May Day Meltdown: Brown at risk after disaster at the polls

Five hours before the polls closed on Thursday night, Gordon Brown came face to face with Tony Blair in the Crystal Ballroom of the luxury Mayfair Hotel, central London. As he prepared for a miserable evening of council results, and on 1 May – the date that will forever symbolise Labour's 1997 victory – the Prime Minister must have found the sight of a tanned and laid-back Mr Blair particularly galling.

Beneath gold chandeliers, the pair shook hands and exchanged thin smiles at a fundraising event for the Middle East during their first public encounter for several months. Hours later, Mr Brown witnessed Labour's worst local election performance for four decades and the turning point was described by MPs as the Government's "John Major moment".

Cabinet ministers urged him to "get a grip" and warned Mr Brown was being personally "punished" for the 10p tax fiasco. He was warned that he has six months to change the party's fortunes.

And for many in the Labour Party, the spectre of Mr Blair only served to remind them of the electoral success they once enjoyed. Ministers are now openly suggesting that Mr Brown, who arrived in Downing Street last June promising change from the Blair era, needs to emulate his predecessor with a programme of populist policies to win back voters and rescue his leadership.

After the appeal to help the Palestinian economy at the Mayfair Hotel, Mr Blair, wearing an expensive black suit and grey silk shirt, moved on to dinner at Scott's with old friend Peter Mandelson and Lakshmi Mittal, Britain's richest man. Fellow diners included the actors Ralph Fiennes, Susan Sarandon and Sir Michael Caine.

For Mr Brown, there was no Hollywood glamour awaiting him at Labour's functional offices in Victoria Street, Westminster, where he and his wife Sarah thanked party activists for their hard work during the local elections campaign.

But there was little to celebrate. On Thursday evening the picture already looked bleak, and by the time all the results were in Labour had lost 331 council seats. After a painfully slow counting process lasting 15 hours, the final humiliation for Mr Brown came shortly before midnight on Friday when control of London was wrenched from Ken Livingstone by Boris Johnson.

The governing party no longer had control of a council in the south-east of England. Former Labour fortresses in the Welsh valleys also fell. Labour were pushed into third place nationally, behind the Liberal Democrats, with a projected 24 per cent share of the vote, while the Conservatives took 44 per cent – enough to give David Cameron a 100-seat Commons majority.

A hundred Labour MPs, including the Home Secretary, Jacqui Smith, and Secretary of State for Transport, Ruth Kelly, are at risk of losing their seats.

For the Tory leader, the results signified that his party's years of opposition might be drawing to a close. Mr Cameron said it was a "big moment". "The tide is moving in our direction. This is because we have changed."

For the Liberal Democrats, the second place was hailed by Nick Clegg as proof that they were "regaining momentum" – but their 25 per cent share suggested they are being squeezed by the Tories.

One Labour MP, Derek Wyatt, whose majority of 79 in Sittingbourne and Sheppey is likelyto be obliterated at the next election, described the night as Mr Brown's "John Major moment" – the point in 1995 when Labour trounced the Tories in the council elections before sweeping to power two years later. Mr Wyatt warned that the Prime Minister was no longer in control of events – a sobering echo of Norman Lamont's devastating claim that the Major government was "in office but not in power".

The MP's anger reflected the concerns of dozens of Labour MPs since Mr Brown's honeymoon came to an abrupt end with the non-election last October. To add to Mr Brown's misery, David Pitt-Watson, a City high-flyer appointed as Labour's general secretary after the fiasco of the David Abrahams hidden donations scandal, quit before he started. It was not because of the disastrous results, but he had agreed to wait until after the election to minimise the damage.

On Friday morning, a careworn Prime Minister addressed the country from Downing Street and promised to "listen and lead", learn lessons and "move forward". But the message that Mr Brown is now "listening" fell flat with some MPs, especially as he plans to push ahead with plans for 42-day detention for terror suspects.

He will attempt a relaunch in the next fortnight with a draft Queen's Speech and invite activists to contribute policies to the party's forum later this summer. A reshuffle, to freshen-up the Cabinet, is on the cards within weeks. But MPs wonder whether the electorate has passed the point of no return and no amount of relaunches and ministerial changes can halt the end of the New Labour era.

