Bouquet for Mr Kennedy, brickbats for Mr Hague - and a warning for the PM

Were it not for the novelty value of London's first direct elections for mayor, the Romsey result would go down as one of the most significant in Britain's colourful history of by-elections. It was a triumphant vindication of Charles Kennedy's sane and unfrenetic style of leadership of the Liberal Democrats. What was most heartening was that the by-election was fought head-to-head between the Lib Dems and Conservatives on the issues of refugees and crime. William Hague's distasteful attempt to stoke unjustified fears that the country is being "flooded" by claims for asylum was decisively ignored by the silent majority - a majority even in the Tory heartland of Hampshire.

Make no mistake that the Romsey by-election was a disaster for Mr Hague. All his verbal dexterity yesterday could not conceal the narrowness of his electoral base, the nationalistic Tory core - and not even that is safe. In order to mount a credible challenge in a general election, the main opposition party has to be able to defend its own territory. When Labour lost the Greenwich by-election to the third party in early 1987, it presaged Neil Kinnock's defeat by a majority of 102 a few months later.

A remarkable feature of the Romsey result is that it suggests that the informal Lib-Lab tendency among the electorate is still extant. True, in places like Hartlepool the Lib Dems and the Tories co-operated by not fielding candidates against each other in order to oust the Labour council. But there is no sign of a more general shift among the voters pushing the Lib Dems towards the Tories in an anti-Labour alignment nationally.

Tory glee at Tony Blair's bruised nose in London is misplaced too: Steven Norris's strong showing was based on distancing himself from Mr Hague. Mr Norris is an inclusive, modern Conservative, able to present himself simultaneously as a One Nation Tory, a Eurosceptic and a human being, precisely the combination Mr Hague cannot pull off.

The Labour Party, meanwhile, could learn a lot from Mr Kennedy, and the new Lib Dem MP for Romsey, Sandra Gidley, who made a stand on an issue of principle - and won. Mr Blair does not need to be defensive on asylum and immigration. Jack Straw has become a symbol of Labour's reactionary instincts - Mr Blair should move him to a post better suited to his undoubted talents, and the Government could move to a stance of welcoming economic migrants - people who have the skills, motivation and self-sufficiency to make a contribution to British society.

There is a wider lesson for Mr Blair in Thursday's elections, however, which is that he must go back to being New Labour. All the hand-wringing over Rover cut no ice with the voters of the West Midlands. To be sure, telling the workers of Longbridge that the taxpayer should not subsidise their jobs would not have been popular either. But it would have been right.

Mr Blair busied himself on "prime ministerial" business in Belfast rather than face the music in London. He should stop taking fright at shadows, whether they be the products of his policy of devolving power, the racists courted by Mr Hague or the dinosaurs in his own party. New Labour used to be a modern, confident party, tolerant, equally unafraid of social change and economic transformation. Where is it now? A strong stand in favour of liberal social values and economic realism would gain the Prime Minister respect in Labour's heartlands and Middle Britain alike.