Gordon Brown will have had much better birthday presents. The prime minister awoke, as is his habit, at 5.30am on Friday, determined that the first anniversary of his entry into 10 Downing Street would be “business as usual”.

It was, in a sense. Diabolical election results and resignation demands have, frustratingly for Brown, become all too common in recent months.

The catastrophic meltdown in Henley, however, will go down as the one of the worst by-election results in Labour history. The party was never expected to perform well in the prosperous Oxfordshire seat vacated by Boris Johnson, London’s new mayor, but nobody expected the result to be quite as dreadful as it was.

Having finished third in the seat in the 2005 general election, Labour was pushed into fifth place last week with a mere 1,066 votes, behind the Greens and, worse, the British National party (BNP).

The declaration had come at 1.42am, and Brown learnt of the outcome only when he ploughed through his morning press digest. The reports on Henley were accompanied by news of a YouGov poll putting David Cameron’s Conservatives on 46% to Labour’s 28%.

By the time the prime minister had made a flurry of irate early-morning calls to officials and returned to his flat for breakfast with his family, the impact of the defeat must have been sinking in. Labour MPs have become used to depressing news, but being beaten by the hated, racist BNP was more than some could take.

Within hours, backbenchers were beginning to speak out. “My first reaction was to head to the library with a glass of whisky and a revolver,” said Stephen Pound, the MP for Ealing North. Ronnie Campbell, of Blyth Valley, went further, placing the blame directly on Brown: “I don’t like to back losers and he’s a loser at the minute.”

Even the arch-loyalist Tessa Jowell, the Olympics minister, admitted she “felt sick” at being smashed by the BNP.

This weekend, events continued to buffet Brown. The Labour-dominated House of Commons Treasury committee savaged the government’s tax plans, saying ministers had been obsessed with pulling “rabbits out of hats”. And yesterday Wendy Alexander, the Brownite leader of the Scottish Labour party, quit after being censured for a fundraising scandal.

It was the last thing Brown needed after a week of analysis of his disastrous first year. Voters were reminded at every turn of his decision to “bottle” a snap autumn election last year, lost data discs, “dodgy donors”, his climbdown over the abolition of 10p tax and humiliations in various elections.

The question now is whether Brown’s second 12 months can be more successful than the first. Are the optimists correct when they argue that Labour is in that darkest moment just before the dawn? Or is Brown suffering a fatal haemorrhage of political capital? IN an interview last week, Brown said that when it came to action heroes he was more of an Indiana Jones man than a fan of James Bond.

In the next 12 months Brown will need the strength in adversity displayed by “Indy” if he is to face down his most implacable foe: the global economic slowdown that is hitting Britain hard.

Few doubt the economy holds the prime minister’s political future. It is striking how his downward trajectory in the opinion polls has mirrored the rising cost of fuel and the tottering housing market.

“The decline in Labour’s fortunes is clearly linked to woes about the economy,” said Peter Kellner, head of the pollsters YouGov. “Both started to plummet in March. The first thing I would do if I was Gordon would be to pray, pray that the oil price bubble bursts, inflation subsides, the Bank of England feels able to cut rates and people start to feel better off. Then Gordon and Alistair Darling would have a convincing story to tell.”

Right now that story shows little sign of a happy ending. On Friday, oil reached a record high of $142 a barrel and was accompanied by sharp falls in global stock markets.

The frustrating thing for Brown is that these factors fall outside the control of the prime minister. Yet he will continue to be reminded by opponents that he took credit for the good times and so must shoulder some of the blame now things have gone awry.

The urge to do something, or at least be seen to do something, pushed Brown into inviting leading bankers to No 10 to discuss the credit crisis earlier this year and also to fly to Saudi Arabia last week to ask the oil-producing nations to increase output in an attempt to reduce prices.

Leading economists argue, however, that he must accept that he is largely impotent in these affairs and that any radical changes of direction would be counterproductive.

Martin Weale, director of the National Institute of Economic and Social Research, said: “There’s very little the government can do. We are where we are. The government certainly shouldn’t start spending. One thing that might help would be if oil prices were to come off the boil. Even if the oil price came down to $100 a barrel people would feel a bit better.”

Robert Chote, director of the Institute for Fiscal Studies, said: “It’s pretty difficult. Over the next 12 months Gordon Brown has to demonstrate that prudence hasn’t been laid to rest.”

However, in the minds of many Labour politicians worried about losing their jobs at the next election, “prudently” doing nothing is not an option. Close friends of Brown believe it is time for the super-rich to pay more tax.

Chris Leslie is a former local government minister and was manager of Brown’s leadership campaign last year. “We need to consider whether the very rich in society should pay for tax cuts for the many,” he said. “Those earning over £250,000 should pay a higher rate of tax. This could be used to cut council tax, for example.”

A new round of windfall taxes could be imposed on “profiteering” corporations, suggested Leslie.

Saying the rich should be “soaked” used to be heretical in new Labour circles, but perhaps desperate times will prompt desperate measures.

Brown has already ordered a review of tax to report in the autumn. Alistair Darling, the chancellor, has hinted that the temporary tax cuts granted to low-paid workers following the 10p debacle will be made permanent, leaving a big hole to be filled in the public finances. The Treasury is also poised to scrap increases in vehicle excise duty that will hit millions of motorists driving older cars.

According to insiders, “almost everything else is still up for grabs”.

