IoS special report: Reshuffles and rodents

David Cameron's reshuffle plans have been torn asunder by the ominous rumblings inside both coalition parties. Jane Merrick and Matt Chorley analyse the priorities the PM and his deputy must juggle to survive

The best-laid schemes of mice and men, as Robert Burns wrote, gang aft agley. And this weekend, Ed Llewellyn, David Cameron's chief of staff, and Kate Fall, his deputy, armed with a whiteboard and Post-it notes, will try to present the Prime Minister with a coherent ministerial reshuffle that has not only gone awry but has been blown off course by forces reverberating inside the Conservative and Liberal Democrat parties.

Mr Llewellyn and Ms Fall returned from holiday last week and are hammering out the positions across the lower ranks of the Government before the Prime Minister and George Osborne oversee the major moves inside the Cabinet.

Yet the interventions from MPs inside both coalition parties are causing many Post-it notes to be thrown in the bin. Tim Yeo's challenge to the PM last week that he must decide whether he is a "man or a mouse" by making a decision on a third runway at Heathrow may, ironically, have saved Justine Greening her job. The Transport Secretary is a Heathrow critic and was a candidate for a moving to allow the PM and Chancellor to put the runway back on the table quietly. Mr Yeo's intervention, drawing attention to the dilemma and challenging the PM's virility, means that she is probably safe.

On the Lib Dem side, Mr Cameron and Nick Clegg are under pressure to move Vince Cable, derided by the Tory right as a "road block" to growth, to a non-economic role, freeing business from red tape. But a call by Lord Oakeshott, an ally of Mr Cable, for Mr Clegg to quit as leader before the next election has made the Business Secretary's position safe. Mr Cable, although he was on holiday at the time of Oakeshott's intervention, would be twice as dangerous if demoted or even sacked from the Cabinet.

Reshuffles always cause headaches for Prime Ministers – which is why Cameron has held off for more than a year before staging one. But the forthcoming shake-up will create enemies among those overlooked or sacked in favour of younger MPs from the 2010 intake, who are expected to fill the more junior ministerial posts. And the much-publicised Yeo and Oakeshott broadsides show how precarious the leadership positions of both Mr Cameron and Mr Clegg are.

It will be a hectic five days in Westminster as MPs return from their summer break. Not everything will be within the Government's control. In addition to feverish gossip about the reshuffle, MPs from all parties have a long list of complaints: the English GCSE marking chaos, Virgin losing the East Coast mainline franchise, airport capacity and the continuing atrocities in Syria.

Danny Alexander and Oliver Letwin are putting the finishing touches to a review of the coalition agreement, which will spell out what has been achieved and what the priorities are for the second half of the parliament. "It will be a reminder of quite what a radical government we have been," said a source.

Yet relations between Mr Clegg and Mr Cameron were soured over the tit-for-tat row that saw the Lib Dems pull the plug on the Tories' prized shake-up of constituencies after the PM admitted he could not deliver Lords reform. As they return to work this week, they are on speaking terms, although strained. "I don't think they have been sharing holiday photos but the mood is OK," said one No 10 insider.

But they will have to come together to fight for the coalition's existence and their own futures this week. With Tory and Lib Dem MPs and activists speaking out with greater force about their discontent, the reshuffle must mark a relaunch, otherwise questions about their leadership will dominate party conference season. David Davis, who was beaten by Mr Cameron to the leadership and retains the support of many MPs, will set out an "alternative economic policy" in a speech to the Centre for Policy Studies tomorrow. Persistently dire economic growth figures have hardened the attitude of Tory MPs towards the Chancellor. Many believe he should be sent to the Foreign Office – swapping jobs with William Hague – yet this move has been already ruled out inside Downing Street.

But the danger for the PM is that it is not only MPs on the right of his party who are unhappy. Mr Yeo, a centre-left moderniser, reflects the unhappiness of some on that wing who believe that the original Cameroon project – the drive to make the party more acceptable publicly on issues such as homesexuality and the environment – has been obliterated by the dominance of Mr Osborne at the heart of Downing Street.

This week Mr Cameron will attempt to quieten his critics, unveiling a series of proposals on housing, infrastructure and job creation which he claims will "cut through the dither" holding Britain back. "The nations we're competing against don't stand for this kind of paralysis and neither must we," he wrote in the Mail on Sunday, in remarks which will be seen as paving the way for a relaxation of planning rules, especially restrictions on building on the green belt.

It is unlikely to silence all who are unhappy with the Tory leadership: Backbencher Brian Binley this weekend publicly called for Mr Osborne to be sacked as Chancellor because "much-trumpeted public spending cutbacks are illusory".

