Gillian Shephard, Secretary of State for Education, swiftly exploited Tony Blair's first major political setback as leader, claiming the party's education policy was in a "shambles". She also attacked Labour for refusing to rule out abolishing the charitable status of private schools.
Just as Labour was recovering from the VAT embarrassment, John Evans, a senior national executive committee member and former party chairman, accused Mr Blunkett of "making policy on the hoof".
Mr Evans, the MP for St Helens North, told BBC Radio 4's The World at One: "We've had a number of rather controversial statements being made which have varied what people regarded as the party's policy."
While Mr Blunkett's position remains secure, the high command will now draw up a formula for portfolio holders to ensure that all taxation issues are treated as "matters for the shadow chancellor".
Margaret Beckett faced similar difficulties over the weekend with regard to VAT on private health care, and while Gordon Brown, the shadow Chancellor, is notorious for his unwillingness to make tax decisions so far before an election, neither Mr Blunkettnor Mrs Beckett had been told that their VAT options had been ruled out in Labour's Budget review in November.
The equally controversial issue of removing private schools' charitable status remains on Labour's agenda, however.
Jeremy Hanley, the Tory Party chairman, said the affair demonstrated that there are two Labour parties: "The one that Tony Blair wants it to be and the one that it is."
Meanwhile, Llewellyn Smith, the Labour MP for Blaenau Gwent, accused the leadership of acting like Robin Hood in reverse - robbing the poor to subsidise the rich - and Roy Hattersley, the former deputy leader, urged his party to stick to its guns over charitable status.
The row broke following reports in which Mr Blunkett stuck to the line confirmed by Mr Blair in July that VAT on private school fees was being considered by the party's economic commission, only to have to retract it on a lunchtime programme.
Mrs Shephard demanded whether it was Mr Blair or Mr Blunkett who spoke on education for Labour and went on to attack the idea of abolishing private schools' charitable status. "Many of them have grown from religious or other trust foundations and to unwind them in this way is not, I believe, legislatively possible, or indeed is it desirable."
But Mr Hattersley said: "It is quite intolerable that the generality of people should subsidise through their taxes . . . the young gentlemen of Eton and Harrow."