AFTER the highs of a third General Election victory in a row and the Olympics being awarded to London, and the lows of the July 7 terror attacks and defeat in the Commons over detention without charge of terror suspects, Tony Blair has ended the year in bullish mood, admitting he faces “tough times” but insisting he feels a “tremendous sense of confidence” that his controversial public service reforms will be approved.

AFTER the highs of a third General Election victory in a row and the Olympics being awarded to London, and the lows of the July 7 terror attacks and defeat in the Commons over detention without charge of terror suspects, Tony Blair has ended the year in bullish mood, admitting he faces “tough times” but insisting he feels a “tremendous sense of confidence” that his controversial public service reforms will be approved.

The Prime Minister faces New Year opposition from rebellious Labour MPs on changes to welfare benefits and a partial smoking ban and his normally loyal deputy John Prescott has gone public with concerns over plans for independent state schools.

Before flying to Iraq yesterday to meet political leaders and visit British troops who will be spending Christmas in the desert, Mr Blair said he remained firm in his belief that “political leadership is about making the decisions that are right for the country. “Step by step we are implementing the agenda that the public wants to see, that we were elected in May, and that is necessary to improve and modernise this country for the 21st century.”

Try telling that to the growing band of Labour MPs who are preparing to defy his authority in the knowledge that the Prime Minister has conceded that his days at Downing Street will come to an end before the next General Election.

In cavalier fashion, Mr Blair has dismissed any threat from a rejuvenated Conservative Party under new leader David Cameron - but perhaps that's more to do with the fact that he will not be around in four years time than any belief that the Tories will rise again.

“The notion that everyone should run around because the Tories are a couple of points up in the opinion polls, we are more mature than that.”

If, like Candide, Mr Blair is confident that “everything is for the best in this the best of all possible worlds” and the Tories are showing signs of getting of their death bed, then all is far from well at the Cowley Street headquarters of the Liberal Democrats - this week brought even more bad news for their embattled leader Charles Kennedy with an opinion poll revealing that voters think he is a liability for his party.

Only 38% of those questioned by ICM for The Guardian believed the party would perform best at the next General Election with him in charge and at 76%, Mr Kennedy's satisfaction rating among supporters was lower than that for Tony Blair and David Cameron.

Both the Prime Minister and Tory leader Mr Cameron scored 82% among Labour and Tory voters respectively. Gordon Brown, the man almost certain to succeed Mr Blair, beat both with 83% of Labour supporters saying he was doing a good job as Chancellor.

CONSERVATIVE Euro MPs will face a dilemma next year - whether to defy new party leader David Cameron over his demand that the Tories quit the federalist centre right Christian Democrat (EPP-ED) grouping in the Brussels and Strasbourg parliament.

And one East of England Tory MEP has declared he will have no truck with some of the wackier, far right Euro MPs who might start courting the homeless Conservatives.

Robert Sturdy - who has been playing a leading role in the World Trade talks in Hong Kong on behalf of the European Parliament - won't publicly go as far as some of his colleagues who have said they will refuse to adhere to the Cameron edit.

“I am waiting to see what the options are,” said Mr Howitt. “However, I will not sit in any group which contains the far right from across Europe including Jean-Marie Le Penn of France, Mussolini's grand daughter, and near fascist peasant parties from Poland and other former Communist states.”

The Tories are the European Democracy (ED) allies of the European People's Party (EPP), the Christian Democrat grouping, but they sit uncomfortably beside MEPs who support closer EU integration, federalism, the single currency, and the constitution.

Germany's new Chancellor, Angela Merkel, has made it clear that co-operation between the Tories and her CDU party depended on Mr Cameron's party remaining part of the group.

Shadow Foreign Secretary William Hague is unrepentant. “David Cameron has said very clearly in his campaign for the Conservative leadership that he wants to establish a new political grouping.

“Europe is changing and we want to be in a clearer position to advocate an open, flexible and modern Europe, rather than the stagnating and relatively declining Europe in world affairs that we see at the moment,” said Mr Hague.

“That requires a new political grouping. Of course, other political parties will get upset about that and, of course, they will fire shots across the bows of the Conservative Party and other parties that may be interested in doing that.”