The scandal surrounding the behaviour of the so-called Crystal Methodist, former Co-op bank boss Paul Flowers, has escalated into a full scale mud-slinging war with politicians on all sides hurling allegations at each other over the affair.

David Cameron opened the battle by launching an inquiry into the scandal amid claims Labour must have known about the shamed banker's behaviour before he was appointed to head the institution.

And deputy prime minister Nick Clegg delivered a stinging attack on Labour, claiming the entire "murky" affair suggested it was as much "in hock" to the bank as it was to the unions.

But, as Ed Miliband insisted his party had acted with "complete integrity" throughout and accused Cameron of smears, the Financial Times reported that only last year Tory Chancellor George Osborne "leaned on" the EU to spare the Co-op from tougher rules being applied to big listed banks in the wake of the crash.

The revelation underpins the suggestion that politicians on all sides were keen to see the Co-op treated as a respectable, trustworthy bank and a good option for the purchase of the Lloyds-TSB chain, which ultimately did not happen.

So Tory attempts to attach the scandal exclusively to Labour are clearly not a risk free strategy for David Cameron who may also get drawn into the mire, which is now Labour's objective.

Miliband has defended Labour, insisting: "What I can say with absolute clarity is we've acted with complete integrity on this issue."

Flowers, he said, was: "somebody who I met with on one occasion and had meetings with a wider group on a couple of other occasions. He was never my close adviser."

"If David Cameron is determined to smear his way through the next 18 months, that is wrong," he added.

Cameron has seized on the allegations surrounding Flowers in an attempt to win back some of the political ground lost to Labour over recent months. And the long-standing links between Miliband's party and the Co-operative movement as a whole clearly offers an open goal.

Labour is clearly closer to the affair because of those historic links to the Co-operative movement and the fact it received many donations and loans from it. And with each new revelation about Flowers' behaviour the greater the potential for mud to stick to Miliband.

The latest claim, in the Daily Mail, is that Flowers, 63, resigned from running a drugs charity in 2004 after allegedly lodging false expenses claims possibly amounting to £150,000.

He is already being investigated by police after he was filmed apparently buying cocaine, crystal meth and ketamine and it has also emerged he resigned as Labour councillor in Bradford in 2011 after porn was discovered on his computer.

The allegations have raised serious questions about how such a person could have been given the job heading a bank and Cameron claimed in the Commons that Labour already knew about his behaviour.

But the latest claims about the Chancellor's attempt to bat for the bank in the EU has widened the net and opened up the distinct possibility that neither side in this political battle will escape unscathed.

That will now be Labour's objective - to ensure as much mud is thrown at the Tories as is being hurled its way in the hope that Cameron comes to realise this is a no-win situation and backs off.

At the moment, however, there is no sign of that and the best calculation is that this particular bout of mud-slinging has a very long way to go before it runs out of steam.

And while Labour currently appears to have most to lose, there can be no certainty over who will emerge most damaged at the end of the battle.