A prize for Mandelson – humiliation for Osborne

A year ago, George Osborne won the coveted "politician of the year" award from The Spectator. Yesterday, he had to present the magazine's awards for this year to two of his political foes – Lord Mandelson and Vince Cable, the Liberal Democrats' Treasury spokesman.

The ceremony at Claridge's Hotel in London summed up the shadow Chancellor's surprise fall from grace. He was the toast of the town 12 months ago after turning the political tide – and preventing Gordon Brown calling a general election – by announcing Tory plans to cut inheritance tax.

But in the Commons tea rooms this week, Tory MPs talked of little else except how far shares in Mr Osborne have fallen. Some say it is a matter of "when, not if" David Cameron moves his close ally and friend from his Treasury brief. On blogs on right-wing websites, party activists describe themselves as either a Ron (Replace Osborne Now) or a Roon – short for Cameroon. The shadow Chancellor is being blamed by Tory backbenchers for a lacklustre response by the Opposition to the economic crisis. They admit it is not all his fault but he is an easier target than Mr Cameron after being damaged by the "yachtgate" affair in which he was accused of seeking a Tory donation from Oleg Deripaska, the Russian oligarch.

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Mr Osborne made the mistake of tangling with Lord Mandelson by leaking details of his criticism of Gordon Brown which were made over a private dinner in Corfu. That upset their joint host Nat Rothschild, who went public with his allegation about Mr Deripaska – denied by Mr Osborne.

Yesterday, Mr Osborne was wickedly placed on the same table as Lord Mandelson and had to present him with The Spectator's rather ironic "newcomer of the year" award.

"It's good to be back on board – as they say in Corfu," the Business Secretary said. Mr Osborne looked uncomfortable but took it in good part. He replied with a dig about Lord Mandelson's former constituency: "Next year, we are going to be in a rowing boat in the North Sea off Hartlepool – a place that neither of us have visited for a number of years."

Tory MPs are worried that their party is being outflanked by Alistair Darling's plans to announce tax cuts to keep the economy moving and the Liberal Democrats' proposal to cut 4p off the basic rate of income tax.

Critics accuse Mr Osborne of falling between two stools. He has opposed as "irresponsible" a further rise in borrowing to fund tax cuts but many Tories want him to propose billions of pounds of savings in government spending to make room for affordable tax cuts. Some Tory MPs are urging Mr Cameron to appoint Mr Osborne Tory chairman. William Hague is regarded as a natural successor as shadow chancellor but is said not to want the job. Kenneth Clarke, a former chancellor, would win the backing of many – but his appointment would anger hardline Eurosceptics.

Despite all the rumblings, Cameron aides insist Mr Osborne will not be moved from his Treasury brief. "They are joined at the hip," said one frontbencher. A strategist added: "Nobody should underestimate how close they are. It is a very strong partnership – like Blair and Brown, but without the tensions, rivalries and rows."

Labour is crowing – perhaps prematurely. One minister said: "Osborne is finished. But if Cameron moves him, it shows that his project is flawed."