Cameron's glass may be half-full - but the policy cupboard remains half-empty

It is generally true to say that in order to be successful in politics, you have to be capable of conveying a sense of optimism about your country and its future.

One of Tony Blair's key strengths at the start of his leadership was his ability to communicate a vision of a bright 'New Britain' in contrast to the greyness of the John Major years.

Later, David Cameron donned the same mantle, exhorting the voters to "let sunshine win the day" as he pitched himself against a tired old Labour government.

But there can come a time when optimism crosses the line into mere boosterism, and in my view it’s a line Mr Cameron crossed in his party conference speech in Manchester this week.

"Let's reject the pessimism. Let's bring on the can-do optimism. Let's summon the energy and the appetite to fight for a better future for our country, Great Britain," he told the Tory faithful.

And again: "So let's see an optimistic future. Let's show the world some fight. Let's pull together, work together, and together lead Britain to better days."

If, by his own admission, Ed Miliband is no Tony Blair when it comes to speechmaking, then David Cameron is no Winston Churchill either.

And I sense that I was not the only one who was left somewhat unconvinced by the Prime Minister's attempts this week to summon up the bulldog spirit.

To take another of Mr Cameron's optimistic soundbites: "Right now we need to be energised, not paralysed by gloom and fear."

Yet in the eyes of many, it is his government which has produced the economic paralysis by cutting too far, too fast and choking off the fragile recovery that had begun to see us through the downturn.

In this context, the announcement of a mere 0.1pc growth in the economy during the last quarter could not have come at a worse time for Mr Cameron.

Against that gloomy backdrop, his attempts at uplift were no more persuasive than his earlier, now seemingly discarded mantra that "we're all in it together."

The most startling omission in Wednesday’s speech was the absence of any policy detail from the Prime Minister on how he plans to ensure that economic growth in the next quarter does not grind to a halt altogether.

“Here’s our growth plan,” he said. “Doing everything we can to help businesses start, grow, thrive, succeed. Where that means backing off, cutting regulation – back off, cut regulation. Where that means intervention, investment – intervene, invest. Whatever it takes to help our businesses take on the world – we’ll do it.”

Commenting on this passage on his blog, Alastair Campbell wrote: “What was happening in the Team Cameron speech meetings? Did nobody stop and say ‘er, Prime Minister, this is a bit embarrassing, and doesn’t really say anything?’”

Okay, so Campbell is hardly an objective observer - but he knows what it takes to produce a good conference speech, and he also knows a turkey when he sees one.

The background story bubbling away behind the scenes at this conference was the nascent leadership battle to succeed Mr Cameron.

Home Secretary Theresa May made her pitch for the affections of the Tory Right by inflating a somewhat tendentious story about an over-stayed student who defied deportation on the grounds of owning a cat into front page news.

Then, as always, there was Boris Johnson, the London Mayor lobbing his own hand-grenade into the Tories' never-ending debate about Europe by announcing he favours a referendum on EU membership.

And even Mr Cameron himself felt the need to acknowledge Chancellor George Osborne's leadership ambitions, jesting about his choice of The Man Who Would Be King as an audio book.

But joking aside, the Prime Minister should surely be deeply worried by this outbreak of posturing and positioning among the potential contenders for his crown.

The result of the last general election showed that the public are not entirely convinced by him, and I sense that his party are increasingly unconvinced by him too.

Do the Tories believe that Mr Sunshine’s unflagging sense of optimism will be enough to save them from the gathering economic and political storm clouds ahead?

Or are they already secretly planning for Life after Dave?

At some point, Clegg will have to start thinking about the next election, not the last

If one sign of a good politician is the ability to learn from the greats that have gone before you, then Nick Clegg certainly hit the mark in at least one respect this week.

“You don't play politics at a time of national crisis, you don't play politics with the economy, and you never, ever, play politics with people's jobs," the Liberal Democrat leader told his party conference in Birmingham on Wednesday.

Westminster watchers of a certain age were instantly transported back more than a quarter of a century to Bournemouth, 1985, when Neil Kinnock tore into the grotesque chaos of Militant-run Liverpool.

“I’ll tell you – and you’ll listen!” he told the delegates as left-wing MP Eric Heffer stormed out of the conference hall. “You can’t play politics with people’s jobs, and with people’s homes, and with people’s services.”

But words aside, was there any parallel between Kinnock’s great oratorical tour-de-force and the Deputy Prime Minister’s rather more pedestrian
efforts of this week?

Well, up to a point. Kinnock’s words were of course solely directed at his own party, and so, to an extent, were Mr Clegg’s.

Coming as they did at the end of a lengthy defence of his party’s decision to join the Coalition, the words seemed primarily a rebuke to those Lib Dems who would rather they had sat on the sidelines.

That might have been better ‘politics,’ in that the Lib Dems would not now be languishing at 15pc in the opinion polls – but the whole thrust of Mr Clegg’s argument was that the national interest required him to set such considerations aside.

Currently, people views on whether the Lib Dems were right to join a Conservative-led Coalition will depend by and large on whether or not they agree with the Conservatives’ economic prescriptions.

In the North-East and other regions where the fragile recovery of 2010 appears to have been choked-off by the government’s public spending cuts, it is hardly surprising that many one-time Lib Dem voters think they were wrong.

But ultimately the question of whether Mr Clegg was right or wrong will be left to the judgement of history.

