Can Hutton fix the state it's in?

Will Hutton, a genial colleague and best-selling writer, is a popular choice as the Observer's editor. But his task is a tough one.

The appointment of Will Hutton, darling of the soft left, as editor of the Observer last week is either "a brilliant stroke" or a "disaster waiting to happen", according to senior journalists at the Guardian. "It made me feel better after all we have been through," confided one. "But ask me again in a week."

The appointment marks a decisive change in the strategic direction of the hapless Observer, which was bought by the Guardian Media Group in 1993 and has been struggling ever since. Two editors have come and gone, the last after more than a year of tension and turmoil. By the time Andrew Jaspan "left the paper" last Friday, he had run out of friends. Even Peter Preston, the former Guardian editor, who had appointed and then supported Jaspan, could do nothing to save him. Indeed, Preston himself has been relieved of executive duties, although he remains on the board of the Guardian Media Group and the Scott Trust, the charitable organisation that owns the two titles.

Preston's role in the Observer's saga is perhaps the most tragic of all. His stellar career as the Guardian's highly respected editor is in danger of being eclipsed by his failure to steer the Observer to profitability.

The genial Hutton was a popular choice. A best-selling author, a compelling speaker and a close friend of some of the Scott Trust's main board members, he is at least expected to improve morale at the Observer after a year of soul-destroying uncertainty. He is closely attuned to the politics and persuasions of the Guardian's owners and its editor, Alan Rusbridger, the man identified with recent efforts to ring-fence the Observer lest its deep-rooted financial problems poison the daily paper. Certainly Hutton and Rusbridger get on far better than Jaspan and Rusbridger ever did.

But can Hutton edit the newspaper? A spokeswoman for the Guardian Media Group conceded last week that "against all of Will's strengths, his biggest weakness is his lack of editing experience". And will he be allowed to? The questions are already being asked at the Guardian's Farringdon Road headquarters, home to both the daily and the Sunday and the site of a year-long civil war. Significantly, the Guardian did not exhibit enough confidence to answer these question's in the paper's media section yesterday.

Insiders point to Rusbridger's appointment as executive editor of the Observer for an "interim period" of perhaps six months. Some believe he will take an active role in trying to shape the Sunday title, and could be poised to concede the need for more integration between the Guardian and the Observer.

No one, either on or off the record, believes that the owners want an seven-day news operation. "It has been tried before in Fleet Street, and hasn't worked at all," says a senior journalist at the Observer. "But we are all expecting some changes in the way the two papers operate together."

In an interview with the Independent last month, Rusbridger said he had no interest in taking on a bigger role at the Observer and that there was limited scope for cost savings by integrating operations on a modest scale. More likely, he is intent on ensuring that the Guardian does not suffer further from the troubles at its sister publication. He has already had to accept budget cuts, and recently offered redundancy packages on a "voluntary" basis.

Some of his colleagues believe he would still like to see the Observer sold off - although maybe not to Mohamed Al Fayed, the owner of Harrods, whose pounds 25m offer was rebuffed last month. From the vantage point of Rusbridger's office, the Observer has been nothing but trouble.

Meanwhile, he is prepared to help ease Hutton into the position, and to provide what guidance he can. Rusbridger has even agreed to lose his home news editor, Paul Webster, who moves to become deputy editor of the Observer. That will leave a gaping hole that Rusbridger will have to move fast to fill.

Merely changing editors at the Observer will do little to staunch the losses, believed to be running at as high as pounds 10m a year, while circulation remains well below the 500,000 level at which it stood when the Guardian took over. Further jobs cuts are expected, although Hutton will fight for the right to poach journalists from other newspapers to help him start the painful process of reinvigorating the title.

Upon his appointment, Hutton said his aim was "to accelerate the pace at which [the Observer] recovers its prestige and honoured place in British national life - encouraging high-quality writing, extending across the gamut, from sport to politics, from listings to front page news." It will be an uphill battle. The venerable title, published since 1791, has had a particularly chequered history since it was bought from the US conglomerate Arco by Tiny Rowland's Lonrho in 1981. Rowland used the newspaper to fight a bitter campaign against Al Fayed, then trying to buy Harrods. He agreed to sell the title to the Guardian in 1993, for pounds 27m. Before and since, the red ink has flowed copiously.

Bringing together the two titles under one roof appeared to make sense at the time, both commercially and politically. Newspapers can always save some money by using the same presses, the same office space, the same back-office services. As for political persuasion, the two titles are assuredly to the left of centre - even if Rusbridger's Guardian has steered away from over-reliance on worthy coverage, been prepared to run "down-market" entertainment stories on the front page, and seems to have caught the tabloid infatuation with the Princess of Wales.

Hutton, who was the Guardian's economics editor from 1990, was the embodiment of the more serious side of the paper's culture and is a long way from Jaspan's more populist, mid-brow instincts. He spent 10 years at the BBC, working on Newsnight and The Money Programme, after a career as a City stockbroker. His best-seller The State We're In struck a chord with readers concerned about the lingering effects of Thatcherism and the decline of the British economy.

Hutton is unlikely to be given pounds 2m to redesign the Observer - the sum Jaspan managed to spend. Changes will have to be less radical, more measured, cheaper.

Rusbridger's view of the Observer remains unclear. He is known to have argued strenuously against letting the financial troubles on Sunday bleed into his fiefdom in the week. Now that he will have, at last, a hand in running the editorial operations, he may form a different opinion. But those close to him swear that he would never abandon the Guardian, or do anything that might jeopardise its future. Still, if the Sunday title can be turned around, Rusbridger won't mind taking some of the credit.

Staff at both newspapers don't expect huge changes immediately. There may well be some more departures, particularly from the Observer. A new home news editor for the Guardian will be needed imminently. But until Hutton finds his feet, it will be difficult to judge what kind of Observer he hopes to create.

In the interim, the Scott Trust can only hope they did the right thing in turning down Al Fayed's pounds 25m in favour of slogging ahead.

The next six months will be crucial to the future of the world's oldest Sunday newspaper. But they will be no less key for the Guardian, whose own fortunes could be cast into further doubt if its troubled sister cannot shake off the aura of failure.