Trial of strength that Blair simply cannot afford to lose

On his return from the Nato summit in Prague yesterday, Tony Blair slipped into No. 10 through a side door to avoid questions from television crews about the firefighters' strike. But there will be no hiding place for the Prime Minister as he faces his biggest domestic crisis since coming to power.

After the Government's point-blank refusal to fund the deal cobbled together by the local authority employers and the Fire Brigades Union (FBU), the dispute has become a trial of strength that Mr Blair simply cannot afford to lose.

To make matters worse, Mr Blair must juggle two interlinked problems at once. On Monday, the Government is due to announce plans to deploy servicemen in the Middle East for a possible war in Iraq. Admiral Sir Michael Boyce, Chief of the Defence Staff, has already expressed grave doubts that the services will be able to fight fires and Saddam Hussein at the same time.

Even those ministers who have played "soft cop" to Gordon Brown's hard man so far, such as John Prescott and Peter Hain, took a tough line yesterday. In trying to bounce the Government into a deal in the middle of Thursday night with the eight-day strike only a few hours away, the FBU seems to have alienated its friends within the Government.

Yet the crisis could have been avoided if ministers had acted on repeated warnings in the past year that the firefighters were preparing to strike over pay. Charlie Whelan, Mr Brown's former spin doctor, whose partner Philippa is the FBU's head of policy, told Downing Street that trouble was brewing. "They should have seen this one coming and they didn't," he said yesterday.

When he spoke to Alastair Campbell, No. 10's director of communications and strategy, on Thursday night, Mr Whelan "got the distinct impression that he was spoiling for a fight". Mr Whelan added: "He has certainly got one – but it is a fight that this Government cannot win."

Some Labour MPs and union officials are convinced that Blairite advisers – and perhaps even Mr Blair himself – have long relished a major industrial dispute so that he could prove his Thatcherite credentials. The surprise, perhaps, is that it has taken five and a half years to arrive.

Yet critics claim that the Government has picked the wrong target in the FBU and has underestimated Andy Gilchrist, the union's leader.

The Government also has a full-scale public relations battle on its hands. Its much-heralded spinners were slow off the mark yesterday morning as Mr Gilchrist and the council leaders made all the running, blaming the Government for failing to stump up the money to avert the strike.

The FBU line, quickly disseminated to its frontline troops for use in media interviews, was that Mr Prescott could not be bothered to "get out of bed" to settle the dispute. In fact, the Deputy Prime Minister was up most of Thursday night monitoring events. "It was a bad deal at 4.30am, it was a bad deal at 9am and by 4.30pm when we had looked at it in detail, it was even worse," a Whitehall source said.

Why is the Government taking such a hard line? The Chancellor is determined to stop the extra billions he has pumped into the public sector being soaked up by higher pay rather than improved services.

Mr Brown fears that a bumper award for the firefighters would provoke a rash of similar claims from other workers. Ministers point out that other groups, such as local authority care workers, have already settled for 3 or 4 per cent. A new pay agreement for NHS workers is due to be struck in the coming week.

Conceding a bumper rise to the firefighters would also blow a hole in the Government's "invest and reform" strategy for public services. Hence the repeated stress by ministers on the need to modernise what they regard as archaic working practices in the fire service.

A prolonged dispute could have long-term implications for the relationship between the Labour Party and its trade union founders. The unions are still the biggest single source of Labour funds, and if the Government decides to face down the FBU, considerable damage could be done to Labour's financial lifeline.