Back in the mid-1990s, at the dawn of spin, hapless lobby hacks had reason to thank two aspiring Labour backbenchers. Sunday shifts at Westminster were thankless, with one political correspondent per newspaper to shift reams of copy for the Monday paper. Salvation often came from the fax machine. Right on schedule, headed paper would roll out from the office of Stephen Byers or his friend, neighbour and rival Alan Milburn. These young MPs, or their researchers, would do some useful number crunching on a particular Conservative government botch. They would present it as a concisely written news story, with a useful couple of quotes in their name at the bottom.

The two knew how to play the system brilliantly. They had made it their business to get to know the journalists they needed to know. They knew which story would have "legs" in which papers. They knew the deadlines. They checked in to make sure that information had been received.

Their efforts endeared them to Tony Blair and Alastair Campbell. Byers and Milburn personified everything new Labour was supposed to be - tough and media-savvy.

For the remaining months of opposition and for Labour's first couple of years back in government, the approach continued to pay dividends for Byers and Milburn. The two were likened to miniature versions of Tony Blair and Gordon Brown. Their relationship was similar: close friendship punctured by jealousy, especially at times of reshuffles.

For some time, it looked as if Byers was edging in front, especially when he was appointed to the cabinet for the first time as Chief Secretary (and Blair's spy) at the Treasury.

As the atmosphere turned halfway through Blair's first term, and spin became discredited, Milburn saw the warning signals - but only just. His obsession with publicity in his early months as Health Secretary, popping up breathlessly each week to make rehashed announcements, began to worry the men at Downing Street. It was not the principle that bothered them, but the practice. The government was starting to be found out.

Byers - who by then had been promoted to the Department of Trade and Industry - did not learn. His problems with media hyperactivity began even before the dispute over BMW's sale of Rover in March 2000. His launch of a "rip-off Britain" campaign, targeting overcharging retailers, was quintessential new Labour Mark I - soundbite with little substance. It was riddled with inconsistencies.

His resignation last Tuesday as Secretary of State for Transport, Local Government and the Regions is a parable for Labour ministers. "In the end," said a friend of his, "familiarity with journalists bred contempt." But it is much more than that. Those that have succeeded in this government have learnt to keep their heads down. Those who have flirted with profile - with the exception of Gordon Brown, with his independent power base in politics and the media - have fallen. Mo Mowlam, Peter Mandelson, Harriet Harman and, to a lesser extent, Chris Smith were all Blairites with a penchant for publicity. And look where they are now.

Contrast them with Alistair Darling, named as Byers's successor on Wednesday, with Andrew Smith, who has taken over from Darling as Secretary of State for Work and Pensions, and with John Reid. This band of dour technocrats is the face of the new government. Milburn is trying to fit himself into the same mould. As for David Blunkett and Charles Clarke, the two figures widely seen as potential rivals to Brown, their tendency to slip into media overdrive is already raising alarm bells. There are very few ministers with a licence to be controversial - namely, Clare Short, the International Development Secretary, and Peter Hain, the minister for Europe - and even they are closely monitored. As for the appointments to the junior ministerial ranks, especially of the upwardly mobile David Miliband and David Lammy, they are also designed to send a clear message: keep your head down; speak out in public only when you have to; avoid shows of flamboyance.

Of the original Blairites, few remain at the heart of government. Stephen Byers was one of them. It did not matter that his political journey had come from the far left, because many of the true believers had made similar conversions. There was an air of genuine alarm and grief in the homes of some of the top acolytes last Monday night, hours after Byers made his carefully choreographed announcement.

"We can't say that we've closed a difficult chapter," one official told me. "Now the press will feel vindicated. They will feel [that] Steve's going has legitimised the accusations."

The remark speaks volumes about the atmosphere inside the Blair bunker. There is now a very real despair about the hostile role the media is playing, reminiscent of Neil Kinnock's fury at not, in his mind, getting a fair crack of the whip in the run-up to the 1992 election.

Time and again, Blair made it clear that he did not want to buckle to the media campaign against Byers. He and Campbell saw this as part of a bigger test of strength against the fourth estate. It is impossible to overstate the extent of the fear and loathing that new Labour feels towards journalists. The scars of the Kinnock years have never healed. Spin - the placing of stories with a small band of pliant journalists, the advance leak, the "flying of kites" to see how a policy will be received, the denunciation campaigns against unfriendly hacks, the recycling of old announcements - these were simply tools, in their minds, to tame the beast. They knew that the tactics were becoming counter-productive, but Byers's troubles brought them into stark relief.

Byers was remarkably sanguine throughout. Those who saw him daily were amazed at his resilience. And yet, despite the sang-froid, the media hostility did cloud his judgement.

His decision to have lunch with 25 lobby journalists hunting in a pack - even if he did bring along his civil service head of press as insurance - was a basic mistake in spin-doctoring.

"Ironically, if Jo Moore [Byers's special adviser, who was sacked after a series of e-mail scandals] had been around, she would have told him not to do it," said one official. Getting trapped into answering a rhetorical question on the euro was elementary. It was this that alarmed Downing Street most. Nobody told Byers to go in recent weeks, but Blair ensured that word was relayed to him to "get a grip".

By the weekend of 25 May, Byers realised that he could no longer tough it out. He talked at length with his partner, Jan, who never had much time anyway for the frenzy of the Westminster village. He spoke to his family and very close friends and decided on the Sunday. He had a meeting with Blair and transport officials pre-arranged for last Monday morning; it was only at the end of that meeting that he asked to see the Prime Minister alone and told him of his decision. Blair did not in any way try to dissuade him.

Blair's people now fear that they are further than ever from handling the press. For all the sophisticated methods, their mindset is strikingly naive. Lord (John) Birt and those he is working with are said to be furious that every venture he becomes involved in, such as the so-called "blue skies" thinking on transport that made things even more difficult for Byers, is deemed newsworthy. They are convinced that Birt's cause has been undermined systematically by his "enemies" at the BBC, the very same organisation he used to run.

The anger in and around Downing Street is mixed with confusion. It was not just Byers who decided to retain Jo Moore after the infamous e-mail of 11 September, where she said it was "a good day to bury bad news". Blair leant heavily on him to keep her on board. Moore, after all, was one of them. She was a loyal servant and, anyway, who are journalists to tell politicians what to do? It is now accepted that keeping her was a mistake - a mistake of tactics, but crucially, to Labour's mind, not one of principle.

Since the last election, a number of ministerial special advisers have quit, unlike Moore, in unspectacular fashion. Several of them admit that it took them months to recover a sense of normality and to realise that the world they had inhabited was unreal. The bunker in which they all operated had played with their minds.

A few hours after Byers resigned, I met a government official who knew Byers, Moore and the gang well. I suggested to him that perhaps Labour might conduct an experiment: abolish all the special advisers who deal with the media (not those who help prepare policy); cut down on departmental press offices and instruct them only to respond to inquiries; and get rid of Campbell's communications empire. Forget about a daily grid of government initiatives. Organise a skeleton duty rota for ministers for the broadcast media and make your announcements only to parliament.

A look of absolute incredulity shot across his face. Then, after some thought, he said: "I suppose, despite all our efforts, things could hardly be worse than they are now."