Labour faces a collapse in voter confidence and renewed political controversy ahead of this week's by-election in Glasgow East.

Voter confidence in the economy has slumped to a record low, worse even than during the bleak days of 1979's winter of discontent, according to pollsters Ipsos Mori.

Despite Gordon Brown's attempts to reassure the public the UK will weather the storm, 75% expect things to get worse over the next year, and the party is six points down on last month alone. In just 10 months, a 29-point Labour lead on economic competence has been reversed, with David Cameron's Conservatives now ahead by 16 points on the key issue (37% to 21%).

In voting intentions the Conservatives have a 20-point lead over Labour among those certain to vote by 47% to 27% with the Liberal Democrats on 15%, but the latest figures show the biggest gap between the voters who are unhappy and happy with government performance since the worst days of John Major's Tory administration in August 1996.

More than three quarters (77%) declared themselves dissatisfied with the way the country was being run, with less than one in five (18%) happy. Labour supporters are significantly unhappy with the Prime Minister's performance as well, 43% expressing dissatisfaction and, despite his insistence that Britain's woes are caused by external influences, most voters (58%) disagree that he is "doing a good job in difficult circumstances".

Amid continued speculation over a possible leadership challenge, half of voters think Mr Brown should quit now, with one in five saying that they like Labour but not its present leader.

The Glasgow East by-election drew towards a close yesterday, with speculation about circumstances surrounding the resignation of the former Labour MP.

David Marshall stood down on medical advice but his decision came at a time when his Westminster expenses were under scrutiny over his employment of his wife and use of his home in Tollcross as a constituency office.

Yesterday it was revealed that his daughter, Christina, was running her own property business from the same address, prompting demands for assurances that none of the facilities used by her had been provided by the taxpayer.

For Labour it cast a cloud over the campaign. During a visit to a hi-tech engineering company, the party's by-election team was forced into claiming that none of them knew about the allegations.

Candidate Margaret Curran, Scotland Office minister David Cairns and Europe minister Jim Murphy all claimed they knew nothing of the allegations, as did a squad of press officers.

"I don't know about the story, I haven't picked up on it at all," said Ms Curran. Mr Murphy also denied all knowledge, saying of the broader story about David Marshall, his Westminster expenses and reasons for resigning: "It's just not an issue on the doorsteps." As Labour's by-election campaign co-ordinator, Mr Cairns, said: "As far as we are concerned David Marshall stood down as an MP on doctors' orders.