Suddenly the Lib Dems have reason to cheer

'The party has caught a wave. It has also opened up a new debate on direct versus indirect tax'

Charles Kennedy is beginning to look like a lucky politician. He has started his party conference with the opinion polls in a state neither he nor any other politician could have imagined a fortnight ago. The weekend polls, at least, suggest that his party is as much - or even more - a beneficiary of the Government's new-found unpopularity as the Tories. And that's not all. Suddenly there are psephologists even talking merrily about the possibility of a hung parliament, the electoral outcome that, in his heart of hearts, every serious Liberal Democrat dreams of. In Bournemouth, despite yesterday's vile weather, life is looking rather good.

Charles Kennedy is beginning to look like a lucky politician. He has started his party conference with the opinion polls in a state neither he nor any other politician could have imagined a fortnight ago. The weekend polls, at least, suggest that his party is as much - or even more - a beneficiary of the Government's new-found unpopularity as the Tories. And that's not all. Suddenly there are psephologists even talking merrily about the possibility of a hung parliament, the electoral outcome that, in his heart of hearts, every serious Liberal Democrat dreams of. In Bournemouth, despite yesterday's vile weather, life is looking rather good.

Some of the Liberal Democrats' improved strength is rather hard to fathom or, to put it less politely, plain unfair. How, for example, can a party more wedded than any other to environmental taxes - including excise duty on petrol - be mopping up support from a government damaged by a bunch of demonstrators whose sole ostensible purpose was to bring down the tax on petrol? Whatever else those demonstrators were, it's a pretty safe bet they weren't, in the main, Lib Dems any more than they were Labour supporters.

Finally, given that this is the first time since 1992 that Labour has fallen below the Tories in a poll, it rather breaks the rules for the third party not to have suffered collateral damage. After all, it's during that period that the Lib Dems abandoned their neutrality between the parties and lined up firmly with Labour. Why haven't they suffered from a Labour government's unpopularity as they did for propping up the Callaghan government in 1976-77?

First, of course, the present government is nothing like as unpopular as Callaghan's. Second, the more instructive (though, again, less dramatic) parallel may possibly be with 1974 when the Liberals benefited from the unpopularity of both the main parties. But a handful of snap opinion polls, as Mr Kennedy is certainly intelligent enough to realise, don't tell you anything very certain about the deep structure of public opinion. Tony Blair's government would have to be a lot more unpopular for a lot longer before that could be notionally translated into seats.

There are, nevertheless, reasons (some of them rather unexpected) why Mr Kennedy's apparent cheerfulness is not misplaced. Those of us who have questioned whether it is sensible for the Liberal Democrats to try to outbid Gordon Brown's spending plans for the next three years have been chided by senior members of Mr Kennedy's party. This isn't old-style tax-and-spend, they insist. After all, there are not that many people (even in those leafy outer London suburbs where the Liberal Democrats have been doing so well against the Tories) whose earnings top the £100,000 a year mark - above which the new 50 per cent tax rate would kick in.

There are still grounds for wondering if this is the wisest way to woo potential Tory defectors in some of the South West seats where the Liberal Democrats are under pressure to hold, let alone gain seats. Nevertheless, it's becoming clear that, as much by accident as design, they are pioneering an argument which now looks likely to receive quite a lot of airtime at the Labour conference next week. The details of Liberal Democrat tax policy may matter rather less than the fact that they have rather led the way in being unashamed about the need to tax, while arguing strongly that taxes which are for a specific purpose are more credible than those that are not.

One consequence of last week's fuel crisis is that whatever other differences there may be in the Cabinet about the wisdom of the fuel duty, the collective leadership is determined to use next week in Brighton to explain why desirable public spending has to be paid for. Winning that argument is now the essential task for the anti-Tory election effort. The Government has a well -known dilemma: if it fails to indicate a cut in fuel duty next November it looks as if it isn't listening. If it does, it looks as if it is caving in. But, so the argument goes, you can't begin to resolve that question unless people understand why you are taxing in the first place.

In that sense, at least, the Liberal Democrats have caught the wave. Many of them would go further, by saying that they have also opened up a new debate - made especially timely by last week's protests - on direct versus indirect tax. By not reacting to the prospect of a (progressive) rise in income tax as Dracula reacts to the cross, they are challenging the Government on the highly topical question of whether (regressive) indirect taxation - such as fuel duty - can take the strain indefinitely. With characteristic insouciance they have already trimmed on excise duty by calling for a cap. They expect the Government to do the same.

But that's not all. The party has taken one other notably sensible step - which at once makes it look more serious and also may help it to shore up some support in the notoriously Eurosceptical South West. The high-powered commission on the euro, chaired by the MEP Chris Huhne, has performed a service both to pro-Europeans and to his party. By adding a sixth test - that of the exchange rate level - to the Chancellor's five that need to be judged before euro-entry cam go ahead they have shown that they do not simply want to be in the euro on any terms.

Lib Dems - including Mr Kennedy - like talking about themselves as if they were above the sordid compromises of the main parties. And, certainly Mr Kennedy, despite his background as a social democrat, has rediscovered social liberalism as a political idea - one which never turned on his predecessor quite as much. The Romsey by-election handsomely vindicated Mr Kennedy's stance on asylum. And he shows little sign of minding that the party spent quite a lot of time on contracts between unmarried people - including gays. It is, anyway, an issue which no longer horrifies Middle England as it once did. And yet, Paddy Ashdown might have winced a little more.

We shouldn't be wholly taken in. The Lib Dems can be as opportunistic as any other party - as its relations with Labour may yet show. At the moment, they sensibly regard Labour's electoral slump as being very far from a done deal. And they are certainly not going to sacrifice their appeal to dissident Labour supporters by suddenly reversing all the work of the past eight years and announcing that they could, after all, form a coalition with Tories.

However, if Labour did become seriously and chronically unpopular the Lib Dems could easily find some excuses (slow progress on the House of Lords etc) for pulling out of the anyway rather limited work of the Joint Cabinet Committee on which they sit with Labour. All this, as he contemplates the possibility of a less-than-gigantic majority, would probably come as a bitter blow for Tony Blair.

Which is a reminder that the Liberal Democrats - for all their anti-political self image - are normal politicians too. It is probably more by accident than design. But by the light of normal politics, at least those of the centre left, they may even be slightly ahead of the curve.

d.macintyre@independent.co.uk