Britain in euro, taxes up: now PM Smith faces gloomy outlook

Labour leader John Smith died 10 years ago next week. Tony Blair took over; the rest is history. Steve Richards conjures an image of politics today had Mr Smith survived.

This weekend, John Smith contemplates the forthcoming local and European elections with gloom. After seven years in power, seething questions are being raised about his future. Will he still be Prime Minister in a year's time? More to the point will he still be in Downing Street a month after the elections? Restive cabinet ministers on the party's modernising wing reveal privately that they cannot find anyone who plans to vote Labour this summer.

It all looked and felt so different when Smith strode into Downing Street in May 1997, exuding the self-assured confidence of a leader who had been in power before. Unlike most of his youthfully inexperienced Cabinet, Smith had been a minister in the 1970s. He knew how the civil service worked, the strings to pull to get policies implemented effectively.

In contrast, his Chancellor, Gordon Brown, and his Home Secretary, Tony Blair, were naïve and unprepared for the complexities of office. Now they have learnt from office, observing Smith closely, learning from his successes and errors. That is part of his problem. Once, he led a team with no sense of how Whitehall worked. Now, two highly experienced and charismatic ministers are breathing down his neck.

Smith's big mistake was to be bolder than he seems. He gives the impression of being cautious, openly declaring that there is no point in being bold for its own sake. Yet his self- proclaimed timidity is deceptive. Sensing, with good cause, that the Tories were doomed in 1997 he dared to put the case for a new top rate of tax for high earners. During the first term, in spite of clashes with his old friend Gordon Brown, Smith insisted on further increases in income tax for high earners. These overtly redistributive changes have narrowed the gap between the rich and poor, but polls suggest that even the beneficiaries of these reforms are convinced they are paying much more.

During his brief honeymoon in 1997 he dared to hold a referendum on the euro. He won it narrowly with profound consequences, not all of them to his benefit.

Europe ceased to be such a big divisive issue in the Conservative Party. Smith's bold decision then made it much easier for the Conservatives to elect Ken Clarke as their leader towards the end of Labour's first term. Smith's majority shrunk to 20 seats in 2001 partly as a result of his controversial tax changes and the performance of a newly unified Tory Party under a charismatic leader.

This has led to tensions for Smith on two fronts. Labour's modernisers fume openly. In particular, relations between Smith and Brown are described by allies of both men as explosive. Brown seeks a new system of tax credits that he insists would be fair and electorally popular. Apparently, Smith mocks these ideas in private as "incomprehensible and unworkable". Increasingly Brown is seen around Westminster in intense conversations with his close friend Peter Mandelson, who Smith appointed as a minister for Agriculture after the last election. If there is a leadership contest, the Brownites regard Mandeslon as a likely campaign manager.

Smith has not entirely pleased the traditionalist wing of his party either. They are frustrated that he has not increased public spending to a higher level. Britian's early entry into the euro in 1999 has boosted manufacturing but placed constraints on the amount of cash the Government is able to spend.Traditionalists are also angry at Smith's attempts to woo different sections of the Labour Party. In particular John Prescott, who, on the whole, has a good relationship with "Smithie", but was furious when the Prime Minister appointed Ken Livingstone as Environment Secretary.

These internal tensions are echoed and made worse by Smith's relations with the media, which have worsened since his decision to oppose the US in the war against Iraq. There is a limit to how many times a Prime Minister can survive being called a traitor by The Sun. Even the liberal newspapers attack him for failing to take on his party and support the US. As The Independent argued recently: "Mr Smith would have been ideally placed to turn the unilateralist Bush administration into a multilateral one by offering British support. Smith's weakness isolates the US from the rest of the world."

Other non-Conservative newspapers attack him for leading Labour into electoral oblivion. In particular the columnists of The Guardian compete with each other in their condemnation, calling for Tony Blair to take over. At the BBC, correspondents complain that no one in Downing Street or elsewhere briefs them in advance about Smith's policies or speeches. The editor of the Today programme protests about the lack of spin arguing that the absence makes it impossible for his reporters to do their jobs properly. Recently one of Today's correspondents wrote a controversial article in The Mail on Sunday calling on Smith to appoint the journalist and marathon runner Alastair Campbell as his press secretary so the BBC could be better informed about what is going on. He suggested that it was a public duty of any government to keep the media fully informed 24 hours a day. Smith is furious with the BBC but, by ignoring the media, he is in danger of being brought down by it.

Who would be the beneficiary if there is a vacancy? There is some momentum builidng up in favour of Blair. His close friends say that he is now ready for the top job. Blair has let it be known - not least to Rupert Murdoch's newspapers - that he has sympathies with President George Bush's war against Iraq, although he is impressed with the way Smith dismissed the alarmist intelligence on Saddam's weapons. He has admitted to allies that had he become Prime Minister earlier he might have been taken in by the speculative intelligence. Now, he knows better. But Mandelson, when he is not touring the country's farms, continues to point out that Brown is the more experienced of the two.

It is more likely that Smith will continue in post. Prime Ministers rarely leave of their own accord. Smith can take some comfort from the fact that for all his unpopularity, he has changed Britain beyond recognition. The country is finally at the heart of Europe, in the euro, opposed to the war against Iraq. The Conservatives under Clarke are now at least as pro-European as Labour. Britain feels a little fairer too. If elected, the Conservatives will not dare to reverse Smith's tax reforms.

His changes are here to stay. Last week, Margaret Thatcher celebrated her 25th anniversary since she came to power. Virtually no one noticed. Ken Clarke was careful to keep his distance, not attending a low-key dinner to celebrate her victroy in 1979. Smith has moved Britain away from Thatcherism: her ardent support for the US, her hatred of Europe, her eccentric and unfair tax rates. While proclaiming his caution, he has been bold. Labour will be slaughtered in next month's elections. Probably it will lose the general election, but at least Smith has something to show for his unpopularity.