The Tories have underestimated Gordon Brown. All bets are off

Fraser Nelson says that the new Prime Minister has positioned himself in territory that the Tories have left vacant, and is ready to fight a cultural battle to defend the 'British way of life' and win over the Cl voters who decide elections 1 t was a phrase that David Cameron would never dare to utter. As Gordon Brown was giving his first speech as Labour party leader in Manchester, he repeatedly pledged to defend the 'British way of life'. This dog whistle may have been missed by his audience, and was certainly neglected by the press, but resonated in Conservative headquarters. Immigration, an issue which the Tories have dropped as a frontline issue, is now firmly on Labour's agenda. And this is simply the latest of the spin bowls being delivered by our new Prime Minister.

Mr Brown has only just arrived in 10 Downing Street but is already proving a more agile foe than the joyless curmudgeon against whom the Conservatives `war-gamed' in their strategic meetings. Their belief was that, if they gave Mr Brown the space to reveal himself, he would blunder, scowl and scare off the electorate. In fact, precisely the opposite has happened: the Tories have made fools of themselves with the grammar schools civil war, while Mr Brown has grown into his new role.

His attempts to lure Liberal Democrats into his government took all of Westminster by surprise, and Quentin Davies's astonishing defection on Tuesday hit the Cameron team like a thunderbolt. The only certainty about Mr Brown now is that he intends to surprise. Could this supposedly leftist Scotsman actually win over Middle England, the Cis who decide every election? Not so long ago, this was thought impossible. Now, all bets are off.

Insofar as the labels 'left' and 'right' carry any meaning in British politics today, Mr Brown appeared to be to the left of Mr Blair. He has fought almost every pro-market reform of the public services proposed by No. 10 in the last few years and prides himself on the transfer of money from rich to poor. At the Treasury he has combined profligate borrowing with the highest tax burden ever seen in mainland Britain. He has raised an army of public sector workers which now outnumbers the population of Denmark.

And yet this is the same Chancellor who has nurtured the City of London's extraordinary boom and made the Bank of England independent, who saved Britain from the euro, who backs nuclear power, supports the renewal of Trident and has a long affiliation with the United States and its thinkers. And while he has a near-insatiable appetite for tax revenues, it is trumped by his hunger for winning the next election. Now he has become Prime Minister, his ambition is leading him inexorably into areas where Conservatives fear to tread.

Patriotism has long held a fascination for Mr Brown, and his obsession with 'Britishness' is more than a glib attempt to present himself as more than a Scottish interloper. Under Mr Cameron, the Tories have backed away from the theme of nationhood, mindful of the disaster that was William Hague's 'foreign land' speech and the evidence in polls that the public saw the Conservatives' immigration policy at the last election as suspect and even cryptoracist. So the Union flag is replaced by a montage of green leaves on the Conservative conference stage. The flag and patriotism are discarded political assets which Mr Brown will now pick up and use with a vengeance.

Thus far, his 'Britishness agenda' has scarcely swept the nation (the flags waved in England today tend to be red and white, without any Scottish blue). But he is aware that concern about immigration and cultural integration has defeated leftist parties across Europe, most recently in France. In Britain, polls in 2007 rank immigration as the public's top priority. Yet since the last election, immigration and cultural issues have been the no man's land of British politics.

This has sent Mr Brown's dowsing rods twitching. There are votes to be found here. Mr Brown, it should be remembered, has been Chancellor for ten years during which the immigration system has been in a shambles. But the new PM believes that, by presenting himself as `the change' he can overcome that rather considerable obstacle and address this issue as if from scratch.

The Brown focus groups are run with a degree of professionalism that makes Mr Blair look like a finger-in-the-wind amateur. The phrase 'British jobs for British people', which he first used last September, scores particularly highly, and we can expect to hear it again. There are, after all, 5 3 million people on benefits — yet 1,500 immigrants arriving every day in search of work. Here, Mr Brown is outwitting the Conservatives. Philip Hammond, the shadow work and pensions secretary, has had a year and a half in which he could have argued that mass immigration has been encouraged because Mr Brown's own welfare policies make it financially rational for the British-born jobless to stay out of work. Instead, the Tories have been mute, fearful of reviving their image as the 'nasty party', instructed by Mr Cameron's strategists to 'change the record' and stick to new authorised subjects such as the environment and social justice. 'We don't want to be seen as anti-welfare,' Mr Hammond explains in private — thus ceding a vast tract of political territory close to the heart of Middle England.

Next, tax. During what passed for Labour's leadership campaign, Mr Brown was asked why he would not raise the top rate of income tax. His reply was instructive. 'When we came to power, the richest 10 per cent paid 40 per cent of income tax,' he said. 'Now it is 52 per cent.' The richest are shouldering a greater share of the burden, he was saying — and that's precisely because their tax rate has not risen. If you want them to pay more, incentivise them to earn more. It was a direct echo of Nigel Lawson's 1988 Budget, and the Conservative doctrine — the so-called `Laffer curve' — from which modern Tories now shy away.

This takes us straight to the heart of the Brown paradox. It is precisely his addiction to tax revenues that has led him to the conclusion that he cannot raise the top rate of tax: higher tax rates, he has finally grasped, mean smaller revenues. This is very different indeed to what he believed before 1997, when he was keen on a new top rate of 50 per cent. But ten years in the Treasury has turned him into that rare thing: a redistributionist Prime Minister who understands and relishes the dynamics of the Laffer curve. This is crucial to understanding his thinking now.

