There were three of us in this marriage, it was a bit crowded,” said the People's Princess. “I was the third person in the marriage. I was the casualty,” observed the People's Peer.

For more than a decade Peter Mandelson was involved in a love triangle with Tony Blair and Gordon Brown. They were, he says, the two and a half musketeers - “I was the half” - and all too often their swords were pointing at each other.

Now Lord Mandelson is back, fully grown, as the real deputy prime minister. But yet again he is involved in a complicated threesome - this time with Mr Brown and Ed Balls. It's not “all for one and one for all”. In fact, this love triangle could be more dangerous than the last one: it is political as well as personal.

The Prime Minister has appointed Lord Mandelson to sit at his right hand as First Secretary of State. His department has been expanded into an “economics ministry” with 10 ministers under him. There is talk of a PMQs - Peter Mandelson's Questions - in the Lords. Mr Balls, however, is still positioned firmly at Mr Brown's left hand. The Children's Secretary may have been denied his ambition of becoming Chancellor, but he remains a trusted adviser, as well as the Prime Minister's favourite to succeed him as leader.

The problem for Mr Brown is this: the man on his right and the man on his left disagree fundamentally about the future direction of the Labour Party and the next election campaign. With his head Gordon knows he should follow Peter, but his heart is still with Ed. “In the end he's got to decide whether he's going to leave Ed and go off with Peter,” says a Cabinet minister. “That's the only way he will find happiness and win.”

Superficially, Mr Balls and Lord Mandelson get on. “Ed's a brainbox, he works hard and he's got a good grasp of politics,” the Business Secretary told Alice Thomson and me when we interviewed him recently. But their rivalry is deep after years in which they worked on opposite sides of the TB/GB divide. There are cultural differences between the lad who loves football and the Lord who admits he can only tolerate a match if he has a “good book to read”. More important though are the political disagreements between the two men who have the Prime Minister's ear. They are at odds on the euro and on economic policy - the Schools Secretary thought the Business Secretary's idea of industrial activism was misguided. It's unlikely that Lord Mandelson would have hired Sir Alan Sugar as an enterprise czar.

Yesterday Mr Balls made clear that he thought the election would be about Labour “investment” versus Tory “cuts”. He said David Cameron was planning “swingeing” reductions in public spending and irritated the Treasury by predicting that Labour would continue to increase the education budget. Then he engaged in a bit of class war against schools in “posh areas”. “Those who claim it is old-fashioned to talk about ‘dividing lines' in politics are basically saying all mainstream parties are the same,” he wrote. “That is dangerous nonsense.”

Lord Mandelson would not put it quite like that. Indeed, his friend Tessa Jowell is almost certainly reflecting his views when she says: “It is not sustainable any more to say one party has all the answers, that you can translate political debate into crude dividing lines.”

The Business Secretary has always shied away from class war - he wants to appeal to posh and poor. He is instinctively suspicious of fighting another election on “investment versus cuts” - a rehash of Labour's past two campaigns, which took place in a very different economic climate. An interesting alliance has formed in Cabinet between Lord Mandelson and Alistair Darling, who argue that the Government has to be honest with the voters that there will be spending cuts whoever wins power.

I am told that the Chancellor is not entirely happy about Labour's campaign dubbing the Tory leader “Mr Ten Per Cent”, and that the new Chief Secretary to the Treasury, Liam Byrne, was initially reluctant to front a “Tory cuts” press conference organised yesterday by No 10. They know that it would be just as easy for the Conservatives to run a “Labour cuts” ad. Indeed, according to the Institute for Fiscal Studies, if the schools budget is ring-fenced along with health - as Mr Balls suggested yesterday - then there would have to be a 13.5 per cent cut in spending on other departments. Does that mean Mr Brown is Mr 13.5 Per Cent?

Along with other ministers such as Alan Johnson, David Miliband and Ms Jowell, Lord Mandelson would prefer to see an election campaign based on Labour plans to reform public services and restructure the economy. “We have not been bold enough,” he admits. “We need to set out further plans to increase personal power in the delivery of services.” Mr Balls, however, is reluctant to give parents more control over education. The main proposal in a schools White Paper out next week is expected to be a new report card for schools, based on children's wellbeing and sporting success rather than academic achievement - not something that is likely to endear Labour to middle-class parents.

Mr Brown is facing, Janus-like, in two directions, pulled between the courtiers who represent his different identities. Does he want to stamp out elitism or promote excellence? Would he prefer to help the poor or reach out to the middle classes? Will he campaign on Tory cuts or Labour reforms? Is he going to listen to the lad or the Lord?

It is time to choose. The Prime Minister is safe for now, held up in part by his First Secretary, but, as one Blairite minister says, he is “on a strict leash”. In our interview Lord Mandelson said his loyalty was to “what the Labour Party stands for... and winning elections”, rather than to the leader. Who knows what he would do if he felt Mr Brown were inviting defeat by ignoring his advice? When we asked whether he was more like Machiavelli or Macbeth, he replied: “Famously a bit of both.”

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