A major headache and 30 days to save the Government

While the focus of an entire nation remains firmly fixed on the London Olympics, deep within the bowels of Downing Street, the Prime Minister is planning a reshuffle.

The importance of the reshuffle, expected to be announced in the first week of September, and the subsequent relaunch of the Coalition Government cannot be underestimated, because Mr Cameron is in trouble.

With the polls heading south, the Coalition looking increasingly unstable, the economy on the critical list and the emergence of a serious rival in the form of Boris Johnson, Mr Cameron has just 30 days to save his Government and legacy.

Soundings are already being taken from his closet advisers, party grandees and from those whose success is hitched to Mr Cameron's.

Tellingly, co-party chairman Baroness Warsi, someone who would normally  be crucial to this process, has gone on a tour of North and West Yorkshire. Widely tipped for the chop, demotion is beckoning.

Questions remain over who will replace the Baroness. The obvious choice is deputy Chairman Michael Fallon, who has acquitted himself superbly over recent months, frequently appearing on TV to defend the indefensible. His combative and sure footed performances  display all the qualities you need in a party chairman, plus he has the added bonus of being in the Commons.

Old Etonian type, Lord Strathclyde, the leader in the Lords and former miner Patrick McLoughlin, the Chief Whip, are widely expected to be replaced. Lord Strathclyde in a bid for the PM to shed his toff image and Mr McLoughlin because leading Cameroons are still fuming at the scale of rebellions on Europe and Lords Reform.

Jeremy Hunt might just cling on to his post after the success of the Olympics, but poor old Ken Clarke is almost certainly out, replaced by Philip Hammond, who has shown himself to be a safe pair of hands with the defence brief, although he is not liked by the service chiefs.

Mr Osborne who faced speculation about his career prospects and was, it was rumoured, going to be switched with William Hague will be kept in post. The rationale behind this  move is to send a message that the Coalition's economic strategy is still on track. Mr Cameron also knows that he still has an opportunity closer to the election to move some of his key lieutenants around. So this is a temporary reprieve. 

Likely winners will include some from the 2010 in take and a small clutch on the Conservative right, as Mr Cameron seeks to strengthen his flank.

The problems that Mr Cameron faces are that if he fails to wield the power of patronage wisely, he could easily compound the problems he is already under. If he promotes too many Cameroons, (although there are very few left) he angers the right. Too many right wingers and Labour will claim he has lurched to the right, which the PM is desperate to avoid, as he seeks to cling to the 'middle ground', even though this has shifted right since the last election.

The PM is also fully aware of the history of reshuffles, if he is too timid, the restless backbenches will become more agitated and too radical like Super Mac in 1962 during what became known as the night of the long knives and the result could be worse.

The second major problem he faces is the Cable dilemma. Many Conservatives would dearly like to see 'Uncle Vince' kicked to the backbenches. He has been a constant irritant to Downing Street, speaking too freely on sensitive issues, providing great copy. And  let us not forget that the BSkyB deal was only given to Jeremy Hunt after he told two journalists that he was at war with Rupert Murdoch, hardly the words of an impartial arbitrator. But on the backbenches, Mr Cable could be an even bigger problem, especially for Mr Cameron's coalition partner Nick Clegg, who must already be looking at the finest ermine clothes money can buy for after the election.

Thirdly Mr Clegg's declaration that he would engage in a tit for tat war with the Conservative Party over boundary changes for their failure to back House of Lords Reforms, marks the most serious test of the Coalition's ability to stick together until the end of the Parliament. 

Never mind that Lords reform was never in the Coalition Agreement, and that the DPM admitted before a Parliamentary Select Committee that the two were not linked, Mr Clegg has rolled his tanks into Poland. If he does not pull back, a state of war is the only outcome now. How this will benefit either side is impossible to see.

Finally, Mr Cameron has to some how relaunch the battered Coalition and a major part of this will be the reshuffle. The problem he faces is that moving people around will do nothing to create the much needed narrative that the Coalition lacks.

So the next month is arguably the most important of Mr Cameron's career as it will define the years leading to the next election.  If he gets the reshuffle right and the relaunch of the Coalition goes well, the Party still has a chance to win the next election, but get it wrong and the Labour lead will harden and Red Ed will be assured of victory.