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My moonlighting at Newsnight is over and it's time for a summer break. Just a thought before I go. Peter Mandelson has used the opportunity afforded by the absence of his boss to set out Labour's strategy for the autumn fight.

First of all, he's abandoned the crude talk of Labour investments versus Tory cuts. He now talks of a choice between what he describes as by Labour ministers, in comparison with savage cuts delivered gleefully by their Tory opponents.

He wants the focus now to shift from the future to the present and to the decisions needed to avoid a worsening economic crisis. He will try, I believe, to revive the Brown/Obama partnership, presenting the pair at the G20 in Pittsburgh this September as the duo which is saving the world.

And finally, he wants Labour to be seen as the underdogs, getting sympathy from those who dislike the establishment types running the Tory party with big business increasingly rallying to their support.

Having said all that, if I'd been writing this entry last summer, we wouldn't have had a mention of the collapse of Lehman Brothers and all that that entailed, or of the expenses scandal - or indeed of the e-mails that did for Gordon Brown's recovery just a few months ago.

While I'm away, my colleague Laura Kuenssberg will be looking after the blog. I'll be back when the political season resumes.

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Whatever else might have to be cut, you can rest assured that the NHS is "safe in our hands". That's the message coming from both the Tories and Labour - although no-one is daft enough to recycle the words Margaret Thatcher used when she tried and failed to reassure people about her approach to the health service.

Yet the message coming from others is much less sanguine. Niall Dickson, the Chief Executive of the King's Fund - an independent health think think - says:

"The scale of what is about to hit the health care system is unprecedented... [it] will be the first time in [its] history that it has had to go for such a long period with rising demand and little or no new money."

Economists from the King's Fund and the Insititute for Fiscal Studies have looked at the best- and worst-case scenarios for NHS funding over the next few years. They calculate a shortfall between £6.4bn and £32.4bn by 2016/17 at today's prices - that's between 6% and 31% of the entire NHS budget.

I'm moonlighting this week as a presenter on Newsnight. Tonight, in a special programme, we'll be asking .

An ageing population combined with improvements in technology and greater public demands at a time of a public spending squeeze: the challenge is not, of course, new. They all existed in Margaret Thatcher's day. She never escaped the charge that she had cut the NHS. It's worth remembering that in her time in office, health spending increased on average by 3% in real terms.

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A massive 16.5 swing, not far short of what they got in Crewe and Nantwich, will allow the Conservatives to say that this is much better than the results I alluded to in my earlier post.

Labour, on the other hand, will point out that the swing originated largely from a collapse in their vote (-27%) and much less by an increase in the Tory vote (just 6.5%).

The truth is that Mr Cameron has done more than enough to look on course for an election victory and Labour has done badly enough to fear that one is inevitable.

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Here's my guide to what the main parties are likely to say about and what they'll really mean.

Conservatives: "It's a historic victory. Norwich has voted for change. It's time the country had that chance."

Translation: "Phew. We just had to win here or people would say the wheels were coming off Project Cameron. We always knew this wasn't going to be a Crewe and Nantwich moment, but if it takes six visits by the leader to win one seat when the government's in this much trouble, how hard will it be to win the 120-odd needed for a workable majority?"

(The swing needed in Norwich - 5.8% - is less than the swing needed for the Tories to win the general election - 6.9% - and much less than the 17% they secured in Crewe.)

Labour: "This was a unique by-election which tells us nothing about the result of the next election."

Translation: "Oh, I do hope that's right - but why do voters even prefer "Gibbo" - the local MP who used his expenses to help his daughter get a cheap London flat - to Gordon Brown who acted tough and kicked him out?"

Lib Dems: "This is a truly shocking result for Labour."

Translation: "Oh no. Why don't we win by-elections any more?"

Greens: "This result proves that the Greens are real players who can challenge the big three parties."

Translation: "Boy, it's going to be hard winning without PR. Even though we won the most votes in Norwich in the Euros, and are second on the council, no-one took the idea of us winning the by-election seriously."

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At the end of we finally got a newsworthy piece of evidence. Evidence, that is, of Andy Coulson's skills as a shaper of the news.

David Cameron's director of communications revealed that the police had called him only recently to reveal that his own mobile phone had been hacked into by the very private investigator who was jailed for illegal phone hacking when Coulson was editor of the News of the World.

