THE NEW BRITAIN: Labour eyes up its new 'flat-sharers'

MEMBERS OF the new Scottish Parliament will not sit, like their London counterparts, in confrontational opposing lines. They will gather, as if around a cosy fireside, in a horseshoe-shaped chamber.

The braying and jeering of the House of Commons will be replaced in Edinburgh, the advocates of devolution say, by considered debate among reasonable adults. This touchy-feely Parliament, with its family-friendly hours and modern rituals, is said to be symbolic of a new form of politics which is sweeping across Britain.

Last week's elections in Scotland and Wales were a historic redrawing of the constitutional map of the United Kingdom. But the Scottish Parliament and Welsh Assembly will also be the first real test of Tony Blair's plan for the new centre-left coalition with which he wants to take his "modern, dynamic New Britain" into the 21st century. Labour did not win enough seats in either of last week's elections to push through its legislative programmes single-handedly. The party will have to rely on the Liberal Democrats.

This is the Prime Minister's beloved "Third Way" in action. Devolution, pushed forward by the former leader John Smith and adopted only reluctantly by Mr Blair, is now being seen in Downing Street as a testing ground for the New Labour "project".

It is in Scotland and Wales that the Government will see how Lib-Labbery - designed to keep the Tories out of power for decades - actually works. For the Liberal Democrats, devolution is also a chance for the Labour party to put its money where its mouth is and demonstrate genuine commitment to co-operation. "The whole culture of politics is changing," a friend of Paddy Ashdown's said. "With devolution we have turned a corner and found that the entire landscape has changed."

There has already been unprecedented co-operation between the two parties. According to insiders, Donald Dewar, the First Minister in waiting, has already developed a close working relationship with Jim Wallace, the Liberal Democrat leader north of the border. Although in public the two men tore each other's policies apart, privately they were already thinking about the terms of a deal that would have to follow an election that failed to deliver a clear majority to any party.

According to Donald Macintyre's recent biography of former minister Peter Mandelson, Labour and the Liberal Democrats had already agreed to go into coalition in a future Scottish Parliament three years ago at a meeting in Lord Irvine of Lairg's north London home.

But deals are not going to be as easy for the Labour party in Scotland as they might seem. Labour insiders were yesterday trying to play down the role that the Liberal Democrats would play. "They're very much junior partners," one source said. "They came in fourth place, with 17 seats, we won 56." The Liberal Democrats, meanwhile, say there are certain key principles which they will not compromise. "It's as if we've decided to become flatmates," one senior official said, "and now we're arguing over the washing-up rotas."

It is not yet clear exactly how coalition in Scotland and Wales will work. Both parties' newly elected MSPs met yesterday to discuss the terms of their negotiations. It is likely that the Scottish Liberal Democrats will be given some seats - probably two - in the Executive. The two parties north of the border will draw up a joint legislative programme which they intend to implement by combining forces over the next four years. Nobody knows yet whether this means that all Liberal Democrat MSPs will be bound to vote with Labour on all issues or whether coalition will be limited to certain key areas.

Serious disagreements are already emerging, with the introduction of tuition fees for university students, supported by Labour and opposed by the Liberal Democrats, the key sticking point. Donald Dewar is under pressure from London to resist a compromise: David Blunkett, the Education Secretary, does not want to upset the "settled policy" in the rest of Britain, and Gordon Brown is insisting that the Government's hard-won reputation for "prudence" should not be blown north of the border. John Prescott, the Deputy Prime Minister, insisted throughout last week that Labour would govern on its manifesto rather than agreeing to water down key proposals. But in Scotland, the Labour party is more sympathetic - Malcolm Chisholm, a newly elected MSP, made clear yesterday that a compromise on tuition fees was on the agenda. "Their negotiating position is rather macho in London," one Liberal Democrat said. "Donald Dewar is rather less aggressive."

Differences between London and Edinburgh will be an on-going problem. "Power has been devolved to the Scottish Parliament," the Prime Minister's official spokesman said yesterday. "But Tony Blair continues to be the Prime Minister of the United Kingdom. He has a role in the running of Scotland, Wales and Northern Ireland as well as England."

There will also be increasing tension in both the Labour and Liberal Democrat parties about the implications of closer links in Scotland and Wales. Opponents of proportional representation are already seizing on the horse-trading in Scotland to make the case against the introduction of the voting system for Westminster. Ken Jackson, General Secretary of the Allied Electrical Engineers Union, said PR in Scotland had created a "mess". "Most people in the Labour party don't like giving power to the Liberal Democrats so this will increase opposition to PR." Ministers including John Prescott and Margaret Beckett insist that co-operation should be kept to a minimum, as do senior Liberal Democrats. Lord Russell, the party's social security spokesman, has called for "cohabitation not marriage" between the parties.

But Scotland and Wales are being seen as forerunners for closer links in Westminster. Labour party activists point out that the two broadly centre-left parties won a combined 63 per cent of the vote in the local elections last week. They believe that they must work together to force the Tories further out into the cold.

After the next set of elections - for the European Parliament next month - the coalition will broaden again to include left-wing Conservatives. Kenneth Clarke and Michael Heseltine are planning to throw their weight behind the cross-party campaign in favour of the European single currency.

The "Hoover effect" - as Peter Mandelson likes to describe New Labour's ability to absorb like-minded characters from across the political spectrum - will continue to operate. But, as Scotland and Wales demonstrate, when the balance of power is more even than it is at Westminster, it can be difficult to suck up all the pieces.