Alan Watkins: The Lib Dems may be a lot of plonkers, but they retain the power to humiliate

While I was sleeping, David Steel appeared to me in a dream

It is a good principle of journalism, as of life, that while your own dreams are fascinating to yourself, they are not of the slightest interest to other people. In more than 40 years of column-writing, I have not burdened the readers with one of them. In any case, I do not dream about politicians but have, rather, what I believe are called "anxiety dreams". Either the column has not been written or it has gone astray, lost in the works. For some reason, the disappointed and demanding editor is invariably Mr Anthony Howard, for whom I worked at the New Statesman in 1972-76, though I have worked for many other editors, equally exigent, before and since.

On Thursday I did not stay up for the Dunfermline by-election result, partly because I thought Labour would win, even if with a reduced majority. But, while I was asleep, David Steel appeared to me in a dream. He was wearing a blue suit, a white shirt and a blue tie. I said to him (I remember the exact words):

"What a lot of plonkers you are."

I proceeded to develop my argument, which was that many citizens had voted Liberal Democrat precisely because Mr Charles Kennedy had taken a drop too many from time to time and that in future they would vote for other parties or stay away altogether. Lord Steel gravely expressed agreement, saying that he had always taken the same view himself (I have no idea whether he did or not), and on that happy note we went our separate ways.

On Friday morning I learnt the result. We all know that Scotland is different and that by-elections do not always or necessarily anticipate the result in a general election. But it is silly to go on to conclude that on this account they do not matter. It would be possible to write a whole book - I am fairly sure someone has written a whole book - on the effect which crucial by-elections have had on the course of politics.

I am not claiming that Dunfermline and West Fife will go down with the greatest upsets of former times; merely that it has convincingly controverted metropolitan opinion, or columnists' wisdom, of the past couple of months.

Thus: while the Liberal Democrats may or may not be a lot of plonkers, as I firmly believe they are, they nevertheless retain the capacity to humiliate the Government in a safe Labour seat. This is all the more remarkable because I would have thought that sympathy for Mr Kennedy would be strongest in a Scottish seat, with the consequence that its electors would be inclined to withhold their support from a party which had dispensed with his services in what was, arguably, a cruel and heartless fashion, quite apart from the air of incompetence surrounding the proceedings.

Nor is it only the Government that the Liberal Democrats are humiliating. They are giving the same treatment to the official Opposition as well. My guess is that, at the election, the Liberal Democrats of the county towns and the South-East generally will move back to the Conservatives; while the disillusioned Labour voters of the bigger industrial towns and the North and Midlands will stay with the Liberal Democrats, Gordon Brown or no Gordon Brown.

This means a net gain, I think, for Mr David Cameron. But his charms, despite his Scottish name, do not yet extend to Scotland, and I doubt whether they ever will.

The truth remains that the Labour Party does not yet know quite how to deal with Mr Cameron, despite some self-confident assertions that the problem had now been solved (supported, or apparently supported, by Mr Cameron's performance at Prime Minister's Questions). There is an almost exact parallel with the difficulties the Conservatives faced with Mr Tony Blair in 1994-97 and, indeed, after he had formed his first government.

Was he to be depicted as an old-fashioned socialist cunningly concealing his evil intentions? Or as someone who was merely imitating the Conservatives? Or as a politician who simply could not make up his mind from one day to the next?

To begin with, it was the first solution that found favour. A much-cited episode concerned the seizure of London by Mr Ken Livingstone at the expense of the elected Labour leader, Mr Andrew (now Lord) McIntosh. This version had Mr Blair as Lord McIntosh and some unnamed fiend of the future as Mr Livingstone. It was depicted in the "red eyes" poster, one of the most embarrassing political productions of all time, the work of one or other of the Saatchi brothers, who are to me as indistinguishable as the Barclay brothers.

But this approach was soon jettisoned. After some trial and error, the Conservatives settled down to the assertion that Mr Blair was not to be trusted. This was uncontroversial enough. Indeed, it was a statement of what was observable on a weekly basis. The trouble was that the British voter did not seem to care.

The Blair loyalists reply that the parallel is inexact and even misleading because by the time Mr Blair took over in 1994 the party really had changed. Tribute is paid to John Smith and to Neil Kinnock, who is now in danger of imminent canonisation by the forces of New Labour. Mr Cameron's Conservatives, by contrast, have not gone through the nights of doubt and sorrow which earlier afflicted Labour.

But they have, you know, they have; and the struggle has been no different from that which took place in the Labour Party in the late 1980s. Labour politicians who had been on the far Left or Trotskyists or even members of the Communist Party - one thinks of Mr Charles Clarke, Ms Harriet Harman, Ms Patricia Hewitt, Mr Peter Mandelson, Dr John Reid, Mr Jack Straw, to name but a few, though quite enough to be going on with - found that what they really wanted was office. Conservative politicians of the late 1990s made the same discovery: they likewise wanted big black cars, shiny as beetles, and research assistants with long legs and soft eyes, and civil servants who would provide quick answers and to whom they could say go, and he goeth.

Mr Michael Portillo spotted the need for change as long as five years ago, but things went wrong, and he now finds himself a citizen of the republic of letters. Mr Francis Maude, who last week called for compassion all round, cried on the demise of Margaret Thatcher. The old Thatcherites who surround Mr Cameron are no different from the old Marxists who surround Mr Blair. And come the election, they will have their reward.