Innovation minister and Labor Left stalwart Kim Carr is the key victim of a ministerial reshuffle that looks as much a purge to shore up Julia Gillard’s support as an effort to redistribute Labor’s talent.

As expected, Bill Shorten is the big winner, promoted into Cabinet and taking Workplace Relations while retaining his role as Minister for Superannuation and Financial Services.

Attorney-General Robert McClelland makes way for Nicola Roxon (the first female Attorney-General), who will hand the Health portfolio over to Tanya Plibersek, in another big promotion. Plibersek and Mark Butler, who will retain responsibility for mental health and ageing, will both come into Cabinet. McClelland moves to an absurd-sounding portfolio of “Emergency Management”, clearly a make-work job to avoid offending the NSW MP who is continually the target of retirement rumours. McClelland will also take responsibility for homelessness.

Another winner is Mark Arbib, promoted to Assistant Treasurer and Minister for Small Business, though still outside Cabinet. Parliamentary Secretary Mike Kelly moves back to Defence full-time, in a move that will be welcomed within the defence community. Up-and-comer Jason Clare is promoted from Defence Materiel to Home Affairs and Justice.

Brendan O’Connor has been moved to the Education portfolio and been given Human Services, a move slightly up but mostly sideways from his current home affairs and privacy responsibilities. His responsibilities for privacy and freedom of information have been dropped from the ministerial list. It is currently unclear who will have responsibility for them.

Greg Combet retains his current portfolio but takes Industry and Innovation in a new super-portfolio. Current minister Chris Evans will retain his skills responsibilities but move into Combet’s portfolio in what is clearly a demotion for one of the government’s poorer-performing ministers.

Carr has been demoted to “Minister for Manufacturing and Defence Materiel” in the new portfolio, an almost embarrassing title that dramatically scales back his responsibilities.

The knifing of Kim Carr is a dramatic sign of how worried the Gillard camp is about the possible return of Kevin Rudd. Carr has been point man on the most important economic issue facing the government this year, the decline of the maunfacturing sector, and has resisted what must surely have been his own personal desire to ramp up assistance and protection. Instead, he has stuck closely to the government’s innovation and skills mantra while helping put together a steel industry plan to accompany the carbon pricing package. Carr has also fought strongly for the sector inside Expenditure Review Committee and saw off looming large cuts to the portfolio in the May Budget.

His reward, it seems, is a knife in the back from the Prime Minister, a notional Victorian factional colleague apparently alarmed Carr has switched camps after strongly backing Gillard’s bid for the Prime Ministership. Carr, however, has plainly refused to go quietly, and retained a ministerial position, albeit outside Cabinet.

The changes will necessitate significant changes within the Canberra bureaucracy, especially around the creation of a huge new industry-skills-innovation super-portfolio (DIISRTE) with three ministers. Former Keating chief of staff Don Russell now becomes a key bureaucratic figure as head of the new enlarged department. There will also be a new stand-alone portfolio to house regional affairs, arts and sport (RALGAS) – previously, regional affairs had been housed with the PM&C portfolio.

The reshuffle was sparked by Tasmanian Nick Sherry opting to return to the backbench for personal reasons. However, the Prime Minister has opted for a wider reshuffle than necessary, and in doing so risked creating enemies at a fragile time for her government. She has also expanded Cabinet to accommodate those like McClelland who couldn’t be convinced to leave.

Coming as Labor’s recent polling gains grinds to a halt and after a poor, and poorly-judged, performance at Labor’s National Conference, Julia Gillard has ended the year having brought her government’s recent momentum to a dead halt. The fallout from the reshuffle will continue into the New Year when, until recently, all the focus was on what Tony Abbott would have to spend the summer doing to recalibrate his tactics.

A full ministry list is here.