The Week in Politics: Tory leadership questions will be answered by Charles Kennedy and his 'yellow peril'

Iain Duncan Smith has invited all Tory members who attend their annual conference in Blackpool to a champagne reception on Tuesday to "celebrate the success of the Conservative Party". Of course, there is no harm in raising the spirits of the party faithful, but it seems a trifle premature to be celebrating.

In the annual round of party conferences, which I have now been covering for 22 years, the Tories follow the Liberal Democrats and Labour. When Margaret Thatcher was in power, I remember thinking there was an advantage to the Tories in going last: the opposition parties can scream and shout, but this is the serious party of government.

As the Tories travel to Blackpool this weekend, some senior figures detect a disadvantage in closing the curtain on the conference stage. The Liberal Democrats were on cloud nine in Brighton after their spectacular by-election victory at Brent East. Labour, and more importantly Tony Blair, had a much better conference in Bournemouth than they expected or deserved.

The two events put more pressure on Mr Duncan Smith as he prepares for the awesome task of closing his party's credibility gap. The Tories know they should be well ahead in the opinion polls, not neck and neck. Few think they can win the next general election. Worse still, the question of whether Mr Duncan Smith is the right man to lead them into it has not been finally resolved.

My hunch is that there will not be a formal leadership challenge, if only because the countdown to a 2005 election has now begun. But the grumbling is still there, and the decibel level has risen after the Tories' third place in Brent East. Allies of the leader dismiss the critics as a "handful of malcontents." Yet the mood of Tory MPs is sullen; while there is no burning desire to oust Mr Duncan Smith, many simply have no confidence in him.

They know there is no hope of landing a ministerial car for six years, probably 10. But there is still an outside chance they will rise from their lethargy: if they fear they will lose their own seats, then they could yet rise up in mutiny. This was the spark that lit the rebellion which evicted Baroness Thatcher from Downing Street in 1990.

So the Liberal Democrats may hold the answer to the Tory leadership question. If Charles Kennedy's party can maintain its momentum, and become widely accepted as a real alternative to Labour, then Mr Duncan Smith could yet be toppled. It is a tall order for Mr Kennedy, and the Tories' private polls show his party already slipping back. But Tory MPs are increasingly jittery about the "yellow peril" and so this nightmare scenario cannot be entirely discounted.

We will hear a lot of "Lib-Dem bashing" in Blackpool in the coming week. The Liberal Democrats will be portrayed as the "loony left", led by "Red Kennedy". It is getting pretty nasty; the Conservative Party's website shows a picture of Mr Kennedy with a drink in hand.

It suits Labour very nicely for the Liberal Democrats to prevent a Tory revival and Mr Blair and Mr Kennedy probably remain much closer than they would have us believe. The Prime Minister's speech in Bournemouth again raised the prospect of a "an historic realignment" of Britain's political forces, which, one day, will surely require a "Lib-Lab" deal to keep the Tories out.

Similarly, it helps the Tories for Mr Kennedy's party to be seen as to the left of Labour, since the Tories might recapture some "Con-Lab" marginals they lost to Labour in 1997 if Labour supporters switch to the Liberal Democrats.

The primary task for the Tories next week is to tell us what they stand for. A year ago in Bournemouth, the party unveiled 25 policies. Most Tory MPs can't remember more than a few of them, so there's little hope for the rest of us. So this year they will be honed down to four or five flagship policies on issues such as the economy, health, education and crime.

We can also expect the Tories to re-establish their tax-cutting credentials, which have taken second place to their drive to win trust on public services. After the rise in national insurance and a growing outcry over council tax bills, YouGov, the Tories? pollsters, have found that taxation has overtaken health as the issue which most concerns the voters. This may provide an opportunity for the Tories. And yet it will hardly help them rebut Labour's unfounded claim that they would cut public spending by 20 per cent, which the voters certainly would not want. One Blair adviser told me in Bournemouth that New Labour's greatest achievement was to switch the political battlefield on to the party's natural territory of public services. The Tories are still "playing away" and acknowledge they must find convincing new policies on health and education in the same way as the Thatcher government transformed the economy.

Much of the burden rests on the leader's shoulders. The "Quiet Man" of a year ago will be more angry this year. He feels personally betrayed by Mr Blair over the intelligence the two men discussed on Privy Council terms about Iraqi weapons. And yet his hawkish pro-Washington stance has made it hard for the Tories to exploit public anxiety over the war, which has helped the Liberal Democrats. Mr Duncan Smith's trump card may yet prove to be his plain man image and decency, which is not an act. The message in Blackpool will be that you can trust IDS, but not "the great actor" in No 10.

But Mr Duncan Smith's task won't be easy. For five months, the Tories have been using the slogan "a fair deal for everyone". What did the Cabinet do at its pre-conference meeting? Change the slogan for Labour's gathering to "a future fair for all." Opposition can be a hard and unfair game.

a.grice@independent.co.uk