The British government continued to deny reports of internal rifts last night as the Peter Mandelson affair claimed its third victim in as many weeks with the announcement by Mr Charlie Whelan, the press secretary to the Chancellor, Mr Gordon Brown, that he is to resign. Mr Whelan, the Chancellor's spin doctor, insisted he did not leak details to the media of u373,000 the £373,000 home loan to Mr Mandelson, which led to his resignation and that of the former paymaster general, Mr Geoffrey Robinson, two weeks ago. Ministers hope that Mr Whelan's departure will end a damaging period for the government. After spending the Christmas and new year holidays reflecting on his future in a secluded hotel in Scotland, Mr Whelan made his surprise announcement within hours of returning to his desk at the Treasury yesterday morning.
Arriving for work in buoyant form - he even managed a smile for the assembled cameras - he gave no sign to the press that a statement on his future was imminent. In the event, the statement announcing his intention to step down as soon as an "appropriate opportunity" became available was issued shortly before 10.30 a.m after a meeting with Mr Alastair Campbell, the press secretary to the Prime Minister, Mr Tony Blair.
Mr Whelan continued to insist that he was not responsible for leaking information to the media about the former trade and industry secretary's home loan.
He also commented ruefully on the "excessive" media interest focused upon him on the day when the euro began trading.
In his statement Mr Whelan said: "I want to make it absolutely clear that I was not responsible for disclosing any information about Peter Mandelson's mortgage and I refute any suggestion that I was.
"I do, however, take the view that the job of press secretary becomes extremely difficult if the press secretary, and not the department he serves, becomes the story and the subject of excessive attention . . .
"Therefore, as soon as an appropriate opportunity becomes available, I will move, but in the meantime, I will continue to do my job at the Treasury to the best of my ability, promoting the New Labour policies on which Tony Blair and Gordon Brown have worked so closely for so long."
His insistence upon the close relationship between the Prime Minister and the Chancellor - despite persistent rumours of a rift between their camps after Mr Brown was urged by Mr Blair's supporters not to stand for election as party leader after John Smith's death - was matched by Downing Street's line that the relationship between No 10 and No 11 was solid. Mr Blair's spokesman maintained there was no evidence that Mr Whelan was responsible for the leak and paid tribute to his "significant" contribution to the party both in government and in opposition. Contrary to continuing reports of a frosty relationship between them following the promotion of Mr Blair as leader, Mr Campbell said: "I have always had a very good working relationship with Charlie."
Since Mr Mandelson's departure from office Mr Whelan has faced allegations at Westminster that he was responsible for leaking the details of the home loan as part of the long-running war between the Blair and Brown camps.
Despite rebutting the allegations, yesterday's Mirror attempted to raise the political temperature over the affair by publishing a letter written to Mr Brown by Mr Mandelson telling him his candidacy for Labour leader would be hugely damaging to the party. In an attempt to distance itself from the dispute, the Guardian denied that Mr Whelan had leaked the details of the loan to its journalists.
The Mirror journalist, Paul Routledge, who discovered the existence of the loan while researching his biography of Mr Mandelson, also denied Mr Whelan was the source, despite his reputation at Westminster for damaging briefings against ministers. Mr Whelan's denials were not enough however, to prevent ministers who were unhappy with what they saw as New Labour's elevation of spin-doctors at the expense of policy to demand that Mr Blair should order Mr Brown to sack his press secretary.
One of them, the Cabinet "enforcer", Dr Jack Cunningham, became embroiled in the dispute, when he urged ministers to stop briefing against each other.
Indeed, the whole affair has been as much about a struggle between New Labour and Old Labour as personal rivalry within the Cabinet. Some observers believe the Old Labour Deputy Prime Minister, Mr John Prescott, will step in to fill the void left by Mr Mandelson.
The departure of Mr Whelan will also be seen as a convenient turning point in the affair for Mr Blair who will not now be forced to lean on Mr Brown, which would have fuelled the rumours of a bitter relationship between the men and their offices.
The Treasury's Economic Secretary, Ms Patricia Hewitt, defended Mr Whelan, claiming he "rightly" decided that it was "impossible for him to do his job properly." British people, she said, were more interested in the government's achievements in health and education than briefings to journalists.
The Tories were quick to point out that Mr Whelan's decision to step down raised even more questions about the Prime Minister's ability to control his government.
The Tory party chairman, Mr Michael Ancram, accused Mr Blair of "losing control . . . With every resignation, the questions continue to arise. It is a sign of the government coming apart at the seams." Meanwhile, Mr Blair faced further allegations of "cronyism" last night with the announcement that his long-time friend, Lord Falconer, is to take over from Mr Mandelson as government shareholder in the Millennium Dome.
Lord Falconer, who once shared a flat with Mr Blair when they were barristers in London in the 1970s, will have ultimate responsibility for the project while the Culture Secretary, Mr Chris Smith, will answer questions on the dome in the House of Commons. The Tories said Lord Falconer was not qualified for the job other than that he was a friend of the Prime Minister.
AFP adds: Mr Blair promoted an ally yesterday to fill the gap left by Mr Robinson. Ms Dawn Primarolo, a junior Treasury Minister, moved up to Paymaster General in a series of minor moves completing the reshuffle since Mr Robinson's departure.