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Labour's London disaster, a new departmental name, a new face and, ultimately, perhaps, the supplanting of one key regeneration policy by another: that was the fall-out from the breathless first week of May.

The local election results brought mixed blessings for all parties. Labour had a bad rather than a calamitous set of results; the Tories established a platform to build momentum behind their new leader, but remain way off the pace in Northern cities; the Lib Dems made little progress but held on to previous territorial advances.

London established itself as truly volatile political ground, impossible for one party to take a stranglehold. Local issues jostled with national headlines on health protests, foreign deportations and Prezza's trousers to attract voters' attention. Labour lost Camden, the Lib Dems ceded their majority in Islington. Which issues held sway - parking regimes, Arsenal's new stadium, housing grants? Or the deputy prime minister's hanky-panky?

Whichever, Labour's hold on London is broken. Like wagons circling the enemy, the Tories have built a wall of control in outer London. Labour will find it tough just holding on to their positions.

The general election is at least three years away, but David Cameron is on the move. Labour has to act fast to stop a difficult position becoming irretrievable. Hence, the now constant anxiety in its ranks to speed up the accession of Gordon Brown to the leadership.

In some areas, notably health and education, Tony Blair is determined not to give ground until his reform agenda is in place. In others, the chancellor has all but assumed control, none more so than in regeneration and local government.

Not because John Prescott has relinquished the Office of the Deputy Prime Minister. He all but left the ODPM after last year's election, making Opposition protests over why he should be allowed to retain the perks of Cabinet office somewhat after the event.

It is the exit of David Miliband as minister for communities and local government that will dismay many who spent the past year cultivating the new kid in the department, and who saw the makings of a more coherent and radical policy.

In his place comes Ruth Kelly to run the newly named Department for Communities and Local Government. She has little to no experience of local government, but is well known to the Treasury, having been Brown's economic secretary and financial secretary.

It is the Northern Way and the RDAs, rather than city-regions, that are likely to be the edifices upon which Brown will build his regeneration policy when in No 10

Miliband, at times seen as a leadership threat to Brown, had laid the ground for the local government white paper in the summer, talking up the idea of a double devolution of power from central to local government and from local government to people.

He had toured the country selling city-regions as a way for cities to take greater control of their destinies, offering more powers to city leaders in return for a willingness to buy into the concept.

His departure puts all that into question, although arguably Miliband was starting to blunt his own radical sword, concerned that his policies were putting him on a collision course with Brown.

Kelly, an economist, will most likely steer a different course, one more closely aligned with the Treasury. Since he became chancellor, Brown has advocated regional economic policy as the solution to the north-south divide. He is likely to agree to a city-region agenda only if it conforms with regional policy.

What is the shape of that regional policy? It is easier to say what it is not. It is clearly not elected regional assemblies, the Prescott-led idea demolished by voters in a North-east referendum in 2004.

In a recent article for Tribune magazine, Ed Balls, Brown's former chief economic adviser and following the reshuffle economic secretary to the Treasury, argued against weakening the role of regional development agencies, the quangos set up by Brown, as some think-tanks advocate in order to give strength to city-regions.

"We do need new powers for local government in economic development … and greater encouragement for cities like Manchester or Birmingham," Balls wrote. "But we must make sure this does not happen at the expense of the rest of the North-west or exclude towns and cities across the West Midlands."

It is bodies like the Northern Way - the three Northern regions collaborating on science, transport and planning - that adhere closest to the Treasury's regional economic strategy. And it is these and the RDAs, rather than city-regions, that are likely to be the edifices upon which Gordon Brown will build his regeneration policy when in No 10.

For the Tories, it could be a stroke of good fortune, one to match Labour's pre-election nightmares and post-election in-fighting. Because Labour risks abandoning a policy for cities that, if taken up by the Tories, offers a route back into places like Birmingham, Manchester and Liverpool where the Tories badly need to make up ground.