Paris was well worth a mass, said a future king of France, the Protestant Henry of Navarre. Gordon Brown is prepared to give up a lot more to hang on to London. Why, he’ll even convert to Ken Livingstone’s cause.

It was a sign of desperate times last week that the prime minister ended one of the most bitter feuds in Labour history by sharing a platform with his old enemy. He is “an inspirational figure in London, a crusading mayor and one who has made a difference”, said Brown. This reconciliation brings to mind the Low cartoon of Hitler’s 1939 pact with Stalin. The Nazi dictator hails his new friend: “The scum of the earth, I believe?” The Soviet tyrant returns the greeting: “The bloody assassin of the workers, I presume?”

Until recently Brown wouldn’t speak Livingstone’s name in the Commons, simply referring to him as “the mayor”. Ten years ago Ken wrote an article accusing Brown of creating a mini-recession in London. The two scrapped like dogs over the-then chancellor’s bungled private-public administration of the Tube. The puritanical Scotsman and the newt-loving friend of Sinn Fein were always polar opposites.

If the Tories take the capital in May then Brown’s bad run will become a rout. London, with all its juicy marginals seats, is a prize indeed. The mayor’s job also provides a platform for an assault on the government’s national policies. A Sunday Times/ YouGov poll last week put the Conservatives 16 points ahead of Labour.

Further midweek polling confirmed an ominous trend that could no longer be dismissed by No 10 spinners as “rogue”. In London, the Tory candidate, Boris Johnson, has also opened up a 12-point lead over Livingstone. The vagaries of second preference votes mean a Conservative victory is by no means assured, but Gordon and Ken know they have to hang together for fear of hanging separately.

South of a line running from the Avon to the Wash, the party controls only two councils outside wobbly London. Labour is back to the bad old days of “southern discomfort”. New Labour was born in 1992 after a fourth successive defeat convinced the young team of Brown/Blair that the party would stay out in the cold forever if it had nothing to say to the aspirant middle classes in the south. Has Gordon lost them once again?

A small swing at the next election against Labour could destroy the southern and metropolitan gains first made in 1997. “We have to win in seats across the southeast . . . as well as Sunderland,” pleaded Hazel Blears, the Blairite communities secretary, at a forum hosted by the pressure groups Progress and Compass last week. Our front-page story reveals that another Blairite, Charles Clarke, the former home secretary, is e-mailing a “doomsday scenario” to southern Labour MPs. The movement of just 7,500 votes in 24 southern marginals, he says, could wipe out a swathe of small Labour majorities that will be cut by boundary changes. As Corporal Jones of Dad’s Army would say: “Don’t panic!”

The polls and a badly received budget have made gloomy reading for the government. Cold winds from America have blown in economic uncertainty. The prime minister has told us that Britain is “better placed to withstand global instability than any other country in Europe”. He may be right. But meanwhile the headlines are awful. Inflationary rises in energy and council taxes, and a sudden rise in remortgaging charges have soured middle England.

Alistair Darling pleaded that the credit crunch is all the fault of foreigners. Perhaps he needs to sound a bit more Franklin Roosevelt – “the only thing we have to fear is fear itself”– and a bit less Herbert Hoover, who ushered in the great depression. The trouble with citing international comparisons is that they are not wholly flattering to Britain. “Compare the do-nothing budget here with what is going on in the US,” charge the Tories. “Look at the speedy rescue of Bear Stearns by JP Morgan. Bear Stearns had far more complicated global transactions than Northern Rock’s.”

In London the financial authorities failed to encourage Lloyds TSB to take over Northern Rock and later, when they actively sought a buyer, found no takers. Billions of dollars in tax breaks are being given to American consumers to lift their spirits while there are talks between Congress and the US president about propping up the housing market. Our efforts here look positively lethargic.

Many Labour MPs look for a silver lining. The polls do not show a stampede from Labour to the Tories but only a falling off in bedrock support. “It’s still ours to lose,” says another backbencher, “and we are proving quite good at losing it.”

When asked by the priest on his deathbed to renounce Satan, Voltaire rejoined: “This is no time to be making enemies.” Brown has picked an odd moment to pick a quarrel with God’s representatives in Britain. Easter will ring to denunciations from pulpits across the country of his “monstrous” plans to whip his MPs behind a bill to allow hybrid human-animal embryos. It is a row that could lose him three Roman Catholic members of his cabinet. His response to these problems is a corporate makeover and a change of personnel, though the critics demand something more radical.

Chancellor Brown’s operation at No 11 was famously tight and clannish. Now there is unease at No 10 as the new company systems man, chief of staff Stephen Carter, flexes his muscles. Out go old retainers such as Gordon’s pollster, Spencer Livermore. In come new suits like David Muir, the advertising guru.

Most Labour figures I speak to discount No 10 reshuffles as so much froth, but the Conservatives are jubilant. “You get great headlines when you bring in new people to the heart of a political operation, but it can be very destabilising,” says one. A top Tory gloats: “For 14 to 15 years I have been on the receiving end of advice telling us we need an Alastair Campbell figure. Now I read that Gordon Brown needs a Steve Hilton [Cameron’s strategy boss] or an Andy Coulson [his press chief].”

Brown is in a hole. A deluge of activity between Christmas and Easter has petered out with the polls back to nowhere. Dependability during times of trouble was his trump card. Now Cameron and George Osborne, the shadow chancellor, have overtaken Brown and Darling on stewardship of the economy. One of Brown’s Labour critics argues that the economy itself is not the problem: “He’s broadly in the right place. The message: ‘I’ve been chancellor for 10 years, I’m the guy with the experience and we’ve been through these things before, I can get you through them again,’ is fine.” Nor are the process and organisation of No 10 the problem. “It’s the mission.”

Brown thinks he’s got a long time. but although the election is likely to be in 2010 an economic downturn means political recovery lags a long way behind. “Say what you like about Tony but even his enemies knew what he stood for. What do we stand for now?” One Cabinet minister apparently worried about it to Brown’s face.

And what if Labour’s southern discomfort turns into northern exposure? There is still little enthusiasm for the Tories above the Avon-Wash line. The Conservative spring conference in Gateshead a week ago was a muted affair without wider resonance in the region. But nowadays there is little of the rancid hostility to the party that attached to it in the days of Margaret Thatcher and John Major. My friends in the north tell me fears of a recession have brought gloom, restaurants half empty at weekends and worries of worse to come.

In this climate Labour’s loyal core support won’t defect to the other side. It might not turn out at all. No wonder last week the Tories were crowing that Brown has reached a turning point.

London’s election day, May 1, is his opportunity to stop the rot. But the prime minister can help his new friend Livingstone only so much. Ken is Ken, a maverick whose fortunes go up or down according to his erratic behaviour and the antics of his wild friends. He is only semidetached Labour at best. It’s an odd twist of fate that puts Gordon’s future in his hands.

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