NS interview - Charles Kennedy

He says Blair is a disappointed man and his premiership one of missed opportunity. Has the Lib Dem l

Charles Kennedy had just returned to his Commons lair after announcing his party's plans to replace council tax. "Riveting stuff," he says by way of greeting. The Liberal Democrat leader has a knack of talking himself down. He likes to be different, to be unlike other politicians. But does it work?

This is a critical moment for all three party leaders. For Tony Blair, it could spell the end. For Michael Howard, it could herald the start of something big. For Kennedy, it could mark a return to the minion status that his party was beginning to shake off.

First, I want to know about the Prime Minister in distress. What does he think of Blair? "On a personal level, I like him. We've got on well for 20 years. You don't invite somebody to your wedding unless you get on with them quite well, apart from some of the relatives, of course." That was 18 months ago, before Iraq. He insists that in spite of their sharp disagreement, they still get on.

Kennedy believes that whatever happens now with the Hutton inquiry and the top-up fees vote, the Prime Minister cannot recover his authority. "The bright morning has gone, never to return," he says. "Iraq has completely dislocated the whole process of government. This government is occupying a space, but it's not leading a tide of public opinion any longer." He agrees with those who speak of the twilight years. "Now you're looking more at the verdict - in due course - of ex-prime minister Blair. As things stand here this week, it will go down as a premiership of considerable lost opportunity. I know that in his private moments, Blair subscribes to that view himself."

I put it to Kennedy that he, like Howard, cannot wait for Lord Hutton to deliver his verdict, to get his teeth into Blair. He becomes somewhat circumspect. At what point would Blair's position become untenable, I wonder? "If Hutton comes out with a definitive conclusion that the Prime Minister knowingly sought to mislead parliament or the country. That remains to be seen. I think there will be legitimate criticism of government decision-making processes and of the BBC," he says. "Whether that's a resignation issue? I think we're quite a long way from that."

He seems deliberately to be setting the bar high. I suggest to Kennedy that he is straining to give Blair the benefit of the doubt. "Yes, I am. I don't think people go into this level of decision-making unless they are clear in their conscience. That in no way detracts from the fact that I disagree with the conclusions he reached. He made a historic error."

Kennedy insists the focus of Howard's attack on Blair is flawed. It should not be about the narrow point of whether the PM had ensured that Dr David Kelly's name was made public. It should be about whether Britain had gone to war on a false pretext. "Blair's argument kept changing. The goalposts kept moving. One minute it was weapons of mass destruction, the next minute it was human rights, the next minute it was the rule of international law, the next minute it was something else. That is a tell-tale indication that you're not very sure of your ground. That's the issue that really needs to be gone into."

So either Blair lied or his intelligence chiefs lied to him? Kennedy offers a more benign alternative. "I wouldn't question the integrity of the people at the top of the intelligence services. The quality of the information reaching them is another question." Kennedy says that he does not doubt the sincerity of John Scarlett, the head of the Joint Intelligence Committee, who briefed him. "Scarlett was at pains to express on each occasion that, at the end of the day, it was an assessment based on as reliable information as you can get. I think they conducted themselves in good faith. Therefore, I think the PM conducted himself in good faith. The issue is: should we have had a better flow of information?"

I ask Kennedy how he would feel if Blair was impelled or chose to resign. The question makes him uncomfortable. "It's not something I devote a lot of thought to. On a personal level, I'd be slightly disappointed for him because he's not achieved the big things he has wanted to achieve. But, equally, political parties are not just about the leader. The sun will still rise in the east and set in the west whether Tony Blair is Prime Minister or not."

I puzzle over his reluctance to exploit Blair's predicament. After all, Kennedy took a big political gamble in opposing the rush to war a year ago, appearing at the million-plus rally last February when many close to him were counselling him against it. This was not something mainstream party leaders were supposed to do. Kennedy was proved right, not just in strategy but in his reservations about WMDs and the war. Yet, in the ensuing months, he has not gone for the jugular. Sure, he attacked the war in his party conference speech in September. Sure, it contributed to his party's stunning by-election victory in Brent East that same month. But when it comes to Blair personally, he holds back.

And what of the other lot? Kennedy remains sanguine in the midst of the "Howard honeymoon" which, according to some polls, has stopped the Lib Dem resurgence in its tracks. "Sure, there's been a degree of recovery [for the Conservatives]," he concedes. "That's all that's happened so far." There will, he asserts, be no shift in strategy, which includes the "decapitation" of four leading Tories - Howard, David Davis, Theresa May and Oliver Letwin - where Labour and Lib Dem supporters are being tacitly encouraged by both parties to vote tactically. "The traditional Labour voter would be more likely now than ever to vote tactically, to do anything they could to get Howard out of parliament."

The Lib Dems' election dilemma, much pontificated on by pollsters, is the need to woo Tory-inclined voters with a policy package that, until recently, had been identified as "left of Labour". Kennedy's new front-bench team has shifted ground in several areas. He has exchanged angry letters with Blair, accusing Labour of misrepresenting his tax proposals. He is determined to banish the image of being a high-spending party, focusing instead on "fairness". "It's a very robust exchange. I'm not going to let go of this one," he says.

His plan to replace council tax with a local income tax is an attempt to address concerns about the inequities of the system. It is more redistributive than anything Labour is offering. On higher education, Kennedy wants to abolish all fees and replace them with a new 50 per cent top rate of tax for those earning more than £100,000. According to the Lib Dems, graduates earning more than £35,000 would pay a marginal tax rate of 50 per cent, as they pay off their student loans, the very figure Blair says is too high for the super-rich. "We're only talking here about 1 per cent of taxpayers paying the extra amount. I cannot see a French revolution happening in Britain over that. Blair is misinterpreting the national mood about tax. He has the bully pulpit at his disposal. He could go out and be rather evangelical about the very case I have just been making, but he chooses not do so."

Which brings me back to the Blair predicament. I ask Kennedy whether he will instruct his 54 MPs to vote against the government in a confidence vote that almost certainly would follow any defeat on top-up fees. It is unlikely to come to that, he claims. He has yet to talk to his parliamentary party about it, he says, but would probably vote against the government. "That's what an opposition party does."

So while the two lawyers and war supporters slug it out at the despatch box in the fevered month to come, the number three party leader intends to keep calm, to keep "constructive". Like his original opposition to Iraq, this is a high-risk strategy. I cannot help wondering if, just as he claims is true for Blair, Kennedy might be judged to have squandered a considerable opportunity.