While Mr Clegg has one identifiable threat – Cable supporters – the Prime Minister's opponents are less visible and therefore more dangerous. Historically, the Tory party is more bloodthirsty, and leadership challenges are easier to mount.

But this weekend, the Deputy Prime Minister faces a clear challenge to his leadership. While Lord Oakeshott suggested his leader should step down before the next election, in line with 50 per cent of party members in a poll for Liberal Democrat Voice, some activists want him to step aside now. Andrew Bridgwater, chair of the party's national education association, thinks "the sooner Nick resigns and creates a vacancy for Vince the better". When the Business Secretary takes to the platform at the Lib Dem conference in Brighton later this month, it will be clear that the membership wants him to be leader, Mr Bridgwater said.

Charles West, chair of Shrewsbury and Atcham Liberal Democrats, said morale among members about the leadership was abysmal. Mr Clegg needed to close the gap between ministers and the grassroots, he said. He added: "Nick is going to have to justify the decisions he has taken, particularly on NHS reforms. If he is not able to justify the decisions that he has taken, then his position as leader of the party is at risk. He has acquiesced too regularly."

Even Mr Clegg's allies acknowledge that he has to improve. He is being urged to be true to himself by colleagues who fear that the temptation to pander to left-leaning activists, with populist calls for taxes on the wealthy, risks creating the impression of a lack of Lib Dem influence in Whitehall. One government source said: "The more he tries to split the difference between left and right, the more he lacks coherence. He needs to be true to himself – a pro-coalition, reforming, small 'l' liberal."

The threshold to mount a challenge by activists to a Lib Dem leader is high – either 60 constituency parties must call a special conference, when a vote of confidence can be taken, or 75 constituency parties must sign a motion of no confidence. Mr Clegg's critics acknowledge no one has started such a list, and while he will be buffeted by leadership speculation during conference, he is unlikely to face a direct challenge.

But what has changed in the past few weeks is Mr Cable's position. In an interview with The Financial Times in July, the Business Secretary made clear his availability as an alternative leader-in-waiting, saying: "I don't exclude it – who knows what might happen in the future." One figure put it more bluntly: "In an emergency, Dr Cable is on call."

Labour's return to Westminster

It is not just the Prime Minister and his Lib Dem deputy who face a difficult return to Westminster this week. The Labour leader, Ed Miliband, is facing mounting speculation over his relationship with the Shadow Chancellor, Ed Balls.

One report claimed yesterday that Miliband had to tell Balls off for reading and sending messages on his BlackBerry while the Labour leader was speaking during Shadow Cabinet meetings.

"People can be just as interesting as BlackBerrys," Miliband is said to have told his former leadership rival. This week, the pair will join forces to set out an alternative economic plan to the Government at a Policy Network conference.

They will share a platform with Larry Summers, Bill Clinton's former treasury secretary and the former head of President Obama's National Economic Council, and Richard Lambert, former director general of the CBI.

But behind the united front, there remains speculation over differences between Miliband and Balls, specifically on economic policy and Labour's relationship with the City.

Jane Merrick

Movers & stayers

Treasury

Who should get it: William Hague

Who will: George Osborne will stay

The PM should reassure voters that economic policy needs a Plan H, but it's highly unlikely he'll sideline his chief lieutenant.

Foreign Office

Who should get it: Osborne

Who will: Hague will stay

This would be the other side of the job-swap that some Tory MPs have demanded. But PM will be mouse, not man.

Justice

Who should get it: Kenneth Clarke should stay

Who will: Francis Maude

Clarke is hated by the right, who think he is too soft on crime, but he needs to stay in place as balance to the Home Secretary, Theresa May.

Health

Who should get it: Maria Miller

Who will: Andrew Lansley will stay

Lansley's handling of his NHS reforms was a political disaster, and Miller would provide a reassuring change in style to steady the horses.

Education

Who should get it: David Laws

Who will: Michael Gove will stay

Laws, as architect of the pupil premium, could reassure teachers more than Gove, but only if Lib Dems could secure an extra cabinet place for a "bread and butter" brief.

Business

Who should get it: Vince Cable should stay

Who will: Cable will stay

The Tory right want him moved to free businesses from red tape, but Cable has made it clear that he is ready to stand as leader if called upon, making him unsackable.

Scotland

Who should get it: Jo Swinson

Who will: Michael Moore will stay

Swinson, a confident media performer with a populist touch, deserves a cabinet job, but switching ministers could play into the hands of the SNP over independence.

Tory Party chairman

Who should get it: Michael Gove

Who will: Grant Shapps

It's widely believed Baroness Warsi will be moved, and Gove would be a natural unifier of Tory grassroots. But the ambitious Shapps looks a certainty.

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