That is certainly how the trade union barons see things. A senior minister recalls how when he first met Derek Simpson, the joint general secretary of Unite, Britain’s biggest union, he was taunted with a cheque for a five-figure donation to the party. Simpson moved to hand over the money, prompting the shocked minister to reach out his hand, at which point the union baron stuffed it back in his packet. “Not so fast, sonny,” he said with a laugh.

Games have always been played between Labour ministers and their union paymasters. However, over the next 12 months things will become much more serious. Rising inflation is prompting unrest among public-sector workers, who are determined to unpick three-year pay deals brokered in more benign economic conditions. On Friday, Unison announced that hundreds of thousands of council workers would stage a two-day walkout next month.

The growing militancy comes at a time when Labour is increasingly dependent on union cash: 88% of the party’s income in the first quarter of the year came from the unions. Indeed Labour avoided having its accounts “qualified” by its auditors only because the unions gave written assurances they would carry on bankrolling it.

Next month Brown will travel to the cerebral surrounds of Warwick University for a head-banging session with the unions. Officially this “policy forum” will be where Labour’s next election manifesto is debated. In fact, it will be dominated by a list of union demands, headed by the legalisation of secondary strike action and increased redundancy pay.

A minister said: “We have to resist these demands. To cave in would be to go back to the dark days of the 1980s and risk electoral suicide.”

Allies say the tragedy of Brown is his apparent inability to communicate his vision. When Beth Russell, Brown’s long-time speechwriter, announced that she was quitting last week, a black joke quickly spread round Whitehall: “You mean someone actually writes those speeches? I thought they were done by Google.”

Unkind, perhaps, but the banter among civil servants reflects a real unease. After a year in office, the government machine, and voters at large, do not yet understand what it is that Brown represents.

This can be seen clearly in the arena of public services. Is Brown in favour of providing more choice in education or is he more intent on clamping down on pushy middle-class parents? Does he want to give more power to NHS patients or is he wedded to the old model where healthcare is not only paid for but also provided by the state?

It is hard to be sure of the answer to either question.

Sunder Katwala, the head of the Fabian Society, offered a solution. “This can’t be about millions of plans and initiatives,” he said. “What it needs to be about is a sharp, core message, about what this government is for.”

Politics, however, often comes down as much to the interaction of people as policy announcements. Brown faces tough decisions about the composition of his cabinet. A reshuffle is likely in the autumn, especially if progress in Northern Ireland means that a full-time Ulster secretary is no longer deemed necessary.

There will also be pressure to bring back at least one “big beast” from the past. Brown’s previously frosty relations with Alan Milburn, the ultra-Blairite former health secretary, are said to be thawing.

The prime minister is also facing calls to appoint a deputy – possibly a southern Englishman such as Alan Johnson, the health secretary, to act as a counterweight to Brown’s Scottishness. Harriet Harman, the party’s deputy leader, is no longer regarded as a serious candidate. Her controversial equalities bill, which suggested positive discrimination for women and ethnic minorities, was widely blamed for depressing the Labour vote in Henley among white men and boosting support for the BNP.

The PM’s relations with his top ministers will be crucial over the next year. If he were to fall victim to a coup, the person who wields the dagger will almost certainly be someone who sits around the cabinet table.

A sign of how Brown will tackle his next year will be seen in the coming weeks.

Critics have accused him of being a control freak, insisting on taking every decision himself after poring over every document. No 10 officials have complained that sometimes his morning e-mails are time-stamped as early as 4am and that the overall feeling is of being “under the cosh”.

The result has been paralysis in government. Brown himself has been left physically exhausted by the relentless 18-hour days.

David Blunkett, the former home secretary, said: “He should take a good, long holiday – like the whole of August – to recover from the strains.”

Last year Brown’s summer vacation consisted of a single afternoon in Dorset. If this time Brown shows the strength to let go just a little, perhaps he will be starting on the road to political recovery.

Brown’s end of year report

Economy
Inflation has risen to 3.3% – well above the 2% target – and will rise further. Public borrowing is soaring, while house prices are falling. Business and the public are angry over ill-judged decisions on tax. A swot failing badly
Mark: 2/10

Home affairs
Tried to be seen as tough on terrorism by allowing police to hold suspects for 42 days without charge. Belatedly tightening up on the control of immigration. But prisons remain in crisis, and violent crime is on the rise. The Met is in turmoil too
5/10

Defence
Has done nothing to solve overstretch of Britain’s forces. Initially snubbed the US, our most important ally. Has set out no clear vision. Critics complain that he doesn’t seem to understand the military nor show any indication of wanting to
3/10

Health
Waiting times are still improving. Foundation hospitals are expanding, and private sector involvement in NHS work is continuing. But costs remain huge and funding is getting tighter, forcing the NHS to ration expensive medicines
6/10

Education
Endless initiatives, such as more academies, diplomas mixing work and study, and plans to make children stay on in education until 18. But the philosophy remains education by central diktat, social engineering and opposition to selection
4/10

Environment
The key issue is climate change. Plans for more wind power and a string of “eco-towns” are poor tokens for cutting carbon emissions when set against measures to expand air travel – a bigger Heathrow being just part of the plan – and other environmentally damaging policies. Must do better
4/10

How The Guardianistas changed their tune

“Only five more dreaming days until Gordon Brown’s coronation”
Polly Toynbee, June 22, 2007

“It is not just Gordon Brown who looks like a dead man walking, Labour now looks like a party of zombies”
Polly Toynbee, June 13, 2008

“Brown’s first month looks like a striking success”
Jonathan Freedland, July 25, 2007

“On the current evidence, he is simply not up to the job”
Jonathan Freedland, June 18, 2008

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