You might not guess it, but Tony and John are on the same side

Blair preaches about the private sector too much, but he is right to insist on public sector reform

TONY BLAIR and John Prescott have gone off message. At least both of them, separately, went off message for a few, revealing, seconds. Like errant sixth formers, they did what they warn their younger pupils not to do. Stick to the text in public arenas, stick to the message in studios, is the persistent instruction to their subservient followers. This week, the two of them had the political equivalent of a quick smoke in the bicycle shed. Instead of sticking to the text, they spoke from the heart.

Their fleeting moments of candour were very different. Blair fulminated against the rigid orthodoxies of the public sector. Implicitly Prescott fulminated against Tony Blair. Blair's observation that he "bore scars on my back" after trying to force change in the public sector contained within it a policy agenda with significant political implications. Prescott's speech underlining the values of the public sector, concluding with the cathartic words "I am glad I have got that off my chest", was a challenge to Blair's style of leadership rather than his policies. The clash has an added a fizz to politics, but it is an emotional fizz rather than one which marks a significant ideological divide.

What was it that Prescott got off his chest? He did not question, even in code, the need to modernise the public sector. What he offered was rousing words for those who work in it.

Every now and again Prescott is infuriated by what he sees as Blair's insensitivity to "the core vote". He gave a hint of his unease in an Independent interview at the start of the year when he called for more substance and less spin. Immediately after the words appeared, we were all assured that Prescott was not being deliberately mischievous. But such reassurances reinforced their potency. Prescott could not altogether hide his disapproval even when he was not trying to convey it. He nearly spoke out in February when Blair made a long speech in which he declared Labour to be the party of the middle class, but his instinctive loyalty prevailed.

This week the chest baring became public. Rodney Bickerstaffe, the trade union leader and a close friend, phoned him in fury after Blair's comments. Prescott, himself, feels undermined by some in Downing Street for his much-reported problems over transport policy. The moment had come to strip off some of his well-worn loyal armour. Even so, the purging of anger was all about presentation rather than policy. In effect, Prescott said: "Don't worry about what Blair said. We still love you really."

This is an important and deliberate difference of emphasis. It adds to the sense that in the Government, there are a small number involved in the Blairite project and the "rest", and that Prescott is part of the "rest". But if we follow Tony Benn's advice and focus on the policies rather than the personalities, it is clear that Prescott is at one with Blair on the need to reform the public sector in a way which the public sector will not always like.

Take the case of local government. This was the heart of Prescott's speech this week (he was addressing the Local Government Association). Prescott declared that "Since the 19th century, it has been local councillors and the public sector who have helped forge a modern society". But before we all burst into tears, let us remember where we are now. At the end of this century, councils dance to the tunes coming out from Prescott's own department. In terms of how much cash a council can spend and raise, Whitehall knows best.

Indeed, over the last two years, the Government has provided the answer to a question raised inadvertently by Blair before the election. In 1996, Blair declared, "Under Labour, local government will have more power, as long as it uses that power responsibly". Yes, but who would decide whether power was being used responsibly? Now we know. The Government decides.

Yet there is a very good reason for that, and it is one which Prescott as the minister responsible presumably supports. After 18 years of decline, in which even Ken Livingstone declared that only those in need of psychiatric help would become a councillor, local authorities, or some of them, are not ready to enjoy local autonomy. Some are very good, but some are incompetent and a few are corrupt. It is too early to cut the strings.

Which brings us to Blair's moment of spontaneity this week. Sometimes he preaches too much about the private sector, which can be at least as corrupt and inefficient as the public one, but he is right to insist on public sector reform and to point out that it is damned hard to bring about. The horror of some union leaders to the notion that the Post Office could be opened up to limited competition is the latest example. To take another example, at the BBC the only question being asked is whether Greg Dyke "can turn the monster round". No one, apart perhaps from those in non-jobs, are suggesting that the monster does not need turning: over- staffing at the BBC is a long-term problem which existed long before Sir John Birt's tenure. Or what about the NHS, stifled by time-consuming, outdated procedures placing an unnecessary strain on staff and patients?

Lurking beneath the debate about the future of the public sector is the great theme of the 1980s and 1990s which will resurface again as the next election approaches. The arguments over "Tax and Spend", an issue which helped lose Labour four elections, could be changed if the Government can prove that by spending more, services are greatly improved. In these early days it still needs to demonstrate that the taxpayers' money does not disappear down a chute marked "Public Sector" never to be seen again, and with no obvious improvements to services.

That is why Blair's comments in the Commons, after he had revealed his "scars", were important. "This government, which is putting more money into public services than ever before, is entitled to demand real change in return." Think about the political opportunity which could arise if reform is achieved and the voters notice a difference. Who knows, perhaps the debate can move on from the timid declaration in the recent Third Way document launched by Blair which declared that "public expenditure as a proportion of national income has more or less reached the limits of acceptability".

Prescott, who has been looking at ways in which private finance could reinvigorate the public sector for years, and who is the minister seeking to reform local government before granting it more power, is not far from Blair's approach to the public sector. But sometimes, especially if the Government goes through a bout of unpopularity, tensions over style and personality matter almost as much as policy. Too many more cigarettes in the bicycle shed and their relationship could still go up in flames.

Steve Richards is Political Editor of the `New Statesman'