Gordon Brown today faces a harsh attack from Stephen Byers, the former cabinet minister, who accuses the prime minister of being “distant and uncaring” and manipulating the tax system for “tactical advantage”.

Byers, one of Tony Blair’s closest political allies, hints that Brown will suffer a leadership challenge in the autumn unless he corrects “damaging mistakes” that have alienated voters.

Writing in The Sunday Times, the former transport secretary says: “The electoral clock is ticking for Gordon Brown. The next few months will be make-or-break time.” Byers criticises Brown for abolishing the 10p income tax band which has hit 5.3m low-paid workers and urges him to carry out a “fundamental rethink” of taxation policy, leaving “no area off limits”.

He calls on Brown to scrap planned increases in levies on petrol and car tax and criticises Labour’s inheritance tax reforms rushed out last year to try to counter Conservative proposals.

The critique of the prime minister’s record comes as the government faces the prospect of a backbench rebellion over the budget.

The growing row over tax now threatens to destroy Labour’s remaining hopes of winning next week’s Crewe and Nantwich by-election, where the party is defending a majority of more than 7,000.

Byers, writing in the wake of Labour’s May 1 humiliation in the polls, warns that Brown needs to make some big changes. “It will not be enough to tinker around at the margins with a raft of well intentioned and worthy small-scale initiatives or projects,” he writes. “The scale of Labour’s difficulties are such that much more will be required.

“The local election results of 10 days ago didn’t just reflect the disappointment and at times disillusionment that is part and parcel of being in government for over a decade. The reasons for being so comprehensively rejected by the electorate went much deeper than this. They saw Labour as being out of touch. No longer on their side but distant and uncaring.”

Byers says the government had been lacking a clear narrative, adding: “Labour has got itself on the wrong side of the argument about the overall burden of taxation”. He acknowledges that fiscal reforms can create a “toxic political brew” but argues that they are essential: “We have a mountain to climb if we are to win back the support of the public.”

Byers dismisses Brown’s insistence that he is motivated only by the long-term interests of the country. “Far too many decisions about tax have been taken to try to secure a tactical advantage,” he said.

“This has led to damaging mistakes. Whether in relation to changes to inheritance tax . . . the treatment of nondoms or the abolition of the 10p income tax band, the whole approach has been about political positioning. What has been lacking is a strategic and principled view of how we should change our tax regime.”

Byers calls for the starting threshold for income tax to be raised to take low-paid workers out of the tax net: “People want to see a more equal sharing of the burden. Even those who benefit from the recent changes feel unhappy about robbing the £8,000-a-year Peter to pay more to the £40,000-a-year Paul.”

He also argues for a significant reform of benefits to improve incentives for the job-less to seek work and the greater use of “hypothecation” – earmarking revenues from specific taxes to be spent on specific public services.

He concludes with a final barb: “To be a party of government requires courage and conviction, not manoeuvring and political positioning.”

The 20 members of the Campaign group of left-wing MPs will meet this week to discuss plans to vote against the budget bill next month. If the government is defeated, Brown would have to resign – budget debates are regarded as confidence motions.

— Wendy Alexander was under renewed pressure to resign as Scottish Labour party leader after performing another apparent U-turn on a referendum on Scotland’s independence.

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