Bad news, Mr Blair: voters want low taxes and high spending

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This was not in the script. Ever since the last time all our assumptions about politics were torn up, on 2 May 1997, the settled consensus about the future was that Tony Blair, having won an epic landslide victory, was comfortably ensconced in 10 Downing Street as a two-term prime minister, and that the next general election would merely be an uninteresting going-through of the motions.

This was not in the script. Ever since the last time all our assumptions about politics were torn up, on 2 May 1997, the settled consensus about the future was that Tony Blair, having won an epic landslide victory, was comfortably ensconced in 10 Downing Street as a two-term prime minister, and that the next general election would merely be an uninteresting going-through of the motions.

Suddenly, as the party-conference season kicks off, the future ain't what it used to be. Even before the fuel crisis, the conventional wisdom was that the Conservatives and Liberal Democrats had everything to play for, while Labour had everything to lose. But now William Hague and Charles Kennedy are back in the game, and Mr Blair has certainly lost something. The question is what, and how much.

The sudden movement in the opinion polls dramatises the Government's fall from grace. Both polls were taken at the height of the crisis last week, and some bounce-back in the elastic of public opinion is to be expected. And it is worth keeping hold of the fact that Labour's majority is so large that a hung parliament is the best outcome Mr Blair's opponents can realistically hope for.

That makes the Liberal Democrat conference, which opened yesterday in Bournemouth, more interesting than usual. Mr Kennedy increasingly seems endowed with that most valuable of political gifts - luck. As he shows in his article on these pages, he is also bolder than his predecessor in unapologetically espousing liberal values. His party has also been more honest - it is not saying much - than the others in making the environmental case for petrol duty (although it has not stopped him calling for motorists to be compensated).

But Mr Kennedy is lucky to be well-placed as the beneficiary of a classic third-party protest vote. Never mind the contradictions, just watch him pile up an unholy coalition of civil libertarians, greens and disgruntled motorists who are disillusioned with Mr Blair but unenticed by the charms of Mr Hague.

The Conservative leader must thank his lucky four-star too, although for him the contradictions are more glaring and more likely to explode under sustained assault from Labour. Mr Hague and his Treasury spokesman, Michael Portillo, have cleverly used the petrol issue to turn the tax-and-spend argument back on to traditional right-cutting territory. By portraying the blockades as a "taxpayers' revolt", they have reversed three years of Labour's careful preparing of the ground for the next election. Mr Blair and Gordon Brown wanted to fight it over higher spending on schools and hospitals, paid for by the fruits of economic growth, while taxpayers enjoyed the lowest overall tax burden in Europe. The huge public sensitivity to petrol tax, provoked by the rise in world oil prices, has moved the battlefield.

The electorate's conflicting desire for low taxes and high public-spending now has more chance of being resolved in the Conservatives' favour, although Mr Hague still has to say where the cuts will fall - not just to pay for the cut in petrol duty but to pay for lower taxes generally.

If Mr Hague and Mr Kennedy do not deserve - on policy grounds - to gain from Mr Blair's discomfiture, then nor does a third possible beneficiary, namely the Chancellor of the Exchequer himself. Our report today that Peter Mandelson has offered Mr Brown his backing for the top job, should such a vacancy arise, is a reminder that the Chancellor is restlessly positioning himself to take over should Mr Blair stumble. Yet he was the minister who decided the level of fuel tax.

There is no reason, however, why Mr Blair should stumble. He and Mr Brown must hold their nerve in November and resist the pressure for a cut in petrol duty. It is a deeply unpopular tax - the depth of that unpopularity was clearly shown in the weekend's polls - but it is a good tax, not so much for the altruistic motive of slowing global warming but for economic efficiency in reducing road congestion. And the alternative would be to raise taxes or cut public spending elsewhere.

There is time over the next seven months for Mr Blair to recover the electorate's respect, but it could be a closer-run thing than seemed conceivable before the events of the past 10 days.

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