Former chancellor faced interference from the then PM, who wished to play down the economic risk from the banking crisis.
Alistair Darling faced interference from the prime minister.
Gordon Brown repeatedly pressured Alistair Darling to change his economic forecasts almost from the outset of his premiership, it has emerged.
As the former chancellor prepared to publish his memoir, Back from the Brink, former government insiders revealed the full extent of the split between the two men at the top of the Labour administration.
From the autumn of 2007, as Brown agonised over whether to call a snap general election, Darling faced interference from Number 10 as he drew up his first pre-budget report, with the prime minister's allies urging him to play down the risks of an economic slowdown in the wake of the collapse of Northern Rock.
Northern Rock's bosses blamed "extreme conditions" in the markets for the bank's collapse, but Brown and Darling clashed over how hard the turmoil would hit the wider economy. Darling feared the impact would be severe, but Brown was determined to stick to the line that the "fundamentals" remained sound.
Former insiders say Brown, who had kept Treasury officials on a tight rein during his tenure as chancellor, wanted Darling to overrule his cautious civil servants. "Gordon never understood why Alistair didn't have the authority over his civil servants that he had," one source told the Observer. The pre-budget report of October 2007 predicted that GDP would expand by 2% to 2.5% in 2008 as the UK shrugged off the effects of the credit crunch. In the event, it contracted by 0.1%.
The relationship continued to deteriorate as the economy slid into recession. Darling was attacked by Brown's spin doctors in the summer of 2008 after saying the world was facing the deepest economic crisis in 60 years. He later said it felt as though the "forces of hell" had been unleashed against him.
By the spring the two were still at loggerheads as they struggled to formulate a response to the crisis. Darling wanted the forecasts in the 2008 budget to show the full extent of the damage to public finances of a prolonged economic slowdown, while the prime minister, who had promised to abolish boom and bust, still hoped the downturn would prove short-lived.
The relationship between the two men had soured so much by the time Labour lost power that they now see little of each other. One Brown ally predicted that the former prime minister would "go berserk" over the revelations. "I'm just glad I'm not the one reading out the extracts," he said.
Leaks of Darling's book, published on the website Labour Uncut last week, also showed the bitter relationship between the chancellor and Sir Mervyn King, governor of the Bank of England, who said he believed the chancellor was "not his intellectual equal".