One Labour backbencher, Ian Gibson, said Mr Brown had six months to improve. As many as 50 are contemplating a new leader, while more than 100 are resigned to defeat under the Prime Minister in two years' time.

Partial blame for the collapse in Labour support was pinned on the axing of the 10p income tax band, which hit single people on low incomes and women pensioners. As defeat after defeat rolled in during the early hours of Friday morning, a series of cabinet ministers appeared to disown the "mistakes" of the policy – created by Mr Brown when he was Chancellor for the 2007 Budget.

Yesterday Jack Straw said that voters had wanted to "punish him" – the Prime Minister – for scrapping the 10p tax rate. He hurriedly corrected himself to say "punish us", but the message was clear.

"Those it has affected, it has affected adversely, and those people are understandably very upset about why it is that a Government that has cared and continues to care very much about lower-paid people should be doing this," the Secretary of State for Justice told Radio 4's Today programme. Other members of the Cabinet have also distanced themselves from the policy.

In fact Mr Brown, The Independent on Sunday has been told, overruled the advice of senior Treasury figures who at the time cautioned against the move. His decision to ignore the warnings poses new questions over his political judgement, as well as his strategic abilities. Mr Blair is also believed to have advised against the tax change at the time.

In his last Budget as Chancellor, Mr Brown wanted to do what Margaret Thatcher had failed to achieve – cutting the basic rate of income tax from 22p to 20p. He could only do this by axing the 10p band and must have known this would have consequences. Yet events of the past two months suggest Mr Brown failed to understand the concerns of MPs.

At a meeting of Labour's national executive committee on 20 March, he demanded payslips as proof that it cost people more, and a week later he addressed the Parliamentary Labour Party, again "in denial".

The atmosphere became more toxic when the Labour peer Lord Desai compared Mr Brown's "porridge" to Mr Blair's "caviar".

By last month, rumours were growing that Charles Clarke, a long-term critic of the Prime Minister, was collecting names for a possible "stalking horse" challenge to show how serious discontent had become. Mr Clarke denied plotting, but it is the case that he has taken "soundings" over the handling of the 10p rate.

On election night, as Labour were run close by the Green Party in his constituency city of Norwich, Mr Clarke said he feels that the Prime Minister is still on probation.

The former home secretary said victory at the next election was "possible", but declared that "we have to get a team which is right" – interpreted by some that the leadership itself was in question.

John Denham, Secretary of State for Innovation and Universities and MP for Southampton Itchen, appeared stunned when the city was seized by the Tories. He warned the Prime Minister: "We have to earn people's trust, every day."

Hazel Blears said the Government now needed to "get a grip".

Both Mr Denham and Mr Clarke will speak at a Progress debate in Westminster in a week's time entitled "How can Labour win in the South?"

This Tuesday, Jon Cruddas, the MP who shone in Labour's deputy leadership contest, will lead a debate for the party's Compass group, posing the question "How does Labour win a fourth term?"

It is not only the inhabitants of the "Westminster bubble" that defeated Labour councillors condemned so bitterly amid the fallout of the elections, who are threatening to disrupt Mr Brown's leadership. Further down the food chain, a series of grassroots groups are demanding a greater say over policy – and this moment of maximum vulnerability represents their best opportunity of success.

"If Labour's leadership is serious about listening, it has to start with its own depleted membership," said Peter Kenyon, of the group Save the Labour Party. "The 10p tax fiasco illustrates vividly the leadership's failure to listen to its members as well as the electorate. It represents a serious breakdown of democratic accountability inside the party itself. Resolutions of concern at last year's conference were ruled out of order. There can be no gagging of differences of opinion from now on."

Surrounded by electric blue balloons beneath a statue of Robert Peel in Bury on Friday morning, David Cameron claimed the Tories were now "leading the way" in the north of England – for so long out of bounds to them. A year ago, one of the Conservative leader's senior strategists described the North as "permafrost" to the party which could take years to melt away.

Shortly before 1.30am on Friday at party HQ, the Tory leader received a call from the local party in Bury to say the Conservatives were in control of the Lancashire town for the first time since 1986.

With another symbolic gain in North Tyneside, Mr Cameron can rightly claim to have begun a northern revival, but there are fears that they need to do more to break through the "permafrost" to win more Westminster seats north of Birmingham. They failed to improve on the solitary council seat in Manchester, and Liverpool remains a no-go area for the party.