If Chancellor George Osborne’s great economic gamble ultimately succeeds and the economy returns to strong growth before 2015, it will look like a good call – but if not, he will be seen to have sold his birthright for no more than a mess of potage.

Thankfully, there are at some Liberal Democrats at least who already seem to be making plans for the latter eventuality.

In a widely-reported speech at the start of the conference, party president Tim Farron made it clear that the ‘marriage’ with the Conservatives, while currently good-natured, would inevitably have to end in divorce.

In one sense this was no more than a statement of the bleeding obvious from Mr Farron, who is widely expected to succeed Mr Clegg as Lib Dem leader.

Even if Mr Osborne manages to preside over an economic miracle, the Lib Dems cannot go into the next election hanging on to the Conservatives’ shirt-tails. Rather they will need, between now and then, to re-establish their identity as an independent party.

One of the fundamental rules of politics is that when you go into an election, you at least have to make a pretence of fighting to win.
People simply will not vote for a party that sees holding the balance of power within a hung Parliament as its explicit objective.

One thing you can be absolutely sure of is that the Conservatives won’t be going into the next election with the objective of another Coalition – explicitly or implicitly.

Many on the right of the party still blame David Cameron for failing to achieve an outright majority in May 2010 when faced by an exhausted, hapless Labour government. They will simply not permit him to aim for anything less next time.

How Mr Clegg ultimately handles this dynamic will, I suspect, determine whether it is he or Mr Farron who leads the Lib Dems into that election.

It is entirely possible that he may go down as one of those politicians – Ramsay Macdonald being another example – whose names become a byword for betrayal within their own parties.

This year’s conference was all about reassuring the doubters in his party that he did the right thing in May 2010.

The next one, however, will need to be much more about what he is going to do come May 2015..

Meanwhile, back in the real world....

Once again, the week concludes with phone-hacking back at the top of the political agenda, as MPs discuss a possible fresh grilling for News International's James Murdoch amid more conflicting tales about who knew what and when.

Sure, it's all very entertaining, especially for those of us who have spent years longing to see the Murdoch Empire cut down to size, and in view of his long-standing links with the NI crowd, it remains a potentially toxic story for Prime Minister David Cameron.

But sometimes the inevitable media firestorm around stories such as these can detract from the really big issues facing the country, the ones that affect peoples' lives on a day-to-day level.

And for most people, not least in the North-East, the really big issue remains the fragile state of the economy and its impact on jobs.

The publication of the three-monthly GDP figures on Tuesday saw a brief, almost evanescent shift in the news agenda away from phone-hacking and onto the bigger economic picture.

The revelation that the economy grew by just 0.2pc in the last quarter will have come as no great surprise to anyone who has been attempting to run a business over the course of that period.

If the previous set of GDP figures in April, showing 0.5pc growth, were seen at the time as disappointing, then this week's were truly dismal.

The country may have avoided a double-dip recession – but it has done so only by the skin of its teeth, and there seems no great reason to suggest we are anywhere near being out of the woods yet.

It was tempting to see George Osborne's attempts to pin the blame for the economy's continued sluggish performance on the Royal Wedding as part of a worrying pattern of behaviour on the part of the Chancellor.

After all, this is the man who found himself compared to a rail announcer of yore by blaming April's figures on the winter snows.

But maybe Mr Osborne had a point this time round. The confluence of the late Easter, the wedding, and the May Day Bank Holiday, though no fault of the government's, was scarcely helpful at a time when the economy is struggling to get into gear.

With the two four-day Bank Holiday weekends in succession, the country essentially took a 12-day holiday – helped by a patch of unseasonally warm weather.

For Shadow Chancellor Ed Balls, of course, all this is hogwash. The cause of the problem is neither the Royal nuptials nor the weather, but the government's austerity measures which he believes are continuing to choke-off any chance of a recovery.

If Mr Balls is still some way from winning the argument on this, I sense that his calls for a shift of focus from deficit reduction to growth is at least starting to be given a fairer hearing by the public.

And of course, the overall GDP figures serve to disguise the very real regional disparities in growth that exist within the UK – as Institute for Public Policy Research director Nick Pearce pointed out on Tuesday.

"Outside of London, in particular, the recession continues to be felt and the UK economy might as well still be in recession, even if technically it isn't," he said.

But it is not just Mr Balls who is keen to see more measures to stimulate growth. Tory succession-watchers will have been intrigued to see London Mayor Boris Johnson setting out his own alternative economic strategy this week, with tax cuts top of his agenda.

Much as Gordon Brown once did, Mr Osborne is keen to create an air of inevitability around himself as the Prime Minister's eventual successor, but as the man who recommended Andy Coulson, he has been damaged by phone-hacking and his handling of the economy is also coming in for increasing criticism.

Meanwhile Mr Johnson, whose own ambitions to lead the Conservative Party one day remain undimmed, is playing a blinder on both issues, with the countdown to the Olympics only likely to increase his profile still further.

BoJo is on the move. Watch this space.

When two tribes go to war....

At the beginning of this year, I wrote that if the Coalition government survived 2011, it would in all likelihood achieve its original objective of serving out a full five-year Parliamentary term.

What I was trying to say was not so much that it will all be plain sailing from 1 January 2012 onwards, but that if there was a point of maximum danger for the Cameron-Clegg government, it will come this year rather than any other.

