Brown rejigs cabinet to calm crisis

LONDON Sat Jun 6, 2009 12:13am BST

1 of 14. Prime Minister Gordon Brown speaks during a news conference in 10 Downing Street, in central London June 5, 2009. Brown averted the immediate danger of government collapse on Friday with a cabinet reshuffle that secured the loyalty of key ministers, but the political uncertainty weighed on sterling.

Credit: Reuters/Carl Court/Pool

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LONDON (Reuters) - Prime Minister Gordon Brown sought to fend off a challenge to his authority on Friday, reshuffling his cabinet to secure the loyalty of several ministers and averting a government collapse.

In his second reshuffle in eight months, Brown changed the heads of 10 ministries, but retained his finance minister, foreign minister and the head of the business ministry, shoring up his power in the teeth of widespread party dissent.

"I will not waver, I will not walk away, I will get on with the job and I will finish the work," Brown told a news conference after giving details of the cabinet shake-up.

It included replacing six senior ministers who had resigned.

A day of high political drama took its toll on some markets, with the uncertainty sending sterling to a two-week low against the euro, before it recovered some ground. The possibility of Brown's government collapsing has caused rumour and uncertainty in currency markets all week.

But there was some relief for investors that Chancellor Alistair Darling remained in his job. The bond market was largely unaffected and the main London stock index rose 1.2 percent.

Brown's government has been under severe pressure for the past month, after a parliamentary expenses scandal exposed wrongdoing among politicians from all parties and left voters angry with the incumbents.

DARLING STAYS ON

In the reshuffle, Brown had been expected to replace Darling, a close ally, but appeared to back away from that move after Darling made it known he did not want to go. In the end the shake-up produced less movement than expected as Brown kept key ministers in their posts to retain their loyalty.

While he has bought himself some breathing space, his authority has been wounded at a time when Britain is in its deepest recession in 60 years and unemployment is rising.

Brown's Labour Party is well behind the centre-right Conservatives in opinion polls, and suffered a mauling in local elections on Thursday.

Brown's next test could come on Sunday when results of European Parliament elections are released. A very weak Labour performance could put renewed pressure on him to step down.

In an editorial in its Saturday edition, the Financial Times urged Brown to call a "back me or sack me" leadership election, as former Conservative Prime Minister John Major did in 1995.

"He should show he commands a clear majority in his party or step down and clear the way for a general election," it said.

Markets and voters are looking for strong government and clarity on when the next parliamentary election will be held. If Brown manages to survive the current crisis, it looks likely that he will wait for as long as possible before calling the next election. The deadline is June next year.

Labour and other major parties have been tarnished by a series of reports in the Daily Telegraph newspaper about how members of parliament have claimed thousands of pounds for expenses such as gardening or cleaning swimming pools.

A spokesman for Brown said late on Friday the prime minister had repaid more than 180 pounds to parliamentary authorities following allegations about his expense claims.

A report in The Daily Telegraph focussed on whether Brown had wrongly claimed small sums for electricity and a service charge on homes that were not eligible because they were not Brown's "second home" at the time.

Brown disputed some of the claims but had repaid the money "for the avoidance of doubt," the spokesman said.

REVOLT

Brown still risks a revolt among Labour MPs, some of whom have been gathering signatures to unseat him. A change of leader would raise the prospect of a snap election in the autumn.

Alan Johnson, who Brown moved from the health ministry to the more powerful interior ministry, had been seen as a front-runner to replace Brown. His appointment to a senior position appeared to have ensured his loyalty for now.

The limited personnel moves mean few abrupt changes in policy are likely, while the bolstering of Business Secretary Peter Mandelson's portfolio, giving him greater economic powers, underlined Brown's determination to tackle the financial crisis.

One of the most serious resignations was that of James Purnell, the work and pensions secretary and a rising star within the Labour Party, seen as potential future leader.

Europe Minister Caroline Flint accused Brown of using women as "female window dressing" in his government when she quit her post on Friday.

The Conservatives are well ahead in the polls and would be the clear favourites to return to power for the first time since 1997, according to current opinion polls.

Whoever wins would have to reduce borrowing from a level of 175 billion pounds this year -- more than 12 percent of GDP -- and will have to raise taxes and cut spending.

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