Andrew Grice: The Week in Politics

Tony Blair is frustrated and hurt. No, it's not his bad back, which has finally been sorted. He is suffering from an acute pain in the neck after failing to win as big a majority as he hoped on 5 May.

Interestingly, his political pain was not caused by the Tories, who captured 31 seats from Labour. It was inflicted by the Liberal Democrats, who won 12 Labour seats. Why? Mr Blair feels that Charles Kennedy tore up an unwritten pact that Britain's two progressive parties should not attack each other but concentrate their fire on the Tories. "He is very, very pissed off with the Lib Dems," one of his closest allies said yesterday.

The order has gone out from Downing Street and Labour headquarters to attack the Liberal Democrats and all their works. In the Commons debate on the Queen's Speech, Mr Blair declared: "They run to the right of Labour in Tory constituencies and to the left of Labour in Labour constituencies. In this parliament, we are going to make them choose."

The Prime Minister's anger is not a fit of pique. He has long regarded the Liberal Democrats as Labour's little brother, part of the same political family. His mentor, the late Lord Jenkins, who left Labour to launch the Social Democratic Party, convinced him that the Tories dominated the last century because the anti-Tory forces were divided. Mr Blair resolved to make the 21st century a "progressive" one.

On election day in 1997, he told Paddy Ashdown, the then Liberal Democrat leader: "I am absolutely determined to mend the schism that occured in the progressive forces in British politics at the start of this century. It is just a question of finding a workable framework."

Remarkably, even after he had won a landslide, Mr Blair was still discussing a plan for Liberal Democrats to take posts in the Cabinet. "If we allow ourselves to get into a position where we play conventional opposition politics the schism will just reopen," he told Mr Ashdown. In the end, the landslide meant settling for something less dramatic - a joint cabinet committee, which eventually fizzled out.

But there was another side to Mr Blair's strategy - self-interest. He and Mr Ashdown also discussed a merger. But it would have been more like big brother gobbling up little brother or, at least, loving him to death.

Mr Blair's current anger reveals that his desire for greater co-operation with the third party was always something of a one-way street. It worked to both parties' advantage at the 1997 and 2001 elections, when people voted tactically against the Tories. This time, many people wanted to vote tactically against Labour and turned to the Liberal Democrats. Labour's vote dropped by 1,168,000. The Lib-Dem vote went up by 1,170,000. They were not all the same people, but a lot of them were.

The Liberal Democrats are bemused by Mr Blair's attacks. After all, Labour devoted the last week of its campaign to warning that a vote for the third party would put Michael Howard into No 10 - hardly a rallying cry for a "progressive consensus."

Like Labour, the Liberal Democrats have some important strategic thinking to do. They might be the only party to fight the next election with their current leader, but are fooling themselves if they think that they can only go up.

They entered this election with 55 MPs and ended up with 62. The price of doing well in Labour seats was to leave themselves exposed in Tory areas; they won three seats from the Tories but lost five to them. Yet Mr Kennedy rejects the idea that he positioned his party too far to the left on issues such as Iraq and tax. The Liberal Democrats' post-mortem examination blamed expensive, effective targeting by the Tories in the marginals. In other words, they were outgunned on pavement politics, which is their traditional strength.

The inquest suggested many voters backed way from the Liberal Democrats at the last minute as the other two parties attacked them. So Mr Kennedy's top priority is to achieve greater "credibility and clarity". He insists it is not about tacking to the right or left, that his party will remain in the centre.

But he has a big dilemma. His party is now second place to Labour in 104 of the 187 seats where it finished the runner-up. With Labour vulnerable to a "time for a change" effect, it will be tempting to continue to chase Labour votes. But it would be a big mistake; some of the anti-Labour protest votes will melt away because Iraq, tuition fees and Mr Blair will not be issues next time. Surely, the only way for the Liberal Democrats to become the "real opposition", and eventually win power, is to overtake the Tories. They are not going to do that by being more left wing than Labour.

Both Labour and the Liberal Democrats are still nursing their election bruises. Wiser heads hope they will realise it is in both their interests to whack their common enemy, the Tories.

Otherwise the two progressive parties will risk knocking each other out. In 1983 and 1987, Margaret Thatcher won fewer votes than the combined forces of Labour and the third party but secured three-figure majorities. As one Blair ally put it yesterday: "This summer, we have got to talk Tony out of going for the Lib Dems with all guns blazing. That spells huge dangers for us.

"If the centre-left vote splits, the only winner will be the Tories."

a.grice@independent.co.uk