History made as Bank of England cuts the key interest rate to 1.5%, its lowest point since 1694

In early 1978, with the British economy still in crisis, the Tories leading in the polls and speculation mounting about the timing of the next general election, the veteran Keynesian economist Lord Kaldor sent a message to the Labour prime minister James Callaghan. Kaldor had studied both the economic forecast data and the political polling in depth, he told Callaghan's office; and he had reached a clear conclusion. It would be a fatal mistake to hang on until 1979 in the hope things might improve. All the data pointed to autumn 1978 as Labour's best chance. "It will be the Labour peak," Kaldor told Callaghan. "It may be a submerged peak, but it will be a peak none the less."

Well, as we now know, Callaghan failed to take Kaldor's advice - and the rest is history. In the autumn of 1978, there was indeed a Labour peak, just as Kaldor had forecast there would be, during which Labour even nudged briefly ahead of Margaret Thatcher's Tories in the polls. But Callaghan hesitated and, in May 1979, his Labour party was pitched out of office for what would become an 18-year long night of the soul in opposition.

Gordon Brown may have chosen to say in public this week that the date of the next general election is the last thing on his mind, but it beggars belief that this is actually so. Right now, Brown certainly wants the nation to see him saving the world or feeling the people's pain as he goes on his listening tour around the English regions this week. After that his aim is to be seen in the frame for a while with Barack Obama, as the planet's twin men of destiny. What Brown really wants is for the election date to be the last thing on the nation's mind. But it is inconceivable that it is the last thing on his own. Get real. He is thinking about the election morning, noon and night.

In one sense, he is absolutely right to do so. The power to call a general election before the end of a five-year parliamentary term is one of the few unmitigated prerogatives that a British prime minister possesses. It is his call and no one else's. Get it right, as Harold Wilson did in 1966 or Thatcher in 1983, and you are both a hero and an entrenched leader. Get it wrong, as Wilson did in 1970 or Callaghan in 1978-9, and you alone have to carry the can.

What is more, there are loud echoes of 1978 in the current party battle, and plenty of latter-day Kaldors bidding for Brown's ear at the start of 2009. Labour MPs and activists who six months ago had become fatalistic about their re-election chances under Brown and about Labour's chances of a fourth term, now see the polls narrowing and scent an unexpected opportunity of survival. Several senior ministers want Brown to keep the early option open. If the polls continue to narrow and if Labour even nudges into the lead, then the pressure on Brown to call an election would become strong and maybe even irresistible.

As in the 1970s, so today many of these calculations involve the possibility of a hung parliament. Many would take Kaldor's view - that a submerged peak is better than no peak at all. A fourth Labour overall majority may be out of reach, they will argue, but if Brown makes the right call it could make all the difference between a Labour minority government and a Conservative one. Though there is a case for saying that the next election may be a good one to lose, I have never heard a single minister make that claim. From their perspective, any Labour government is always to be preferred to any Tory one.

So what is the chance of Brown calling an early election? The first part of the answer is to say that the chance is undoubtedly a real one. If Brown was not even prepared to contemplate the issue he would have accepted one of Andrew Marr's several invitations last Sunday to rule a 2009 election out altogether. Instead he conspicuously declined - and sensibly so. The threat of calling an election is an important weapon too. No prime minister can be expected to throw it away.

Even in these unusual times, political logic says that Brown will call an election whenever he thinks he will win it. That calculation will depend primarily on the momentum of the opinion polls, including the key question of economic confidence. It will also hinge, obviously enough, on whether Brown thinks the politics of the economy in 2010 will be better or worse for Labour than in 2009. But it will also be affected by whether Brown is tempted to go for it while the Tories are in a mess. Labour undoubtedly wants George Osborne to be shadow chancellor in an election campaign.

