For all the civility and lip service paid by Labour and the Conservatives to the review of party funding led by Sir Hayden Phillips, the reality is that the two parties have been at each other’s throats over financing.

Last night, the inevitable happened. The Tories pulled out of 18 months of talks aimed at trying to bring the arms race in election spending to an end.

Francis Maude, shadow Cabinet Office minister, blamed Labour’s refusal to break its link with its traditional trade union paymasters, his party’s key demand. Jack Straw, justice secretary, responded neutrally, as befits his ministerial status, saying that he regretted the Tories’ decision.

Behind the scenes, though, ministers were a good deal more pleased than they would dare to let in in public.

The truth is that David Cameron never wanted to do a deal. This is more than Labour spin. The Tories had little to gain from a compromise that would have seen campaign spending capped outside elections with new local and national limits - as Sir Hayden was recommending.

The former civil servant’s proposals for a cap of £50,000 on individual donations and loans, and a single spending limit of £15m per party for local and national campaigning through parliament, would have meant the loss of millions of pounds in funding from Lord Ashcroft, one of the party’s biggest financiers, for the party’s candidates in marginal constituencies that will be the key battleground come 2009.

A legal loophole in the current law means there is no cap on this kind of spending and Labour cannot match it. The Tories knew Labour would never agree to break the union link. "We weren’t asking very much," one Conservative insider grins.

Labour MPs with slim majorities had been working themselves up into a state of panic over the summer. The pressure on Gordon Brown to act has ratched up since parliament’s return from the summer recess and his decision not to call a snap election.

So, whatever Mr Straw says in public, he knows that the Tory withdrawal is good news for Labour. It gives ministers the opportunity they have been waiting for: a chance to get legislation closing the Ashcroft loophole onto the statute book before the next election. And, conveniently, they can blame the Tories if it looks one-sided.

One senior cabinet minister has told me that a party funding bill is now certain in the forthcoming parliamentary session - whether or not the Queen mentions it in her speech next week.

This is one possible vehicle for closing the loophole. Alternatively, an MP could bring forward a private members’ bill. The second option would have the - admittedly somewhat meaningless advantage - of not making the government look too partisan.

As I have said before, though, legislating without Tory support nevertheless leaves Mr Brown with a problem.

Getting the bill through the Commons, with Labour’s commanding majority, will be a breeze. The Lords will be trickier.

A pliable Liberal Democrat party will be needed to guarantee the bill’s passage through parliament’s upper chamber. This is far from guaranteed. But my suspicion, based on nothing more than gut instinct, is that the Lib Dems could back it. The thumping they have got in the polls at the hands of Mr Cameron’s party will make them just as hostile to the Ashcroft millions.

All well and good for those Labour MPs in the path of the Ashcroft avalanche. Or is it? By the time the legislation receives royal assent it may simply be too late. Some of those marginals - the home secretary Jacqui Smith’s Redditch constituency among them - could already be lost.

Has Gordo had a change of heart?

Last week, Downing Street let it be known - with a nudge and a wink - that proposals for so-called "bin taxes" were shelved, dead in the water even.

Rubbish charging plans, under which households that failed to recycle would be charged upto £30 a year more in council tax while the greenest families would be better off, were unlikely to be introduced.

Now, Hilary Benn, environment secretary, has confirmed that the forthcoming climate change bill will include powers for councils to begin trials of "incentive" schemes to encourage recycling. Proposals, according to officials, will be announced "in due course".

On the face of it, it looks as though Mr Benn may have won a small battle with the Number Ten sceptics, including Mr Brown.

Don’t bet on it though. Read the department’s statement yesterday and there is no clue as to what the incentives might be - financial or otherwise. Nor is there any indication of how soon ministers might bring forward details of the pilot schemes. If Mr Benn knew what he was doing, why the mystery?

For what it’s worth, my suspicion is that, if and when something does emerge, it will be vastly watered down. Mr Brown usually gets his way - and, so far, despite the noise he has made about the environment, he has displayed remarkable timidity in this area. As far as the prime minister is concerned, the public will buy Conservative accusations that Labour has dreamed up another "hated tax on families".

His spokesman was typically guarded at this morning’s briefing for lobby journalists: it was "a complex issue which will have to be considered carefully". It was important, he said, to "strike the right balance".

Watch this space - but don’t hold your breath.