The past few weeks seem to have proved the point, as tensions have erupted between the Coalition partners over a series of issues ranging from the NHS to immigration.

A year on from the opening TV debate between the party leaders which shaped the 2010 election campaign, serious commentators have started to pose the question whether another election might not be so very far off.

Last week I focused on the health reforms, and the ongoing Lib Dem-inspired backlash against health secretary Andrew Lansley's plan to hand control of the NHS budget to GPs.

Although they refrained from saying as much, the Lib Dems will doubtless have been privately rubbing their hands with glee at Mr Lansley's humiliation at the hands of Royal College of Nursing conference on Wednesday.

The yellows showed no such restraint however when Chancellor George Osborne suddenly enlivened what has thus far been a sleep-inducing campaign on whether to change the voting system.

Mr Osborne criticised the role of the Electoral Reform Society in simultaneously receiving taxpayers' money to run some of the referendum ballots and helping to fund the Yes campaign, saying: "That stinks frankly."

The comments earned the Chancellor a rebuke from his own Lib Dem deputy, chief secretary to the treasury Danny Alexander, who accused his departmental boss of "pretty desperate scaremongering."

It showed that, although the two sides have agreed to disagree on the subject of voting reform, it is very hard to have a civilised disagreement when the whole future of how we conduct our politics is at stake.

Predictably, however, the week's biggest Cob-Lib bust-up arose over Prime Minister David Cameron's decision to make a speech highlighting the impact of immigration on local communities.

Lib Dem Cabinet colleague Vince Cable said his words were "very unwise" and that the PM risked inflaming extremism.

Partly this was down to the timing of the speech, three weeks before some local elections in which the British National Party will once more attempt to make inroads.

But it also exposed real disagreements over the issue at the heart of the Coalition, with business secretary Dr Cable consistently arguing that putting a cap on immigration will limit firms' abilities to recruit key workers.

The Lib Dems have pointed out that Mr Cameron's wish to take net migration back to the levels of tens of thousands a year rather than hundreds of thousands is Conservative, as opposed to government policy.

The Coalition Agreement speaks merely of an "annual limit" on people coming to the UK from outside the European Union for economic reasons, making no reference to specific numbers.

One of the commentators who openly speculated this week that the Coalition might not see out its five-year term was the constitutional expert Vernon Bogdanor.

He pointed out that while the leaderships of both parties will almost certainly want to hug together until the end, the fate of coalitions is determined by restless, committed party members whom leaders cannot always control.

Mr Bogdanor is right to point out that it is the wildly differing nature of the two parties' memberships that gives the Coalition its inherent instability, while the good relations between their respective leaderships have hitherto been its biggest strength.

If this week's events are anything to go by, however, that may not always be the case.

Steady as she goes Budget leaves dividing lines unchanged

A little late due to stuff I won't bore you with...but here's my take on the Budget as published in Saturday's Journal.

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Over the past 18 months, throughout the 2010 general election campaign and beyond, the main point at issue in British politics has been the question of how far and how fast to the cut the country's budget deficit.

To begin with, the Tories had the better of that argument, which is essentially why they ended up as the largest single party last May and why we now have a Conservative-led Coalition government.

Because the public blamed Gordon Brown for the scale of the problem, and perceived him as having been in denial over it, the Tories were able to win backing for a much deeper package of cuts than Labour had proposed.

But latterly, doubts have crept in. We may not have ended up in the dreaded double-dip recession, but as anyone running a small or medium-sized business will know, the fabled green shoots of recovery have thus far been very slow to appear.

For all the differences of emphasis between the former Chancellor Alistair Darling and the current Shadow Chancellor Ed Balls, Labour's position on the deficit remains essentially unchanged.

It is that cutting too far, too fast, will damage growth – a view that is now starting to be borne out by the actual growth figures as well as in the everyday experiences of people up and down the country.

So the political imperative for Chancellor George Osborne as he delivered his second Budget on Wednesday was clear: to demonstrate that the coalition is not just about cuts, but has a growth strategy too.

In this he was only partially successful, his task being made all the more difficult by the need to announce – less than five minutes into his statement - a downgrading of the economic growth forecasts for 2011 from 2.1pc to 1.7pc.

Labour leader Ed Miliband's obvious glee at this announcement – "every time he comes to this House growth is downgraded" he told MPs - is scarcely misplaced, given the thrust of his party's economic message over the past year.

It is also fair to say that as a 'Budget for Growth,' Wednesday's package was somewhat underwhelming.

Sure, the 1p cut in fuel duty, coupled with the cancellation of the planned 4p rise later this year, will provide a fillip for hard-pressed businesses which have seen their profit-margins eroded by ever-escalating fuel costs, as will the additional 1p cut in Corporation Tax.

And the creation of 21 new Enterprise Zones, including the Tees Valley and Tyneside, represents a welcome recognition that some part of the country are being hit far harder by the cuts than others - even it looks suspiciously like a re-run of what Margaret Thatcher's government tried in the 1980s.

But those measures apart, this was actually rather a dull Budget – much more a case of "steady as she goes" than the kind of political game-changer which Chancellors usually like to spring on us.

Perhaps the most significant paragraph in Mr Osborne's statement was the one in which he signalled the eventual scrapping of the 50p top rate of tax, drawing a line under the Brown era and pointing to his longer-term ambitions as a tax-cutter in the Nigel Lawson mould.

