Calamity Brown

Martin Bright on the malaise at the heart of government - part of our unrivalled coverage in the

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I remember the night the Northern Rock crisis broke very well, because it coincided with the New Statesman's late summer party at the Banqueting House: Thursday 13 September 2007. The event was a great success, with the Prime Minister and several cabinet colleagues making an appearance despite the extraordinary events of the evening.

This was at the height of Gordon Brown's honeymoon, a time when somehow the new PM seemed to turn every challenge to his advantage. His calm statesmanship after the failed terrorist attacks of June gave way to a solid, "can-do" approach to the floods of late July and the foot-and-mouth outbreak of August. With each month came a new crisis, but the Tories couldn't lay a finger on the government. Even a high street bank turning to the Treasury for help merely reinforced Brown's authority as a man you could trust.

But I will never forget how, as the party broke up on that September night, an old friend - a financial journalist who knows more about these things than most - took me aside and told me that this was not a night for Brownite celebration. Something fundamental had changed, he said. "From tonight, any idea that this government can rely on the stability of the economy to win them the next election is finished. This will return to haunt them."

I didn't really think about my friend's comments until I was sitting watching Prime Minister's Questions two months later. The Liberal Democrats' interim leader, Vincent Cable, asked if it was true that £24bn of public money had been used to bail out Northern Rock. He emphasised the size of the figure by saying that this was double the amount spent on primary schools each year and four times the UK's aid budget.

The scale of the crisis this government faces can be measured by the way the public perception of the Northern Rock crisis has shifted since the story first broke. Just as the market has lost faith in the bank's shares, so the stock of the government has plummeted. The rule is the same for all major public institutions: high street banks and governments alike are built on trust and confidence.

The depression on the Labour benches is profound. "The nail-biting is everywhere," says one former minister, referring to Brown's nervous habit. "It has become contagious." Where once backbenchers drew worried parallels with James Callaghan's ill-fated administration of the late 1970s, now some believe Brown is at risk of creating a political nightmare without precedent. Brown's monthly crises no longer provide an opportunity for him to wield authority. Instead, they provide evidence of an administration coming apart at the seams. Jacqui Smith, the Home Secretary, must be relieved that her refusal to come clean over her knowledge that illegal immigrants were working in the security industry has been overshadowed by events at HM Revenue and Customs.

The loss in the post of two disks containing the personal details of 25 million people is the largest-scale act of incompetence perpetrated under this government (possibly any government, as such an error would simply not have been conceivable before the computer age).

The Conservatives and the Liberal Democrats have already argued that it undermines the government's case for an ID database. It is difficult for it to claim that it can be trusted with our confidential information. This may yet be a blessing in disguise for the PM, who could drop the plans for identity cards before they become his poll tax.

The trouble for Brown is that when the poison starts to eat at the government's reputation it has a retrospective effect, seeping back to corrode even past triumphs. People are beginning to reassess the honeymoon period and wonder if it was quite so glorious after all. The Prime Minister rightly won praise for cancelling his summer holiday to deal with the foot-and-mouth crisis, but it was a government research laboratory that caused the scare in the first place. Brown may have dealt well with the floods, but cuts while he was at the Treasury have been blamed for a reduction in flood defences. (One can only speculate as to whether Tony Blair would have been lambasted had he made such a cursory initial helicopter trip to the affected areas.)

Brown's reputation as chancellor has also been buffeted by Northern Rock, and the crisis at HMRC may well have its origins in cuts imposed by Brown when he was at the Treasury. But people around Brown remain convinced that the broader economic record over the past decade, of sustained economic growth and tackling child poverty, will override the negatives in the public's mind. They insist that there was nothing they could have done about the benefits debacle and that David Cameron will reap only temporary capital from it. Their analysis shows an alarming complacency.

There is a more fundamental issue at stake here, however. It is an insult to Britain's "hard-working families", so beloved of new Labour, that the HMRC information was not treated with more respect. As internet security experts have already pointed out, if the information contained on the disks had been given the same "top-secret" classification as national security documents, it would not have been possible for a junior official to download the details to disk, let alone send them out by a commercial courier company.

This magazine is at present involved in a court case in which a Foreign Office official, Derek Pasquill, has been charged with leaking information concerning two of the most important issues of our age: rendition and the government's relations with radical Islamists. The alleged disclosures later contributed to changes in government policy, and yet Pasquill faces a possible prison sentence.

This is another example of abject Whitehall hypocrisy. State information is sacrosanct; individuals' information is up for grabs. Our personal data can simply be sent through the post without even the courtesy of encryption to protect it from prying eyes. In a further irony, any member of staff who wished to blow the whistle on the problems at HMRC would be prevented from doing so - their work is covered by the Official Secrets Act.