For Cameron and Clegg, there is still no alternative to the coalition

The PM and his deputy are more dependent on each other than ever.

The rumours are confirmed. House of Lords reform – at least the variant of it proposed by Nick Clegg – is dead. In retaliation, the Liberal Democrats will not support Conservative plans to change the boundaries of parliamentary constituencies, reducing the overall number of seats (to the detriment of the junior coalition party).

This development seemed inevitable from the moment last month when a decision was taken not to force the House of Commons to vote on a "timetable motion" ensuring Clegg’s reforms safe passage through parliament. At that point, David Cameron asked for more time to persuade rebels on his own side to back the plan. Anyone familiar with the mood on the Tory backbenches could have predicted they were not up for persuasion. Labour indicated clearly then too that the limit of their support had been reached – backing the bill in theory, but not the parliamentary means to rush it through. Game over.

That it has taken weeks for the last rites to be read is testimony to how much determination there remains at the very top to maintain the impression that coalition is a functional form of government. Even in his statement today, Clegg presented the move as a contractual renegotiation – part of the technical evolution of a two-party alliance in the event that the terms of agreement are breached – rather than a disorderly tit-for-tat exchange of blows.

He referred at length to what he sees as Labour’s failure to compromise, while glossing over, it seemed to me, the more substantial failure of the Prime Minister to deliver on the commitment he had made. Privately, senior Lib Dems blame Cameron for capitulating to his backbenchers and for generally taking a far too cavalier attitude to what is meant to be – as Team Clegg likes to put it – "the sacred text" of the coalition agreement.

The Tory rejoinder is that the very same text commits the Lib Dems to boundary changes and not just on condition of getting a reformed House of Lords. This hermeneutic dispute can go on forever and is never very edifying. Its very tone, quibbling over commas and interpretations like medieval monks, reinforces the sense of a government lacking broad intellectual and ideological consistency. The reliance on textual analysis to decide which party gets what out of the deal does not exactly indicate strategic clarity.

From speaking to people in Number 10 and the Deputy Prime Minister’s office today I get the impression that both sides are very alert to the danger of appearing adrift and at the mercy of political currents beyond their control – whether it is angry Tory backbenchers thinking they can boss Cameron about or a media mood that starts to write off the coalition and speculate endlessly about when and how it will end.

Hence the decision to get this piece of grim news out now, in the middle of the summer recess, when most eyes are on the Olympics. Both coalition parties are determined to use the autumn season as an opportunity for political re-launch and need to put this ugly episode behind them.

That won’t be so easy. For Clegg, the big problem now is the persistence of questions about what, if not Lords reform, he can hold up as an exclusively Lib Dem trophy snatched from reluctant Tories. (Yes, the raising of the income tax threshold and pupil premium are Clegg’s policies, but Conservatives like them too. The emblematic value of Lords Reform – the thing that would have made it cathartic for Lib Dems -  is that it was something Tory MPs would have to vote for against their will, just as the junior coalition party held its collective nose and marched through the lobbies for tuition fees and NHS reform.)

The resilience of the Lib Dems and their public loyalty to Clegg has been remarkable given the pounding they have taken in opinion polls. But this is the first issue where I sense large numbers, including some ministers, really questioning the big strategic choices that their leader has made in coalition. Why, they ask, did he pick such a battle over an issue too obscure and technical to do the party favours as a badge of political identity in the country? And could he not have foreseen that he would lose?

The climbdown does Cameron no favours either. It means, in essence, that a high-profile part of the government agenda, one that was in the Queen’s Speech and for which legislative time had been allotted, has been vetoed by backbench MPs. Precedent suggests they will be emboldened by that victory. Now more than ever, Cameron faces a challenge to prove that he is leading rather than following his party.

In the past, whenever the Prime Minister has been forced to choose between loyalty to his partnership with Clegg and acceding to the demands of his angry backbenchers, he has chosen the latter. Senior Lib Dems are now saying Cameron must accept that his serial flakiness has got him nowhere and has only weakened his authority. It is time, they say, to recognise that his political future depends on making coalition work and not undermining it when he is too chicken to take on his party.

Many Tories, meanwhile, are saying that Cameron has called Clegg’s bluff. The boundary changes are a serious tactical loss for Number 10 (unmourned by many Conservative MPs, it must be said) but not the kind of defeat on policy that registers with the country as a great humiliation. It is not a point of political honour the way Lords reform was for Clegg. The reality, as one Downing Street aide put it to me this morning, is that the Lib Dems are in no shape to fight an election and must, for the sake of their own credibility, stick with the Conservative line on the economy - the issue that counts more than any other. They have nowhere to go.

That emphatically does not mean the coalition is dissolving. Reports over the weekend that senior Tories were seriously plotting how to govern without the Lib Dems are dismissed by a Downing Street source as "nonsense." Cameron is no less dependent on Clegg’s MPs than he was in 2010. If anything, he needs them all the more now that a small but noisy band of his own MPs have decided to behave as if they were in opposition.

That is the curious paradox of today’s events. The acknowledgement of a breach of the coalition agreement and the announcement of a technical retaliation are clear reminders of how brittle the whole project is. And yet, as Clegg and Cameron are the biggest individual losers, their dependence on one another to keep the show on the road is increased. Today’s news is hardly an affirmation of coalition but it is a stark reminder that, for the Prime Minister and his Deputy, there really is no alternative.

Cameron is no less dependent on Clegg’s MPs than he was in 2010. Photograph: Getty Images.

Rafael Behr is political columnist at the Guardian and former political editor of the New Statesman

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Is anyone prepared to solve the NHS funding crisis?

As long as the political taboo on raising taxes endures, the service will be in financial peril. 

It has long been clear that the NHS is in financial ill-health. But today's figures, conveniently delayed until after the Conservative conference, are still stunningly bad. The service ran a deficit of £930m between April and June (greater than the £820m recorded for the whole of the 2014/15 financial year) and is on course for a shortfall of at least £2bn this year - its worst position for a generation. 

Though often described as having been shielded from austerity, owing to its ring-fenced budget, the NHS is enduring the toughest spending settlement in its history. Since 1950, health spending has grown at an average annual rate of 4 per cent, but over the last parliament it rose by just 0.5 per cent. An ageing population, rising treatment costs and the social care crisis all mean that the NHS has to run merely to stand still. The Tories have pledged to provide £10bn more for the service but this still leaves £20bn of efficiency savings required. 

Speculation is now turning to whether George Osborne will provide an emergency injection of funds in the Autumn Statement on 25 November. But the long-term question is whether anyone is prepared to offer a sustainable solution to the crisis. Health experts argue that only a rise in general taxation (income tax, VAT, national insurance), patient charges or a hypothecated "health tax" will secure the future of a universal, high-quality service. But the political taboo against increasing taxes on all but the richest means no politician has ventured into this territory. Shadow health secretary Heidi Alexander has today called for the government to "find money urgently to get through the coming winter months". But the bigger question is whether, under Jeremy Corbyn, Labour is prepared to go beyond sticking-plaster solutions. 

George Eaton is political editor of the New Statesman.