Meanwhile the key political dividing lines remain unchanged – the Coalition claiming its radical deficit-reduction strategy will ultimately deliver stronger growth, Labour maintaining that it has merely delayed any prospect of real recovery.

At the moment, the economic evidence is favouring Labour. But with another four years for the green shoots to flower before it has to face the electorate again, the Coalition has time on its side.

Wrong kind of snow - or wrong kind of government?

IN last week's column, I wrote that the coalition government's key political success since taking office was to have pinned the blame for the savage spending cuts it is implementing on Labour.

It is no small matter. On the question of who takes the rap for the country's current economic plight will hang much of the politics of the next five years.

If the government can hold the line all the way to the next election, it is inconceivable that the electorate would let Labour back in after just one term in opposition to atone for its economic sins.

But this, in turn, depends utterly on how the economy actually performs – and whether Chancellor George Osborne is proved right in his strategy of putting deficit reduction before economic growth.

Up until now, the country has by and large been prepared to give Mr Osborne the benefit of the doubt on this point.

Whenever Labour politicians – notably Ed Balls –have tried to argue the opposing point of view, they have been swiftly condemned as "deficit deniers."

But this week came the first sign of a chink in the Coalition's economic armour – a 0.5pc fall in GDP during the final quarter of 2010, following two preceding quarters in which the economy grew.

Could it be that Mr Balls was right after all, and that far from providing a springboard for recovery, the Coalition's deficit reduction strategy is actually strangling it?

Timing is everything in politics and in one respect, the GDP figures could not have come at a better time for Mr Balls, newly-installed as Shadow Chancellor following Alan Johnson's surprise resignation last week.

He certainly made the most of the opportunity, tearing into Mr Osborne with a self-assuredness that made the Chancellor look like the new kid on the block.

"My message to George Osborne is – get a Plan B, get a policy for jobs and growth and do it quick," he said, winning the war of the soundbites with some ease.

Mr Osborne's cause was not helped by the fact that he tried to blame the fall in output on the weather, which, as one union leader put it, sounded "a bit like a rail boss blaming delays on leaves on the line."

Whether this week's exchanges will turn out to be of lasting significance will of course depend on where the economy goes from here.

The risk factors for the government are obvious. This month’s VAT rise seems hardly likely to encourage a resumption in the growth trend, while there remains the risk of another cold snap.

Some observers have argued that having clamped down on spending in last year’s comprehensive spending review, Mr Osborne would use his March Budget to shift to a more pro-growth strategy.

Had this week's figures turned out positive, he could have done that from a position of strength - but to do so now would look more like a panic-induced U-turn.

Either way, if the next set of figures in April show the growth trend resuming, Mr Osborne will be off the hook and Mr Balls and Labour will be back at square one.

But if on the other hand they show another fall, then the UK will officially be back in recession and the dreaded "double-dip" will have become a reality.

Not only would that give Mr Balls the whip-hand in the economic debate, it would start to shatter the current consensus that the cuts are (a) necessary, and (b) Labour’s fault.

And the voters might then start to conclude that not only did we have the wrong kind of snow last month, but that we also have the wrong kind of government.

Review of the Political Year 2010

When future historians come to assess the political events of 2010, two big counterfactual questions are likely to loom large in their minds.

They are: what if Labour had ditched Gordon Brown before the General Election, and what if the Liberal Democrats had refused to go into coalition with David Cameron's Conservatives?

The second question is probably the easier one to answer. Mr Cameron would have formed a minority government, David and not Ed Miliband would have become Labour leader, and both would now be gearing up for a fresh election in the spring.

But the more tantalising question is whether Mr Cameron might never have become Prime Minister at all had Labour gone into the election under a more popular leader.

The political year 2010 began with Mr Brown's survival once again hanging in the balance.

Former Labour ministers Geoff Hoon and Patricia Hewitt attempted to get MPs to demand a leadership contest, but rightly or wrongly, the consensus in the party was that by then it was too late to change horses.

As it was, the election turned into a slow-motion car crash for Labour, dominated by televised debates in which Mr Brown was predictably outshone by his two younger, more charismatic opponents.

Then, in the final week of the campaign, came 'Duffygate' - the kind of incident which could have happened to any of them, but which seemed somehow fated to happen to the luckless Mr Brown.

In terms of issues, the campaign centred mainly on the question of how to deal with the country's biggest budget deficit since the 1930s.

Here Labour was on an equally sticky wicket, with voters clearly concluding that the party was 'in denial' about the extent of the problem and crediting the Tories for being at least partially honest about the scale of the forthcoming cuts.

For all that, though, the public remained largely unconvinced by Mr Cameron and his team, and the eventual result saw the Tories falling some 20 seats short of outright victory.

Days of frantic bargaining followed, but with the parliamentary maths in favour of a Lib-Lab deal failing to stack up, it was always likely that a Lib-Con coalition would be the outcome.

Faced with the task of finding a successor to Mr Brown, Labour managed to saddle itself with the lesser-known of the Miliband brothers, courtesy of a crazy electoral system which gave the unions the decisive say.

For David Miliband, brother Ed's leadership election victory came as a bitter blow and the South Shields MP stood down from his party's frontbench.

Then, in one of his first acts as leader, Ed sacked former Minister for the North-East Nick Brown from his Shadow Cabinet team, leaving the region somewhat leaderless in Whitehall.

