Blair's banana skins

With the honeymoon period very definitely over, the Government will need to watch where it puts its feet this year

TONY BLAIR might hope that, after the last few weeks, things can only get better. But as Labour moves towards its third year in power it looks as though they could get even worse. The Prime Minister has been warned by his advisers that the honeymoon is now well and truly over. The difficult start to 1999 is likely to be typical of a year which will almost certainly be even more of an annus horribilis for the Government than 1998 was.

Ministers can no longer blame what Downing Street likes to call the "post- euphoria pre-delivery stage" for the sense of disillusionment - by now, their departments should have started making a difference to people's lives. Perhaps more worrying, Labour's private polling shows that the public increasingly thinks of the Government as "arrogant" and "elitist". Blair's presentation strategy will change to emphasise repeatedly that he is concerned about the "many not the few" - less Islington man, more man of the people. But there are still plenty of banana skins littering the pavement, on which the Prime Minister will find it hard to avoid slipping.

Lords Reform: The battle over the future of the Lords will take up most of the Government's energy this year. A Bill removing the voting rights of hereditary peers will be introduced into the Commons as soon as possible. Tony Blair may have done a deal with Lord Cranborne to allow some of those with inherited titles to remain in the short term, but the Tory hereditary peers will not go down without a fight. A bloody nose is the least the Government can expect from the protracted guerrilla warfare. Meanwhile, controversy will continue to rage over the make-up of the Upper Chamber as a Royal Commission - to be set up next week - begins its investigation.

Social Security Reform: The Prime Minister can look forward to more rebellions from his backbenchers over changes to the benefits system and pensions arrangements. The left-wingers are planning to focus their attention on the Government's proposal to scrap widows' benefits, arguing as they did when voting against cuts to lone parent support that it will hit some of the poorest people hardest. Frank Field, who resigned as a social security minister last year, will also step into the ring to cause trouble over the changes to the pensions system because he believes his successors have chickened out of radical reform.

Single Currency: Mr Blair is desperately trying to juggle his desire to be in the middle of the action in Europe with his wish to keep the Sun and other Euro-sceptic newspapers on side. But this year the Prime Minister is going to have to make some tough choices. The Government will come under pressure to set out a clear intention to join economic and monetary union if the euro does not crash over the next few months. Mr Blair fears the inevitable backlash from Euro-sceptics on his own and the Opposition benches as well as in the media - but he is also wary of being sidelined by other member states. A flashpoint could come in March when the EU has to announce the result of its negotiations over funding, with the British rebate one of the major sticking points.

The Dome: The Jubilee Line extension, the spirit zone, sponsorship: these are all things that could turn the Government's party of the millennium at the Dome into a spectacular flop. Tony Blair may have put his old friend Lord Falconer in charge of proceedings at Greenwich but that will not make it any easier to pull off the event. The Prime Minister knows that the Government has invested such a lot of its reputation as well as money in the Dome that failure would be a disaster.

Royals: The summer wedding of Prince Edward and Sophie Rhys-Jones is likely to prompt a groundswell of pro-Royal feeling. This could lead to a general feel-good factor or provoke opposition to Labour's programme of constitutional reform. At least it should focus the headlines on something other than the Government splits. But it could also lead to questions about ministers' attitude to the Royal Family.

President Clinton: Bill Clinton has already slipped up spectacularly, and his longer-term fate now rests in the hands of the Senate. The British Prime Minister has remained loyal, but he may have to reassess his devotion to his "close ally" this year. Impeachment was just about possible to shrug off, but conviction would be difficult to ignore. If the verdict does go against Clinton, Blair's squeaky clean image could also be tainted by his refusal to condemn the US leader in the past.

Geoffrey Robinson: The row over the former Paymaster General's pounds 373,000 loan to Peter Mandelson will not go away. The Department for Trade and Industry is likely to conclude its investigation into his business activities. An outcome that criticised him would be embarr- assing to the Labour Party, which has accepted lots of money from the millionaire businessman, and to Gordon Brown, whose office was bankrolled by Robinson in opposition. Questions about cronyism will again be raised when Stephen Byers, the new Trade and Industry Secretary, decides whether or not to publish the results of the inquiry. At the same time, the DTI has still not completed its investigation into Robert Maxwell - which threatens to drag down a few more ministers. Among those said to be in the frame are Lord Donoughue and Helen Liddell.

Trade Unions: This is the year in which Labour will have to confront its historic relationship with the trade unions. The appointment of Stephen Byers - who once briefed journalists on the importance of severing links with the movement - as Trade and Industry Secretary was a clear sign that Tony Blair was not going to pander to the brothers. The legislation on workers' rights is likely to be a compromise, with neither the unions nor business entirely happy with the outcome; but the Commons debates could become the focus of discontent on the left. The Neill committee's recommendations on party funding, which have implications for the unions' contributions to Labour, could also be implemented this year.

Splits: Tony, Gordon and Peter are going to have to work out their differences. Brown and Mandelson have already embarked on a course of marriage guidance sessions, designed to repair the damage done by the former Trade Secretary's decision to back Blair in the leadership battle five years ago. Charlie Whelan, the Chancellor's former press secretary who often fuelled the flames of the rows, has stepped down. But the tensions between three of the most powerful men in New Labour have not yet been resolved. Meanwhile, John Prescott and his allies will continue agitating for a return to "traditional values".

Economy: Gordon Brown does not buy the Deputy Prime Minister's argument for a return to Keynesian economics, with the Government spending its way out of recession. But the Chancellor is holding his breath hoping that his own more capitalist approach to the country's finances will work. It is not yet clear whether Britain is heading out of recession or just in the upward loop of a "W" which will revert to a downward trend shortly. But the state of the economy over the next year will be crucial to the Government's reputation and success at the next general election.

