How loose lips and leaks sank Brown's relaunch

Since joining the Cabinet in 1997, Alistair Darling has never courted headlines. Unusually for a politician, he regarded avoiding them as a badge of honour. "If you're not writing about me, I take that as a compliment," he would say privately.

In running the Social Security and Transport departments, and now the Treasury, his strategy has been to "keep the lid" on problems. For months, however, two people have been nagging him to change course: his wife Maggie, a former journalist, and Catherine Macleod, a long-standing friend of the couple and the former political editor of the Glasgow-based newspaper The Herald, who became Mr Darling's special adviser last December. They have been pressing him to tackle his "grey man" image, arguing that voters have a right to know who the Chancellor is.

Fittingly, both women were present when Mr Darling opened up to Decca Aitkenhead, a journalist on The Guardian, over two days during his summer break at his family's croft in Lewis in the Outer Hebrides two weeks ago. He insists his aim was to give her a portrait of himself – not, as has been widely thought since, to prevent being cast as the scapegoat for Gordon Brown's mistakes.

Mr Darling certainly raised his profile, but not in the way he intended. He thought he had said nothing new in the interview, which he had agreed would appear on 20 September, the first day of Labour's annual conference. But he described the current economic problems as "arguably the worst" for 60 years. He is adamant that he was talking about the global impact of the credit and rising oil and food prices, not the impact in Britain.

But the relaxed nature of the interview made it hard to correct the headlines which sent shockwaves through the political class when the newspaper brought forward publication to last Saturday: Chancellor warns that Britain faces its worst economic crisis for 60 years. Some officials at the Treasury were aghast to find that it had no tape recording of the interview, so they were unable to place the relatively short quotations obtained by Ms Aitkenhead "in context" during a damage-limitation exercise.

Even before he took a telephone call from a less than happy Mr Brown on Saturday morning, Mr Darling had decided to take to the airwaves on Saturday to stress that he was talking about the world rather than Britain.

But the damage was done, not least to the Prime Minister. Chancellors are not supposed to talk the economy down; they are supposed to show caution not candour, as Mr Brown did at the Treasury and Mr Darling had done until his spectacular U-turn.

For the Prime Minister, the timing was as explosive. For weeks, he has been drawing up detailed plans for a political fightback based on measures to help people through the economic downturn.

The importance of the fightback, which begins today when he unveils measures on the housing market, cannot be overstated. Mr Brown is fighting to keep his job amid growing doubts in his own party about whether he should lead it into the next general election. Downing Street had planned to "hit the ground running" by briefing a positive story about Mr Brown's economic plan to yesterday's newspapers. Extracts from a speech on Thursday were released, in which he would deliberately strike a more upbeat note than his Chancellor. But his words were eclipsed by the leaking of a draft Home Office letter to Downing Street warning that the economic downturn would result in a rise in crime, racial tension and even terrorism. That and Mr Darling's remarks, not the Prime Minister's message, made headlines.

"It's the start of a new season and we have scored two own goals straight from the kick-off thanks to Darling and Jacqui Smith," one former minister said. "You couldn't make it up. It's awful."

Another Labour MP said: "Alistair was trying to defend his position as Chancellor. But his interview was a total miscalculation. You don't invite a journalist in unless you have a story to get out. You certainly don't invite one to join you on holiday for two days."

Other noises off have added to the impression of a government in disarray rather than on the front foot, as Mr Brown wanted to be after the summer break.

The Independent on Sunday revealed that Stephen Carter, the high-flying public relations man brought in as Downing Street's chief of strategy and principal adviser, is to be moved to a lower key role after a turf war with an "old guard" of Brown advisers.

Although No 10 tried to play it down, PR Week magazine, which has run a string of stories about appointments and internal rivalries in Downing Street, said on its website yesterday that Mr Carter had become increasingly frustrated with infighting and was close to resignation last week because colleagues and Labour MPs briefed against him. It quoted one insider as saying: "He's been spitting bile to friends for a couple of months."

The source added that Mr Carter had been "putting his heart and soul in to the job", including spending weekends at the Prime Minister's Chequers country retreat.

Mr Carter's critics tell a different story, saying that he lacked the commitment needed in a 24/7 media age that a politically motivated spin doctor like Alastair Campbell brought to Tony Blair's Downing Street team. "When he was rung up at 10pm with a problem, he would say he would look at it in the morning," one Brown adviser said yesterday.

Jeremy Heywood, the permanent secretary at No 10, has emerged as the top dog after a power struggle with Mr Carter. At a staff meeting in July, amid a debacle over MPs' expenses, Mr Heywood had a dig at Mr Carter for missing the session to go Wimbledon for the day.

As Mr Brown searches for a "more political" chief adviser who could turn Labour's guns on to the Tories, MPs questioned his response to the Darling affair. Although Downing Street and the Treasury deny any rift between the Prime Minister and Chancellor, some Brown allies could not contain their anger about his interview and speculated that, despite Mr Darling's forecast that there would not be a cabinet reshuffle, he could lose his job in an imminent shake-up. "The Brown camp over-reacted," said one Darling ally, adding that it did the same when David Miliband, the Foreign Secretary, set out his stall as a potential future Labour leader in July.

Despite the official denials, the City appeared to believe media reports about differences between No 10 and No 11 Downing Street, and the pound crashed to a record low against the Euro yesterday.

Mr Brown knows full well that the impression of such a split could be toxic. His disastrous start to the new term has already revived speculation that he will be forced out of office by a cabinet mutiny within weeks.

As The Independent revealed last week, ministers want to give the Prime Minister "one last chance" to revive Labour's prospects by unveiling his economic measures, giving a crucial speech to Labour's conference and then addressing Labour MPs when the Commons returns on 6 October.

His breathing space may last until after Mr Darling's Pre-Budget Report and the tricky by-election in Glenthroes, Fife, expected in October or November. But some ministers are now convinced that his reprieve will be short-lived. "Things have not improved during the summer recess," one said. "His position is just as bad as it was in July. It's bleak."

Although the Home Office document has not yet been sent to Downing Street, the draft was leaked to the Tories – a sign, perhaps, that civil servants are increasingly disenchanted with Labour after 11 years in power. The Tories decided to release it on the eve of the Brown relaunch in an attempt to put a cloud over his fightback. Their plan worked, and the Tories are cock-a-hoop.

Housing, tax and food prices: Brown's relaunch

* Brown's relaunch will focus on the housing market, food prices and fuel poverty.

* He is unlikely to yield to backbench pressure for a windfall tax on utility companies, but a compromise arrangement to provide relief from rocketing fuel bills for middle and low-income families is more likely.

* Brown wants to put a stop to the soaring rate of house repossessions in the first quarter of this year. A rescue package for the poorest householders is likely.

* All the above have been the subject of much speculation during the summer recess, but Brown may yet have a surprise up his sleeve. His room for manoeuvre is limited, but a move such as reorganising income tax bandings could be on the cards.