Indeed, with the new coalition busily taking the axe to every regional institution in sight, the North-East seemed in danger of losing its political voice altogether.

Initial excitement about the coalition soon faded. The 'new politics' spoken of by Lib Dem leader Nick Clegg in the TV debates soon regressed into the old politics of broken election promises.

Chancellor George Osborne had expected that the £80bn programme of cuts unveiled in his October comprehensive spending review would swiftly make him the most unpopular man in Britain.

Instead, it was Mr Clegg who became the government's fall-guy, completing his journey from hero to zero by backing the rise in tuition fees against which he had so vehemently campaigned in April and May.

The Lib Dems' decision to trade principle for power has clearly come at a huge political cost. The key question for 2011 is whether the coalition as a whole can survive it.

Playing for the highest stakes

Whenever we journalists describe something as a "political gamble," or even a "huge political gamble," I sometimes think we need to go and take a lesson in the avoidance of cliché.

The fact is, all political decisions require an assessment of the balance of risk, and in that sense, all political decisions are gambles to some extent or another.

Delaying the general election until moreorless the last possible moment was a gamble for the then Prime Minister Gordon Brown, for instance.

He was gambling on the fact that the economy would pick up sufficiently before 6 May to show the electorate that his prescriptions were working. It wasn't that far away from coming off.

The gamble unveiled by Chancellor George Osborne in his first Budget on Tuesday, however, was of an entirely different order.

This wasn't just a gamble with his own future, or that of the Con-Lib coalition. It was a gamble with the future of the whole country and the jobs and livelihoods of millions of its people.

The debate over the Budget has thus far focused on two issues. First, whether it could reasonably be called "fair" and "progressive," and secondly, whether or not the £40bn extra spending cuts and tax rises were avoidable.

All I would say on the first point is that it depends how you define fairness. Some will say that the rise in VAT to 20pc is fair because it will affect everyone in the same way, while others will say it's unfair because it will disproportionately hit the poor.

The more illuminating debate surrounds the second point – whether this Budget was indeed unavoidable, or whether these cuts are at least in part ideologically motivated.

As I noted last week, the government's attempts to lay the blame for the cuts at Labour's door has aroused the opposition from its post-election slumber and forced it to stand by its own, more limited deficit reduction plan.

The really difficult thing is that no-one knows who is right about this. There is no clearer consensus among the economists about how fast the deficit should be cut than there is among the politicians.

In short, it's a case of suck it and see. We will only find out the answer once we have been there and done it.

Whatever the outcome, it is no exaggeration to say that the politics of the next decade and beyond will be shaped by it.

If Mr Osborne's strategy works, and he succeeds in bringing down the deficit without causing another recession, then David Cameron will almost certainly win a second term and probably, this time, with an outright majority.

But if it he is wrong, the current political status quo will be transformed

The coalition's political honeymoon will come to a swift end, and Mr Brown will start to look not so much like a failed leader as a lost leader, or a prophet without honour in his own country to use a Biblical analogy.

A vindicated Labour Party would then be on course for a victory at the next election every bit as crushing as the one it achieved in 1997, four years after the last Tory government's claim to economic competence was swept away by Black Wednesday

The Conservatives could be out of power for another generation, while their Liberal Democrat collaborators may well be wiped off the political map entirely.

While some on the left might welcome this apocalyptic scenario on the grounds that it would be good for the fortunes of the Labour Party, the cost in terms of human misery would surely be too great.

For that reason, we'd better all hope that Mr Osborne's great gamble does indeed pay off.

Clegg has played a blinder

Okay, so I would have preferred a Lib-Lab coalition, but the numbers were never really there, the dangers for the Lib Dems in being seen to prop up a defeated party were obvious, and as it became clear today, elements of the Labour Party were not really fully signed up to it anyway, be that out of ideological purism (Diane Abbott), a desire to rub Gordon Brown's nose in it (John Reid, David Blunkett), or positioning for the forthcoming party leadership election (Andy Burnham.)

So instead we have the LibServative option, and on paper, it doesn't seem like a bad outcome. Whatever my own personal feelings, I have said on more than one occasion during this election that the will of the public was probably towards some sort of Con-Lib coalition, and as such I don't think there will be anything like the kind of backlash towards this deal that a Lib-Lab agreement might have attracted.

In terms of policy positions, the initial signs are good, with the Tories have dropped their absurd regressive stance on inheritance tax in favour of the Lib Dem policy of raising thresholds for the worst off, and of course the guarantee of a referendum on the alternative vote which, even if it is likely to be opposed by both main parties, stands a good chance of winning a yes vote from the public.

There also appears to have been a very broad level of agreement between the two parties over civil liberties issues, with the prospect of a 'Freedom Bill' to scrap not only ID cards, but many of Labour's little-used criminal justice measures of the past 13 years.

On personnel, I am obviously delighted to see Nick Clegg as Deputy Prime Minister and it is no less than he deserves for having not only fought a brilliant election campaign, but also for his conduct of the negotiations over the past few days. I am less delighted to see George Osborne move into the Treasury - Ken Clarke, Vince Cable or Phil Hammond would all have been preferable in my eyes - but you can't have everything.