Bolton, where Mr Cameron campaigned on three occasions, was a major disappointment. Labour took a seat from the Liberal Democrats and the council remained under no overall control. Ruth Kelly, who has a 2,064 majority in Bolton West, taunted Mr Cameron by telling him he had a "mountain to climb" in the North.

The northern question makes the Crewe and Nantwich by-election on 22 May as much a challenge for Mr Cameron as it is for the Prime Minister.

Two years before a general election and opposing an increasingly unpopular Government, the Tory leader needs to show he can overturn the majority of 7,078 in the North-west railway town and surrounding suburbs.

But last July's Ealing Southall by-election ended in misery for the Tories after they over-played the chances of their candidate. It triggered a sudden reverse in the polls for Mr Cameron, coinciding with Mr Brown's honeymoon.

Mr Osborne kicked off the by-election campaign yesterday, and Mr Cameron, Mr Hague and other senior Tories will descend on the seat in the next two and a half weeks. Insiders last night began a classic downplaying of expectations for the poll, insisting it would be a hard battle.

The Liberal Democrats' campaign has been thrown into disarray already after their prospective candidate, Marc Godwin, resigned.

The Lib Dem share of the vote in Thursday's polls was 25 per cent – down from 27 per cent in 2004 – and in the by-election the party could remain stuck in third place.

If Labour manages to win the by-election, it would show that there are still some signs of life in the Prime Minister's leadership.

Mr Brown's contrite message that the Government will "listen and lead" will give way to an "attack strategy" designed to put Mr Cameron under pressure and flush out Tory policies.

The tactic was previewed during Prime Minister's Questions last week when Mr Brown condemned his opponent as a "shallow salesman" – in response to Mr Cameron's jibe that Mr Brown was a "loser not a leader".

"There is a famous quote that says your opponent cannot get his message out if your fist is halfway down his throat," one ministerial source explained yesterday. "There is a feeling that David Cameron has got off lightly. We should be concentrating more on him and his so-called policies.

"Some people in the party might find an aggressive strategy unpalatable, but it's nowhere near as bad as a double-digit deficit in every opinion poll."

Mr Brown will break with the Blair tradition of holding a snap reshuffle to deflect from the bad results.

"There is no need to have an instant reshuffle," said one aide. "When Tony Blair did them they were always botched." But it is a sign of how volatile the situation is that any ministerial changes could cause more unrest in the party.

Mr Brown will launch a "charm offensive" on TV today. He could offer some help for middle-class families hit by recent increases in car tax – a move that would infuriate environmental campaigners. The Prime Minister plans to push ahead with extending pre-charge detention from 28 to 42 days, despite a threatened rebellion from backbenchers. He is ready to be defeated to send a tough message on terrorism, just as Mr Blair was in 2005.

"Gordon appears in public at least as often as Tony ever did," a veteran of Mr Blair's spin operation said last night, "but he just doesn't seem to communicate with people. He can't connect. When we were in this situation in 2004 we took Tony out to meet as many people as possible and challenged their thinking on key policies. It became known as the "masochism strategy" but it worked for us."

But can Mr Brown survive by copying his predecessor? Those around the former Prime Minister believe Labour is heading for defeat, whatever Mr Brown does in the next two years, and have told David Miliband to prepare for leadership in opposition.

The Foreign Secretary gave an assured performance on BBC TV a week ago in which he defended Mr Brown. But his appearance was so good, say some MPs, he looked like a leader in waiting.

His strongest rivals for the succession are Ed Balls and James Purnell. Mr Balls would not move against his close friend the Prime Minister, but there are rumours among MPs of the Education Secretary offering Jon Cruddas a "dream ticket" should a vacancy arise. Mr Cruddas would almost certainly reject the offer, however.

Whatever happens, Mr Brown has a more immediate challenge: how his Government deals with London's new Tory Mayor, Boris Johnson. They share the burden of reining in the soaring budget for the 2012 London Olympics, which is close to £10bn.

And for that he can thank the man who created the mayoral position in the first place – Tony Blair.

What next?

In the aftermath of Labour's poor performance in Thursday's elections, we ask what are the likely scenarios for the party over the next two years, and whether a change of leadership is imminent.

