Gordon Brown is being urged from within the Cabinet to lead a new public debate about state funding of the parties and reform of the electoral system, to intensify the clean-up of politics after the expenses scandal.

Senior ministers such as Lord Mandelson, David Miliband and James Purnell are calling for Labour to seize the reform agenda now, rather than hand the political initiative to the Conservatives in the run-up to the election.

They understand Mr Brown’s desire to fight the election on economics and his handling of the credit crisis, internationally and domestically. But they believe that he will be able to do that more effectively if he takes steps to show that Labour still has radical political answers.

Ministers believe that Mr Brown is torn between the reformers, who also include Harriet Harman and John Denham, and those of a traditionalist tendency led by Nick Brown, the Chief Whip, who believe that after the current shake-up of Parliament the appetite of the public and MPs for reform will be satisfied.

The reformers accept that David Cameron’s call for a 10 per cent reduction in the size of the Commons has a populist appeal at a time when the public view of MPs is verging on disgust, even though they doubt whether it would be put into effect.

The Conservatives also believe that their call for an election is striking a chord with people.

Ministers say that the expenses disclosures have shown the dangers of a closed democracy, and the next focus of public anger is likely to be on the way the main political parties are funded either by big business or the unions.

“Just as it is obvious now that the way the expenses system worked was totally wrong, it is equally obvious now that it is wrong that the big companies and unions should be calling the tune on our politics,” one said. “This is the next scandal waiting to break.”

Ministers believe that Mr Brown could be persuaded to go for a bold approach given Labour’s dismal poll position.

Different ministers are urging Mr Brown to:

• start a public debate on whether the electoral system should be reformed, with the first-past-the-post system for Westminster dropped and replaced by proportional representation;

• opt for an entirely elected second chamber to replace the House of Lords;

• put a £1,000 spending cap on donations to parties, whether from unions or business, as a prelude to introducing state funding later. Ministers accept that the public would need a lot of persuading to give more money to politics given the present situation;

• take more power away from the executive by giving select committees the power to initiate legislation.

They have been pleased by recent remarks by Mr Brown suggesting that he wants to use the expenses debacle to transform politics.

The Prime Minister vowed yesterday to do whatever it took to clean up the system.

“I pledge to you that the country will be proud of the Labour candidates that stand at the next general election,” he said. “We will show that everything possible has been done to ensure that the public is satisfied about our political system and we will not shrink from any action that is necessary to achieve that.”

Both main parties accept that they will be damaged by the recent furore. But they will vie to be seen as the party most likely to reform.

The Conservatives have also promised to put the independence of the Civil Service on a statutory basis, give people the power to instigate local referendums and reform party funding.

Labour’s reformers say there is no guarantee that Mr Brown will be able to maintain the public focus on the economy throughout the election run-up, and are urging him to be as daring as possible over the next few months, as he fights back after what are sure to be terrible European election results.

Times Recommends

• Family cuts its waste to one binful a year
• Cameron can learn from Thatcher in 1979
• VAT is back ... and it's confusing