The one outstanding mystery as we approach the early hours surrounds the post of Home Secretary. The absense of any briefing from No 10 clearly indicates that the job is not going to go to Chris Grayling, but may not necessarily mean it is going to Chris Huhne either. Could it be David Davis? If so, that would get the biggest cheer of all from me - the icing on the cake of what looks set to be a liberal government in the classical sense of the term.

Will Vince Cable be the next Chancellor?

IN an election where the state of the economy is likely to be more central than ever to the outcome, it is not surprising that the identity of the next Chancellor is almost as burning an issue as that of the next Prime Minister.

From being seen at one time as a weak link in Labour’s armoury – not least by Gordon Brown himself who wanted to replace him with Ed Balls – Alastair Darling has unexpectedly emerged as one of the government’s few genuine assets.

Okay, so his third Budget ten days ago contained no new ideas and few positive reasons to vote Labour on May 6 save that of ‘better the devil you know.’

But that was not the point. Somehow, Mr Darling seems to have established himself in the public’s mind as that rare thing in 21st Century Britain – a politician who tells it like it is.

So the TV confrontation this week between Mr Darling and his opposition shadows Vince Cable and George Osborne was one of the more eagerly awaited events of the seemingly interminable pre-election countdown.

It was given added spice by the fact that Mr Osborne’s political trajectory has been almost the diametric opposite of Mr Darling’s over the past two and a half years.

Back in the autumn of 2007, he was the Tory hero whose bold promise to raise inheritance tax thresholds was seen as largely responsible for putting the frighteners on Mr Brown’s election plans.

But just as that IT pledge has become something of a millstone around the Tories’ necks in these more straitened times, so Mr Osborne has become increasingly perceived as their ‘weakest link.’

It was very clear from the Tory Shadow Chancellor’s performance in Monday night’s debate that he had been reading the findings of Labour’s focus groups which called him “shrill, immature and lightweight.”

But in his efforts to appear statesmanlike, he rather over-compensated, leading one pundit to describe he and Mr Darling as “the bland leading the bland.”

Instead, it was Mr Cable who earned the lion’s share of the audience applause on the night, for instance over his refusal to indulge in impossible promises on NHS spending.

So which one of them, if any, will be Chancellor? It’s not necessarily as straightforward a question as it may seem.

Sure, if Labour wins outright, Mr Darling will stay on. Mr Brown has already been forced to say as much, putting his old ally Mr Balls’ ambitions on hold once more.

But in the event of a Tory victory, or a hung Parliament, the situation becomes much less clear cut.

There have long been rumours in Tory circles that Mr Osborne won’t go to 11 Downing Street even if they win outright.

The talk is that David Cameron could give the job of sorting out the economic mess either to old-hand Ken Clarke, or to right-wing axe-man Philip Hammond.

Most intriguing is the fate of Mr Cable. Clearly he will not be Chancellor in a Lib Dem government – but could he hold the role in a Labour or Tory-led coalition?

The short answer to that is yes. For all Lib Dem leader Nick Clegg’s refusal to play the ‘kingmaker,’ securing the Treasury for Mr Cable is likely to be central to any post-election deal in a hung Parliament.

The opinion polls continue to point to this as the likeliest election outcome, with the Tory lead still insufficient to give them an outright majority.

The race for Number 10 clearly lies between Mr Cameron and Mr Brown. But in the race for Number 11, it is the Liberal Democrat contender who is in pole position.

Cameron seeks to tone-down Tories' harsh message

There are some weeks as a political commentator when you can find yourself racking your brain for something to write about. On others, though, you find yourself somewhat spoilt for choice.

That the past week falls into the latter category there can be no doubt.

We’ve had Clare Short giving evidence to the Iraq Inquiry, telling us that Tony Blair’s real reason for going to war was that he wanted to be up there with the ‘big boys.’

It’s a pity she didn’t feel strongly enough about it at the time to join Robin Cook in resigning before the conflict. Who knows, by acting together they might just have prevented it.

Then we had Prime Minister Gordon Brown accused of having let down the armed forces while Chancellor by imposing strict limits on defence spending prior to the invasion in 2003.

And we saw the conclusion of the tortuous negotiations on Northern Ireland policing, paving the way to full devolution and, perhaps, a ‘hand of history’ moment for Gordon before he leaves office.

Meanwhile the MPs expenses row reared its head once more, with independent watchdog Sir Thomas Legg finding that more than half of MPs had made “inappropriate or excessive” claims.

Director of Public Prosecutions Keir Starmer yesterday revealed that three of them – Elliott Morley, David Chaytor and Jim Devine – will now face criminal charges.

Also in the news this week was Labour’s plan for a referendum on proportional representation, a deathbed conversion that has something of the air of tragi-comic farce about it.

I remember getting terribly excited about all the Blair-Ashdown manoeuvrings in the late 1990s, and how they planned to create a progressive-left alliance that would keep the Tories out of power for 100 years.

Electoral reform was to prove the stumbling block. It was when Jack Straw rubbished Roy Jenkins' 1998 report recommending the Alternative Vote that Paddy Ashdown decided to quit as Lib Dem leader.

Yet here we are, more than a decade on, and Labour is now endorsing that very system - surely a case of too little too late if ever there was one.

But in terms of its likely influence on the coming election campaign, perhaps the most significant story of the week was the apparent Tory confusion over public spending.