Textbook political logic, though, is not everything. In the real world there is also the Hamlet factor. Conscience made a coward of Brown in October 2007 when he pulled the plug on an early election on which he had been determined since long before he replaced Tony Blair. So he cannot afford to bottle it a second time. Indeed he may think, after the 2007 debacle, that he cannot afford even to be thought to be thinking about an early election at all. Since it would be impossible to prepare for an election in secrecy, the best way of keeping speculation to a minimum would therefore be to go as soon as possible. If nothing else, that makes the January opinion polls exceptionally significant.

What agony all this must be for a man so obsessed with tactics and calculation as Brown is. He wants to do it. And yet he doesn't want to do it. In the end, though, this is a timeless and acutely personal dilemma in which the apparently trivial can loom disproportionately large.

One of Callaghan's advisers recently told me that he believed personal vanity counted for a lot in his own boss's decision to hold on. Deep down, he said, something in Callaghan was conscious that "prime minister 1976-1979" would look better than "prime minister 1976-78" in the record books. Now Gordon Brown also faces Callaghan's dilemma. Now, as then, the Kaldors may have logic on their side in urging an early poll if conditions are favourable. But my guess is that Brown will side with Callaghan's solution in the end.

martin.kettle@guardian.co.uk

Network Rail was under pressure yesterday to explain why the newly upgraded west coast main line has been beset by a week of problems that have brought chaos to tens of thousands of commuters and cost businesses an estimated £50m.

The latest overhead power failure, at Atherstone in Warwickshire, happened yesterday morning while engineers completed repairs on the failed power line in Wembley, north London, that brought London's Euston station to a near-standstill on Wednesday.

Overhead cable problems at Bletchley, Buckinghamshire, and Rugby, Warwickshire, hit services on Tuesday. On Sunday and Monday the line was affected by overhead cable problems at Watford.

A spokesman for Network Rail denied suggestions that the line's decade-long, £9bn overhaul, completed last month, had left the route susceptible to problems and that it could not cope with the increased traffic it was carrying.

He said the Watford incident had been caused by metal fatigue in a screw, the Bletchley problems by a snapped electrical wire, and the Wembley failure by an incorrectly installed glass-fibre rod.

"They are unrelated, different cases and have nothing to do with increased traffic or new timetables," he said. "However lame it may sound, it does look like a series of unrelated incidents."

The rail minister, Andrew Adonis, is known to have been watching the west coast upgrade closely. He is understood to have sought and received guarantees from Network Rail that there would be no problems on the revamped route.

Some rail industry insiders believe the latest infrastructure breakdowns will have tested his patience with Network Rail.

The Department for Transport would not say whether any emergency meetings had been held with Network Rail's management, but Adonis said yesterday: "Network Rail have assured me they are doing everything possible to get services back to normal, and I have emphasised the importance of this to them."

The shadow transport secretary, Theresa Villiers, said an investigation was needed to determine what had caused the delays: "If there is any truth in the claim that disruptions have been caused by rushed work by Network Rail, this would be a serious problem. Rail passengers need to be assured that the work Network Rail did well to complete by the December 2008 deadline has been done to the highest possible standard."

Norman Baker, the Liberal Democrat transport spokesman, said the situation was "fast becoming a national embarrassment", while Anthony Smith, chief executive of the rail watchdog Passenger Focus, warned that it would be "very unwise" to proceed with the planned timetable expansion at the end of this month without assurances that the current problems could be fixed quickly.

The British Chambers of Commerce said that the delays of the last few days had cost businesses £50m.

The rail problems and the widespread freezing weather have conspired to make the new year return to work miserable for millions of commuters across the UK.

Motorists have been warned to take care today on the roads today. Paul Mott, a forecaster for MeteoGroup UK, said that the mercury was likely to plunge back to -6C (21.2F) in parts of the south overnight.

Gordon Brown yesterday promised help, but not a huge bail-out, to the car industry as his cabinet meeting in Liverpool was shaken by the news that Nissan in Sunderland is to shed 1,200 jobs, confirming that the wave of job losses will hit even some of Britain's most successful manufacturers.

