Picture Prescott raging impotently in his pyjamas. Worrying, isn't it?

In the midst of the worst industrial dispute for nearly two decades there is a single tantalising question. Could the conflict with the firefighters have been resolved in the early hours of Friday morning? More specifically, could John Prescott have grabbed his dressing gown and moved more quickly and authoritatively in the middle of the night to prevent the strike from going ahead?

Mr Prescott is an easy target. He always appears to be raging impotently, whether his rage is directed at the chaos of the railways or the current strike, even though he is theoretically in charge. In interviews on Friday after his sleepless – or sleep-interrupted – night he sounded more distracted than normal, as if he were driving a Green Goddess, putting out a fire, taking a call from Gordon Brown and speaking to the Today programme at the same time. He did not sound like a man who was in control of events.

But that is because Mr Prescott was not in control of events. The problem with this dispute is that no one has been entirely in control. As such, the chaotic pay negotiations are emblematic of Britain's blurred lines of power. In theory the main negotiators with the Fire Brigades Union have been the local government employers. But local authorities in Britain have little control over how they raise or spend their money. That is decided by central government. So the employers were negotiating with both their hands tied behind their back. In these talks there were too many local authority representatives sitting around the table, and they were at times muddled about what they were trying to achieve. But in some ways their incompetence is a red herring. The basic problem was this: they were in the farcical position of negotiating without any real power to negotiate. In theory that power lay ultimately with Mr Prescott. Every now and again in recent weeks, not just in the middle of the night, the employers have sought the permission of Mr Prescott to agree a deal. But Mr Prescott is in no position to give them the go-ahead. He is working on behalf of the Prime Minister and Gordon Brown, who pull the purse-strings. Mr Prescott has to check with both of them before making a move. Mr Blair and Mr Brown will also no doubt have to check with each other, for in this dispute they are working as one, in virtually complete agreement on the approach to take.

So here is a summary of the process: the employers must agree with each other on a deal, that deal must be put to Mr Prescott, who must then discuss matters with Messrs Blair and Brown. Given this convoluted state of affairs, how did anyone believe that a speedy deal could be struck in the middle of the night? It would be a miracle if there were any prospect of a deal being struck by the middle of next year.

On this, the process of managing the dispute, there is a long-term and a short-term issue. In the longer term there are questions about the relations between central and local government, a dry issue that nonetheless is a recurring theme in most such dramas that have unfolded in recent years, from the management of the floods to the chaos caused by the mad cow disease. In most developed countries there is more local autonomy than in Britain, allowing for more regional variations in pay settlements in public services and more clear-cut lines of responsibility in terms of who runs what. (Look at the way the Mayor of New York responded to the attacks of 11 September. He had the power to respond.)

But in the short term we are where we are, with central government pulling the strings. It is therefore farcical for the main negotiator, Mr Prescott, to be sitting at home in his pyjamas while the talks take place around a table in a London office. He or his deputy, the astute and adept Nick Raynsford, should be present at every meeting. The Government cannot affect a distance when it in reality it is calling the tunes.

My guess is that this notional separation reflects a fear of the past. New Labour does not do "beer and sandwiches" like old Labour did. But in reality New Labour is doing "beer and sandwiches" down a telephone line, so it might as well be there around the table. Mr Blair will be making a big mistake if he worries too much about how he is being perceived over the next few days and if he follows too closely the lines taken in the newspaper editorials. He will not get very far if he allows this mantra to enter his mind: "I must not be old Labour. I will not be old Labour. I must be like Margaret Thatcher. I will be like Margaret Thatcher". His ministers must have the odd beer and sandwich, and as for Baroness Thatcher, my guess is that she would never have taken on the firefighters. She chose her disputes carefully, and more often than not, and contrary to mythology, conceded to substantial pay demands in the public sector.

In this sense the Government should not follow Thatcher. It should not concede any ground. While the process behind the dispute raises many questions the substance is clear. This week in his pre-Budget report, the Chancellor will declare his intention to stick to his largish spending plans in spite of the downturn in the economy. No doubt he will say that he has been "prudently over-optimistic" in his forecasts for growth. In spite of that gloomy context this is the only government in the Western world which is planning to increase spending. At such a sensitive moment Messrs Blair and Brown have no choice but to stand firm. Any rash concession would send out a message to the other public sector unions that all the spare cash is available to be swallowed up in pay rises.

More specifically the "agreement" that was reached in the middle of the night was far from watertight. The firefighters' union made a commitment to review its working practices in return for a large pay rise. That is a big step away from agreeing to sweeping reforms, an essential pre-condition to a pay award. Inadvertently the TUC general secretary, John Monks, highlighted the problem yesterday. Mr Monks condemned the Government for having failed to stop the strike because, in his opinion, the middle-of-the-night agreement was "the basis" for settling the dispute. Perhaps it is the "basis", but that was not conclusive enough for Mr Prescott or anyone else to give the thumbs-up over a night-time cup of Horlicks on Friday.

They remain tantalising questions. Could the strike have been stopped? Should it have been stopped? Unfortunately the answer to both of them is an emphatic "No".