For months now, the main dividing line between the two main parties has been over the timing of spending cuts, with the Conservatives arguing that the scale of deficit requires action sooner rather than later.

Yet here was David Cameron at the start of the week attempting to reassure us that there would be “no swingeing cuts” in the first year of a Tory administration.

Were the Tories ‘wobbling’ on public spending, as Lord Mandelson was swift to allege? Shadow Chancellor George Osborne says not - but with election day looming, they do appear to be trying to blur the edges somewhat.

We have already seen this Cameroonian tendency to try to face both ways in relation their policy on regional development agencies, which were widely assumed to be for the chop within weeks of the Tories taking over.

Yet when this newspaper and others went and reported that, on the basis of some rather too candid comments by frontbench spokesman Stewart Jackson, the Tory machine swiftly went into row-back mode.

Mr Cameron’s apparent determination not to frighten the horses invites further comparisons with Tony Blair in the run-up to the 1997 election.

It didn’t do Mr Blair any harm, of course – but the public is older and wiser now.

Toxic Tories rain on Cameron's parade

David Cameron and George Osborne want us to think the Tories are the "new progressives" of British politics - but they can't stop reminders of the party's 'nasty' past from reappearing. Here's today's final Journal column before my summer break.

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A few years ago, I posed the question as to whether voters of a leftish inclination would be better off with a Conservative party that sought to appeal to them, than with a Labour party seemingly only interested in pleasing those of a right-wing persuasion.

The conundrum arose as a direct consequence of David Cameron’s mission to “detoxify” the Tory brand following his election as Tory leader in autumn 2005.

For Mr Cameron, it meant focusing his energies on winning over left-of-centre voters concerned about public services and the environment, at a time when Labour’s Tony Blair continued to be more anxious about keeping traditional Conservative supporters on side.

Since Mr Blair moved on, Labour has thankfully stopped defining itself in opposition to its core voters, but as Shadow Chancellor George Osborne showed this week, the Tories remain as keen as ever to try on their opponent’s clothes.

The point was certainly not lost on stand-in premier Lord Mandelson, who in a masterly performance on Radio Four’s Today Programme on Wednesday, managed to dodge questions about his own prime ministerial ambitions by putting the boot into Ms Osborne at every opportunity.

“I think my old friend George Osborne is involved in a bit of political cross-dressing and I don’t think it’s going to fool anyone,” he said.

That “my old friend” was a reference to the fact these two have previous form. Nearly a year ago, each was accusing the other of trying to procure a donation to their respective party’s funds from the Russian oligarch Oleg Deripaska.

After briefly looking like he may have to resign from the Cabinet for a third time over a sleaze-related issue, Lord Mandelson decisively won that battle with a counter-attack that came close to ending Mr Osborne’s own frontbench career.

But putting personal rivalries to one side, what was really interesting about Mr Osborne’s audacious “we are the progressives” speech this week was what it told us about the underlying political consensus in the country.

And this, in turn, is perhaps the one thing that can still give Labour grounds for hope as it approaches the coming election battle.

Throughout all the troubles and travails of Mr Brown’s premiership over the past two years, the Prime Minister and his supporters have continued to clutch at a single straw – the fact that even though his government is wildly unpopular, there has been no fundamental shift in the climate of public opinion towards the Tories.

Mr Osborne’s speech this week proves the point. Rather than make the case for “conservative” values as Mrs Thatcher might have done, the Tories still feel the need to fight on what is essentially Labour ground.

As it is, Mr Osborne’s speech on Tuesday demonstrated the extent to which the word “progressive” has lost virtually all meaning in contemporary political debate.

It used to denote a form of taxation which sought to redistribute resources from the better-off to the worst-off, but since all parties subscribe to this to a greater or lesser extent, this definition does not help us much.

The central claim of Mr Osborne’s speech was that Labour’s “opposition to meaningful public service reform” meant it had “abandoned the field of progressive politics.”

While the Shadow Chancellor seems to be using “progressive” here to mean “reforming,” most Labour supporters would argue that a reform is only “progressive” if it actually helps the worst-off.

But this is more than just an arid debate about labels. The nature of Lord Mandelson’s response to Mr Osborne would suggest that Labour too believes “progressive” is a word worth fighting over.

And of course, Lord M. is quite right to point out that, in terms of its effect on the worst-off, the Tories plans for £5bn of public spending cuts would hardly be “progressive” in their human consequences.

The difficulty for Labour, as I pointed out a few weeks back, is that no-one now seriously believes that they won’t also be forced to make cuts of similar magnitude.

Maybe the argument, in the end, will come down to which of the two parties can convince the public they are wielding the axe with the greater reluctance.

Part of Mr Cameron’s problem, though, as he continues to try to persuade the public that the Tories have changed, is that old reminders keep popping up of their ‘nasty party’ past.

We already knew what Shadow Commons Leader Alan Duncan really thought about MPs’ expenses from his performance on Have I Got News For You a few weeks before this summer’s scandal broke.

“It’s a great system, isn’t it?” the one-time property millionaire told Ian Hislop as he struggled to contain the smug grin spreading across his face.

Mr Duncan claimed at the time that he had been joking – but the fact that he was later captured on film whingeing about MPs having to live on “rations” does rather give the game away.

Potentially even more damaging for Mr Cameron, though, were the comments by the prominent Tory MEP Daniel Hannan about the National Health Service.