Thus, the former editor turned spin doctor provided journalists with a top line for their stories about an otherwise dull enquiry (or am I missing something?).

The hearing was meant, of course, to examine what Andy Coulson knew about what had been going on at Britain's top-selling paper. The Guardian insists that it goes far beyond the approved News International version of events of a single journalist - a "bad apple" - who engaged in illegal activities without the knowledge of anyone else on the paper.

Today NI executives and Coulson persisted with that account. "Things went badly wrong under my editorship," he conceded, while insisting that he knew nothing about the hacking of phones or the paying of policemen.

None of the MPs who cross-questioned him today managed to blow a hole in that defence - no surprise, perhaps, since the Guardian has declared that it has no evidence to implicate him.

However, Plaid Cymru's Adam Price did make Coulson look uncomfortable when he presented him with a copy of paper he'd edited which trumpeted an "exclusive" about Prince Harry and Chelsy. Price suggested this story could only have come from the illegal phone hacking. Coulson's reply was that he had no involvement in or recollection of the story. No-one said what I imagine many were thinking - "come off it".

David Cameron will be told that his valued aide has emerged unscathed from today and may even break into a grin when he learns that he also managed to present himself as a victim rather than a villain in this story.

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I've seen the future. One minute, I was interviewing the leader of Her Majesty's Opposition in jacket and tie; the next, "Dave" - now in rolled-up short sleeves - had discarded his neck gear and clambered on top of what looked suspiciously like John Major's soapbox.

We are, I'm told, going to see much more of the soapbox that was produced in Norwich yesterday.

We will also, I believe, have to get used to speeches attacking Gordon Brown for "treating people like fools" - on the election that never was, public spending and helicopters for Afghanistan.

This theme is one reason that David Cameron can seem, to many of his colleagues, so stubborn about abandoning previous pledges, whether cutting inheritance tax or ring-fencing spending on international aid. He's under pressure from some in the party to junk them both.

According to Tories who have spoken to "Dave", he is obsessed with not "looking like another Blair" and all of this is about proving that he is a leader the public can trust.

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Norwich: Surreal. I have just watched the leading candidates in this week's Norwich North by-election lavish praise on the MP who was forced out after being accused of abusing his expenses.

The Labour candidate said: "he was fantastic, a great bloke". The Tory described him as "great" and praised his independence. The Lib Dem said: "that Norwich needed another MP just like Ian Gibson".

Just a reminder: Mr Gibson has not died, he has not emigrated and he has not decided to spend more time with his family. He resigned when the Labour Party's star chamber declared that he could not represent them at the next general election.

Thus the first by-election to be triggered by the great MPs' expenses scandal is the contest to claim the mantle of the only man who has resigned after stories had appeared about him. As I said - surreal.

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Politicians, the press and the police.

Together they have become the Bermuda Triangle into which reputations have simply disappeared.

After cash for honours, came the arrest of a Tory MP who'd received leaks and passed them to the papers. After the scandal of MPs' expenses comes today's row about who knew what about the hacking of the phones of the great and the good and the merely famous.

But today Yates of the Yard decided that he did not want another starring role on the national political stage.

His insistence that there was no evidence that John Prescott's phone was tapped, insufficient evidence to bring other prosecutions and that no new evidence had been produced by the Guardian, sounded pretty definitive but these waters are still treacherous.

There will still be a Commons enquiry and there will be calls for an independent investigation into the police's handling of this affair.

There will still be awkward questions for News International, for the Tories' Director of Communications Andy Coulson and for the man who hired him David Cameron.

This is a story fuelled by genuine outrage at abuses by the press and politically inspired protests designed to damage the Conservatives.

The Tory leader is hoping that beyond the triangle of Westminster, Wapping and Scotland Yard few will be paying too much attention and that he can hang on to the Director of Communications - the former editor of the News of the World - who he values so much.

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David Cameron is standing by his man.

The line coming from his close allies is that he is not even contemplating asking Andy Coulson, his communications director, to resign.

One source insisted that no significant new facts had emerged since Mr Coulson had been appointed by the Tories, and said, "The past is the past. Mistakes were made but he paid a high price for them. There is a world of difference between what he did as a tabloid editor and what he does for us."

The source went on to say that if Mr Coulson was called to give evidence before the Commons Media Select Committee "that wouldn't change our view of him at all".

