Brown cannot face up to Darling's home truths

You could almost hear the sound of the crockery smashing in Downing street this weekend as Gordon Brown read the extraordinary interview given by Alistair Darling on a remote Scottish island.

Cunning politician that he is, the Prime Minister would have appreciated immediately the damage his Chancellor's interview has done to his plans for another relaunch of his premiership this month. For Mr Darling's home truths have sunk the much-hyped Brown recovery Plan before it has even made it down the slipway. Here's why.

First, Darling has destroyed Brown's main political line of defence so far on the economy: the transparently false claim that it is "fundamentally strong".

Just last week, we are told, Treasury Minister Yvette Cooper emailed Labour spin doctors ordering them to repeat ad nauseam that the economy is not as bad as in the Nineties or Eighties. Now her boss the Chancellor tells us, that is not the case.

He says this is the worst economic crisis for 60 years - and it comes not after a period of Conservative rule, but after Mr Brown has been running the Treasury for a decade.

What's more, he admits that far from the Government being well prepared for the economic slowdown, "no one had any idea" it was coming. Indeed, rather touchingly, he admits that the first our Chancellor of the Exchequer knew there was a serious problem was when he read a newspaper headline in a supermarket in Majorca. Second, Mr Darling's interview has torpedoed the Prime Minister's big message planned for the autumn: that a recovery is just around the corner, thanks to his clever plans. Only a fortnight ago, Gordon Brown was behaving like a First World War general and happily telling journalists who were flying with him to Beijing about how it would all be better by Christmas.

Now his Chancellor flatly contradicts him. He says Britain's economic problems are going to be "more profound and long lasting" than people think.

Even more significantly, he appears to be fighting a fierce battle in Whitehall to stop the Prime Minister borrowing billions of pounds of taxpayers' money to fund his political survival plan. He appears to understand, as I do, how unfair that would be.

Third, Darling's interview has kyboshed the other part of Brown's political survival plan, a Cabinet reshuffle. "Frankly," he says, "if you had a reshuffle just now, i think the public would say, who are they anyway?" Good question. As he puts it, more bluntly than most politicians would dare, people are "pissed off" with the whole Labour government from the top down. At least, with that enduring phrase, Mr Darling has probably earned his first entry in the Oxford Dictionary of Quotations. So today, as we survey the political wreckage from the Chancellor's interview, we can all see what a totally divided and dysfunctional Cabinet now governs Britain. At the very top of the Government we have a Prime Minister fighting for his political life, a Chancellor openly disagreeing with him on the economy and, to boot, a Foreign Secretary spending more time planning a coup at home than preventing them abroad.

What can be done? The country faces serious economic problems and they demand serious answers.

The dire state of the public finances means that government's hand is constrained but there are things that can be done immediately to support families.

To help people filling up their cars, they should introduce our fair fuel stabiliser. This means when oil prices go up and North sea oil tax revenues rise, fuel duty goes down to cushion the blow at the pumps.

To help the housing market, Labour must stop very public dithering on stamp duty that is paralysing house sales, and instead implement our fully funded proposal to abolish stamp duty for first-time buyers. That way, young families who want to take advantage of lower house prices but who can't afford the higher mortgage costs, will get a real boost.

To help lower-income families with their rising utility bills, we need to get them on to cheaper tariffs enjoyed by those with bank accounts who pay by direct debit. Conservatives have worked with the industry on a plan to allow people to pay their utility bills direct from their Post office card account, which could save a useful £100 a year.

All of these short-term measures will help people get through the economic difficulties without adding to the debt we are leaving for the next generation, and we will set out more ideas in the weeks ahead.

But the real long-term challenge is to fix the public finances and then make sure Britain is better prepared in future for the shocks the global economy will throw at us. Never again should we end up after a period of global economic growth with the worst budget deficit in the developed world.

Next time, we must fix the roof when the sun is shining. That means replacing the broken fiscal rules that so obviously failed to guarantee prudence. We need a new system that protects us from the short-term borrowing sprees of politicians out to save their own skins. For gross fiscal irresponsibility is not just economically reckless, it is deeply unfair on future generations.

We also need to reform the banking system, so that we don't rely on the taxpayer to bail out the excesses of those institutions who borrowed too much. We cannot afford another Northern Rock. At the moment, banking regulations encourage banks to lend more in the good times and to cut back more sharply in the bad times. These regulations exacerbate boom and bust. instead, they should dampen the credit cycle - and I have spent much of this year discussing how we could reform them at an international level with central bank governors and finance ministers.

Finally, we need to make our economy more competitive in the face of globalisation so that businesses bring jobs and investment to our shores instead of leaving them as they are at present. That means lower and simpler business tax rates, a revolution in education supply and moving to a more balanced economy that is not only dependent on housing and finance.

None of these things will be easy to achieve. But at the very least you need a united government focused on the long-term future of the country instead of its own short-term survival. You need a Chancellor who doesn't just speak the truth but has the support of his Prime Minister to act on it.