Lord Mandelson, the business secretary, has already invited car industry representatives to discuss their demands, including access to the special liquidity scheme as a way of maintaining the industry's ability to get credit. He did nothing to disguise his view that there would be further job losses and that a restructuring of the industry would be necessary, possibly across Europe.

Asked whether he foresaw further job losses, he said: "I suspect there will be, in view of the very sharp drop in demand for cars. That is unavoidable."

Describing Nissan as a robust company, he said the decision to cut jobs at its Sunderland plant had been taken to secure its future. He added: "It would be a great mistake in my view if the American government was simply to hand out vast subsidies without ensuring that the industry itself brought about the restructuring and consolidation that it really needs."

Mandelson sees a future for the British car industry as a leader of new green technologies, but recognises that companies such as Jaguar need restructuring.

In a two-hour cabinet discussion dominated by the economy, ministers also agreed a social mobility white paper, due to be published next Tuesday, and plans for a jobs summit on Monday attended by business and unions.

Brown yesterday tried to reassure businesses and consumers that he would shortly be taking extra measures to get bank credit flowing, implying he recognised that record low levels of interest rates announced yesterday would not be enough to avert an economic nosedive.

At the end of the cabinet meeting, he said: "In the next few weeks we are looking at the measures we can take ... to get the banks to resume the lending that is necessary. If they can't supply finance, and if they don't keep the money moving in the economy ... to fund new business loans or fund mortgages, then we have lost an important function that is vital to every part of the country."

Ministers have been looking at a now familiar range of options for weeks, including guaranteeing bank credit to business, swopping banks assets for money provided by the Bank of England, lowering interest on money lent to the banks, or even a second injection of capital into the banks.

The chancellor, Alistair Darling, insisted he was not planning simply to print money, describing a debate about the so-called extreme policy of quantitative easing as "currently hypothetical".

Government members admitted frankly that they had no magic wand to wave and still did not know what the impact of existing policy would be in a year's time.

Writing in the Guardian, the Treasury select committee chairman, John McFall, called on the government to create a state bank, saying the refusal of the banks to lend was "a collective form of madness".

Small businesses remain exasperated that they are unable to access the promised £1bn Small Business Finance Scheme. No 10 suggestedthere might be some minor adjustments to the liquidity scheme in the next few weeks, but a further major long-term measure is still some way off.

The prime minister will travel to Germany next Wednesday for talks with the German chancellor and leader of Europe's biggest economy, Angela Merkel, in the light of growing signs that Germany, after weeks of infighting inside the coalition government, will follow the lead of the UK and US and launch a fresh fiscal stimulus. Unemployment rose in Germany yesterday for the first time in three years.

Speaking at a conference in Paris on the future of capitalism, Merkel singled out the US budget deficit and China's current account surplus - the difference between exports and imports - as problems plaguing the global economy.

"We would be making an error if we were content to look solely at financial markets," she said. She deplored huge debts that governments are accumulating to spend their way out of the present crisis. But she said she recognised, for the moment, that "there is no other possibility".

The government is sending council children's services chiefs on intensive training programmes to help them deal with complex child protection cases in the wake of the Baby P tragedy.

The move will address concerns that children's services directors have been too focused on schools at the expense of social care. Since children's services departments were merged in 2004, most director posts have gone to managers with an education, rather than a social services background.

Baby P died in August 2007 at the hands of his abusive mother, her boyfriend and their lodger despite being on the child protection register and 60 contacts with the authorities over eight months.

The case led to the dismissal of Sharon Shoesmith, former director of children's services at Haringey council, north London, in December after a critical Ofsted inspection report into the circumstances surrounding the boy's death.

The children's secretary, Ed Balls, has insisted there is nothing wrong with the system and Haringey was a special case.

But the new training programme raises the question that some children's services directors may be ill-equipped to cope with serious child safety issues.

