Prescott bins the spin for real policies

Cabinet shift: Deputy Prime Minister forges new alliance with Chancellor to challenge Mandelson's 'free-market' legacy

THERE WAS a crisis in the Prescott camp this week. The Deputy Prime Minister - a former Cunard steward - was entertaining some of his old shipmates at his grace and favour flat in Admiralty House when the cooker broke.

Compared to catering for 13 people with no power, dealing with Peter Mandelson's resignation was plain sailing for the former merchant seaman.

John Prescott made it clear in interviews last week that he would not be rushing to welcome back Mr Mandelson to the Cabinet. He had even referred to the row between Mr Mandelson and Gordon Brown as the "cancer at the heart of it all", in remarks that were wrongly assumed to refer to Charlie Whelan, the Chancellor's spin-doctor.

Far from attacking the Brown camp, Mr Prescott has been busy this week - while Mr Blair is on holiday - consolidating an alliance with the Chancellor that could fill the vacuum left by Mr Mandelson at the heart of the Blair government.

Mr Prescott told The Independent that he wanted to steer the Government away from spin and back to the delivery of policies. "We need to get away from rhetoric and back on to the substance of government," he said.

The Deputy Prime Minister is intent on a new style of interventionism, which challenges the free-market tone of the Competition White Paper published by Mr Mandelson weeks before his resignation.

"There is still an argument for industrial reorganisation. I still think there is a role for intervention - it's not like the Sixties and Seventies ... where you were told how much money to give [to ailing firms].Now we are active participants."

The alliance between Mr Brown and Mr Prescott will surprise many who believed they had a long-running feud as bitter as that between the Brown and Mandelson camps.

With the Chancellor, Mr Prescott is seeking a "cadre" of business expertise to put together more private finance for public sector schemes. Some may be startled by his support for big business, but he heaped praise on Geoffrey Robinson, the ex-paymaster-general also forced to resign over his pounds 373,000 loan to Mr Mandelson, for acting as the "midwife" bringing in private finance to public transport schemes.

The Chancellor and the Deputy Prime Minister could be accused of trying to turn back the clock to old Labour policies while the Blairites are off-guard over the resignation of Mr Mandelson. But Mr Prescott rejected the notion, and insisted Mr Mandelson's departure was not as significant as had been claimed. "I don't think one individual has that kind of influence," he said. "The press attention that has been given to it has evoked a lot of discussion but it's led me and others to feel we have to get the substance over what we are doing."

Referring to Mr Blair's determination to carry on with the New Labour project, Mr Prescott made it clear he saw the "project" as Labour's manifesto programme. "The project is to do what we said we would do when we came into office, which is to have a fairer Britain and a better Britain. I don't think any government has done more than we have in 18 months."

In Opposition, there was almost open warfare between Mr Prescott and the Brown camp as he tried to challenge for control of economic strategy. Mr Prescott decided in the run-up to the general election that there was more to be gained from an alliance. "There is a myth that Gordon and I don't get on. There was the early days in Opposition where of course we were in conflict, and there was a speech in which I said he was trying to dominate everything. That was seen as an attack. Since then ... many of the things I am trying to do could not have been done without Gordon - and not necessarily with the agreement of the Treasury."

Treasury officials "bitterly resisted" the deal in which Mr Prescott would be allowed to earmark money raised from tolls or congestion-charging on motorists for enhanced public transport. Mr Prescott insisted the money raised from motorists would go on public transport, because he had to vet the schemes."That was between Gordon and I ... These are radical changes in the public finances. Brown is a radical guy in these areas," Mr Prescott said. "Our relationship is excellent and has been for quite a while. There is less tension between us because it's quite clear I need to get some of the changes in the financial rules to be able to deliver - and it helps Gordon on the public finances by avoiding more public borrowing."

That deal has turned Mr Prescott's massive Department of Environment, Transport and the Regions into Whitehall's first tax-raising ministry apart from the Treasury. "Wheeling and dealing is constantly a point between us," he said. "We will be seen as an economic department. Because of its size and breadth ... in housing, environment, and transport, it's becoming a very important economic department, which is not realised by people," Mr Prescott said.

"We are a massive deliverer, particularly when we have decided public expenditure is there to uphold the economy in the traditional Keynesian way."