JUST as Iraq has not gone away, neither have the Liberal Democrats: the two are linked. The latest rows over Iraq have benefited the Lib Dems, rather than the pro-war Labour and Tory parties. That partly explains the Tories’ desire to distance themselves from Labour over the Butler intelligence inquiry.

The Lib Dems pose a broader challenge. Despite the sharper Tory performance under Michael Howard, there has been no return to a two-party system. The Tories need to regain the many seats lost to the Lib Dems in 1997 and Labour is also worried. At the “political” Cabinet in mid-February, several ministers raised the Lib Dem threat, directly in a few university seats, and indirectly in letting the Tories win elsewhere.

Since the autumn, support for the Lib Dems has fluctuated from month to month, but their underlying rating has been in the 21 to 22 per cent range. This is not only three points higher than at the 2001 election, but is also well above the party’s mid-teens rating at the same stage of the last Parliament.

What is striking is not just the ability of the Lib Dems to resist a two-party squeeze but also the fluctuations in their support. The Lib Dems do well when they are in the news: for instance, their rating rose above 25 per cent in several polls after winning the Brent East by-election in September.

But the Lib Dems have also done well whenever Iraq is in the headlines, rising to about 25 per cent in three polls after the Hutton report. The surefootedness of Sir Menzies Campbell, the Lib Dem foreign affairs spokesman, in handling Iraq in countless media interviews has done the party a lot of good.

The Lib Dems are no longer just the temporary home for protest votes by people with widely divergent views. Repeated polls show that there is now a growing identity between the policies of the party and the opinions of their supporters: anti-war; sympathetic to asylum-seekers; pro-Europe; in short, liberal Britain. So the Lib Dems offer a home for disillusioned former Labour supporters (notably educated professionals) and for those not yet, or ever, ready to switch to the Tories.

Yet the recent success also has dangers. Many Lib Dems at Westminster and outside are urging Charles Kennedy to play to the left of Labour. That is a deceptive option that plays to the self-righteousness of many Lib Dem activists. But “leftier than thou” is a sure way to lose the many Lib Dem seats where the main challenger is the Tories, not Labour.

The Lib Dems need to firm up support, and answer Labour attacks about a large number of uncosted promises. Hence, the appointment last autumn of Vince Cable as chief economic spokesman, and tomorrow’s proposals, prepared with David Laws, responsible for overseeing spending. Their claim is that, unlike the Tories, the Lib Dems are prepared to take “tough choices” (an oft-repeated phrase): both in the overall share of expenditure and specifically in scrapping certain programmes.

The real challenge is political will. Not all Mr Cable’s Lib Dem colleagues sing the same song. Their instinct is to spend, not to choose awkward options. Mr Kennedy has been successful at catching the political mood, less so at conveying a sharp cutting edge on policy. Being a nice guy is not enough against Tony Blair and Mr Howard.

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