The head of the Civil Service has blocked calls for an inquiry into whether other ministers or special advisers were involved in the attempt to smear senior Conservatives.
Sir Gus O'Donnell angered the Tory Opposition by dismissing their request for him to carry out a wider investigation into the affair which forced the resignation of Damian McBride, one of Gordon Brown's closest aides. Mr McBride discussed plans, later aborted, to set up a website to run untrue gossip about Tories including David Cameron and the wife of the shadow Chancellor George Osborne.
Rumours are swirling around Westminster that more damaging emails which would embarrass the Prime Minister are about to be leaked. Labour MPs are appalled by the scandal and some are warning that further revelations could trigger a crisis of confidence in Mr Brown's leadership.
Some Labour figures are unhappy with Downing Street's response and fear that evidence may yet emerge that other Brown allies were involved in the attempt to smear Tory opponents. "Gordon should have made a clean breast of this and swept the stables clean," one senior Labour MP said last night. "If it turns out that Damian McBride was not acting alone, he [Mr Brown] will be in trouble."
Today Mr Brown will try to move the political spotlight back on to the economy. The Cabinet, meeting in Glasgow, will be given a presentation on the state of the economy by the Chancellor Alistair Darling ahead of his Budget next Wednesday.
Ministers will today unveil plans to give motorists discounts of up to £5,000 if they buy electric cars – more than the £2,000 originally expected. It is part of a drive to boost "green industry" and paint an optimistic vision of a new, low-carbon economy that will emerge from the recession. However, Mr Brown will face media questions about the McBride affair for the first time when he speaks about the economy. Last night the Tories dismissed Sir Gus's response as totally inadequate, saying he had failed to resolve unanswered questions about who knew about the plan to set up the Red Rag website. They accused Downing Street of an attempted cover-up. "A thorough investigation is needed and he should have been the person to carry it out," said a senior Tory source. "The Government is trying to say this was the work of a rogue operative and not part of a wider culture. We are not convinced and we need to find out whether other people were involved."
Sir Gus, the Cabinet Secretary, admitted that Mr McBride's activities amounted to a "clear and serious breach" of the code of conduct for special advisers. He announced that in future, any special advisers who prepare or send out "inappropriate material" will be automatically dismissed.
However, the code already stated that the advisers should avoid "personal attacks", should "conduct themselves with integrity and honesty" and not use official resources for party political work.
Nick Clegg, the Liberal Democrat leader, said the McBride affair had revealed an "appalling lack of judgement on Gordon Brown's behalf and an immense arrogance at the very heart of government."
Banned by Labour: McBride and Draper
Damian McBride, the former aide to Gordon Brown at the heart of the "smeargate" row, will be banned from working on Labour's general election campaign.
Labour officials said last night that there was no question of the former Downing Street adviser working on the campaign. "That will not happen," one Labour source told The Independent. The party has also severed its links with Derek Draper, founder of the Labour List website, who discussed with Mr McBride plans to set up another site to smear senior Tories. Mr Draper had worked voluntarily for Labour as a media adviser.
Ray Collins, Labour's general secretary, said Mr Draper's advice would not be sought in future. "Derek Draper does not hold a position or role with the Labour Party and this will remain the case," he said. "I absolutely support the Prime Minister's view that scurrilous rumour, gossip and personal attacks have no place in politics and no place in the Labour Party." Mr Draper is considering whether to remain with Labour List, which is independent of the party.