The Week in Politics: Blair badly needs Brown for Labour to win well next time

When Gordon Brown delivers his eighth pre-Budget report next Thursday, Tony Blair will no doubt be nodding approvingly from his seat next to him in the Commons. The body language between the two men is under the microscope as never before.

The relationship between the Prime Minister and Chancellor is at an all-time low after Mr Blair's decision to hand Mr Brown's pivotal general election role to Alan Milburn and his announcement that he intends to serve a "full third term" as Prime Minister. Apart from Iraq, the attempt to sideline Mr Brown is probably the biggest thing that has happened since the last election. It has, quite simply, transformed the dynamics of the Government.

Since the seismic event, the Chancellor has, in the words of one close ally, been virtually running a "government in exile". You could call it a twin-track strategy. Track one is carrying on as Chancellor, with a formal rather than intimate relationship with the Prime Minister. "They are on different planets," another Brown ally told me yesterday. "It's tragic. They had so much to give to each other when they worked as a team. Now they operate separately. That was Tony's decision."

Track two is more interesting. As if preparing a pre-Budget report were not enough, Mr Brown has been thinking deeply about the future of Britain and politics. Most significantly, he is mulling over how politicians can win back people's trust. That is not an anti-Blair point, even though the Prime Minister has done much to erode that trust by taking us to war on a false premise. It is a recognition that turnout has fallen and may drop further in next year's election, that there is a serious dislocation between the governing class and the governed.

Mr Brown's decision in 1997 to hand the Treasury's control over interest rates to the Bank of England helped Labour to win the trust of the City and the people to run the economy in the country's interest. Now, he suspects, politicians will win back trust by trusting others to make decisions - whether local authorities, local residents' groups or citizens' juries.

He is thinking deeply about Britain's place in the world, the European Union, how to handle potential future conflicts and big issues like the environment. Above all, he is thinking how Labour can entrench the changes it has started to make since 1997 so they cannot be reversed by a future Conservative government. That is why Mr Brown talks about building a "progressive consensus" for domestic policy such as a tax-funded health and welfare system and for a pro-European stance, even though the latter may surprise Britain's Europhiles, who are increasingly fed up with his apparent Euroscepticism.

Despite two landslide victories, both Mr Brown and Mr Blair fear New Labour will fail to change Britain permanently, as Margaret Thatcher did. Mr Blair wants to make the 21st century a "progressive century", and Mr Brown is now working out how to achieve it. But anyone hoping the pre-Budget report will outline Mr Brown's "alternative manifesto" will be disappointed. He will be on track one - as Chancellor rather than prime minister still-in-waiting. We can expect much about the need for long-term decisions on science, skills and education to boost Britain's competitiveness, create a US-style enterprise culture and make Britain the best place in the world for research and development.

Mr Brown will seek to confound critics who claim he is on course to break his "golden rule", which says that over the economic cycle the Government should borrow only for public investment. Having spent more than seven years trumpeting the rule, he can't suddenly say it doesn't really matter. The Treasury is confident the prophets of doom will be proved as wrong as they have been in the past.

His room for manoeuvre may be limited, but Mr Brown will surely pull a populist rabbit out of his hat. It might be something for pensioners or on child care, on which the Government will issue a 10-year plan. Although the Chancellor is keeping his cards close to his chest, cabinet colleagues are hoping for an upbeat message on "opportunity" to counter the downbeat one on "security" in the past week.

Mr Blair may have lost patience with his Chancellor, and come to view him as disloyal and an obstacle to domestic reform and European integration. But he still needs him to deliver the goods again next Thursday. And they still have one thing in common - the need for Labour to win well at the election.