Major shapes a battle plan Headline in hereg

Today, the Tory top brass prepares to take on Tony Blair. Donald Macintyre examines the strategy

Today the Cabinet will sit down and plan for battle. Ministers will confront one of the two biggest questions facing them between now and the general election. The first is how to combat Tony Blair and new Labour, of which more later. The second, which will take up this morning's session, is how to turn an economic recovery into a political one.

It's a commonplace among Tory strategists that there is still a daunting divergence in the polls between the rapidly improving optimism that families have about their personal living standards and their willingness to vote Tory. Closing that gap - the worst the Tories have experienced since 1979 - is what today is all about.

The strategists around Brian Mawhinney, the party chairman, believe that much of the background is encouraging: in the new Tory jargon the talk is not of "feel-good factor" but of increases in RPDI - Real Personal Disposable Income.

Mawhinney will remind his high-powered audience that the best of this is yet to come. Most of the pounds 450 ministers expect to go into the pockets of the average family as a result of November's tax cuts and income growth comes in the 1996-7 financial year. About half the proceeds of maturing Tessas are already in instant access accounts, suggesting that householders are already preparing for a modest consumer boom. Mawhinney's task today will be to explain his plans to exploit a steady improvement in the economy - starting with what strategists insist is "an imaginative" party political broadcast for Thursday, contrasting the improving economy in the UK with relative decline in France and Germany.

Mawhinney has assembled a formidable team, including Danny Finkelstein, the research director, Tony Garrett, the campaigns director, and Charles Lewington, the director of communications.

Finkelstein is a thoroughly modern, thirty-something policy wonk: he is cleverer and closer to the party's high command than any other holder of that post since Robin Harris worked at Central Office in the Thatcher years. As a one-time member of the SDP - and before that the Labour Party - he understands what Tony Blair's Labour Party is about; as the inventor of last year's party conference theme of the Enterprise Centre of Europe he began to create an electoral project for the Tories, to tell the party a convincing story about why it believes in deregulation, low taxes, an outward-looking Europe, its opt-out from the Social Chapter, and so on.

Garrett, in his mid-forties, is an intelligent and affable professional who is light years away from his predecessor John Lacey, an old school type so press-unfriendly that he tried to keep journalists waiting outside Central Office in the rain during the local elections in 1991. When thwarted by his bosses he vainly proposed that reporters should at least be forbidden to use the Smith Square lavatories to ensure they did not wander off limits.

And Charles Lewington, a smooth and intelligent former Sunday Express political editor has turned out, after an unobtrusive start, to be a player: highly thought of by Mawhinney and the Prime Minister, with more or less unlimited access to both. There are signs that Central Office's operation is gradually coming together at long last.

The Cabinet can afford to concentrate on the economy today because it has finally resolved fundamental differences between ministers over how to campaign against Tony Blair. The Tories have discarded the approach sometimes described as the Coca-Cola strategy - that Blair reflects a pale imitation of Toryism and it's better to vote for the Real Thing. They have discarded the charge that Tony Blair is a good guy surrounded by old Labour monsters who will hijack the party just as soon as Blair levers them into power: private polling shows that thanks to Clause IV and the policy transformation Blair has already achieved, voters really do believe that the party has changed.

Central Office has essentially also discarded the argument that Labour has no policies: disaffected Tory voters are less frightened by a Labour Party without policies than by one with policies.

Instead, the Finkelstein/Mawhinney strategy will now argue that new Labour does indeed have policies; they will play on the continuing fears that Labour is still a tax and spend party. The Tories will continue to argue that Labour's adherence to the Social Chapter means hidden costs on industry and therefore on jobs. It is a safe bet that researchers are even now ruthlessly compiling a list of every spending commitment ever uttered by a frontbench Labour spokesman since the 1992 election.

Just how tough Major and Mawhinney have been in enforcing a common line is illustrated by the affair of the stakeholder economy, unveiled in Blair's Singapore speech. Michael Portillo, stranded and out of touch with mission control on a business trip to Tokyo, remarked casually that there was nothing new about stakeholding; after all the Tories had been doing it since 1979. This was diametrically opposite to what immediately became The Line. With Central Office leafing through every reference to stakeholding in Will Hutton's book The State We're In, the idea was quickly depicted as new Labour's way of fettering business with a series of commitments to trade unions, social progress, corporate ethics and in the words of one contemptuous Central Office staffer "Friends of the Earth".

The Portillo dismissal was swiftly forgotten and will never be repeated. In the Finkelstein canon, stakeholding will be characterised by the Tories as a brake on change which makes a Labour-led Britain less fit to compete in the dynamic global economy.

Central Office knows what it is doing is a necessary, but by no means sufficient, condition for a political recovery. Mawhinney may well argue today that the polls are underestimating the Tories' strength-with council by elections allegedly showing a 30 plus percentage share of the vote but that cannot alter the fact that the Tories are in their longest and deepest electoral trough ever. The level of defeatism among many Tory MPs is greater than at any time in living memory. It may yet be that the Tories will merely prevent a Canadian-style wipe out and ensure a respectable defeat.

But for those who have not given up, there is still hope in "the economy, stupid". Michael Heseltine, for example, has never forsaken his endlessly stated view that rising living standards can yet deliver a fifth Tory victory. And while some in the Labour Party, not without justice, are convinced that the game is already won, it is a safe bet that Tony Blair is not among those who underestimate the Tory Party's historic capacity to reassemble itself as a fighting machine.