Gordon Brown in Full Retreat Over Mps' Expenses

Gordon Brown was last night forced into a humiliating retreat over MPs' expenses to avoid defeat in the Commons.

Ministers are now frantically seeking a compromise deal after accepting that the proposed flat-rate allowance for attending parliament, announced with great fanfare five days ago in a ground-breaking YouTube video, would be rejected in a vote. One cabinet aide said the government faced a "humiliating defeat" if it put the measures to a free vote, adding: "Even our lot won't have it."

The climbdown came as Stephen Byers, a former cabinet minister, called on Brown to scrap ID cards and the replacement of the Trident missile program because of the recession, warning that it would be a "fraud on the electorate" if all the parties were not open about cutbacks needed to balance Britain's books. His words reflect a growing divide in cabinet over whether ministers should now admit that specific major programs will have to be axed after the election, with the business secretary, Peter Mandelson, pushing for what would be a major change of strategy and Brown resisting.

Byers has long supported both identity cards and the nuclear deterrent but said he could not justify to vulnerable constituents the respective £5bn and £70bn bills when basic public services were threatened by the economic crisis.

The humbling over expenses and the remarks by Byers mark a challenge to the authority of the prime minister that the Tories moved swiftly to exploit, accusing Brown of bungling. "He should never have put his ideas on YouTube," said a senior Tory source. "He should have waited until the three leaders had had a meeting and then he wouldn't have to have this embarrassing climbdown."

Harriet Harman, the leader of the house, signalled a rethink when she told the Observer that the government "still have to find a formula which will reassure the public and MPs" on replacing the controversial second homes allowance, which compensates MPs for having to maintain a base in their constituency and the capital.

Brown wanted to ditch the allowance and introduce a flat-rate payment that MPs could claim for every day they attended parliament. That was rejected by both the Tories and Liberal Democrats, which say such a system has been abused in Brussels. MPs are privately concerned that a similar overnight allowance in the Lords is open to abuse.

Harman and Nick Brown, the chief whip, are now in talks over modifying the proposals, which would still involve an attendance allowance but with new scrutiny to ensure MPs actually spend time in the Commons or stay overnight, rather than just clocking on and leaving. "We want to ensure the system is not open to abuse and it is tied to direct need," said a Downing Street source.

Brown still wants MPs to vote on the issue this week as planned. There is cross-party agreement on other reforms including ensuring that the House of Commons, rather than MPs, employs staff - so politicians' relatives cannot be hired without scrutiny - and clamping down on earnings outside parliament.

However sources close to David Cameron, the Tory leader, said that while he was prepared to renew talks, he was skeptical that a flat-rate system could ever be acceptable. He favors a form of second homes allowance that would only cover the costs of accommodation and domestic bills, with MPs required to provide receipts.

Cameron himself will today promise to run a "government of thrift" where ministers would be sacked for wasting money and promoted for finding cuts. Civil servants would also be legally bound to save taxpayers money.

He will tell the Conservative spring conference in Cheltenham: "On my watch it will be simple: if you do more for less you get promoted; if you do less for more, you get sacked."