It sounds like a fantasy politics game dreamt up by Gordon Brown. His chief Conservative tormentor, George Osborne, the shadow chancellor, is involved in mortal combat with Peter Mandelson, the man he blamed for depriving him of Labour’s leadership 14 years ago.

A few weeks ago the prime minister might have been tempted to echo Henry Kissinger on the Iran-Iraq war: “Too bad they can’t both lose.” But now Mandelson is back at the heart of “the new Labour family” and government.

Brown, we suspect, could get over the loss of his new business secretary were David Cameron’s junior partner to lose his political life in the process: Osborne’s strategic brain is vital to the new Tory project. In chess it would be like exchanging a rook for the most powerful piece on the board, the queen.

Osborne should never have discussed political donations with Oleg Deripaska, the Russian billionaire. As a future chancellor and a member of the Conservative high command, he should have stayed well clear. The oligarchs of the wild east, to adapt one of Stalin’s choice phrases, got their omelettes by cracking more than a few eggs. They now survive by bending the knee to Russia’s real ruler, Vladimir Putin, a ruthless KGB man.

Cameron’s defence of his lieutenant – “there is no money; there is no scandal” – was also wrong. The Tory leader would have done better to let it be known that he had rebuked his shadow chancellor and promised us it would never happen again. Public contrition was the better course.

The moral is simple. Politicians must be transparent in their dealings, register their interests and avoid party funding from sources that don’t hold up to public scrutiny. In Othello the point is put thus: “Who steals my purse steals trash; ’tis something, nothing / . . . But he that filches from me my good name / Robs me of that which not enriches him / And makes me poor indeed.”

The affair of the billionaire boys’ beach club has damaged the Conservatives. Osborne’s ascent up the political ladder to the last rung but one has been swift. Within the Tory fold, the shadow chancellor acts as a lightning rod for those who dare not criticise their leader, so some malcontents have jeered. But there would not be such rejoicing in Labour’s camp were he not such a formidable opponent.

Osborne, a sophisticated realist to his fingertips, will be kicking himself. A politician will often get away scot free for doing something blatantly wrong, but not for doing something blatantly unwise.

The world comes down like a ton of bricks on those who accept financial favours from shady sources – the society of respectable folk, however dull-witted, is always and everywhere to be preferred. We also despise politicians who look naive or ridiculous. These are the rules of the game. It means that we are not always well ruled, but at least we are less corrupt than other democracies.

But not so fast. Question marks remain over Mandelson’s conflicts of interest as European trade commissioner. Unlike Osborne, he had real power to aid Deripaska’s businesses in the West.

Both Mandelson and Brown, who demanded on the spur of the moment an inquiry into Osborne’s conversations about political donations with Deripaska, are a little premature in their triumphalism. Official inquiry or no inquiry, this newspaper and others are pursuing their own investigations. The business secretary has already been forced to admit that he has been economical with the truth about his dealings with Deripaska.

If Mandelson were to leave government for a third time under murky circumstances, the prime minister’s judgment in recalling him from Brussels would be called into question.

The glamorous world of billionaires, the Bullingdon club, yachts, politicians and exotic locations has made for toxic reading. The timing of this story makes it worse. Britain is going into recession, houses are being repossessed, jobs are disappearing. Nobody wants their noses rubbed in their new-found poverty.

Mandelson’s friend, the writer Robert Harris, is always drawing parallels between politics today and those of ancient Rome: he has written a fine novel about the statesman Cicero with contemporary resonances. Following in his footsteps I therefore take my text from the Roman orator’s courtroom speech Pro Caelio, composed in defence of a young aristocrat who had fallen into bad company.

The plea for Caelius comes to a climax with a tirade about indiscretions at the seaside and then concludes: “Do not then, gentlemen, rob the state of an accomplished citizen whose heart is, politically speaking, in the right place.” That will be the Conservative party’s verdict on Cameron’s No 2. Voters will concur if Osborne keeps his nose clean. As, by the way, do I. The shadow chancellor has a precocious talent – as long as he has learnt something from his youthful mistakes, he can recover.

In fact, he should take a tip from the prime minister, his real adversary. A reputation for sobriety and respectable company has always saved Brown from scandal. Dinners with the likes of the Chief Rabbi, Bono, the Third World crusader, and Alan Greenspan, then chairman of the US Federal Reserve, created the right impression from the start, whereas Tony Blair’s exotic friendships never did him much good.

Buried in Who Runs Britain?, for instance, the recent book by Robert Pes-ton, the BBC journalist, is an interesting story about how a hugely generous Labour donor, Sir Ronnie Cohen of the private equity firm Apax, persuaded Brown, then chancellor, to give unheard-of tax advantages to his industry. While you and I were paying anything up to 40p in the pound to the taxman, for five years private equity millionaires got away with paying just 10%. Who runs Britain indeed, we might well ask.

However, because Cohen funds so many good causes and had made a case that the deal was good for Britain, no tongues wagged. As it was, this unfair tax regime was eventually revised after criticism from Osborne.

Westminster and the Conservative party are now left with two unfinished pieces of business: class and money.

Photographs of Osborne and Cameron in the Bullingdon placed side by side with those of rich foreigners are bound to hurt them. The new Tories can’t help being gently bred and public-school-educated; and with the gradual abolition of the grammar schools the latter qualification is increasingly likely. So far they have brushed off inverted-snobbish attacks on their backgrounds – Labour’s clumsy Lord Snooty by-election campaign in Crewe being a case in point.

But Cameron needs to keep pushing to the fore ordinary middle-class members of his shadow cabinet and circle and must avoid all appearance of living by different rules. Here’s a story told to me by an Oxford don about the notorious Bullingdon: “They came in and smashed up the room of a new member. Money was paid to rectify the damage and the affair was hushed up in the usual manner. The chief porter of the college, a working-class Tory, said: “If I had done that, I would be in jail’.”

Some ministers will now use lurid tales of the Corfu caper as an excuse to demand more state funding for parties. They have to be firmly told “no”. There is no arms race in election spending – the sums have actually gone down in recent years and been equally shared between the big two parties. Nor does state funding stop political corruption, as any observer of European and American politics will tell you.

If politicians want to increase popular participation in politics and its funding, they can encourage it through the tax system. A small donation to a party is a public good and should be set off against tax. If Westminster really wishes to stand aloof from the rest of us, then MPs will take ever more money from taxpayers to subsidise their unpopular activities.

It is the donation of money that forces politicians to respond to the popular will. Without our support they die. This crucial distinction dictates whether they are our masters or our servants. I know which relationship I prefer.

If the likes of Mandelson and Osborne continue to misbehave, however, state funding is what we’ll get.

Times Recommends

• We have kit and leadership. Let’s go
• Behind the scenes at the biggest deal
• Conferences — what a waste of money