Scenario One:

The Prime Minister stages an astonishing comeback, Labour wins the Crewe and Nantwich by-election, sees off a backbench rebellion on 42-day detention and surges 15 points ahead of the Conservatives in the polls. Economy recovers by 2010 and Labour wins a fourth term with a comfortable majority.

Likelihood: 1/10

Scenario Two:

A combination of no one feeling strong enough to strike against him and widespread sense of defeatism among Labour MPs means Mr Brown hangs on for another two years. He is faced with daily sniping and plotting but nothing happens. An exhausted and disunited Labour Party crashes to defeat in 2010, with the Tories winning a more than 100-seat majority. In opposition, New Labour regroups under a "new generation" leader such as David Miliband, James Purnell or Ed Balls.

Likelihood: 4/10

Scenario Three:

After Labour continues to slide in the polls, compounded by the loss of Crewe and Nantwich to the Tories, Mr Brown is privately told by those closest to him that he should step down for the sake of the party. They suggest he announces he is stepping down of his own accord to make a dignified exit from No 10 around the time of Labour's party conference in September. With the prospect of defeat in 2010 still high, Alan Johnson or Jack Straw are brought in as a John Major-style caretaker leader to see Labour through to the next election. The result is a hung Parliament.

Likelihood: 2/10

Scenario Four:

Mr Brown refuses to acknowledge there is a crisis and tells his advisers he is staying put. A coalition of Labour's progressive centre-right and the old Labour left joins together and rises against him, amassing the 72 names needed for a "stalking horse" challenge. Mr Brown defeats the threat but is mortally wounded and some months later is forced from office anyway. Proper leadership contest pits David Miliband against Ed Balls.

Likelihood: 3/10

Is Brown doomed?

"No. If he set the bar at emerging from this economic crisis in a reasonable state... he might be able to make a fight of it"

Matthew Taylor; Former Blair adviser

"No. People might think it safer to stick with someone they know has handled the economy well over the last 10 or 11 years"

Lance Price; Tony Blair's former spin doctor

"Yes. Gordon Brown's had it because of his woodenness and his inability to present himself as new"

Bernard Ingham; Former press secretary for Margaret Thatcher

"No. Gordon has come across as a ditherer. He needs to show he can be the strong and decisive leader that people want"

Max Clifford; PR guru

"Yes. He comes across as someone who just wanted the job rather than any real drive to change anything"

Lord Bell; Former Margaret Thatcher adviser

"No. Mr Brown should stick to what he does best – concentrate on policy – and show more confidence"

Stuart Higgins; PR man and ex-editor of 'The Sun'

The succession

Jack Straw; Age 61

Secretary of State for Justice

New Labour's original unity candidate, Straw has spent more than a decade in some of the most demanding jobs in government without ever being seriously considered a candidate for the premiership. His value is increasingly seen as a reliable elder statesman able to step in to lead a party to stability following the trauma of the sudden loss of a leader. 10-1

Ed Balls; Age 41

Secretary of State for Children, Schools & Families

One of the PM's most loyal allies for more than a decade, Balls is a natural Brownite candidate for the succession. He has irritated MPs with his high profile and influence with Brown. But he has faced the public since the elections, saying: "This is about Labour supporters who are cross, who are worried. We've got to do more to show we're on their side." 5-1

James Purnell; Age 38

Secretary of State for Work and Pensions

Another Blairite protégé who moved seamlessly from Downing St adviser to MP, and then into the Cabinet. The smooth-talking Purnell has increasingly been put up to defend the Government in studios during some of its darkest moments. Formidably well-connected in the media, he does not yet command the support within the party required to mount a credible challenge. 10-1

Alan Johnson; Age 57

Secretary of State for Health

Popular enough to have been seen as a likely challenger to Gordon Brown when Mr Blair resigned last year, Johnson subsequently lost the deputy leadership contest to Harriet Harman and has gradually receded from view since. But, as a former trade union leader and Blairite moderniser, he remains a popular figure across the party. 7-1

David Miliband; Age 42

Foreign Secretary

The most likely Blairite candidate before backing Brown last summer was rewarded with one of the best jobs in government, but has since been accused of preparing a challenge. He recently wrote an article saying New Labour needs to redefine itself after three terms. He is rumoured to be holding a post-election summit at his country residence this weekend. 2-1 favourite