Everyone is now waiting to see what Yates of the Yard has to say about why the Metropolitan Police did not extend its inquiry to cover all those whose voicemail was hacked into and whether he will re-open the original investigation.

For now, the Tories are determined to tough this out.

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The police showed a list of names of targets for phone hacking to one of those whose voicemails were illegally hacked into by the News of the World. This happened in the lead-up to the jailing of the paper's royal editor and the private investigator he used. The individual, who I've spoken to, recognised the names of many familiar public figures and the stories that had appeared in the paper about them.

This revelation may add to the pressure for a further investigation into how widespread phone hacking was, and who knew about it. Already the Chairman of the Commons Media Committee, John Whittingdale, has said he may re-open his inquiry into the affair.

So, is David Cameron right to be "relaxed" about the implications for his Director of Communications, Andy Coulson?

Certainly, he must have known the risk when he hired Coulson just months after he had been forced to resign as the editor of the News of the World. At the time Coulson said he knew nothing about what had happened, although as editor he'd taken full responsibility for it. that it has no evidence to the contrary.

The Tories' first reaction to the Guardian story was that it only contained one new revelation - that the News of the World had reached a huge out-of-court settlement with Gordon Taylor, the leader of the footballers union, one of those whose phones it had hacked into. As this deal was reached after Coulson resigned they argued that this was a story not about politics but the media.

Their hope was that many papers would steer clear of this story since their own journalists are alleged to have indulged in blagging - paying to obtain private data under false pretences - if not hacking.

They argue that the interventions of John Prescott, Charles Clarke and Alastair Campbell should be seen simply as a politically motivated campaign to damage David Cameron and one of his key advisers.

This morning the Tory leader has sought to distinguish between what Coulson did in the past at the News of the World and what he does now for him by declaring:

"I believe in giving people a second chance. As director of communications for the Conservatives, he does an excellent job in a proper, upright way at all times."

The problem he faces is that new questions are now being opened about the past.

It is now clear that phone hacking at the News of the World was much more widespread than previously thought; that it targeted senior ministers not just celebrities and that, if the Guardian is correct, at least one of the paper's executives knew about it. This is leading to calls - not just from Labour politicians - for Andy Coulson to answer questions about what he knew and to questions about whether he should be at David Cameron's side.

That is why I am sure that David Cameron is anything but "relaxed", as was claimed last night.

Coulson has already broken rule one for any spin doctor - "Never become the story". He's good enough at his job to know that this story will soon become one about David Cameron's judgement.

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In normal times it would not be a story that a government with a healthy majority less than a year from a General Election managed to secure support for the Budget.

These, though, are not normal times.

It took the threat of tax chaos; the wheeling in of the sick, the shamed and the resigned and the votes, once again, of the Democratic Unionists to see ministers comfortably home.

It is yet another day that has left many backbench Labour MPs feeling depressed.

The Yorkshire group of Labour MPs went for tea with the PM this afternoon. One told him that he should take a holiday because he looked tired and was taking "tired decisions".

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One of the leaders of the 10p tax rebellion has told me that he will not now try to defeat the government in the Commons tonight.

Greg Pope told me that it was never his intention to wreck the Budget as the chancellor has warned could happen (see my last entry).

Mr Pope says that it is up to his colleague Frank Field to decide whether to withdraw their proposed amendment to the Finance Bill.

Mr Field is waiting to hear what the Treasury Minister Stephen Timms tells MPs about the government's plans for further compensation for those who've lost money as a result of the abolition of the 10p tax rate.

Earlier the chancellor told Greg Pope and Frank Field that he would consider new measures in his autumn pre-Budget report.

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The chancellor has warned the leaders of a backbench rebellion over tax policy that if they were successful tonight no further income tax could be raised this year and all income tax paid since 6 April might have to be re-paid.

Alistair Darling met the Labour MPs Frank Field and Greg Pope this lunchtime to discuss their attempt to block the passage of the legislation enacting his Budget until the chancellor came forward with proposals to compensate all those who'd lost from the abolition of the 10p starting rate of income tax.

Treasury sources say that he advised them that his legal advice was that their amendment to the Finance Bill would invalidate the collection of income tax. This is because their amendment would - it's claimed - override the powers given to the government under the Provisional Collection of Taxes Act 1968 which allows tax to be raised even though legislation enacting the Budget has not been passed through the Commons

The rebel leaders are said to be reconsidering their position

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What is Gordon Brown doing on the eve of the G8 summit at a time when the world economy is, he argues, far from out of the woods?

