Government in Crisis (II): Captains of calamity: PM and Darling hit by triple whammy

The drink was flowing and the golden couple at the centre of the throng were proving perfect hosts when Alistair Darling invited the press into his new headquarters 11 days ago. It only took the arrival of Gordon Brown to darken the mood. The Chancellor had been chatting cheerfully to his guests when a security guard arrived at his side. "The Prime Minister is downstairs," the aide said quietly. "He's waiting."

It was, effectively, the end of the party. Mr Darling rushed out the door, promising weakly that he would be back soon. His wife Maggie was left to hold the fort.

It was the day that a monumental error by a junior civil servant began to mutate into one of the most embarrassing predicaments yet to assail Mr Brown's government. Four days earlier, Mr Darling had been informed that HM Revenue and Customs (HMRC) had lost the sensitive personal data of 25 million people somewhere between its offices in Washington, Tyne and Wear, and the National Audit Office in London.

On 14 November, the day the Chancellor hosted a reception for the journalists who would be tearing him to shreds within a week, Mr Darling and Mr Brown finally gave up the ghost and instructed the HMRC chairman, Paul Gray, to call in the Metropolitan Police. By the time the nation was let in on the two Scots' appalling secret, almost a week later, Mr Gray had been forced to resign and New Labour's reputation for competence was exposed and shivering in the wind.

It was not even the first of the Government's traumatic disasters of the week. Twenty-four hours before his urgent statement on the child benefit catastrophe, Mr Darling had made the well-trodden journey to the dispatch box to deliver an equally shamefaced update on the continuing crisis at Northern Rock. Whereas he had previously insisted that the taxpayer would not lose out from the £24bn of public money pumped in to prop up the troubled bank, the Chancellor suddenly informed MPs he "expected" to recoup the money when Northern Rock is sold off.

The ambush by some of the nation's most respected military men in the Lords on Thursday was the coup de grâce. The condemnation of Mr Brown's financial commitment to the armed forces, as Chancellor and Prime Minister, was a blow for a man desperate to prove himself a patriot; and the debate over the "part-time" status of his Secretary of State for Defence and Scotland, Des Browne, was a withering comment on his ability to manage a key element of government.

This is the most significant tumble in Mr Brown's fortunes as Prime Minister. Ministers gamely dismissed the significance of the colliding calamities, but by the end of the week the political impact was becoming clear. Opinion polls showed public confidence in the Tories' economic competence soaring, while the proportion of voters confident in Mr Brown and Mr Darling's ability to handle economic problems had more than halved, to 28 per cent, since early September. A further survey yesterday revealed that the improved position Mr Brown had constructed since July had been wiped out, and Labour is back to the levels of support endured during the final days of Tony Blair's regime. A Guardian/ICM poll showed support for both major parties had fallen, but the Tories extended their lead as Labour's standing fell by four points to 31 per cent.

Mr Brown has imitated his predecessor by transplanting his own style of sofa government from the Treasury to Downing Street, but even his allies are beginning to question the standard of advice he is receiving from his inner circle. His morning telephone conferences with lieutenants Ed Balls, Ed Miliband and Douglas Alexander are followed by round-table meetings at 10am that decide how the Government will be run each day.

These confidants are the young Turks who drove the disastrous project to rush Mr Brown into an early general election. If he cannot control political events, he can at least widen his inner circle to take in the advice of people, such as Mr Blair's pollster Lord Gould, with the wisdom to handle disasters when they arise. Mr Brown ended the week in the bunker with two of his closest ministerial allies, but he took the heaviest political flak.

The fabled tipping-point that dictates in a moment the fate of any political leader is hurtling into view. Labour's opponents, at least, are beginning to talk in apocalyptic terms.

"I'm not sure that the magnitude of the events of this week can match the appalling Black Wednesday that we all suffered in 1992," said Michael Dobbs, a former John Major aide and Tory chairman in the mid-1990s. "But there are very strong similarities, because of the talk about the credibility of the Government and its image of competence."

The spectre of Black Wednesday, when the Major government wasted billions trying to prop up the pound, has been revived by all sides. Several older, wearier souls on the Labour benches preferred to view the multiplying dramas with the same sense of gathering doom that gripped them during Jim Callaghan's "Winter of Discontent" in 1978-79.

The comparisons may be excessive, but there is some merit in viewing the crises as more than a series of unfortunate coincidences. Mr Brown is no longer at the Treasury, but it is widely claimed that all three problems that flared up last week had their origins during his tenure there. Union leaders blamed historic job cuts and the merger that created HMRC for the chaos that allowed two disks containing details of 25 million people to be lost in the post; critics claim Mr Brown's regulatory system helped Northern Rock spiral into crisis; and the phalanx of former defence chiefs accuse him of long-term underspending on the forces.

