Gordon Brown's authority took a double blow yesterday after his cabinet colleagues forced a rethink on his key "cuts versus spending" strategy against the Tories and Home Secretary Alan Johnson signalled a major climbdown on ID cards, ruling out making them compulsory.
The cabinet met as new figures painted a bleaker picture of recession-hit Britain, showing the economy shrank at its fastest rate for more than 50 years in the first three months of this year.
A revision by the Office for National Statistics showed that output fell by 2.4% in the first quarter of 2009 - much worse than the 1.9% drop estimated - and that the recession began earlier than expected with a 0.1% fall between April and June last year compared with previous estimates of zero growth. The UK's output is now 4.9% below the level seen before the recession.
Whitehall sources suggested cabinet ministers agreed the "cuts versus spending" strategy had backfired and the policy had to be "refined" with more talk of "targeted investment" and "efficiency savings". The Prime Minister's spokesman said the exchanges had been "very constructive and good-natured" but declined to say if ministers had discussed spending cuts.
In a separate development, George Osborne, the shadow chancellor, claimed Mr Brown was denying the Conservatives official information they needed to decide how to cut public spending.
After a string of setbacks for the UK government, from the Gurkhas to the Royal Mail Bill, Mr Johnson signalled yet another climbdown on ID cards in his first major announcement since becoming Home Secretary less than a month ago.
While foreign nationals who live in Britain will still be required to carry an ID card, no-one else will be forced to.
In a significant victory for trade unions, the 20,000 "airside" workers at Manchester and London City airports will no longer be required to hold the cards by law.
Mr Johnson said he was an "instinctive" supporter of the cards scheme yet his decision will be seen by many as sounding the death knell for the entire project. Charles Clarke, the former secretary of state who pushed the ID cards bill through parliament, had argued they could be made compulsory once around 80% of the population was covered.
However, Mr Johnson said: "Holding an identity card should be a personal choice for British citizens just as it is now to obtain a passport.
"Accordingly, I want the introduction of identity cards for all British citizens to be voluntary and I have therefore decided that identity cards issued to airside workers, planned initially at Manchester and London City airports later this year, should also be voluntary."
Anyone wanting a card will pay £30 on top of the cost of having their biometric details taken. The estimated overall cost is more than £5bn over 10 years.
The Home Secretary also distanced himself from some of the grander claims about the impact of the cards. Listing the benefits of the scheme, at first he did not mention tackling terrorism but claimed the cards would help stop illegal working, people trafficking and ID fraud.
Last night Chris Grayling for the Conservatives said the policy shift was "symbolic of a government in chaos".
"They have spent millions on the scheme so far. The Home Secretary thinks it has been a waste and wants to scrap it but the Prime Minister won't let him. So we end up with an absurd fudge instead. This is no way to run the country," he added.
Chris Huhne for the Liberal Democrats said the climbdown was "another nail in the coffin for the government's illiberal ID cards policy" and called for the whole scheme to be ditched.
