Hard station for Blair's 'best friend in politics'

After enduring four years of speculation about his relationship with Prime Minister Tony Blair, the latest welter of headlines finally got to Chancellor of the Exchequer Gordon Brown.

This normally undemonstrative man gave an unprecedented interview declaring that Mr Blair was his best friend in politics and emphasising his "utmost respect for the brilliant work our spending ministers have done".

The policy-fixated Chancellor was clearly wounded by the suggestion that his actions were motivated by his personal ambition to succeed Mr Blair, an imputation he found "offensive".

A recent report in the Financial Times said relations between Mr Blair and Mr Brown were becoming increasingly strained and Downing Street believed the Chancellor's political manoeuvring was affecting the conduct of government business.

Senior figures in number 10 said they were concerned about his handling of European policy and domestic issues, including the collapse of Railtrack.

They accused Mr Brown's "people" of distancing him from Mr Stephen Byers, transport secretary, and said Mr Brown was "stupid" to allow a recent speech on the European single currency to be depicted as correcting Mr Blair's more euro-enthusiastic rhetoric.

Former cabinet minister Ms Mo Mowlam fuelled the flames by saying in a BBC documentary that tension between the pair was "crippling for government".

Stories flowed through the media, alleging disputes between Mr Brown and colleagues about issues ranging from public spending to prime ministerial succession.

The Chancellor shrugged and blamed the "usual sources" for many of them. Allies suspect one of his long-time rivals for the prime minister's ear of attempting to destabilise the relationship between Mr Blair and Mr Brown.

Some reports were exaggerated. However, cabinet ministers privately confirmed the FT's account and spoke of their brushes with the Chancellor, who provokes admiration and exasperation in equal measure.

"I hesitate to get into the psychological flaws territory," says a senior Labour figure, "but there is something about his make-up that makes him feel the need to exert his authority over colleagues."

Various reasons have been advanced for the tension: the new round of public spending negotiations; the effect of the war on terrorism in taking the limelight away from Mr Brown; and Mr Blair's continued failure to indicate when he might stand down.

The exact cause is hard to pinpoint. Some of it may arise simply because Mr Brown, who has the earnestness and reserve of his Scottish Presbyterian upbringing, does not realise the effect he has on others.

Allies say the only way he can overcome such controversy is to concentrate on long-term policy goals. Britain has been among the strongest large economies this year and is expected to continue to be so into 2002. Mr Brown, who turned 50 this year, says this has been made possible by the policy framework he put in place.

The most serious problem is the state of public services, and above all the National Health Service. Government spending on the NHS is budgeted to be 20 per cent higher this year than in 1999/ 2000, but there has been no dramatic improvement in the quality of healthcare.

Mr Blair believes resources are still inadequate. He has all but promised that the rate of increase in spending on the NHS in the current set of three-year spending plans will continue into the next programme.

Mr Brown's allies insist there is no split and that the Chancellor is as committed as anyone to raising health spending. Ministers expect, though, that the spending round to be completed next July will be the most difficult since Labour came to power because of the growing list of competing priorities.

Health, education, law and order, transport and defence all have pressing claims. However, Mr Brown has already committed himself to using up the public finance surplus in the current round. Increasing overall public spending at the same rate in the next spending review - 3.7 per cent a year in real terms, ahead of inflation - would mean raising taxes or borrowing by an extra £5 billion sterling (€8 billion) annually.

Within the terms of his fiscal rule - over the economic cycle, the government is allowed to run a budget deficit as large as the amount of public sector investment - the extra borrowing route is just about open to Mr Brown. But the plans would then leave no margin for error.

Mr Brown delivered the economic stability and public spending increases that allowed Labour to win a second term this year. His continued ability to square the circle in more difficult times is the key not just to the government's future - but also to his own.

Allies insist he is not obsessed with the succession to Mr Blair because no vacancy yet exists. Others in government believe what is eating away at Mr Brown is that it is seven years since he conceded the Labour leadership to Mr Blair and the more time passes, the greater the danger that the public will want a new generation of leaders.