Could the Tories’ spirited campaign for Gordon Brown to call a referendum on the EU treaty backfire?David Cameron is resisting pressure to promise a Conservative government would hold a referendum on the treaty even after it has been ratified - and for good reason. A vote to pull out of the treaty once it has legal force would leave the UK trying to renegotiate its entire relationship with the EU. But maybe this is what many core Tory voters actually want? A poll on the Conservativehome website today finds most respondents - 63 per cent - support a referendum that mandates an incoming Conservative government to renegotiate Britain’s relationship with the EU so that it returns to a free trade area.This is not a mandate that Mr Cameron wants. Instead, it hands the government ammunition to support its claim that Tory fulminating against the treaty is a Trojan horse for a move to get out of Brussels altogether.

For a less than glowing example of how Gordon Brown makes policy, you need look no further than his u-turn over "bin" taxes.

There is nothing wrong in principle about tearing up a policy you inherited from your predecessor. After all, since he became prime minister, Mr Brown has scrapped plans for a supercasino in Manchester, set about reclassifying cannabis after it was downgraded, and looks likely to end 24-hour drinking. All reversals that have merit.

Abandoning plans, drawn up by the green-tinged David Miliband when he was environment secretary, to charge households who fail to recycle their rubbish a little bit more for their refuse collection, is yet another break with the policies of the Blair administration. It is easy to see why Mr Brown has acted, but less easy to applaud the move.

After his dismal retreat over calling a snap election, the prime minster is on the defensive and vulnerable, especially on tax, where the Conservatives are tapping popular sentiment for cuts. Come next year’s local elections, he does not want to be portrayed by the opposition as "bin tax" as well as "bottler" Brown.

The Tories claimed rubbish charges - actually a system of financial incentives already used in other European countries and designed to reward households that recycle - were a "hated tax on families". The Daily Mail, that barometer of middle Britain on which Mr Brown has begun to lavish considerable attention, began waging a campaign against the idea. Hey presto, the prime minister shelves it.

The problem with this decision is twofold. First, and most importantly, it raises serious questions about Mr Brown’s environmental credentials.

After investing immense political capital into the review by Sir Nicholas Stern into climate change - which called for a mix of market and fiscal measures to tackle pollution - the prime minister has displayed remarkable timidity on green taxes, leaving it to David Cameron’s Tories to forge ahead with proposals for a new tax on flights to replace air passenger duty.

He paid lip service to Stern with a draft climate change bill that will in itself do little to cut carbon emissions. And now, according to leaked Whitehall documents published in the Financial Times and the Guardian this week, his ministers want to minimise the UK’s contribution to a European Union target to source 20 per cent of all energy from renewable sources by 2020. 

By stamping on the environment department’s only strategy for tackling household waste - apparently for no more reason than it was politically expedient to do so - he has again displayed the calculating and opportunist streak for which he has been punished in the polls. It is short-sighted policymaking too.

True, the proposals were imperfect. It was still unclear how a system of incentives might work in practice, or how people might be deterred from fly-tipping: an obvious consequence of the new regime.

But the plans, if the government’s own consultation is any guide, had won considerable public support, including from local authorities. There would be no cost to the public purse, nor any increase in the  tax take. In short, ministers including Hilary Benn, the environment secretary, felt they were a modest and sensible step to encourage greener behaviour.

Until 6pm yesterday evening that was. And here is the second problem with Mr Brown’s decision. The haze and confusion surrounding it, all of Downing Street’s own making, smacked of panic and on-the-hoof policymaking: the very criticisms once levelled at the Blair government.

Inside the environment department, until late on press officers were preparing to announce today that the government would commit to changing the law to enable councils to charge people for their waste. Nothing was confirmed, officials insist on the record. Privately, they concede an announcement was imminent.

Then, at a quarter past six, up pops a reporter on the BBC to rush out news of a "delay" in the decision. Officials in Number Ten had apparently only just told their counterparts at environment of the rethink. As the minutes ticked by, it emerged that the "delay" was in fact probably permanent.

If I were Mr Benn, I would be feeling pretty embarrassed as well as annoyed, as I would be if I was Hazel Blears, the communities secretary. Her department pushed out a response to a select committee report today saying the charging idea was "fair", would have a "positive impact" and be "another tool for engaging the public in waste minimisation".

Mr Brown’s spokesman was typically po-faced in today’s briefing for lobby journalists. "Once the government is in a position to make an announcement, we will make an announcement," was all he would say. Joined up government this is not.

That was "a bit more like it", sighed one relieved Brownite, after the prime minister returned to Commons form with a confident question time performance.

