Britain’s spending watchdog is refusing to approve the Treasury’s accounts, compounding a miserable year for Alistair Darling, the Chancellor of the Exchequer.

Senior officials spoke last night of a collapse of morale at the Treasury after a string of U-turns and interference by No 10. In another blow to Mr Darling’s independence, Gordon Brown has asked him to carry out a review of green taxation to pave the way for further climbdowns on road tax and fuel duty this autumn.

Mr Darling is fighting a bruising battle with the National Audit Office (NAO), which is unhappy at the way that the nationalisation of Northern Rock is being treated in the Treasury’s books. The annual report from No 11 was published yesterday but, in a highly unusual departure from normal procedure, without the department’s resource accounts.

A Treasury spokesman confirmed the delay but denied that the spending watchdog had threatened to qualify its accounts. The books must be published before the parliamentary recess in three weeks’ time.

“We are working very closely with the NAO to ensure the issues that arise as a result of Northern Rock are properly dealt with in our accounts but we still intend to publish them before the summer recess,” he said.

Treasury officials now face questions from MPs over the delay. Michael Fallon, the chairman of the Treasury Scrutiny Committee, said: “This is a fresh humiliation for Alistair Darling. He has lost control over public finances. Now it looks as if he can’t get his department’s books past the auditors.”

A senior Treasury figure spoke of a “crisis of identity” within what was once Whitehall’s most powerful department. “It is a depressing place to work,” he added.

In a startling admission, Mr Darling revealed yesterday that he had had been urged to take on Mr Brown. “What I’m not going to do is define myself against the Prime Minister,” the Chancellor said. “People ask me, ‘Why don't you do that?’ Well, I don’t think it would be right.”

Mr Darling was forced to seek reassurance from the Prime Minister last month that he would not be moved in a reshuffle. It is understood that Mr Brown has rejected advice that Labour’s collapsing reputation for economic competence can only be reversed by a new figure at No 11. The past year has brought increasing tension between the Treasury and No 10 but there is no suggestion that the friendship between Mr Brown and Mr Darling has suffered. No 10 was thought to have been impatient that the Treasury did not act faster over Northern Rock. The Treasury was irritated that Downing Street delayed an announcement of changes to alleviate concerns over capital gains tax reforms and then went along with what had originally been proposed.

The biggest gripe among Treasury officials was that they had prepared a PreBudget Report last autumn in a preelection atmosphere, requiring Mr Darling to trump the Conservatives’ plans on inheritance tax that were announced at their conference, only for Mr Brown to call off the election.

Treasury officials have also suggested that Mr Darling was aware of potential problems over Mr Brown’s decision in his final Budget to axe the 10p starting rate of tax but that Mr Brown was “in denial”. Once the storm broke, Mr Darling was undermined as he rushed forward a £2.7 billion “mini-Budget”, with only £700 million of it devoted to assisting low-earners.

There has also also been annoyance in the Treasury over repeated reports that Mr Darling is about to back down over his plans to shake up road tax. Some senior figures within No 10 have supported the idea of a climbdown and a handful of Labour MPs said on Wednesday that the whips had told them that their worries would be met.

Mr Darling made clear yesterday that his priority was to help motorists when they fill up their cars with fuel. “That is something that you pay every week, not once a year,” he said, “and that is something that we in government are very focused on.”

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