Balls said last night he hoped the training would equip directors with the skills and experience they needed to "overcome even the most difficult circumstances". He said the new programme would be aimed at existing and future directors of children's services.

The first group of 24 directors is expected to start the 12-month programme in the autumn. The course, run by the National College for School Leadership (NSCL) and developed with the Association of Directors of Children's Services and the Children's Workforce Development Council, is likely to include a three-day residential summit. Directors will also receive individual training and support as well as executive coaching.

A government spokeswoman said that although the Baby P case had been "borne in mind" when finalising the programme, it had been planned for months and was not a direct response.

Announcing the programme at a children's services conference in Chester, Balls said: "We must do more to value good leadership across the whole of children's services.

"By working closely with the NSCL, we now have the best generation of school leaders that we've ever had. Over the last decade, they have shown that strong leadership with the right support can overcome even the most difficult circumstances and help all young people to achieve. And they are now increasingly reaching outside of their own institutions to other schools in their areas and driving up standards in both. Our focus on supporting excellent school leadership must continue. But it's in all our interests that we provide support to DCSs [directors of children's services] that is just as good."

Those directors needed to lead professionals from schools and social care as well as from the early years, healthcare, youth work, police and all other services that work with children and young people, he said. "I want to see all future chiefs of local authority children's services gain experience in areas outside their own specialism before they are appointed.

"But I also want to make sure that all DCSs have the skills and experience they need to provide the dynamic leadership children's services need." Balls said he wanted to see all directors take the leadership programme eventually.

Steve Munby, the NSCL's chief executive, said: "Strong leadership is vital within any organisation and there can be few areas more important that leading services for children. This extension of our school leadership remit recognises that the college is an organisation that continues to deliver."

Nick Clegg has delivered what is expected to be his final reshuffle before the next general election, strengthening his economic team by appointing Steve Webb, a professor of social policy, to become work and pensions spokesman, and giving Simon Hughes the climate and energy brief, a campaigning area where the Lib Dems face a challenge from the Conservative party.

He has also beefed up his campaign team by asking a former Saatchi joint managing director, John Sharkey, to work as campaign organiser. Sharkey has been working for the party without payment, and is pushing the theme of the Lib Dems as the party of modern families.

David Howarth, a barrister and political ally of Chris Huhne, the Home Office spokesman, is to take on the role of justice spokesman, a role he had been informally undertaking since David Heath quit over Europe. Heath now returns to the frontbench as a shadow leader of the house.

Webb has been given a prominent role in a new economic recovery team appointed by Clegg yesterday, which will be the focus of the party's work between now and the election. Clegg was caught making unguarded critical comments about Webb that appeared in the Sunday Mirror, including an apparent claim that he "could not stand the man". Webb and Clegg met privately about the issue and Clegg apologised to Webb.

Susan Kramer has left the frontbench to dedicate herself to leading the party's fight against a third runway at Heathrow.

Mortgage lenders are warning Gordon Brown that his scheme to prevent a surge in home repossessions could stifle new home loan lending despite yesterday's cut in interest rates from the Bank of England to an historic low of 1.5%.

The UK's biggest providers, already under pressure from the government over their reluctance to pass on the full benefits of reductions in the cost of borrowing, have told ministers the cost of providing a payment holiday for hard-pressed borrowers would limit their ability to grant fresh loans.

Lenders are concerned that their capital cushions - recently bolstered by fundraising including the £37bn taxpayer bailout - could be further eroded by customers who apply to have their payments deferred.

They may need to set aside more capital to cover customers who fall behind with their payments, further restricting the amount of money they can use to lend in the mortgage market. Eight banks and building societies, covering 70% of the mortgage market, have agreed to allow homeowners struggling with mortgage payments the right to defer all or part of their interest payments for two years. In return they will pay a fee to the government for underwriting the scheme.

