Two weeks ago Tony Blair called his chief whip into his den at No 10 to set her on a mission. Hilary Armstrong was required to gauge opinion among Labour backbenchers about the flagship school reforms that the government was proposing.

The prime minister knew there were rebels, but exactly how big was the rebellion going to be? Would the government win and if not what could be done to rescue it? Should he find Ruth Kelly, the education secretary, a new job? Armstrong returned a few days later with surprising results. It wasn’t so much the youthful and politically inexperienced Kelly that was the problem, but the proposals themselves. The majority of Labour backbenchers were simply not ready to allow state schools to shake off the dead hand of local authority control as the white paper proposed and the government would lose a Commons vote without the Tories’ backing.

Most insiders expect Blair to announce his exit in 18 months’ time — around the anniversary of his 10 years in office. These twilight months were supposed to been his most productive, with a swathe of much-needed public service reform being rushed through parliament in a final burst of prime ministerial energy. Not only would Blair leave office safe in the knowledge that he had bequeathed a legacy to the nation for which he would be remembered, but Gordon Brown would take over with a clean slate and a good chance therefore of securing for Labour another decade in office.

But things have not gone to plan. From education to health, pensions security to economic growth, the wheels are falling off the once well-oiled Labour wagon.

True, Blair has more than his fair share of “worst weeks” in politics only to bounce back again but for the past six months virtually nothing has gone his way.

Last week it emerged that he had recalled Alastair Campbell, who stepped down more than two years ago, to his inner sanctum for advice. Campbell faced some tough tasks in his time as Blair’s spin doctor in chief but helping to steer his master’s legacy onto the statute books looks impossible even for him.

Consider education. On Thursday evening dozens of Labour backbenchers crowded into the Gladstone room in the Commons to hear party rebels attack the Kelly’s proposals for giving greater autonomy to schools. As Campbell squeezed his way into the rebel stronghold observers noted that it was not to spy for No 10 but to cheer on his long-time girlfriend, Fiona Millar, who had helped organise the meeting. So rabid is Millar in her support of the “comprehensive principle” that even friends describe her as “the Taliban”.

Inside the oak-panelled room the star turn was Lord Kinnock, the former Labour leader, who was openly criticising the prime minister for the first time. In a speech full of references to solidarity and socialism, and quotes from Gramsci, said he could not accept the “dreadful shattering of the school system . . .”

If there was ever a signal that the Blair era was coming to a close this was surely it — the return of the “Welsh windbag” looking and sounding almost exactly as he did 20 years ago. The only difference, quipped one observer, was that this time he was rallying the militants rather than purging them.

Yet the story of how the wheels have come off the new Labour wagon can not simply be put down to self-indulgent backbench revolt. Nor can the blame for the breakdown be placed at the door of No 10. Economists say that the real problem for Labour is that the chancellor’s “business model” is not working.

Brown had hoped to steer a middle course through market economics on the one hand and old-style public spending on the other. He would spend more on the public services as Labour governments had always done, but this time it would be married with reform to ensure the new investment would not be wasted.

But after eight years and tens of billions of pounds of taxpayers’ money, Britain’s public services are still beset with problems and certainly they have not been transformed. Worse, the nation’s productivity and competitiveness have faltered and with it our future economic prospects.

“As Britain squanders some of its post-Thatcher advantage . . . the two sides of the Channel are becoming much more similar again,” said an analyst with Bank of America last week. “Gordon Brown’s largesse is showing up.”

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