There is no shortage of advice when it comes to the politics of the smear. For the would-be smearer, there's "Throw enough mud and some of it will stick". For the potential smearee, there's George Bernard Shaw's warning never to wrestle with a pig: "You both get dirty, but the pig likes it." I'd bet that at least one of those aged nuggets of wisdom was served up in the backrooms of Westminster this week, as the two big parties engaged in a form of combat likely to dominate from now until the general election of 2015.

One of those backroom meetings was on Thursday, when the two Eds – Miliband and Balls – and Labour's campaign boss, Douglas Alexander, decided on their approach to the story that began as a ready-made Have I Got News for You gag but ended as a political row posing serious problems for the opposition.

Labour sources admit that when word broke last weekend of Paul Flowers, the former chairman of the Co-op Bank, filmed allegedly paying for illegal drugs, they were slow to spot the political risk. Flowers had taken over at the bank in the closing weeks of the last Labour government, with the vast bulk of his tenure overseen by the coalition. Labour had had no hand in Flowers' appointment. Besides, whatever Flowers had done – he was arrested late Thursday in connection, said police, with an ongoing drugs investigation – this appeared to be a story about the personal conduct of an individual rather than anything that could be blamed on Labour.

That was naive. Those Labour officials underestimated how easy it would be for opponents to conflate the Co-op Bank and the Co-operative party, a movement dedicated to the ideal of mutualism and aligned with Labour for nearly a century, and suggest that Flowers' behaviour was no one-off, but indicative of something rotten in the state of Labour.

This relied on that deliberately blunt instrument favoured by all smearers: guilt by association. Flowers may have been on the outer edges of the Labour extended family – Ed Balls insists he has never had a meeting, email exchange or phone call with him – but the Co-op link was enough for Tory spinners to rebrand him a close "adviser to Ed Miliband". By the week's end, readers of the right-leaning press would have been forgiven for assuming that Flowers had a seat at the shadow cabinet table, doubtless sandwiched between Len McCluskey and the ghost of Karl Marx.

"Labour engulfed by Co-op scandal", bellowed the front page of Friday's Times: that claim ultimately rested on the fact that in 2007 Balls had backed a Conservative private member's bill that allowed co-operatives and building societies to merge and stay mutual. True, that bill paved the way for the merger two years later of the Co-op and Britannia, now widely blamed for the black hole in the bank's finances. True, too, that Balls bragged about that in his 2010 leadership campaign, when seeking to woo Co-op members. But that hardly puts him in the backseat of the car where Flowers was filmed allegedly engaged in mergers and acquisitions of a more physical kind. What's more, it's George Osborne who has the most serious questions to answer, as the Co-op went off the rails on his watch.

Not that that matters. When engineering a smear, the practised professional knows that detail is strictly for nerds and the inside pages. What matters is getting Labour and Flowers in the same sentence, repeated enough times for the damage to be done. Who can be bothered with precise facts? More important is to create an overall impression: Labour adviser, money, drugs. Job done.

You might imagine this work would be performed by the grubby grunts at the bottom of the Westminster food chain, those extras from The Thick of It who work in the shadows. But no. Those at the very top are not too grand to get their hands dirty. Witness the astonishing sight of David Cameron using prime minister's questions to suggest Miliband had enjoyed drug-fuelled nights out with Flowers, and that veteran MP Michael Meacher was high. The PM would probably say it was no more than harmless banter, but the low political aim was clear: to tar Labour MPs with a brush of Flowers, to smear them with dirt.

Miliband says: "Cameron is determined to smear his way through the next 18 months." That sounds hyperbolic, but there are reasons enough to see a pattern here. When the Libor scandal broke, Osborne suggested Balls was "clearly involved" and had questions to answer: a charge that brought a furious series of exchanges between the two, Osborne eventually beating a quiet retreat.

On the series of appalling scandals within the NHS, typified by the revelations about Stafford, the original Conservative approach was to see these as systemic failings of no party political colour. Cameron told the Commons he did "not blame the last secretary of state for health", Labour's Andy Burnham, and that he would "not seek scapegoats". But then the strategy changed, with Jeremy Hunt now regularly hounding Burnham, in effect accusing him of a cover-up of NHS deaths.

It's the same tactic with Unite, Cameron regularly using PMQs to pick on any accusation, however local or small, to discredit that union and with it the wider union movement, suggesting that the millions of people involved are complicit in activity that is malign and corrupt. It helps that each and every one of these themes is dutifully amplified by a clutch of supportive newspapers ready to serve as the Tories' megaphone.

Miliband believes this is the clear handiwork of Lynton Crosby, whose election-winning toolkit has long relied on aggressive, negative campaigning. In 1999 ABC Radio reported that Crosby's business partner, Mark Textor, had to apologise to Sue Robinson, the losing Labor candidate in the Canberra federal byelection of 1995, after supposed telephone pollsters had asked voters whether they would be more or less likely to vote for Robinson if they knew she had publicly supported the right to abortion up to the ninth month of pregnancy (even though she had made no such public statement). Since then Crosby and Textor have always denied deploying so-called "push polling".

Balls focuses less on Crosby, believing these tactics reveal the true character of Cameron and Osborne, but the high command agrees on this: Labour can ignore these attacks no longer. They have to hit back hard, fast and in detail. If they don't, the papers and – more importantly – the broadcasters will repeat the charges so often, voters will believe they are true even if they are not. The temptation will be to smear back. Very gently, Labour might say that, since Cameron has raised it, it welcomes the suggestion that all senior politicians should speak candidly of their past use of class-A drugs – and looks forward to Cameron and Osborne's answers. It could further note that, since we're on the subject of former close advisers, one of Cameron's is currently on trial at the Old Bailey.

But Labour should fight that urge and remember what the old man said. You'll both get dirty – but the other guy likes it.

Twitter: @Freedland

• This article was amended on Saturday 23 November 2013 to alter the description of Lynton Crosby's election campaign strategy.