After the disaster of last week’s PMQs - when he floundered like an ageing heavyweight pinned against the ropes - Gordon Brown had the material and the jokes to breeze through what could have been another awkward session.

His advisers insist it was the same team who prepared the PM last week, although why they have suddenly discovered the value of humour and research a week late is beyond me.

Mr Brown was helped by the fact the whips had also got their act together, encouraging Labour backbenchers to cheer their man to the rafters, even when he was talking about elderly hospital patients dying of C.difficile. Ian Austin, the PM’s parliamentary aide, was rebuked by the Speaker for orchestrating the wall of sound.

What about David Cameron? His taunt that Mr Brown should call an election sounded strangely like last week’s story - something which will come as a great relief to the PM.

His claim that Mr Brown’s obsession with hospital targets contributed to the filthy state of Britain’s hospital wards was effectively rebutted by the PM, and as for his attack on the EU treaty, the issue simply failed to ignite in the Commons.

It wasn’t a poor performance by Mr Cameron, but political normality of a sort seems to be returning after the last few tumultuous weeks.

For a poor performance look no further than Vince Cable, acting leader of the Lib Dems, whose rambling question and comment about his happy marriage were mocked by Mr Brown, who poured lavish praise on his Fife neighbour, ex-leader Sir Menzies Campbell.

If Mr Cable had still entertained hopes of replacing Sir Ming in the long-term, I suspect his MPs will have seen enough today to have realised he made the right decision not to contest the post.

My editor has set me the herculean task of finding the "wedge issue" in the Liberal Democrat leadership race. As no candidate has declared their interest, this is proving rather difficult. But I think I have found one: the referendum on the European Union treaty. There is a danger it could make the LibDem race relevant.

A few weeks before Sir Menzies Campbell packed his bags and fled to Edinburgh, he was under pressure to back Conservative calls for a referendum. To defuse the issue, he threw a sop to MPs in euro-sceptic constituencies by backing calls for a referendum on EU membership.

This is a nice idea that everyone can support because it has absolutely no chance of actually happening. More significantly, it effectively let Gordon Brown off the hook - the Tories, Lib Dems and Labour eurosceptics really have to join forces to cause trouble when the reform treaty comes to parliament next year.

Could this cosy compromise with Labour be threatened by the leadership race? Very possibly. Little differentiates Chris Huhne and Nick Clegg, the two favourites to succeed Sir Menzies, at least in terms of policy. They are both economically and socially liberal. But they have to find a way to stand apart.

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So where is Sir Menzies Campbell? That was the one question everyone gathered on the steps of the Liberal Democrats’ headquarters wanted to know. That, and "who wielded the dagger?" of course.

The informed gossip suggested Sir Menzies, 66, had got out of London fast and was in his way to his constituency home in Scotland, a broken man.

So upset was the party leader that he did not appear on television to announce his own resignation. That was left to Vince Cable, deputy leader, and Simon Hughes, party president.

Their warm words of gratitude rang a little hollow, especially after Mr Cable had popped up on the BBC radio lunchtime news to tell the world Sir Menzies’ position was "under discussion" but not under threat.

In the end, it was the party’s disastrous poll ratings that did for him. Following weeks of speculation about his future, Mr Hughes set the ball rolling at the weekend, with some less than loyal comments suggesting that Sir Menzies needed to up his game.

Sir Menzies hit back, calling the sniping "idle chatter" and reiterated his promise at the party’s September annual conference to lead it into the next election.

All to no avail. His defiance did not go down well. And, urged on by ordinary members and some peers, his own colleagues appeared to lose patience on Monday.   

At a private meeting with senior members of his team this afternoon, it is thought Sir Menzies made it clear that he could not turn round the party’s dismal poll ratings and it was time to make way for someone else. "It was like looking at a slow motion car crash," was how one fly on the wall described the scene.

Was it Chris Huhne, the ambitious former journalist and economist, or Nick Clegg, the party’s home affairs spokeman, who wielded the knife? It was unlikely to have been a single assassin. What is certain is that neither Mr Cable or Mr Hughes, whose support Sir Menzies would have needed, were prepared to back him. Sir Menzies, hearing Mr Cable’s interview, apparently decided it was over.

What now? Well, the timetable for a leadership contest, the second time the party has had to choose a new leader since the 2005 election, will be announced tomorrow. Mr Clegg is the bookmakers’ favourite to take over. But what odds on a surprise return for Charles Kennedy, the ginger-haired talisman ousted by his former colleagues nearly two years ago?

