Andrew Grice: McBride's unfriendly fire may have shot the PM's electoral hopes

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Gordon Brown had reasons for optimism when he arrived at his Fife home for his Easter "break". Labour's latest private polling showed that, after slipping back since the start of the year as job losses mounted, he had again clawed his way back into the game by doing what he does best – focusing relentlessly on the economy and dominating the political agenda.

Following his successful G20 London summit, public confidence in both Mr Brown and his Government had returned to their levels of last November, after the initial rescue of the banks. Despite the recession, the polling showed, many people had noticed a rise in their real disposable income after mortgage rates fell and a lower cost of living due to low inflation.

True, the public is worried about personal and government debt. But people are more worried about losing their jobs and their homes. They support targeted interventions by the Government to limit the pain and duration of the recession and want to see a "future picture" of the economy.

The polling, which has helped to shape the strategy for next Wednesday's Budget, reinforced the Prime Minister in his view that people do not want a "do nothing" approach to the recession – the charge he repeatedly throws at the Tories, who furiously deny it.

Mr Brown felt confident of continuing his fightback in the Budget, timed to translate the G20 pledges into action at home. But his optimism was brought to a sudden halt when aides rang with news of a scandal that was to blow his strategy off course. Emails leaked to last Sunday's newspapers would reveal a plan by Damian McBride, one of his closest aides, to smear senior Tories by peddling false allegations on a new Red Rag website. Although the proposal was scrapped, the leak would be terribly damaging.

Instead of preparing the ground for the Budget with a series of economic initiatives, the Government has spent the past week trying to clear up the mess, which did not end when Mr McBride resigned. Instead of playing to his strengths, Mr Brown found an uncomfortable spotlight shone on the dark side he thought he had left behind.

The Brown hit squad, which had cleared his path to the premiership by eliminating his potential rivals, had largely decommissioned its weapons, certainly for use in Labour's long-running internal battles. There wasn't much need for them after a truce with the Blairites was signed last autumn – when Lord Mandelson, a Brown foe turned friend, was recalled to the Cabinet. Since then, Mr McBride had worked harmoniously with Blarite colleagues. Ironically, he was caught red-handed when he turned the weapons of destruction on to Labour's more natural Tory enemy.

Mr Brown's handling of the crisis only prolonged his agony. Although he wrote to Mr McBride's intended Tory victims, he characteristically refused to say sorry until Thursday, giving the story oxygen.

Brown allies are nervous that more emails about the smear campaign may emerge. They are desperate to "move on" and can't wait for next week's Budget to put the economy back at the top of the political agenda.

Cabinet ministers are appalled, and admit the McBride affair has inflicted serious damage. "The only way we can win the election is by making it a choice on the economy," one said. "Once we are pushed off that, it becomes a referendum and, after 13 years in power, there is no hope for us. That's why what happened this week was so bad for us and for Gordon."

The only crumb of comfort for Brownites is their hope that, when the election comes, people will almost certainly vote with the economy in their mind rather than a Labour smear campaign that came to light a year earlier.

Some images stick, however. The announcement that the Tory frontbencher Damian Green would not be prosecuted after a fruitless police inquiry into Home Office leaks reinforces the unflattering picture of a government scrabbling to save its skin as the last grains of sand slip quickly into the bottom of the hourglass.

Mr Brown, for all the faults exposed this week, might well hold the upper hand over David Cameron in a straight choice on the economy. But it will be harder now to portray Mr Cameron and George Osborne as inexperienced, short-term tacticians with no long-term strategy who treat politics as a game, as Labour had intended. Instead, Downing Street had to admit Mr McBride had resorted to "juvenile" tactics, making Mr Cameron look more substantial and Mr Brown the grubby tactician.

Just as the Tories found it virtually impossible to land blows on Tony Blair in the run-up to the 1997 election, Labour may find Mr Cameron an elusive target.

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