to strengthen Gordon Brown's case.

As it happened, both cases had merits. The commission report had the broad support of the CBI. Was the Government going to be less hard on the employers than even the CBI wanted? If the Government was prepared to unscramble the youth pay proposals, then that relieved its critics, like the TUC, of any corresponding obligation to support the planned adult rate of pounds 3.60 an hour.

But the Brown case was also strong, incidentally belying the increasingly fashionable picture of the Chancellor as the true socialist stealthily at permanent odds with the neo-conservative Prime Minister. It was better to ensure that young people got work, even low paid work, than no work at all. Research showed that well over twice as high a proportion of young people would be affected by the youth rate as adults by the adult rate, and the likely adverse impact on youth jobs, and the probable boost to inflation, was correspondingly higher if the youth rate was implemented in full immediately. That was paramount, since the eradication of youth unemployment was a central Government objective. In this, Brown's admirable, driving obsession with work as the means to individual fulfilment, he was backed by Blair.

But if that was difficult, the coming announcement about the coal crisis may be even more so. Coal, shrunken as it is, still resonates with Labour as no other industry. If you wept solidly through Brassed Off, the brilliant, elegiac evocation of the rage and helplessness left behind by a pit closure, you are probably somewhere on the left side of the political faultline. It is that much of a defining issue.

Which makes the question of what to do about the imminent threat to mining jobs even more agonising than it already is. The stay of execution on the contracts which RJ Budge, the biggest UK mining company, has with the electricity generating industry ends on June 30. The contracts were partly prolonged by calling a moratorium on the construction of gas-fired power stations, so removing a potential competitor to the electricity generators, and making them in the process more willing to buy British coal at a price above the strictly economic. But Budge, a fairly ruthless operator, currently making private sector profits on the preferential contractual terms enjoyed by the coal industry when it was in the public sector, has bluntly warned that unless he goes on having help from the Government, up to 5,000 jobs may go.

Enter Geoffrey Robinson, a businessman-minister-Mr Fixit with a plan to extend this breathing space for another three to five years. The Paymaster- General's suggestion was, first, that the three generation companies should be forced to sell off some of their coal-fired power stations (something that should have happened years ago, the previous Government having failed to create anything like enough competition in the generating industry, thus keeping electricity prices high and helping to stimulate the dash for gas). And secondly that the moratorium on gas-fired power stations should continue for three to five years.

At this point, Blair became seriously and audibly alarmed. First, there was a real threat of possibly successful legal action by several hard- nosed, American-owned gas companies. Also this kind of help for coal at the expense of gas had the potential to conflict with more than one essential Government objective. One, as it happens, was the need to conform with international environmental standards on C02 emissions.

There were worries in Whitehall about the corresponding threat to gas construction jobs. Officials in the Welsh Office, who have seen a big growth in gas power to replace the once great South Wales mining industry, questioned sharply whether it was sane to artificially preserve mining jobs in an industry which was notorious for accidents and disease. Finally the Energy Select Committee had heard persuasive evidence that Britain would, even in the long run, not be anything like as dependent on foreign gas as the advocates of coal subsidies claim. But, above all, his worry was the consequences - not least for inward investment - of failing to keep his promise to minimise intervention in the market.

Blair has ordered a much more aggressive market-oriented rethink of the Robinson plan. There will be a package which offers some solace for the coal industry, but few absolute guarantees. Details have not been finalised, but it is likely to include further competition in generation, careful licensing of gas-fired power stations, and a promise to enforce the right to sell electricity to France as France sells it to Britain. But no succumbing to RJ Budge's threats, and no blanket moratorium on gas- fired power stations. It should include more direct help to ravaged coalfield areas. What we wept for in Brassed Off is not so much coal itself; it is the communities which it has sustained.

Ministers have not always conformed to type in the protracted negotiations on coal. John Battle, Beckett's energy minister, was originally in favour of taking a tough line. Peter Mandelson, no less, has become something of an advocate of as secure a long term future as possible for coal since his trip down Kellingley colliery. But the outcome will now almost certainly be distinctively Blairite. "We will govern as New Labour," the Prime Minister said on May 2, 1997. But whether on pay or coal, it doesn't come easy.