UK Government is Shaken, Not Just Stirred

The burgeoning British scandal over the misuse of government expense accounts is claiming its first major victims and setting the stage for a major shake-up in the country's leadership.

"It's an opportunity for (Prime Minister Gordon) Brown to rebrand his party somewhat. So there may be some major changes," Eamonn Butler, director at the Adam Smith Institute said.

Communities Secretary Hazel Blears resigned her cabinet post on Wednesday, a day after Home Secretary Jacqui Smith confirmed she too would be leaving the cabinet.

Several other Labour members of parliament implicated in the expense scandal also said they planned to step down at the next general election, which is due by mid-June 2010, according to Reuters.

The resignations come on the eve of the European parliament elections as Prime Minister Brown's Labour Party receives the brunt of the country's outrage in the expenses dispute.

“People aren’t actually very interested in European issues,” Butler told CNBC Tuesday. Instead, he said that the expense scandal would “cloud the whole issue” of the upcoming European elections.

Sharon Lorimer

On Monday, Chancellor of the Exchequer Alistair Darling made headlines after the Daily Telegraph disclosed that he had claimed a £1,004 service charge bill on his flat in London, which was paid in advance and covered several months when he was living in his "grace and favor" — a residential property owned by a monarch by virtue of their position as head of state and leased rent-free to persons — apartment in Downing Street.

The Chancellor "unreservedly apologized" for the error and said he would repay the amount owed. Yet more reports have come to light suggesting Darling had been renting his flat out during his term as Chancellor.

The Telegraph reported that Darling had "flipped" the allocation of his second home twice to take full advantage of parliamentary expenses, as well as billing the taxpayer for his use of an accountant to fill in his self-assessment tax form.

Betting group Hills had been offering odds of 9/4 that Darling would be removed from his position before the end of the year, according to

Brown, who replaced Tony Blair in 2007, has refused rival Conservative leader David Cameron's calls for a general election, saying now is not the time as the country remained in recession for a second quarter running.

British Prime Minister Gordon Brown.
Simon Dawson
British Prime Minister Gordon Brown.

"I'd rather have a general election where we can vote for who we want to govern the country," David Tomlinson, MD of Absolute Aromas told CNBC.

But Brown is rapidly losing favor with his constituency after a survey by Ipsos Mori put Labour's support at its lowest ever as backing for the party crashed by 10 points in the last month.

The last time that a prime minister made such an overhaul was in 1989, when Margaret Thatcher made John Major Chancellor, Douglas Hurd Foreign Secretary and David Waddington Home Secretary, the Times reported.

About 50 percent of people believe at least half of all MPs are corrupt, a BBC survey commissioned in the wake of the expenses scandal suggested.

Parliament members' expenses were brought into the spotlight after the UK public attacked banking executives for their large bonuses as financial institutions like Royal Bank of Scotland , Lloyds TSB and Northern Rock became nationalized or part-nationalized by the government.

Outrage grew after RBS chief executive Sir Fred Goodwin was reported to receive an annual pension of £693,000, despite the bank requiring rescuing by the government twice using taxpayer funds.