Watch out: the Tories are awake!

All of a sudden, the Conservatives support the minimum wage. It happened, as Tommy Cooper used to say, "just like that". Michael Portillo was appointed shadow chancellor on the Tuesday, and by Thursday the U-turn had been executed and announced.

Much has been written since about Portillo's stylish debut in the Commons as shadow chancellor, but less about the switch in policy. In the 1980s, it took Neil Kinnock several years to get his party to change its policies on anything. When asked how the Conservatives' decision came about, an aide of Portillo told me mischievously: "We made it some time between Michael being appointed shadow chancellor and his announcement less than 48 hours later." Portillo toured the studios afterwards stating that the Tories were a pragmatic party and no Conservative, not even a screaming Margaret Thatcher on the phone to William Hague, demurred. The deed was done.

Deep in the mid-term of this parliament, politics is becoming more fluid, with unpredictable consequences. Over a candid dinner, Tony Blair and Hague would broadly agree about tax and spending policies, as well as the minimum wage. Both have said that taxes should come down and that new ways of financing public services have to be found mainly from the private sector. The dinner might become less cordial if Gordon Brown popped in for coffee, because he would place a little more emphasis on tackling poverty, partly through stealthy taxation. As the leader who tries to stand up for social justice, Charles Kennedy would be on Brown's side.

But Kennedy disapproves of Brown's penny off the basic rate of income tax, which Hague supports. This places Kennedy closer to certain Labour MPs, such as Peter Kilfoyle, the former minister who argues that the cut in the basic rate will not help his constituents. But Kilfoyle cannot stand the Liberal Democrats, who are the main opposition in Liverpool, the area he represents. Kennedy's views on tax-and-spend are also close to those of some left-wing Labour MPs, although they cannot stand the Lib Dems either. Ken Livingstone says there is one policy about which he will cause a hue and cry if he becomes mayor of London: Blair's close ties with the Liberal Democrats. For it is Blair who is closest to the Lib Dems, although in terms of economic policy he is further away from them than Kilfoyle and Livingstone. Not that Kilfoyle and Livingstone are allies either - far from it. Kilfoyle loathes the aspirant mayor. As for Livingstone, he has leapt to Blair's defence over Kilfoyle's criticisms.

Livingstone is also a strong supporter of the euro, an issue over which Blair/ Brown and Hague would disagree. Or would they? Blair has had several private conversations with Lord Owen, who is closer to Hague's position on the single currency, although the former foreign secretary prefers to associate himself with Blair rather than Hague. If Blair cools on the euro, his relationship with Kennedy will freeze, which would delight John Prescott and Brown, neither of whom is remotely interested in his dealings with the third party. It would alarm Robin Cook, who has become more of an enthusiast for the euro and who remains the only firm advocate of Lib-Labbery in the cabinet.

I could go on. At a time when the obsession of leaders with party discipline has never been stronger, the ideological boundaries between the parties, and within them, are weakening.

Behind a deceptively calm facade, which puts off some editors and channel controllers from covering politics extensively, an awful lot is going on. The polls suggest that the standing of the parties has remained virtually the same for years, but that does not mean that politics has become static, nor that a Labour landslide at the next election is inevitable.

Discontented Labour voters could stay at home. In Wales, which has its own distinct political melting pot, Labour supporters could switch to Plaid Cymru. Indeed, some ministers don't believe that the situation in Wales can be salvaged in time for the next election. They are certain that Labour will lose seats, a view which will not have been greatly altered by the resignation of Alun Michael. In Scotland, the SNP offers itself as an alternative. Everywhere the Liberal Democrats will be putting themselves forward as the party that really cares about public services and Europe.

And then there is the Conservative Party, which Blair warned two years ago was only sleeping and had not gone away for good. It has started to wake up. The Tories had prepared the ground for their U-turn on the minimum wage, but the ruthless speed of the announcement shows signs of life. More significantly, Portillo has hinted that he is no great fan of the preposterous tax guarantee, the policy that plays into Labour's hands more than any other. The tax guarantee came from nowhere at the last Conservative conference as part of the party's "common sense revolution". If common sense prevails, it will disappear. Judging by Portillo's effortless policy reversals, and Hague's sudden evasiveness on the issue, this is quite possible.

Policies, rather than spin, determine a party's image. Initially, the Tories misread new Labour's success in winning the last election by assuming that it was all gloss and no substance. In fact, the spin always followed carefully worked out policy decisions. The Tories adopted silly policies, or deliberately avoided having any, and assumed they would be popular if their leader were photographed at a school. Even so, the Tories may yet present themselves as the party that offers Brown's successful economic policies combined with unequivocal opposition to the euro. At which point, Labour would have more of a fight on its hands.