Interviewed on US television, Mr Hannan backed Republican critics of President Obama’s plan for universal healthcare by saying he "wouldn't wish the NHS on anyone."

As Labour’s big hitters queued up to twist the knife yesterday, Mr Cameron was himself forced to take to the airwaves in a frantic bid to reassure the public once again that the NHS is safe in Tory hands.

Some are already seeing a Tory victory next year as a done deal - but episodes such as this show that Mr Cameron’s big rebranding exercise still has a way to run.

Prince of Darkness continues to weave his spell

Apologies for lack of blogging this week - a combination of illness and extreme busy-ness - but here's my weekly Journal column, focusing inevitably on the so-called Corfu capers.

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It is no exaggeration to say that, of all the men and women who have influenced the course of political events over the past 16 months of the Brown premiership, the one who had possibly the greatest impact was Shadow Chancellor George Osborne.

It was his audacious plan to slash Inheritance Tax for all but the very-super-rich unveiled in his 2007 conference speech that, more than any other single factor, persuaded Mr Brown not to call a general election that autumn.

Many thought it finally marked the 36-year-old Mr Osborne’s arrival as a genuine player in the front rank of politics - a “Big Beast” in the old Tory parlance.

But if so, the events of the past week have reopened some of the old doubts in the party about whether Mr Osborne’s exalted position in the Tory hierarchy is a case of too much, too young.

The tale of the "Corfu Capers" is an intriguing demonstration of how high society and its tangled network of relationships can impact on day-to-day political events.

It all began when former Hartlepool MP Peter Mandelson, then a European Commissioner, made some critical comments about Mr Brown to Mr Osborne while they were both staying at the Greek villa of their mutual friend, Nathaniel Rothschild, this summer.

When a few weeks later Mr Brown made the dramatic step of restoring the newly-ennobled Lord Mandelson to his Cabinet in his reshuffle, what had been merely a juicy piece of gossip became political gold-dust.

A story duly appeared in The Sunday Times in which it was claimed that the new Business Secretary had “dripped pure poison into the ears of a senior Tory” about the Prime Minister during the holiday.

Mr Rothschild was furious at what he saw a breach of confidence, and got his own back by deciding to reveal what else Mr Osborne had got up to on his holidays.

Specifically, he claimed that Mr Osborne and the Tory chief executive Andrew Feldman had tried to solicit a £50,000 donation to Tory funds from a Russian oligarch, Oleg Deripaska, while visiting his yacht.

Mr Osborne has denied this, but "friends" of Mr Rothschild has now made clear that if he continues to query his version of events, he will destroy him, suggesting he has written witness statements from others who were present.

There is no suggestion that it was Lord Mandelson who tried to persuade Mr Rothschild to exact revenge on Mr Osborne.

It seems the merchant banker was simply so enraged by the breach of confidence that he decided to administer what one close associate called a "slap on the wrist."

However Tory leader David Cameron's office was warned following the Sunday Times' story that the Business Secretary knew something "explosive" about Mr Osborne and that the Shadow Chancellor should "be careful."

Mr Osborne has been forced to learn two hard lessons. First, you don’t breach confidences. Second, you don’t mess with Mandelson.

It seems unlikely as yet that the Shadow Chancellor will have to resign, and even though Mr Brown has said he hopes "the authorities" will investigate, it is not entirely clear whether any actual offence has been committed.

But it does focus attention on the Tories' readiness for government and specifically on whether they have yet got the make-up of their senior team quite right.

Already this question has been thrown into relief by Mr Cameron's failure to restore David Davis to the Shadow Home Secretaryship even though his successor Dominic Grieve seems ill-fitted for such a cut-and-thrust role.

Now the focus is on Mr Osborne - and whether someone who looks and sounds a bit less like a merchant banker might be a more convincing advocate for the Tories in the midst of the current crisis.

There has been persistent talk in Tory circles that if he wins the next election, Mr Cameron intends to bring Ken Clarke into a front-line role in government, possibly as Leader of the Commons.

But if he really does intend to employ the 68-year-old bruiser's considerable talents, he should not waste time hanging around for polling day.

He should bring Mr Clarke in now - preferably as Shadow Chancellor so he can deploy all his Treasury experience against Labour as the economic crisis continues to unwind.

Mr Clarke has long harboured a grudge against Mr Brown for the way he failed to give the Tories any credit for stabilising the economy between 1993 and 1997. What better way to get his own back.

The Corfu affair also focuses attention once again on the whole issue of political donations, demonstrating that no party is immune from the problem.

Last year we were all agog over whether Newcastle businessman David Abrahams had channelled donations to the Labour Party through associates in the city. Now the spotlight is once again back on the Tories.

What it shows is that attempting to rid British politics of sleaze is a bit like trying to abolish sin

Unless and until we move a situation where political parties are state-funded, these sorts of controversies will surely continue to recur.

For me, though, what has really elevated this story beyond the realms of run-of-the-mill political tit-for-tat has been the involvement - however innocent - of Lord Mandelson.

It has been yet another fascinating example of the Prince of Darkness's almost unique capacity for causing mayhem, even if it is sometimes inadvertent.

We saw this in his Cabinet career with his two resignations. We have seen it in the way he can both electrify and terrify the political establishment in almost equal measure.

Three weeks into his third Cabinet comeback, the man once known as the Prince of Darkness has certainly not lost his lethal touch.