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Sir Keir Starmer’s Labour party never promised much excitement. What it did seem to offer was stability and grown-up government, sorely lacking under recent Conservative predecessors. This week’s self-generated crisis over the prime minister’s leadership and a startling Budget U-turn have shredded Labour’s claim to quiet competence. They ratchet up the jeopardy around a Budget that was already crucial to the government’s fortunes and those of the country.

On Wednesday, bemused Britons woke to reports that the unpopular prime minister was vowing to fight off any challenge to his leadership. Unnamed briefers pointed a finger at health secretary Wes Streeting, one of his more capable ministers. Streeting was forced to deny traitorous intent, and decry efforts to “kneecap” him by a “toxic” culture in Downing Street.

By Friday, the headlines were dominated by news first reported by the Financial Times that the government had scrapped a Budget plan to break its manifesto promise and raise income tax rates — for which it had spent weeks preparing the ground. The volte-face was explained in part by an improved forecast from the government’s fiscal watchdog, putting an expected £30bn hole in the public finances at nearer £20bn. But the move also reflected fears that the tax plan would further alienate voters and fractious Labour MPs. Sterling and the gilt markets reacted badly.

This is a government that, thanks to its own mis-steps, has burned right through the political capital its landslide election victory earned it just 16 months ago. If the briefing of an alleged coup plot was intended to head off such an eventuality and bolster the prime minister, it did the opposite. Streeting handled the episode with quiet steeliness and deft wit, displaying communications skills that Starmer lacks. For the prime minister, in contrast, the incident exposed how tenuous his grip has become both on his MPs and on his own Downing Street operation.

The Budget U-turn strengthens that impression. After preparing expectations for a breach of Labour’s ill-advised pledge not to raise rates of income tax, national insurance or VAT, this is no minor pivot. But it follows a series of other retreats — on cuts to winter fuel allowances for pensioners and on welfare reform. They paint a picture of a government that, despite its majority, can no longer be sure of securing its own MPs’ backing. This is an environment in which back-stabbing thrives.

The government appears to have feared it could not portray the confidence and unity of purpose needed to survive the fallout from breaking its pledge. But a readiness to make hard choices to put the public finances back on a sustainable footing, even at a high political cost, might have reassured the gilt markets and business enough for borrowing costs to ease and growth to pick up, creating a virtuous circle. The risk now is that by opting for a “smorgasbord” of smaller tax measures which might be more harmful for growth in key parts of the economy, the Budget will land badly with investors and businesses. That could rebound politically on the government in any case.

Westminster wisdom before this week was that a challenge to the prime minister was unlikely before a likely Labour debacle in next May’s Scottish and Welsh parliament and English local elections. If the Budget backfires, the prospect of a near-term rebellion will mount. A more benign fiscal forecast may ease somewhat the formidable task chancellor Rachel Reeves faces in creating sufficient headroom in her Budget on November 26. But this week’s turbulence only raises the stakes — for the job security of the prime minister and chancellor, and for Britain’s economic future.