Labour backbenchers last night began to forecast a general election next summer after a day when the effects of the economic crisis slashed the Tory poll lead to three points and led David Cameron to abandon his commitment to match Labour spending plans if the Tories win power.
Cameron's move liberates him to offer tax or spending cuts, but left him isolated in opposition to the government's plans to use short-term financial help to boost consumer spending and help the economy.
The Tory leader claimed: "We cannot afford a massive tax giveaway." But his position was undermined as the Institute of Directors came out in favour of a £20bn stimulus, including a 3p cut in income tax, and the CBI also gave its support.
The Mori survey yesterday showed Cameron's advantage had collapsed to three points, with the Tories on 40 points, down five, Labour on 37 points, up seven, and the Liberal Democrats on 12, down two. Mori said the lead represented only a four-seat Tory Commons majority.
Labour is wary of fuelling speculation after the debacle of not calling an election last year, but said if polls went in the same direction over the winter, an election in June, the date of the European elections, becomes a serious option.
In a day of furious manoeuvring that had the flavour of a pre-election campaign, the cabinet also heard plans from Liam Byrne, the Cabinet Office minister, for a "fair rules, fair say, fair chances" campaign through the winter, designed to convey a message of tighter control over spending, stronger corporate responsibilty in the wake of the banking crisis, and tougher measures on crime, immigration and welfare reform.
The Labour national executive, meeting separately yesterday, also agreed a radical restructuring strategy called Give to Win, designed to ensure that all future donations will go into an election campaign fund rather than servicing debt or paying party staff.
The party has also agreed an Obama-style fundraising campaign, using the internet to attract small donations and trading on the commitment that the money will only be used for campaigning.
Party leaders spent the day attacking each other's vision for steering Britain out of recession. Ahead of next Monday's pre-budget report, Cameron announced he was abandoning the Tory commitment to match Labour spending pledges from 2010-11, claiming the government's planned rises were unsustainable and will lead to a tax bombshell later.
Public spending is due to rise by 2.3% in 2010-11, 1.7% in 2011-12, and 2% in 2012-13. Cameron refused to say how much he would slow the rate of growth, but indicated NHS budget rises will be protected.
He accepted his prudent fiscal stance - denounced as "economic madness" by the Liberal Democrats - might be unpopular in the short term, but insisted he was confident the public will no longer listen to a repeat of Labour lies about the Tories intent on "mining local hospitals".
He said: "My profound sense politically is that the British people are not fools, by any imagination. They are very sharp and very perceptive. They know exactly what's going on now. They can see that the nation has maxed-out on the credit card ... I would rather say something I believe to be right and true and honest, and fight the election on that, than try to pretend that you can have your cake and eat it."
Brown claimed that the Tories were out of step: "[More spending] means new help for families, and businesses now. And the one group that seems to be standing against it for purely dogmatic reasons is the Conservative party."