Mr Brown, whose ruthless desire for the premiership was legendary, the "Macavity" Chancellor who always disappeared during a crisis, has nowhere to hide now he is PM. His Chancellor is struggling for the first time in his political life. The overpowering writ of the Treasury will not allow him the luxury of anonymity. Labour MPs find it hard to understand why events have reduced the stoically competent Prime Minister who mastered the terror alerts during his early days in office to the indecisive figure before them last week.

"With Northern Rock or the loss of data it wasn't government policy errors that were shown up," said Lance Price, an inhabitant of Mr Blair's bunker, who rejects any comparison with Mr Major's long decline. "There isn't a big policy divide in the Labour Party and the will to win remains."

Mr Brown's supporters approached Prime Minister's Questions with trepidation last week. Previous performances across the dispatch box from the Tory leader have been dispiriting, with Mr Brown leaden-footed in the face of the onslaught. That the Prime Minister emerged unscathed this time owed much to desperate evasive action: before Mr Cameron had even got to his feet, Mr Brown had apologised for the data fiasco, explained why it had happened, and pledged action to prevent it happening again.

The Labour leader will survive the ordeal, and he might even learn from it, but he will struggle to regain his prized reputation as a safe pair of hands.

Words of advice: What should Brown do next?

Every time Tony Blair had one of his "worst weeks", he would turn to the courtiers of the bedchamber: Alastair Campbell, Peter Mandelson, Philip Gould, his polling adviser, and Sally Morgan, his fixer. As Gordon Brown's troubles mount – the missing HMRC discs the worst story yet – he turns to his already much-maligned lieutenants. What are they telling him? What should they be telling him? We find out what three old hands and this week's commentators would advise him to do.

Brown needs to go to acting class. His face is a constant giveaway of his inner turmoil

Michael Dobbs, Conservative Party ex-deputy chairman

Brown needs a story, a narrative, a red thread to embroider a picture of the society he wants

Polly Toynbee, 'The Guardian'

Labour is a tired Government with no new ideas... It is too late – Brown's bubble has burst

Lord Bell, Baroness Thatcher's former PR guru

Brown shows all the signs of becoming a unique creation: Nixon mixed with Mr Bean

Leo McKinstry, 'Daily Express'

At least, after even more bad news for the Government today, things can only get better

Charlie Whelan, 'The Daily Telegraph'

Mr Brown could become the Steve McClaren of politics. Something quite nasty is going to happen

Matthew Parris, 'The Times'

Gordon Brown is still fighting Tony Blair when he ought to be leading a Government

Martin Kettle, 'The Guardian'

The idea that the Government is capable of managing change is no longer sustainable

Peter Oborne, 'Daily Mail'

Hideous hat-trick: The crises that have rocked Downing Street

Northern Rock

What we know: In September the bank got an emergency bail-out from the Bank of England amid cash-flow problems caused by the US sub-prime crisis. The bank's troubles deepened as panicked savers withdrew £2bn within days and shares plummeted. Alistair Darling dramatically guaranteed all Northern Rock deposits, as the BoE entered talks with potential buyers. Under-fire Rock chief executive Adam Applegarth resigned, as bidders circled. Mr Darling now admits he has pumped £24bn into the bank and might not get it all back.

What we don't know: When did the Government know of the crisis? When did the Rock bosses know, and did they report the problems early enough? Did the Treasury do anything to avoid it?

What we need to know: How long will the "short-term" credit facility last, and how much will it cost the taxpayer? Could the bank be nationalised? Will major investors allow a sell-off that undervalues their shares? How much of savers' deposits will be protected? Will the sub-prime crisis cause more problems for other UK banks?

The HMRC data catastrophe

What we know: A "junior official" downloaded child benefit data, containing the personal details of 25 million people, on to two computer disks and sent them unrecorded to the National Audit Office in London. The disks never arrived and, after a frantic search, the police were called in and HMRC chief Paul Gray resigned. Banks were alerted as the revelation sparked huge fears over the security of private information, including bank accounts, as well as political embarrassment for the Government.

What we don't know: Where are the disks? Have they fallen into the wrong hands and are we all at risk?

What we need to know: How was the breach in procedures allowed? Were more senior HMRC officials implicated in the disaster? Is all personal data held by the Government at risk? Does this episode raise serious questions over future Government IT schemes, including ID cards?

The military ambush

What we know: A posse of former chiefs of defence staff lined up to condemn the Prime Minister's "contempt" for the armed services, complaining about the treatment of personnel and the amount of money ploughed into the defence budget. The senior veterans insist that Gordon Brown's alleged lack of interest in the forces stretches back to his time as Chancellor when, they claim, he consistently obstructed Tony Blair's attempts to extract more money for defence spending. The assault also reopened the debate over the Prime Minister's decision to make Des Browne Secretary of State for both Defence and Scotland.

What we don't know: How deeply does Mr Brown value the armed services and the Military Covenant? Is Mr Browne content with the spending settlement for his department?

What we need to know: Will Mr Brown find any money for the forces to cover the alleged shortfalls over the next few years? Will he continue with the "part-time" Secretary of State for Defence or return it to a full-time, single-ministry position that reflects the importance of the job?

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