Defection to Tories hits Brown

GORDON Brown was facing a mounting political crisis last night after a high-profile defection to the Tories, looming back-bench rebellion, continuing fallout over the banking crisis and disastrous new poll findings.

Scotland on Sunday can reveal that investment banker David Freud, recruited by Labour to overhaul the benefits system, will confirm today he has quit the Government to become David Cameron's shadow minister for welfare reform.

The blow came as back-bench Labour MPs vowed to block Brown's plans to part-privatise the Royal Mail, claiming the measure amounted to "political suicide".

Meanwhile, a new poll last night showed Labour support slumping seven points to just 25%, 16 points behind the Conservatives.

It rounds off a disastrous few days for Brown, who has seen two of his most trusted banking advisers forced to quit over their role in the financial crisis.

Meanwhile, ministers were forced on to the back foot yesterday to dampen fears that the new Lloyds banking group may have to be nationalised.

The speculation came after the bank announced £10bn losses on Friday, leading to a 32% slump in its share price, and a huge paper loss for taxpayers who have propped it up. The tide of bad news brings a shuddering halt to the "Brown bounce", which led to a recovery in Labour's ratings in the wake of the financial storm that has hit global markets.

The loss of Freud to the Tories will be confirmed by Cameron today. Brought into advise Labour on welfare reform by Tony Blair in 2006, the investment banker has decided to team up with the Conservatives, who are pledging to enact his reforms in full.

Freud recommended the private sector be handed contracts to get benefit claimants back to work. He also said all claimants should be assessed for their "work-readiness" and made to train in back-to-work schemes if necessary.

Freud is believed to have been impressed by the Tories' welfare plans, which are closely modelled on his report. Cameron will now nominate him for the House of Lords and he will then be made the Conservatives' shadow minister of Welfare Reform.

A senior Conservative source said: "He is going to be resigning as an adviser to (Work and Pensions Secretary] James Purnell and He will be nominated as a peer by David Cameron and, so long as that doesn't get blocked by Gordon Brown, he will then be made shadow minister of welfare reform."

The department of Work and Pensions confirmed last night that Freud had quit "with mutual consent".

Labour figures said Freud's plans were increasingly out of date and that the Tories were simply catching up with their own reforms.

Frank Field, the Labour MP who was urged to "think the unthinkable" on welfare by Tony Blair, said that Freud's departure could be used as an opportunity for Labour.

"His was a policy for full employment. It was all about getting people ready for the job market," he said

"But now that we are going to have mass unemployment, it now needs a totally different approach. The fact that he's going offers the government a new approach."

But the move will be seen as highly symbolic as one of Blair's most trusted advisers heads to the Tories. Other insiders say Freud simply "saw the way the wind was blowing" and decided to join the Tories before their expected election to Government.

That likelihood was reinforced by a ComRes poll for the Independent on Sunday, which returns Labour to the trough of unpopularity it experienced last summer.

The 16-point lead enjoyed by the Conservatives, on 41%, is the widest margin recorded by any major poll since October.

The gap is prompting Labour chiefs to warn that morale is back to the low-point of last year, when speculation that Brown would be forced out of office was rife. "If anything, it's worse now than last summer," said one senior party source.

The Government is set to face further trouble in the coming weeks as Labour MPs vow to oppose plans to sell off parts of Royal Mail.

More than 100 Labour MPs say they will not support the moves and whips have told Brown he does not have the votes to force it through. The 130 rebels say ministers will have to rely on Tory support to push the measures through, insisting they will not budge.

One leading member of the group, Scots Labour MP Michael Connarty, claimed last night that Labour would only be able to win a vote on privatisation by relying on the Conservatives. He added: "They will lose unless the Tories come in behind them, which would be unforgivable and a serious breach of trust. It would be a suicide note for us."