The Labour infighting has begun. The Government’s attempts to keep the British economy competitive have faced two big challenges from its own supporters. First, on Tuesday, proposals to reorganise Royal Mail were widely criticised by Labour MPs. Second, yesterday, the majority of Labour MEPs defied the Government by voting in the European Parliament to end the British opt-out from laws limiting the working week to 48 hours. In both cases, the Tories and Liberal Democrats largely supported ministers.

These issues matter both in themselves and as pointers to likely areas of conflict as the recession deepens and more jobs are lost (underlined by yesterday’s further large rise in unemployment). The job protecting instincts of Labour MPs, and MEPs, are coming to the fore.

The Commons clashes turned on whether the involvement of an outsider such as TNT from the Netherlands in taking a minority stake in Royal Mail would break Labour’s manifesto pledge against privatisation (denied by ministers since it would still be majority publicly owned). Concern over this was why Jim McGovern resigned yesterday as as parliamentary private secretary to Pat McFadden, the Postal Affairs Minister.

But the underlying dispute is about why Royal Mail has such severe problems. Critics say it is because the regulator has been biased in favour of private sector rivals. But Mr McFadden said competition from other providers amounts to just one-fifth of the impact of the shift from mail to other technologies. Five million fewer letters per day are being sent than two years ago, at a cost of £500 million in lost profits. So radical change is unavoidable, irrespective of ownership or competition.

The vote against the opt-out is economic nonsense since a time of recession is just when flexibility is most needed, and people want oppotunities to boost their incomes.

Similar questions will arise over the coming months as big companies announce, or threaten, large redundancies. Last night, Lord Mandelson gave the second in a series of speeches, to the Royal Society of Arts, entitled new industrial activism. This set out the principles of what the Government can do to help industry that complements markets, on skills, innovation and infrastrcuture. At one level, this is part of new Labour repositioning against the Tories by emphasising terms such as “activism” and “smart, strategic government”.

Underneath the buzz words are tricky questions of when to intervene. Lord Mandelson’s mantra is that “whatever the short-term decisions we make on transitional assistance for businesses faced with the extraordinary strains of the downturn, in the long-term there is no propping up unviable companies or running businesses from Whitehall. No heavy handed state. No backing away from free trade or open markets or the discipline of competition”. So no to Woolworths. But what about bridging loans, and export credits, to motor companies?

Lord Mandelson’s aspirations sound fine. But there are many traps: short-term help can all too easily turn into long-term, costly assistance as MPs and unions call for jobs to be “saved”.

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