Steve Richards: It's taken a crisis for Labour to rediscover its unity

In the gravest of political and economic situations, there has been an outbreak of unity at the top of the Labour Party. The strange harmony is one of the least expected and most significant developments of the year.

Of course below the surface there are deep tensions. There always are. This week some Labour MPs fumed over the Government's proposals for the Post Office. There will be more rows to come over welfare to work. Expect angry internal eruptions as the Government agonises over whether or not to save suddenly vulnerable industries.

But these real and substantial internal tensions obscure what used to known vaguely as "the bigger picture". In September the always fragile New Labour project was imploding in front of our eyes. As the year draws to a close Blairites, Brownites and the rest dance together in a determined harmony. Peter Mandelson has coffee with his old foe Charlie Whelan to discuss the politics of the recession. They did not meet for a meal as some have speculated, but they have met nonetheless in Mandelson's departmental office.

Mandelson has dined convivially with his other old enemy, Ed Balls. In Number Ten, formerly warring Blairites and Brownites work together for the first time since 1997. Others such as Mandelson's old adviser, Derek Draper, work around the clock from Labour's headquarters. Brown's other close ally, Tom Watson, works with Tony Blair's old friend Liam Byrne in the new open plan office in Number Ten.

With good cause there has been much talk about the desperate, pragmatic calculations that brought about the return of Mandelson to the cabinet, the move that symbolised the coming together of warring factions. But reading Mandelson's well argued speech this week about the relationship between markets, the state and the global economy I was struck by how his insights chime with the ideas that Brown struggles to convey. An ideological convergence of sorts is being forged out of the economic crisis.

In his lecture this week Mandelson stated that he is an optimist about the state and argued for "a capable strategic state – one that works with markets and enables us to get the most out of globalisation. Part of that is about building a fair society equipped to create more winners from globalisation. Part of it is putting in place the conditions that will help British business succeed.

Earlier this year, before his rapprochement with Brown, Mandelson delivered a lecture in Cambridge along similar lines. When Brown read it, there was a frisson of excitement in Downing Street. To the amazement of his listeners Brown declared "Mandelson gets it. He gets globalisation. You've got to read his speech".

"Mandelson" did not become "Peter" for a little longer, but he did get three calls from senior figures in Number Ten saying how impressed Brown had been by the lecture.

You can see why. Brown's big idea is that Britain can thrive in the globalised economy, but only with the support of an active government. In The Observer in February Brown made a similar case: "The opportunity revolution needs a strong private sector... but also it needs a supportive, enabling and empowering public realm".

The strained, tortured prose is revealing. The article was written before the massive US interventions in September. Brown was too timid last February to use the word "state", instead referring to the old -fashioned "public realm". The term "opportunity revolution" is also opaque. Brown has yet to make the argument with the clarity that Mandelson managed to do in recent weeks. Still the economic crisis and Mandelson's arduous search for a free trade agreement as an EU commissioner, has brought them together in an understanding that the state matters if markets are to deliver effectively.

In a speech last month the former Cabinet minister, Charles Clarke, argued perceptively that Bill Clinton and Tony Blair had no choice but to "adapt" to Thatcher/Reagan orthodoxies still prevailing. With the collapse of the light regulatory, small state consensus, Clarke claimed that the left of centre had the chance to be bolder. The term "adapt" is revealing, implying, correctly in my view, that Blair/Brown/Clinton and co sought vindication, sometimes to the point of painful contortion, in an era when the left of centre was on the defensive and the right was still rampant, even if right wing parties were in political opposition. In this respect Labour's landslide victory in 1997 did not mark a watershed. It is the events of the last few months that are part of an historic turning point.

The sudden hunger to win again at the top of the previously exhausted divided Labour party means that there will be no reckless risks with the timing of the election. For all the recent hype about a Brown bounce, it is worth pointing out that the Conservatives are still ahead in the polls. As important, Brown is still not the finished Prime Ministerial model, one that offers explanation for the current crisis, reassurance that the government is acting sensibly and hope of a sunnier future.

Will the ideological tide that creates a fragile unity at the top of the government sweep voters back into Labour's fold, or will it propel them away from a long serving government as the recession deepens frighteningly next year? Until there is a clearer answer to that question there will be no general election. Forget about a February campaign. It will not happen.

There is also a logistical problem for Brown in going early. On this very date in December 2004 Blair and his party chairman, Alan Milburn, hosted a political cabinet in which they discussed their plans for the election expected in the summer of 2005. There was no pretence about it. Journalists were briefed that election tactics were explored for a campaign expected the following May. The fiasco over the non-election in the autumn of last year and the depth of the economic crisis gives Brown no space to do that. There can be no overt signs of preparation for a campaign.

But beyond the winter no one knows. My guess is that Brown will call an election in the early summer or October if the polls are showing a Labour lead. I cannot see any reason for hanging on in such circumstances.

Will the deep recession bring about such propitious political circumstances? All that is certain is that the unity symbolised by the Brown/Mandelson relationship along with the government's recently discovered swagger are going to be tested severely when the front pages are swamped by news after Christmas that seemingly invincible firms are going bust. Ministers are uncertain about many things at the moment, but they know for sure that the closure of Woolworths and the precariousness of Jaguar Land Rover are only the beginning of the economic nightmare.

s.richards@independent.co.uk