The same instinct has led him to protect the City of London from regulation and tax — or at least not to undermine it actively as all previous Labour chancellors have tended to do. More money is now managed in St James's, the hedge-fund district, than the whole of Frankfurt. Canary Wharf has become a capitalist Babel, with Chinese, Indians, French and Americans working together in a globalised mix that even Wall Street cannot rival. All this is a deliberate strategy by Mr Brown to keep regulation light and help London take on the world. His trick has been to turn a blind eye to those issued with nondomicile tax status — a perk which has no equivalent in America or Europe. London is packed with such non-doms (many holding British passports) who pay about 25 per cent tax rather than 40 per cent It is Mr Brown's discreet tax bait, to lure the world's financial elite to London. Everyone is at it Even his own chief fundraiser, Sir Ronald Cohen, is understood to have non-dom status.

This is hardly the policy of a traditional socialist. In effect, Mr Brown has applied lowtax Friedmanite economics to a tiny section of British society — City financiers — and reaped the benefits as talented foreigners flood to London. In one of many role reversals in the political landscape today, it is the Conservatives who now want to close the loopholes that benefit those in the private equity world. 'If it looks like income, then it would be peculiar not to tax it like income,' says George Osborne, the shadow chancellor. Similar moves are afoot in America. But not in Brown's Britain.

All of this takes us into strange political territory. As Mr Brown vigorously protects his right flank, and Mr Cameron moves the Conservatives 'into the mainstream' (as he defines it), it is hard to see which party is positioned where. Mr Cameron says that upfront promises of tax cuts threaten `stability'; Mr Brown keeps his counsel. On the environment, NHS reform and private equity, the Conservatives are now attacking from the left. So amid all this political cross-dressing, Mr Brown is presenting himself as the safer bet for Middle Britain.

He has made remarkable progress in a short space of time. Last summer, he rather wonderfully declared that 'my wife comes from Middle England', as if he were a mediaeval king who wished to make peace with a new dominion by marrying a local. Now he realises he is not engaged in battle for a territory but a cultural war, which he can win by posing as a heavyweight statesman with an instinctive grasp of ordinary Britons' anxieties and aspirations versus decadent, faddish Mr Cameron with his hopelessly out-of-touch coterie.

Part one of the strategy has been to persuade voters that everything they believe about him is wrong. Do they consider Mr Brown sour-faced? He has been pictured smiling more often — sometimes embarrassingly so — than he has in the last decade. Intolerant of criticism? Nope: he is happy for anti-war protesters to camp outside Parliament. A pensions thief? Expect a pensions revamp to deal with this head-on. Ruthlessly tribal? No, he's welcomed Mr Davies with open arms and offered government jobs to the Liberal Democrats.

His 'government of all the talents' will dramatise this new 'inclusiveness' in the days ahead. But the full marching orders for the new Cabinet will not come until the autumn, when he releases the Spending Review that was drafted months ago. It sets the budget for every department until April 2011, thereby emasculating the new Chancellor at a stroke of the pen. Mr Brown may have parachuted out of the Treasury, but he has programmed its autopilot for the next four years. His Chancellor need only sit in the cockpit and smile.

We will almost certainly see more outsiders brought in to help the new Prime Minister. In the Treasury, Mr Brown relied heavily on industry experts to conduct reviews. He understood that the public is more likely to believe a message coming from an outsider. He will soon start to clock up friendly endorsements from the likes of Sir Alan Greenspan and has already lapped up praise from Hollywood actresses like Angelina Jofie. He may lack Mr Cameron's personal glitz, but he can 'outsource' that particular problem. His friends in the US Democratic party have a list of rent-anendorsement celebrities who may fly over to Britain and utter supportive words. Ben Affleck, Sheryl Crow and even Martin Sheen, who played the mythic President Bartlet in The West Wing (a New Labour ur-text), have all been mentioned as potentials to offer mwahmwah kisses to Mr Brown for the 'progressive' cause once the general election arrives.

When will that happen? Mr Brown tantalised Westminster by announcing on Sunday that Douglas Alexander would be his election co-ordinator, thus putting his activists on an immediate war footing. Even so, the Labour party's accounts suggest it could not afford an election for some time. It is some £40 million in debt, whereas the Conservatives have celebrated a return to the black after banking the proceeds of the sale of their Smith Square headquarters. The City remains defiantly ungrateful to Mr Brown — crediting American mistakes for London's good fortune — and is more persuaded by Mr Osborne than the chap who only now admits he should dress properly for the Mansion House dinner.

But, like so much else, this could quickly change. 'If it looks like Labour will win the election, the money will quickly come flooding back to Brown,' says one Tory MP glumly. There is talk of Mr Brown having lined up major million-pound-plus donors, who won't declare until Mr Blair had gone and the loansfor-honours investigation closed. Whatever his true intentions, Mr Brown wants the Tories to be on alert for a snap election — not least because the new uncertainty has thrown their policy commissions into panicked disarray.

British politics has reached a genuine turning point. Since he became leader, Mr Cameron has been able to sit back and let Mr Blair and Mr Brown tear each other apart. He must now settle down to a long game of guerrilla political warfare with the most ruthless fighter in Westminster. The election may come as early as next summer, or as late as 2010. But the battle for Middle England starts now.