By Chris Adams

Gordon Brown’s big retreat on the general election has left the Labour party in a hole.

How, with its desperately squeezed finances, can Labour hope to take the fight to a rejuvenated Conservative opposition in 2009 - particularly as Tory candidates will be burning millions of pounds in campaign funding from Lord Ashcroft, their biggest bankroller? It is the Ashcroft millions that most worry Labour MPs in vulnerable marginals, not the apparent lack of policy ideas in Downing Street or even Brown’s brooding image and newly acquired reputation for “spin”.

So worried are they that several tackled the prime minister head-on over the issue at a backroom meeting last week. And, today, there are reports that Mr Brown is ready to act.

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Why doesn’t Gordon Brown just say it? There won’t be a referendum on the EU reform treaty. He might as well make it crystal clear, because there are some - like the Daily Telegraph - that cling to the idea the prime minister might still put the text to the people, if he doesn’t secure all his negotiating "red lines".

On Monday the PM said that if all his red lines were not met when the treaty is finalised next week at an EU summit in Lisbon "we will veto it or say there has to be a referendum".

This is spin its its most juvenile form - and it left the PM’s official spokesman wriggling as he tried to explain it this morning. Think about it for a moment.

If Mr Brown was to hold a referendum on the EU treaty, that means he will have signed a document which he believes is against Britain’s national interest. Huh? And then what? Presumably he would have to campaign for a No vote - a rejection of a treaty which he had just signed in Britain’s name.

At least the PM was a bit more open later at a press conference when he said he would not agree to a treaty which did not contain all his opt-outs, opt-ins, protocols and exclusions. To make that clear to anyone who still doesn’t understand: there will be no referendum.

Of course, having "bottled" a general election, Mr Brown now stands accused by the Tories of bottling another date with the British people. And they have a point. I recently returned from a five-year stint as the FT’s Brussels bureau chief, and I can confirm that the new treaty is - essentially - the same as the constitution upon which the government did promise a referendum.

All the main ingredients - the EU president, foreign minister, foreign service, new voting system, extensions of qualified majority voting - are still there, albeit with some belts and braces for the Brits. The Commons EU scrutiny committee said as much in a report this week.

In spite of the political hit he will take, I reckon Mr Brown is right. The treaty will modernise the EU and make it more effective (admittedly a result europhobes will not favour in principle). It also strengthens the grip of member states on the Union - after all, the new EU president will be a creature of national capitals, not part of the bloc’s federalist structure.

Even if this treaty did represent a big transfer of power to Brussels, why on earth should this complex issue be a matter for the people rather than parliament? This is a representative democracy after all. The government got themselves into this mess, so I suppose Mr Brown deserves the opprobrium he will get for ultimately doing the right thing.

Gordon Brown has set a lot of store on giving Britain more time to see his vision for the future before he holds a general election.

This has obviously left him open to mockery from David Cameron, who ridiculed Mr Brown’s suggestion that this vision was so important that even the prospect of a 100-seat Commons majority would not have persuaded him to hold an election next month.

"He is the only prime minister in history to flunk an election because he thought he was going to win it," scoffed Mr Cameron, as Mr Brown squirmed his way through a terrible half an hour at prime ministers’ questions.

Mr Cameron’s attack would strike home even if Mr Brown had a clear vision (everyone knows he aborted the election because his pollsters said he would have a majority as low as 20). But what if Mr Brown doesn’t actually have - or can’t articulate - a vision?

Mr Brown’s first 90 days in office (before the election fiasco) were brilliant in the sense he presented himself as "the change" from Tony Blair: no spin, straightforward, big tent, competent etc. A lot of that good work has now been undone, of course, by the events of the last fortnight.

But what exactly is his strategy for changing Britain? His Labour conference speech, which received positive coverage at the time, has now been reassessed in the media as being rather hollow and lacking a big strategic idea.

The pre-budget report - a chance for the government to map out its economic strategy - saw Alistair Darling, chancellor, rummaging around under the mattress to try to keep health spending going, but most of the best lines were stolen from the Tories.

As Jonathan Freedland in today’s Guardian asks: "You’ve had had long enough to work it out. What is your vision, Gordon?"

The prime minister, having surrendered the political momentum to David Cameron in a dramatic way in the last few days, needs to find the answer soon. The restless body language of Labour MPs behind him in the Commons today suggests their patience is not limitless.