Labour 'falling apart' as MPs turn on Blair

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Labour MPs warned Tony Blair last night that the Government was in danger of "falling apart" after the arrest of Lord Levy over an alleged Downing Street cover-up in the "cash for honours" inquiry.

The Prime Minister, in one of his worst days at the despatch box, faced taunts in the Commons about the spectre of Watergate, and was told by the Tory leader David Cameron to quit "in the national interest" after Lord Levy's arrest on suspicion of perverting the course of justice.

Alex Salmond, leader of the Scottish Nationalists, the party that triggered the police inquiry, gestured to Mr Blair that he would be put in handcuffs before long. "The Prime Minister has taken a vow of silence while his whole house of cards in Downing Street is coming tumbling down," the SNP leader said later.

Dismayed Labour MPs said Mr Blair seemed "oblivious" to the damage being done to the Government while he refused to give a timetable for his departure. "There is a sense of total frustration across the backbench," said a Labour MP. "It is agony, like watching a car crash in slow motion. Things are just falling apart."

Downing Street said the Prime Minister was standing by Lord Levy, the party's chief fundraiser, and he would remain his special envoy to the Middle East.

However, Lord Levy's role was being challenged by members of the Cabinet. One senior minister questioned his value in the Middle East, and said he had already caused upset among senior figures in Israel.

The Prime Minister's spokesman said Lord Levy paid for his own foreign travel but said he was given an office in London and a member of staff at the expense of the Foreign Office. It was not disclosed how much he is costing the taxpayer but it is certain that MPs will be raising that question. The official refused to be drawn on speculation that a third Downing Street official would be questioned under caution by police. Ruth Turner, the Prime Minister's "gatekeeper", was arrested last week and police carried out a second interview under caution of John McTernan, his director of political relations. Labour MPs loyal to Mr Blair accused the police of leaking information to the media in the hope of panicking staff into incriminating others. A Labour MP said: "If they had enough evidence to prosecute under the 1925 Act [making it an offence to sell honours] they would have handed a file to the Crown Prosecution Service but they haven't. Instead, the police are growing increasingly desperate. They are now throwing dynamite into the pond in the hope of getting these advisers to panic and incriminate each other."

However, rebel Labour MPs were privately discussing the option of gathering MPs' names to hand to the Prime Minister's parliamentary private secretary, Keith Hill, to demand a clear date for the Prime Minister's resignation, expected to take place in July.

Mr Cameron's aides said it was the first time the Tory leader had directly told Mr Blair at Prime Minister's Questions that it was time for him to leave. Mr Blair tried to shrug off the assault but Mr Cameron told him to recognise the "reality staring him in the face".

"The Government can't plan. Ministers are treading water. They are all waiting for the Chancellor and not listening to you," said the Mr Cameron."Your authority is draining away. Why don't you accept what everybody knows - it is now in the national interest for you to go."

Last night, the jockeying for position had already started among candidates for the deputy leadership. There was embarrassment for Peter Hain's team when his campaign strategy was leaked on the internet