The Financial Services Authority said it was discussing capital with the lenders, who are also seeking clarity on the status of the individual who applies to use the scheme. The Council of Mortgage Lenders, which is yet to respond to the consultation, said it was "absolutely committed to putting in place a scheme to reduce the number of repossessions". But a spokeswoman said: "There are a variety of issues being looked at by everyone responding to consultation including the capital treatment of this scheme and its impact on lender's regulatory capital requirements, its logistics and its workability."

Treasury sources said none of the eight lenders who had agreed to participate in the scheme had withdrawn their support while the Department of Communities and Local Government said: "We are continuing to work urgently with lenders on the detail of the scheme with a view to getting it up and running as soon as possible. All the major lenders are working with us on the development of the scheme and we are continuing to meet with them regularly to resolve any outstanding issues. "

The supply of mortgages is already a concern for the government, which was dealt a further blow yesterday when Bank of Ireland said it was scaling back its UK mortgage operation and axing its 158-year-old Bristol & West brand.

With the Japanese car company Nissan adding to the rising unemployment total by announcing 1,200 job losses in the north-east, the prime minister and the chancellor promised new measures yesterday over the coming weeks to unblock the frozen credit markets. Brown said: "We know now how important banks are to the system, but if they can't supply finance ... then we have lost an important function that is vital to every part of the country."

The Treasury is considering a range of options to increase the flow of credit including guarantees for commercial loans and increasing the money supply.

Writing in today's Guardian, John McFall, the chairman of the Commons Treasury committee, calls for a state bank - either newly created or based on the Post Office - to take on the role of lending from reluctant commercial banks. "The situation, with private banks freezing up credit, is so serious that consideration should be given to the establishment of a state bank in order to deliver government lending targets," he writes.

England and Wales face a chronic shortage of headteachers this year, despite state schools advertising £100,000 salaries for some posts. Schools are struggling to fill posts at a time when increasing numbers are expected to retire, according to the annual survey of headship vacancies by analysts Education Data Surveys (EDS).

The problem was more acute in south-east England and outer London, where 44% of primary and 41% of secondary headship vacancies had to be readvertised last year, the survey found.

John Howson, director of EDS and a former government adviser, said the credit crunch meant teachers would be less likely to sell their homes and might have partners who did not want to risk changing jobs. That there are about 3,000 fewer deputy heads now compared with 2001 would compound the problem.

A £100,000 salary was "no longer a guarantee" that a secondary school would find a headteacher, Howson said, citing a school in Haringey, north London, that offered even more but still had to readvertise three times.

During the 2007-08 academic year, there were 2,500 headteacher vacancies advertised in England and Wales. Of these, 101 in secondary schools (26%) and 755 in primaries (37%) had to be readvertised.

The problem was worse in faith schools with some 43% of Church of England and 57% of Roman Catholic primary and secondary schools readvertising headships last year. Howson said schools spent thousands of pounds advertising vacancies and unfilled posts lowered morale and results. Since the government introduced a qualification for teachers aspiring for headship in 2004, more posts had been readvertised. Special schools had little difficulty in recruiting heads and few schools struggled to recruit deputy or assistant heads, the survey found.

Howson suggested primary school deputy heads should be required to apply for headships after five years in the job to encourage greater movement of talented staff. "Teachers are put off by the bureaucracy and the workload," he said. "We are on a cliff edge with so many teachers retiring in the next few years."

John Dunford, general secretary of the Association of School and College Leaders, said the number of applicants was "profoundly affected" by the pressures of being head of a school where fewer than 30% of pupils obtained five A* to C passes at GCSE.

The average salary for a secondary head was £70,000. The difference between the salaries of a head and a deputy was "insufficient to compensate for the increase in responsibility, accountability and vulnerability".

The Department for Children, Schools and Families said: "The Organisation for Economic Cooperation and Development reported in 2008 that the UK has the best-paid school leaders in the developed world. The average salary of a headteacher has risen by 29% in real terms, with those at the top of the scale at £100,000."