Tell us the truth about Mr Mittal

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Tony Blair always knew he had to deal with the Sword. If he did not, Labour risked public contempt. His reputation would end up no better than that of many other politicians. He needed to prove that he really would steer well clear of the bad old ways. His big mistake was to believe that there was only one S-word to vanquish. In fact there were two: socialism and sleaze. In his eight years as party leader, he has fought so hard to extinguish Old Labour socialism that he failed to see the menace of new money sleaze creeping up on his blind side. During the past week he has shown himself to be utterly unprepared, and has been seriously winded.

I say this as someone who has, until now, taken a sceptical view of the dangers of the scandals that have erupted intermittently. The Ecclestone/Formula One/tobacco row took place too soon after the 1997 general election to cause much damage: most voters were still determined to think the best of Mr Blair. The stories surrounding the two Mandelson resignations added to the gaiety of the nation and the misery of the MP for Hartlepool, but made no difference to the Government's standing in the polls. The more recent attempts to ensnare Labour in the collapse of Enron were simply pathetic.

The Mittal affair is different. YouGov's poll for The Sunday Times found, for the first time, that Labour is seen as significantly more sleazy than the Conservatives. As chairman of YouGov, I have seen the detailed figures, and these should worry Mr Blair even more than the headlines. One in three people who voted Labour last June now regard the party as sleazy. And fully 65 per cent of Labour voters think that Mr Blair is prone to "give special help to people and companies that donate large sums to the Labour Party".

These figures have not been caused by the Mittal affair alone.

Doubts had begun to penetrate some voters' minds before last week. But these doubts could be contained as long as most people believed that the Tories were at least as bad as Labour. Within the past seven days, Mr Blair has lost that protection.

What, then, should he do now to regain his reputation for probity? For a start, he should abandon his instinct to argue like a defence barrister before a punctilious judge. Such instincts are understandable: before he entered politics he was indeed a barrister. Most voters, however, reach their verdict on the basis of headlines, impressions, snatches of television interviews and chats with their friends. Mr Blair's task is to penetrate this elusive, amorphous world and change a climate of opinion that has turned decidedly stormy.

How does he do that? His first task is to bring everything into the open and persuade people that he has kept nothing behind. Much of the damage of the past week has been caused by the way the story has changed day by day, as new facts have come to light. The Prime Minister has come to look as if he is concealing some dreadful secret. His most urgent task is to show that he is not.

This means publishing all the letters, internal Downing Street memos and notes of meetings that relate to Lakshmi Mittal, the messages from Britain's ambassador in Bucharest, and details of all contacts between the Labour Party and its generous benefactor. It also means publishing the briefing document prepared by the Department for International Development for Britain's representative on the European Bank of Reconstruction and Developmentthe minutes of the EBRD meeting that agreed the loan for the purchase of Romania's steel industry, and the circulation lists for both documents.

Mr Blair must also do something else. He needs to explain what benefit he expected for Britain from his letter to Romania's Prime Minister and from DFID's willingness to support the European loan. It is not enough to assert - or even prove - that Mr Mittal's donation to Labour had no effect on either of these things. Ministers down the years have not always needed venal motives to act stupidly. They are quite capable of taking bad decisions with a pure heart.

My suspicion is that this is one of those occasions, and that Mr Blair and his office are guilty not of corruption but of a dangerous naivety. They wrongly believed that LNM was a genuinely British company and that the Romanian deal would be good for British workers. They could have checked, and should have checked, but failed to do so.

If that is the embarrassing truth, then the sooner it is admitted, the better. It would, at least, draw attention to one of the bigger defects in Mr Blair's Cabinet: its lack of personal experience of the ways of capitalism. Leaving aside brief spells in the media, the only Cabinet ministers who have worked in the private sector are John Prescott, who used to be a steward with Cunard, Patricia Hewitt, who was Andersen Consulting's head of research in the mid-Nineties, and John Reid, who briefly sold insurance in the Sixties.

When it comes to tackling trade unions, local government, schools, universities or the legal profession, Cabinet ministers have ample firsthand experience to draw on. They know the tricks and can spot the tricksters. But business is a jungle that this Cabinet has previously known only from the outside.

In a way, Mr Blair's problem is not that he is too close to rich businessmen, but that he and his Cabinet colleagues do not understand the ways of big business nearly well enough. They are not corrupt, but they are lost, and that is just as bad.

After one of his worst weeks since coming to power, the Prime Minister still has the chance to restore his position. But time is not on his side. He must act swiftly to quell the doubts and regain the initiative. Otherwise, the era of his unchallenged domination of Britain's political landscape will soon be over.