Leading article: Mr Brown faces an uphill struggle as he surveys this new landscape

The scale of Labour's election disaster was apparent within an hour or so of the first results being declared. When yesterday's counts started coming in, the news became progressively worse and worse. By last night, Labour had lost more than 300 council seats across the country. Overall, its result was the most dismal for 40 years, outstripping the party's worst fears. Almost nowhere was spared, as northern councils such as Bury and North Tyneside fell to the Conservatives. At the time of going to press, even Ken Livingstone looked set to lose his mayor's job in London.

With defeat in Reading went Labour's control of its last large authority in the south of England. With Redditch and Southampton lost, key members of the Cabinet looked in danger at the next general election. The party's performance in Wales was almost a greater disaster, for being the more surprising. Even Plaid Cymru suffered losses, apparently penalised for its association with Labour. When the likes of Merthyr Tydfil and Blaenau Gwent abandon Labour, something very serious indeed has gone wrong.

"Disappointing" was the description agreed on by Labour ministers. Gordon Brown went so far as to call it "bad" and mooted – undefined – new measures to tackle the problems in coming months. But from traditional Labour heartlands, where the decline in the vote was as sharp as anywhere, the message was that something rather more substantial and immediate would be needed if Mr Brown was to revive the party's fortunes in time for the next general election.

Economic circumstances might be difficult, but the Prime Minister came across as almost blissfully unaware that some of the wounds amounted to wanton self-harm. Once again, he offered few signs of any political vision, just the droning mantra of his need to listen and – somewhat ironically – to lead.

The 10p tax rate debacle clearly had a catastrophic effect on the doorstep, especially in formerly staunch Labour areas. The widespread sense of falling living standards, fanned by falling house prices, the soaring cost of petrol, utilities and food must also have depressed voters. There was a sense of almost personal disillusion and affront with the tricks and the spin felt to lie behind Mr Brown's abolition of the 10p tax rate, his cheerful insistence on the on-course official inflation rate, and the perceived unfairness of it all on the demographic group so beloved of New Labour: the hard-working family.

Gordon Brown raised great hopes when he took over from Tony Blair, uncontested, last summer. But the dithering over an election, the run on Northern Rock, the headline-seeking fiddling with immigration regulations, cannabis and – most recently – payment for prisoners, all shattered the perception of competence that Mr Brown had so successfully cultivated as chancellor.

Mr Brown said yesterday that he thought people wanted to be assured "that the Government will steer them through these difficult times". The message from the 2008 local elections is that this is indeed exactly what voters want, but that they lack confidence in Labour's ability to provide it.

The other message is that, while the Conservatives have benefited mightily from this mood, with a lead now established at 20 points, Mr Cameron and his troops cannot afford to be triumphalist. It is not clear to what extent former diehard Labour supporters switched allegiance because they were convinced by David Cameron's new Conservatives and to what extent they simply wanted to punish Labour. Except in London – where a real clash of characters brought record votes in many wards – turnout was in many places pitiful.

This is not to denigrate the Conservatives' achievement. There was a time when those Old Labour apostates would not have dreamt of placing the cross where they did on Thursday. Mr Cameron has made the Conservatives acceptable again, including among younger voters – which is no mean feat. The result is a triumph that mirrors Labour's local election victories of 1995, which presaged Tony Blair's landslide two years later.

Wisely, Mr Cameron refused to be carried away by the comparison. While describing the results as a "big moment" for the party, he spoke of not wanting "to win an election on the back of a failing government". He is right. It may be true that governments lose elections, rather than oppositions winning them, but there is still too little clarity about Conservative policies and costings. To extrapolate a majority of 130 or more at the next election, understates the differences, and the difficulties the Conservatives will face – even if they have started to make inroads in the north.

For the Liberal Democrats, the results were worse than they probably hoped, but better than they might have feared. They maintained their position, just pipped Labour in the popular vote (no mean achievement, that) and won control of four authorities, including Hull and St Albans. Nick Clegg can be satisfied with his first months in office, despite a few hiccups as he bedded in to the job. Negative comparisons with four years ago ignore the anti-Iraq sentiment that so boosted the party's vote then.

Outside London the Greens did less well than their contribution to local politics deserved – reflecting perhaps a misguided fear in austere times that "green" policies cost the taxpayer. A cheering detail, on the other hand, was the failure of the the British National Party to capitalise on pockets of anti-migrant sentiment.

The economic climate makes these uncertain times. What is certain, though, is that the domestic political landscape has been transformed. Gordon Brown has now to rebuild his, and his party's, relations with the voters from the ground up, despite being handicapped by local party structures that will be demoralised and strapped for cash. David Cameron, on the other hand, must prepare his party for a realistic prospect of government. Neither task will be easy, but just now it is Mr Brown who faces the tougher struggle.