Gordon Brown sustained a heavy double blow yesterday when one of his top advisers defected to the Conservatives and a poll put the Liberal Democrats within three points of Labour for the first time in years.
David Freud dramatically resigned as welfare adviser to take a peerage and a job on David Cameron's front bench, in a major embarrassment for the Prime Minister.
The dramatic defection of the former investment banker capped one of the most tumultuous weeks of Mr Brown's premiership, when the economic crisis threatened to engulf the PM personally for the first time.
There is more bad news today as a ComRes poll for The Independent on Sunday shows Labour has slumped seven points to 25 per cent and is now just three points ahead of the Liberal Democrats on 22. The Tories are now 16 points ahead of Labour, on 41 per cent.
The three-point gap is the narrowest between Labour and the Lib Dems across all polls for 22 years, since May 1987, apart from a "freak" poll in September 2003, after the Iraq war and the Hutton inquiry hearings, which put all three parties on 31 per cent.
The Lib Dems have surged seven points, while the Tories remain unchanged from last month, showing that while many voters are deserting Labour, they are not yet ready to make the straight switch to Mr Cameron. It suggests the Conservatives, criticised for failing to back the multibillion-pound cash injection to help to ease the recession, are unable to make more capital out of Mr Brown's misfortune.
In more disappointing news for the Conservative leader, 45 per cent of voters disagree that the Conservatives "have the right ideas about how to get Britain out of recession", with35 per cent agreeing.
The show of support for the third party comes as leader Nick Clegg prepares to hand over to Vince Cable for two weeks as he goes on paternity leave, with his third child due within days.
Mr Cable has been widely praised for his response to the banking crisis, and his temporary reign could push the Lib Dem poll rating higher. The survey poll will trigger fresh speculation about which party the Lib Dems would back in a hung parliament.
In May 1987, a month before the general election, the SDP/Liberal Alliance was on 30 per cent, overtaking Neil Kinnock's Labour Party on 28 per cent. Last month's IoS poll gave the Tories a lead of 9 per cent.
The poll also reflects widespread public anger against the bankers who are earning millions of pounds in bonuses after their institutions have been bailed out by the taxpayer. A huge 82 per cent said bosses of banks propped up by public money should be made to pay back their bonuses, while 84 per cent called for a legal limit on pay in banks that are state-supported.
The poll was conducted last Wednesday and Thursday, after the Treasury Select Committee hearings when the evidence of the HBOS whistleblower Paul Moore led to the resignation of the bank's former chief executive, Sir James Crosby, as deputy chairman of the Financial Services Authority. Against the backdrop of Labour's falling poll support, Mr Brown is planning to use the G20 summit in April, when Barack Obama will make his first visit to the UK as President, to relaunch his leadership.
Mr Freud, a former adviser to Tony Blair, sent resignation letters to the Work and Pensions Secretary, James Purnell, and Mr Brown yesterday. He will be made a peer and a shadow minister under the shadow Work and Pensions Secretary, Theresa May.
Mr Freud sees welfare as one of the most important challenges facing Britain during and after the recession, and joining the Tories is the best way he can make a contribution.
In 2007 Tony Blair commissioned the Freud report, calling for privatisation of parts of the welfare state, as part of his prime ministerial legacy. Mr Freud's proposals were blocked by the Treasury under Mr Brown and copied by the Tories a year ago. Mr Freud was then courted back as an adviser at the Department for Work and Pensions under Mr Purnell, who adopted the policy of paying private companies to find jobs for the unemployed.
But his peerage and frontbench job, after two months of wooing by Mr Cameron and George Osborne, the shadow Chancellor, amount to a fully fledged defection and embarrassment for the Prime Minister.
Mr Freud's move comes a week after reports that the privatised welfare policy was close to collapse, because companies warned there were too many people out of work and too few vacancies to make it viable.
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