He returned the cash to the taxpayer after it emerged that he had claimed more than £1,000 for service charges while the property was rented out and he was living in his grace-and-favour Downing Street home. As Gordon Brown insisted the Chancellor had made an "inadvertent" mistake with his allowances claims, senior government sources dismissed suggestions he would be moved out of the Treasury in the reshuffle expected within days.
But the embarrassing spectacle of the guardian of the nation's finances being obliged to hand back money wrongly claimed from the taxpayer is a savage blow to his credibility.
It comes after three weeks of damaging disclosures over his expenses claims that prompted calls for his dismissal. Mr Darling has been accused of "flipping" his designated second home to maximise his parliamentary allowances. He also used an accountant at the taxpayers' expense to complete his tax returns.
Last night the Chancellor appeared defensive as he apologised "unreservedly" in a series of interviews designed to shore up his position and announced he would pay back £668. "I do not want to be gaining from something I should not have been," he said.
"All of us as ministers ... have to abide by the highest standards. I have tried to do what is right, to do what is required and ensure that I live up to the standards that people expect for their elected representatives."
Geoff Hoon, the Transport Secretary, also joined the list last night of Cabinet members making repayments after "inadvertently" overclaiming £384 for a TV licence, household insurance and British Gas home care.
He said he claimed for bills in 2006 on his second home in Derbyshire but received a grace-and-favour Whitehall home later that year. He had omitted to return the money for the months he was living in London and apologised for his "administrative error".
The odds are narrowing on Mr Darling being moved sideways or out of the Cabinet in the reshuffle that will follow this week's European and council elections. The favourite to replace him is Mr Brown's ally, the Schools Secretary, Ed Balls.
Mr Darling would be switched to the Home Office to replace Jacqui Smith, who has asked to step down as Home Secretary after enduring torrid headlines over her expenses claims. Communities Secretary Hazel Blears, who has also come under fire for "flipping" her designated second home, could also be vulnerable in the reshuffle.
Asked if he expected to be moved from his role, Mr Darling said: "Gordon and I work very, very closely together. But at the end of the day it is his call."
The Chancellor initially denied that he claimed £1,004 for six months of service charges on his flat in Kennington, south London, when he moved to Downing Street in September 2007.
But he later admitted: "When I reclaimed the cost of the service charge in July [2007] I was living in the flat. However, because the service charge covered the period beyond September into December, I will repay the service charge from September to December."
Aides said he would return £668 – representing four months' service charges – to the Commons Fees Office.
His retreat, hours after he insisted he had done nothing wrong, meant Mr Brown had to modify his robust backing for his Chancellor. Mr Brown told Sky News: "Where a mistake was pointed out to him, and I think it was inadvertent, he acted immediately. He has paid back the money so there is no doubt about what his course of action would be in these circumstances."
Nick Clegg, the Liber al Democrat leader, demanded that Mr Darling be removed from the Treasury: "He is the guardian of our money. We have to trust the Chancellor to be able to look after our money properly."
David Cameron, the Tory leader, accused Mr Brown of hanging his Chancellor "out to dry" with lukewarm words of support. "I think what matters is that the Prime Minister either backs him or sacks him," he said. "I think this just leaving him hanging out to dry is very bad."
The charges against the Chancellor
'Flipping'
What he did: Redesignated his "main home" four times in four years. This enabled him to claim thousands of pounds towards maintaining the family home in Edinburgh and then buy a flat in Kennington, south London, and kit it out at the taxpayers' expense.
Defence: Within the rules.
Verdict: Took full advantage of the flexible expenses system to furnish his London flat and maintain his Edinburgh home.
Stamp duty
What he did: Put in a £2,260 claim for stamp duty, and a further £1,238 for legal costs, when he bought his London flat.
Defence: Within the rules.
Verdict: Lucky to be an MP, enjoying a perk that few other people with second homes can benefit from.
Fitting out London flat
What he did: Claimed £2,074 from the taxpayer for furniture, including a £768 bed from Marks & Spencer and a £765 Ikea chaise longue. A "magnolia" carpet cost another £2,339. Submitted bills for bed linen, vases, tea towels, an oven mitt and a 75p carrier bag.
Defence: Within the rules.
Verdict: Hasn't shown much of the fiscal prudence expected from chancellors.
Hotel bill
What he did: Tried to claim £146 for a hotel stay while the flat was being refurbished. Initially rejected because he was claiming for a "second home" in London. He successfully appealed against the ruling on the grounds he was "between second homes".
Defence: Within the rules.
Verdict: Surprising he found the time in his ministerial diary to pursue the claim.
Grace and favour flat
What he did: One month after moving to 11 Downing Street as Chancellor he started renting out his London flat. Later he designated his Edinburgh property as second home.
Defence: Within the rules (at the time).
Verdict: Benefited three times over. First by getting grace-and-favour flat, then by making money out of London flat and finally by getting Edinburgh bills paid. Grace and favour loophole closed last month.
Tax advice
What he did: Was reimbursed for the £1,400 cost of employing a private accountant over two years to complete his personal tax returns.
Defence: Within the rules (and paid tax on the benefit) as the returns were for his office costs.
Verdict: Opaque Commons guidance on use of accountants to Mr Darling's benefit. Disconcerting that the man running the Treasury needs taxpayer-funded help to fill in his returns.
Claimed on two homes
What he did: While living in Downing Street, he was reimbursed for a £1,004 service charge for his south London flat even though he had moved out.
Defence: In Gordon Brown's words, it was an "inadvertent" mistake. Is paying back about £700.
Verdict: A lack of attention to detail is worrying in the person charged with leading the country out of recession.
Nigel Morris
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