Michael Harrison's Outlook: Cherie's Manchester bombshell hits the Chancellor, right in his endogenous zone

If Gordon Brown expected yesterday's speech in Manchester to smooth the way for his coronation as Labour's next leader and Britain's new Prime Minister, then Cherie Blair's unscripted and overheard comments have surely blown those hopes out of the water.

Her reported description of the Chancellor as a liar wrecked the carefully choreographed image of a united government. It also sat uneasily with the personal credo Mr Brown espoused to the party faithful in the G-Mex centre: a credo founded on his belief in a "good society", built on the tenets of "hard work and honesty" and guided by a "moral compass".

But, just supposing he can overcome this public relations disaster and Labour manages to paper over the fissures in its leadership long enough for Mr Brown to ascend to the throne, then what kind of legacy will the Chancellor leave his successor?

As we report today, Mr Brown's scorecard is a mixed one. On economic growth and inflation, the record is good. Britain has escaped the boom and bust associated with so many previous administrations so that neither has there been recession, nor rip-roaring interest rates. Mr Brown would argue this is due to the application of his famous post neo-classical endogenous growth theory. Others would say it is largely down to his first act as Chancellor - giving the Bank of England independence. He has also invested unprecedented amounts in health and education and reduced poverty, both at home and abroad.

Elsewhere the picture is not so rosy. Tax and public spending as a proportion of national income have risen remorselessly, while the Chancellor's penchant for means testing and credits has proved a massive disincentive to save and created a tax system of mind-boggling complexity.

Although the accompanying growth in the economy has prevented the Chancellor breaching his own rules on sustainable investment, the total amount of government borrowing has nevertheless soared by some £129bn and there is a further £43bn of investment lurking off balance sheet in the shape of PFI projects just waiting to bite the ankles of any successor.

Most seriously, nearly all of the economic growth of the past decade has been achieved through rapid expansion of the public sector and an explosion in private debt, fuelled by low real interest rates. If the cost of borrowing continues to rise, as well it might, forcing consumers to rein in their spending, then there is a danger of the broader economy stalling. Not a pleasant scenario to inherit, either as Chancellor or Prime Minister.

BAA's Spanish owner hits turbulence

His countrymen may have a reputation for fiery temperaments. But Rafael del Pino, the chairman of the Spanish construction company Ferrovial, displayed a remarkable coolness of character during the heat of the bid battle for BAA. A classic case of English sang froid, you might almost say. He even interrupted the deal to get married.

What has happened since, however, must surely have caused his blood pressure to begin to rise. Soon after the takeover, a full-blown competition inquiry was ordered into BAA's south-east airports monopoly. Ferrovial had no sooner digested that than an alleged terrorist plot was foiled, causing unprecedented disruption at Heathrow and elsewhere. This, in turn, cost BAA a lot of money and provoked demands for compensation from its airline customers.

Now British Airways, BAA's biggest and most influential customer of all, has opened a war on not just one but two fronts. First, BA publicly called for the break-up of BAA, arguing that its stranglehold over Heathrow, Gatwick and Stansted was no longer in the public interest. Now it has demanded a huge cut in the return BAA makes on those regulated airport assets to prevent the company taking airlines for a ride by building gold-plated, over-engineered facilities for which they end up paying through the nose.

When it was only Ryanair's Michael O'Leary having a go, BAA could brush off the jibes that it wanted to turn every passenger terminal into a "Taj Mahal" as just one more piece of hyperbole from old motormouth. But BA's attack, led from the front by its chief executive, Willie Walsh, represents a much bigger problem. There has always been simmering mistrust and unhappiness among BAA's customers over its high-handed, monopoly-knows-best approach to its three regulated airports. While BAA was a British-owned and publicly owned company, the tension rarely surfaced. Now that it is owned by foreigners, the dam has burst and no one worries about the fate of BAA or its shareholders. Put crudely, who cares whether a Spanish toll road operator, a Canadian pension fund and the private equity arm of the Singapore government lose their shirts, having paid top-dollar for the business?

In one sense, we all should, because they are now the custodians of some of the most important bits of transport infrastructure in the country. If BAA's owners decide that it is not worth investing in new capacity for the returns they are allowed to make, then we will all be the poorer. Especially at a time when Paris and Amsterdam are expanding their airports at a frightening rate.

But Ferrovial and its partners cannot argue that they were not warned. They came up with a very aggressively financed bid for BAA which will require the company to continue making handsome returns in order to pay the coupon on the colossal amount of debt it now supports.

Yet the Civil Aviation Authority could scarcely have made it clearer that BAA's new owners could not rely on the regulator to bail them out with a generous settlement on landing charges.

BAA treads a fine line between being a private company in charge of public assets over which the government of the day has a huge say. It is not BAA executives but government ministers who decide where it will build new terminals and runways.

At the last price review, the regulator gave BAA a lot of financial headroom, much to the dismay of the airlines. With the next review now in full swing, it will be lucky to get off so lightly. Perhaps Mr del Pino would welcome a break-up of the company he has just bought on the grounds that a problem halved is a problem solved. Either way, he will need all his legendary coolness.

m.harrison@independent.co.uk