PR and the Liberal Democrats: Tony Blair will face calls from Cabinet colleagues to abandon proposals to introduce proportional representation. Lord Jenkins recently produced a blueprint for a new PR voting system but Blair has yet to decide whether to go ahead with the plan. He will also come under pressure from John Prescott and Jack Straw to sever ties with Paddy Ashdown. The two leaders have agreed to co-operate in a joint Cabinet committee on a range of policy areas but the plan has met with opposition from Labour grassroots who fear that the party's values are being abandoned, and Liberal Democrats suspicious of cosying up.

Health: The continuing shortage of nurses in the health service could distract attention from progress in reducing waiting lists. Nurses have long been calling for pay rises, and these are likely to grow louder. The pay review body is expected to produce a rise but this is unlikely to be enough to stem the recruitment crisis. More hospitals will be forced to rely on foreign nurses to fill the gaps, while the controversy over fat-cat consultants will rumble on. The spectre of elderly patients waiting for treatment on trolleys and refrigerated lorries storing bodies of flu victims could continue to loom despite the injection of more government cash.

Education: The crisis in recruiting teachers is likely to continue to dog the Government. Teachers will be looking for a substantial pay rise although a pounds 19bn injection of cash into education, which comes on stream this year, will cheer some schools. Relations with teachers could be strained further by plans to introduce performance- related pay into the classroom. Many teachers, asked to give their views on the policy, will express deep disquiet about assessment plans. They will say the grading system is unfair because teachers' performance depends on factors like children's ability and the location of the school. The Government's planned "fast stream" for teachers, to be introduced this year, threatens to alienate long-serving teachers in favour of "bright young things". Tough new literacy targets could prove another hurdle for the Department of Education.

Iraq: Keeping Saddam Hussein "in his cage" could prove problematic for Tony Blair, who has committed Britain to maintaining a tough stance on the Iraqi dictator. With UN weapons inspectors effectively banned from Iraq, the West will find it increasingly difficult to monitor's Saddam's attempts to build a biological, chemical and nuclear arsenal. Saddam, judging by his form, is likely to test the West's mettle again with an act of defiance or aggression, and then Tony Blair will have to decide whether to follow Clinton's line or go it alone. At home, Blair could find himself pulled two ways, with one camp calling for an end to the embargo of Iraq on humanitarian grounds, and the Conservatives, likely to back future military actions.

Millennium Bug: The Government's task force is up against the clock. Although it is making confident noises, the task is mammoth and already contingency plans - including calling in the Army - are being considered. The first signs of non-compliance will manifest themselves, and some predict big problems with illiterate microchips on 9 September (9/9/99). But the prospect of planes falling from the sky, dealing rooms crashing, safes opening and heart monitors stopping is enough to unnerve any government - particularly since there is a national shortage of qualified IT operators. The Government's role is to coordinate action, but Margaret Beckett, responsible for eradicating the bug, could find herself bearing the brunt of criticism if it all goes horribly wrong.

Agriculture and BSE: This could be a busy year for agriculture and one full of diplomatic hurdles. The BSE enquiry, which is likely to be deeply critical of the previous government's handling of the affair, goes to ministers this summer. The Government will then have to decide how to handle the report and when to publish. With farmers already beleaguered by low supermarket prices and competition from abroad, a report which blames them for the affair could further knock confidence. The Office of Fair Trading inquiry into supermarket pricing will also be published in 1999. This could prove good news for farmers if supermarkets come under pressure to pay more for produce, but retailers could kick up a fuss. The end of the ban on British beef in Europe will bring some plaudits for ministers. But British moves in Brussels to reform the Common Agriculture Policy will require skilful diplomatic manoeuvring to persuade the French to agrees to cut subsidies.

Elections: In what will be a big year for elections Labour may be unable to reproduce its spectacular general election showing. Elections to the Scottish Parliament, under proportional representation, could backfire for Labour, helping the Scottish National Party to gain a clutch of seats. It will also mean that the Tories, annihilated at the last general election, will win back ground north of the border with the Liberal Democrats gaining a strong say. In Wales, the elections to the Welsh Assembly could prove a big test for New Labour. The resignation of disgraced former Welsh Secretary Ron Davies has created a struggle between the Blairite Alun Michael and Old Labour's Rhodri Morgan. They both want to lead the Assembly. May will bring the biggest round of local elections this parliament, and Labour could lose hundreds of seats to the Tories who were trampled on by Labour in 1995.

Mayor of London: The Government will face fresh accusations of control freakery if Ken Livingstone's ambitions to stand for Mayor of London are blocked by Millbank. Polling has shown that Livingstone is the choice of the people, but a party vetting panel has been set up which could thwart his ambitions. If he is elected, late this year or early next, Mr Livingstone will have a potent left-wing power base from which to annoy New Labour. A decision to put forward Tony Banks, the Sports minister with left-wing credentials, could off-set accusations that Blair wants a crony running London. But this risks letting Tory rival Jeffrey Archer into office.

Factors Beyond Government Control: National mood isn't determined just by measures dreamt up by ministers. The recent flu outbreak has laid low millions. Food scares can spread panic. Tony Blair should also keep an eye on the long-range weather forecast - another dull wet summer would not be good news, and eclipse watchers on 11 August might want to take it out on someone if the day turns out to be cloudy. Then there's sport. The England football team have made a shaky start in their attempt to qualify for next year's European Championship finals. Failure to get through would do little for national morale. England stages the cricket World Cup this summer, with the hosts' chances rated moderate at best. Finally there are those beastly foreigners. Blockades of ports and strikes by air-traffic controllers do tend to spoil one's holidays.

Good luck, Tony.