John Rentoul: They got him, bang to rights

It is entirely plausible that at least one of Dromey's motives was to ingratiate himself with Brown by doing down Blair. But the beauty of the opportunity, from the Brown faction's point of view, is that Blair has been caught out, bang to rights, without a leg to stand on. When you have proclaimed the rules of greater openness, it is no good questioning the motives of those who point out that you have tried to get round them. And when the rules enjoin the avoidance not only of impropriety but also the appearance of it, how can you prove the negative - that there is no connection between the lending of money (in effect the same as giving) and nominations to the peerage? When Blair says he doesn't like having to raise money for the party, the obvious riposte is that he has had nine years to change the rules so that he wouldn't have to.

Indeed, in Blair's first term, Mike O'Brien, a junior Home Office minister, proposed that donations be capped and that everyone on the electoral roll could register as a member of a political party - each party would then receive a sum of public money per member. This was blocked by Gordon Brown on the grounds that the public was "not yet ready" for the state-funding of parties. How fitting that his supporters now see the Government's failure to reform the system as a chance to hasten his succession.

They are wrong, of course. Hurting Blair does not automatically help Brown - all it does is further contaminate the Labour brand. But that hurting Blair was Dromey's intention does not seem to be in doubt. Hence his full-frontal media assault rather than a discreet word in the ear of those who had kept him out of the loop. He even has a plausible double motive. One of the people who might benefit from having Brown as Labour leader is Dromey's wife, Harriet Harman, who wants to be deputy leader. (My view on that remains the same as Blair's, when he was told 12 years ago that the focus groups liked the idea of her as his deputy. "I suggest you go away and refocus your focus groups," he said.) Another person who might benefit is, of course, Dromey himself. It is possible that he has never forgiven Blair for failing to ensure that he was put on the shortlist for the safe Labour seat of Pontefract before the 1997 election.

Hence the vitriol heaped on Dromey and Harman by No 10. "The Labour Party treasurer," one official said to me. "That's the person who makes the speech at party conference after the leader, and gets interrupted several times by the chair asking delegates to please leave the hall quietly." Nor did Harman suddenly remember that her husband was titular treasurer of a political party - a fact that was admittedly a better-kept secret even than that of the million-pound loans. She did not spontaneously recognise a possible conflict with her ministerial responsibility for electoral law when the row blew up, I am told, but had it drawn to her attention by her permanent secretary in a post-Jowell review of ministerial interests.

But if this is a plot by supporters of the Chancellor, Blair has only himself to blame for giving them the opportunity. Clare Short in her diary tellingly recalls how Blair said in 1994 that "he thought I could be a very good minister if I were able to come to terms with questions of expediency that I would have to face. I have occasionally pondered since what he had in mind, and wish I had asked him." Well, she knows now. One suspects that Blair takes a macho pride in his man-of-the-world realism, his ability to elicit large cheques of tribute from charismatic and successful business people. It has never been part of his self-image as a leader to be innocent about the ways of the world.

That aggressive pragmatism has blown up in his face now. When a Prime Minister starts a news conference, as he did on Thursday, by saying that he takes full responsibility and that the rules must be changed, you know he is in trouble. On those occasions the only thing that can save him is the whirling sanctimony of individual journalists. Fortunately, Jon Snow of Channel 4 News rose magnificently to the mark, spitting about the "corrupt" and "illegal" sale of peerages and asking if this was the kind of democracy Blair wanted for Iraq.

It won't make Blair leave office a second earlier than he otherwise would - the contrary is more plausible - but he is damaged. And the damage spreads beyond the actual offence - which, in this case, came to nothing because of the safeguards put in place by ... Tony Blair. Chai Patel, Sir David Garrard and Barry Townsley were all rejected for peerages. The appointments commission and the free press - in this case, my colleague Marie Woolf, who broke this long-burning story last October, which is when Blair should have acted - have done their job.

But the damage spreads because journalists link the loans embarrassment to the Government's victory (reported as defeat) on the Education Bill. It is all evidence, it is said, of a Prime Minister out of touch with "Labour people". On schools policy and party funding, he is no better than a Tory, runs the sneer of the irreconcileables on the Labour back benches and their supporters in the BBC.

Thus David Cameron has drawn blood too, with his strategy of supporting Blair. This is not cleverness, as Daniel Finkelstein, the Tory former apparatchik, observed, so much as the absence of stupidity. But it has worked a treat. No one knows what might have happened had the Stupid Party carried on being stupid and opposing everything the Government did - I suspect there would have been fewer Labour rebels and Blair would have got his Bill anyway.

But what do facts matter when Blair has failed the test he set himself in his first brush with big money and Bernie Ecclestone in 1997? "I said I would deliver something different and I can do it," he said. Nine years later, it is entirely his fault that he looks no better, when it comes to party funding, than what went before.