From Brent to Baghdad

When Tony Blair took the decision not to call a quick by-election upon the death of the Labour MP for Brent East, Britain was a very different place. He had not heard of David Kelly, there was no Hutton inquiry and the disaster of Iraq was yet to fully engulf him. In the first of three special reports, political editor Andy McSmith assesses the effect of the backlash that cost Labour a seat and is touching every aspect of domestic politics

Tony Blair had cause to kick himself on Friday morning, as the Brent East by-election result was announced. The Liberal Democrat victory was an embarrassment he could probably have avoided. He certainly could have made sure that it did not happen just as the new political season was beginning.

When Paul Daisley, the MP for Brent East, died of cancer last June, some senior Labour figures pressed for a quick by-election, to get it out of the way. But Tony Blair disagreed. He did not want a campaign while Downing Street was embroiled in a public row with the BBC and questions were being continually asked about Iraq's weapons of mass destruction. At this point, Mr Blair had not heard of Dr David Kelly, and there was no Hutton inquiry in the offing.

The Prime Minister also saw polling evidence which showed that for five successive years, the Government had been more popular at the end of August than at the beginning, as if holidaymakers returned home tanned, relaxed and grateful to a government that had brought them stability and rising living standards.

So Mr Blair made the fateful decision that allowed the Liberal Democrats to move their formidable by-election machine into Brent East - which had hardly seen a Lib Dem leaflet for 20 years - and spend two months building last week's victory.

The public snub to Mr Blair was delivered by his own supporters, Labour's natural voters. One poster for the Liberal Democrat candidate, Sarah Teather, was on display in the window of a house belonging to an Asian family, four of whom are paid-up members of the Labour Party. One of the people who turned up to help at Liberal Democrat headquarters on polling day revealed that he had voted Labour consistently for 42 years.

Yet the result did not set off in Labour the kind of panic that can seize a political party when it sees catastrophe ahead. The line taken by Mr Blair's advisers was that the result was worse for the Conservatives than for Labour, partly because it implies that the Conservatives are no closer to winning a general election than they were two years ago, and because a Liberal Democrat revival is a more immediate threat to the Tories than to Labour. This is borne out by the fact that of the 100 seats which, statistically, the Liberal Democrats have the best chance of capturing at a general election, 75 are held by Tories and only 20 by Labour, with nationalist parties holding the other five.

Theresa May, the Tory Party chairman, was visibly relieved that the Tory share of the vote had fallen by only a couple of points, from 18 per cent in 2001 to 16 per cent. It was enough to force those Tories who had been sharpening their knives ready to strike against their leader, Iain Duncan Smith, to put the cutlery back in the drawer, at least until the party conference next month. But one influential Tory commented: "Of course they say it's good that our vote held up, because that's what they've got to say, but they are fools if they believe it. People just aren't ready to vote for us."

It is true that most of Tony Blair's immediate problems are coming from people who are criticising or attacking him from the left. On all the standard right-wing political issues, such as income tax, crime prevention, defence spending or relations with Washington, Mr Blair has covered his flank effectively. In the coming weeks, he can expect defeats and setbacks over Iraq, the health service, civil rights, employment rights and student fees - not in most cases from the Tories, but from people defending what they regard as traditional Labour values against a modernising prime minister.

Even Mr Blair's advisers accept that it is now virtually inevitable that the party conference at the end of the month will vote to scrap the proposed legislation that will bring into existence new entities called Foundation Hospitals, with greater freedom to handle their own finances.

Dave Prentis, leader of the public sector union, Unison, with 450,000 members working for the NHS, is adamant that his union is not going to back down, despite some secret arm-twisting that has taken place when union leaders have been called in to Downing Street for a chat.

"We're part of the Labour Party and we're working for the Labour Party to win a third term, but we still have the right to respond and comment on government policy," he said. "The first we heard about this proposal was when it was announced on the news. That is hardly social partnership. We'll not move now from our basic position, which is that we want this removed from the legislation."

With the backing of the other big unions, and many constituency Labour parties, Mr Prentis appears to have a solid majority at the party conference. Later in the month, the legislation will almost certainly be thrown out by the House of Lords, putting the Government in the awkward position where they have to use their majority in the Commons not just to over-rule the peers, but to fly in the face of the Labour Party conference.

The public sector unions are also accusing Mr Blair of dragging his feet over the little-understood issue of "two- tier workforces", which have a huge impact on some of Britain's lowest-paid workers. Former employees in the health service, higher education or defence whose jobs are "outsourced" to private firms frequently end up with worse pay and conditions than colleagues who stay in the public sector, although former council workers' rights are protected. The unions have been campaigning for this anomaly to be removed for two years. "This has got to be dealt with now," Mr Prentis said. "We don't need more talking. We need a statement from him that this agreement will be extended."

Most of the big unions are expected to back a motion condemning the Government for going to war in Iraq without UN backing and calling for the withdrawal of British troops - if its organiser can steer it past the formidable procedural obstacles to being debated.

The next big family row will break out again towards the end of the year, when the Secretary of State for Education, Charles Clarke, introduces legislation that will allow some universities to charge higher fees than others. Many Labour MPs fear that students from working-class families will be deterred by the higher fees from applying for places at elite universities.

Mr Clarke has been working hard behind the scenes to defuse the row, meeting sceptical MPs in small groups. An aide said he had been "heartened" by their willingness to listen to the Government's case. Opponents say he is deluding himself, because the people he has been talking to are not the ones most likely to vote against the Government. They say that at least 130 Labour MPs are ready to vote against the scheme - enough to deny the Government a Commons majority - despite the fact that in July Mr Blair neutralised no fewer than 11 known opponents of the scheme by promoting them to jobs in the Government.

Meanwhile, a play which Channel 4 will broadcast next Sunday, The Deal, a fictionalised account of Mr Blair's stormy relationship with Gordon Brown, seems to have drawn on what might be called the Brown School of History to fortify a view held on the left that the Chancellor is a man of principle outmanoeuvred by his ambitious younger colleague.

These are all problems for Mr Blair, but the big picture is that almost any previous prime minister would have envied him the position he is now in, after six years in power.

While the Liberal Democrats can ambush and humiliate Labour in by-elections, they cannot remove Labour from office. The Brent result underlines the grim message for Iain Duncan Smith that while he is in charge, there is no indication that the Conservatives can dislodge Labour either. Gordon Brown may wait impatiently for his turn, but he is not going to put up a frontal challenge for Mr Blair's job.

The Prime Minister can look forward to many more years in 10 Downing Street, if that is what he wants.