Alistair Darling is getting used to apologies: within the past week he has received expressions of regret from Lord Mandelson and Mervyn King.

Lord Mandelson called Mr Darling after pre-empting a key decision on public spending in a radio interview, The Times has learnt. It followed a meeting to clear the air between the Chancellor and the Governor of the Bank of England a few days earlier after Mr King’s extraordinary public complaint about the Treasury’s plans to tackle the country’s increasing debt.

Tensions between the key figures seeking to guide Britain out of recession, simmering for months, have been boiling over. Fierce competition over cash, a looming election campaign and a shake-up of Britain’s financial system would be enough to test tempers in any event.

In addition a new source of tension is brewing: whether to ready the state-owned banks for a quick sale, or use them to keep credit flowing through the whole economy.

That the man at the centre of all these dramas knows he faced the sack only three weeks ago makes for some spectacular office theatre with more twists and subplots than a Shakespearean tragedy.

The Chancellor had every reason to feel aggrieved when he heard Lord Mandelson tell listeners to the Today programme on BBC Radio 4 that he had decided not to have a Comprehensive Spending Review before the election. In fact, the Chancellor wants to keep the option open.

The intervention, which sounded to observers like a deliberate attempt to undermine Mr Darling, came after weeks of tension between the two. A battle over the scrappage scheme to trade in old cars for cash, a favoured policy that the Business Secretary managed to force on a reluctant Chancellor before the Budget, was followed by speculation that Lord Mandelson backed moves to replace Mr Darling in the subsequent reshuffle.

An unlikely but powerful alliance between Lord Mandelson and Ed Balls, the man who missed out on the chance to replace Mr Darling has, in any case, sidelined him at the heart of Government, despite Gordon Brown’s last-minute change of heart.

Nevertheless, a now unsackable Chancellor is digging in against further attacks, determined to reassert his authority over, at least, his own department. When, therefore, Lord Mandelson appeared to pre-empt one of his most important decisions, the provocation was too great to ignore.

It was Lord Mandelson who telephoned Mr Darling shortly after his interview on Monday morning. An aide would say only that “they agreed it was a non-issue”. There was no personal animosity towards the Business Secretary, say Treasury aides, but they made clear that he remains firmly in charge of the final decision on the timings of any spending plans.

Similarly, officials seek to play down the meeting between the Chancellor and Mr King in Mr Darling’s office last Thursday. The previous day the Governor had cast doubt over the credibility of his five-year plan to halve Britain’s record deficit through a 0.5 per cent rise in national insurance and a new top rate of income tax.

In addition he had poured cold water over reports of a recovery. “There are genuine concerns about how quickly the recovery will pick up. Uncertainty over the global economy makes it very difficult to be confident of a rapid recovery,” Mr King told the Commons Treasury Select Committee.

Most damaging of all was his complaint that he had not been shown a draft of Mr Darling’s blueprint for a clean-up of the City, which will be published today.

Aides insist that the two men did not argue at their private meeting and describe it as routine. But it is clear that the Chancellor required — and received — an explanation from the Governor. “He said he felt backed into a corner,” one source said.

As fast as the cracks are papered over, however, new fissures appear and none could open so wide as what to do with Britain’s state-owned banking sector.

As The Times reports today, hopes are rising in government that it could achieve a hugely symbolic profitable sale of Northern Rock before the next election. However, it is understood that John Kingman, the Treasury mandarin who is on secondment as chief executive of UK Financial Investments (UKFI), believes that there is no chance of the Government “flipping” any of the state-owned banks back into the private sector before the next election.

Mr Kingman will soon take control of the £47 billion of banking assets that were bailed out by the taxpayer. UKFI is the group responsible for handling the State’s banking holdings on behalf of the taxpayer.

In addition, Neelie Kroes, the European Competition Commissioner, yesterday threw her weight behind Mr King’s stance that large banks should be forced to break themselves up — a measure rejected by Lord Turner of Ecchinswell, the chairman of the Financial Services Authority, and also by the Treasury. She said yesterday that Royal Bank of Scotland had been “highly dangerous” to the stability of Europe’s single market and that it was too complicated to understand. She urged both RBS and Lloyds Banking Group to undertake substantial asset sales to slim down and reduce the impact of another banking collapse on the global financial system.

Steering a course between the demands of the Bank of England, the European Commission and the Labour Party, Mr Darling may yet receive a few more apologies before the end of this sorry saga.

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