Why, of course, he's phoning backbench Labour MPs and pleading with them not to rebel in tonight's Commons vote on compensating the losers from the scrapping of the 10p income tax rate.

One MP I've just spoken to asked the PM for reassurance that a government funded project in his constituency would not be sold off. He was promised a meeting to discuss his fears in more detail. The government will now get his vote.

Who says there's no pork barrel politics in Britain?

Meantime the whips have been mighty busy persuading the sick (Kali Mountford); the shamed (Elliott Morley); and the resigned (Hazel Blears) to back the PM.

All this over a decision taken in the last Brown Budget which for months the PM insisted did not produce losers and was not causing any political problems.

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Curiously, Tory HQ are now pouring cold water on the bonfire of the quangos.

They have called to say that Mr Cameron's speech was not, as I reported, called "Bonfire of the Quangos" but called instead "People Power - Reforming Quangos".

What's more they point to their leader saying: "it would be far too simplistic for me to stand here and announce some kind of 'Bonfire of the Quangos.' People have heard that kind of talk many times before, and seen little to show for it."

I am happy to correct this whilst merely noting that the invitation to his speech read: "Reform invites you to: Bonfire of the Quangos". Also, the quote above was not in the speech extracts issued in advance and may have been written after my first blog post.

Incidentally, on the substance of the issue, one senior Tory has called with an interesting question about his leader's speech. Isn't the Tory plan to de-politicise the NHS and have it run by an independent board the creation of the biggest quango of them all?

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Are you in favour of "a bonfire of the quangos"...?

You are?

Well so too is the Tory leader - it's the .

And so is the Chief Secretary to the Treasury, Liam Byrne. On Friday he promised one.

As did the shadow chancellor way back in 1995 - a man you may know called Gordon Brown.

And, I'm sure that Margaret Thatcher was in favour as well - although I can't find evidence that she used the exact phrase.*

Politicians of all colours promise to light a match underneath quangos ("quasi-autonomous non-governmental organisations" now you ask) for the same reasons. They spend a lot and they're not very democratic.

Today in a speech Mr Cameron will argue that: "The growth of the quango state is...,one of the main reasons people feel that nothing ever changes, nothing will ever get done" and promises "a massive shift in power from bureaucracy to democracy...(from) elites to people from quangos to you".

He will, no doubt, point to the creation by this government of dozens of new quangos - some estimates put it at 70.

Aware that this was coming Labour got their retaliation in first alleging that the Tories have talked about creating 17 new ones of their own - ranging from the Office of Tax Simplification and Office of Budget Responsibility to a Military inquest family advisory service and International Aid Watchdog.

So the question worth asking today is, perhaps, not why don't politicians abolish quangos but why, despite the obvious objections, they choose to create them and allow them to grow?

Partly it's because politicians are under pressure to "take the politics out of ..." many areas they have responsibility for (whether setting interest rates or managing examinations).

Partly it's because cynicism about politicians has led people to be more prepared to believe "independent" bodies (remember John Gummer force feeding his daughter with a burger to reassure about BSE?).

Partly they allow politicians to put controversial decisions at arms length from them ("Sats went wrong? Blame the QCA"). All this makes talking about abolishing quangos easier than doing it.

David Cameron today argues that there are three good roles for quangos - what he describes as "technical", "fairness" and "transparency" - but argues that they should not make policy. Thus he plans to say that: "Ofcom, as we know it, will cease to exist".

Important phrase that - "as we know it". He's not proposing scrapping the 800 strong body that regulates and acts as the competition authority for the communications industry.

He wants it to stop doing things which he believes that civil servants and politicians should - proposing, for example, how to save Channel 4 or regional ITV news.

Broadcasting industry sources tell me that perhaps just a handful of Ofcom officials deal with such matters and that once they've written their reports they hand them to the politicians to debate and decide on.

So, are we set not so much for a bonfire of quangos but for a pruning of them?

* It was three decades ago - in 1978 to be precise - that a pamphlet - The Quango Explosion - written by two Tory MPs Philip Holland and Michael Fallon first (to my recollection) got this debate moving.

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"I've always told the truth," when I suggested that people had questions about whether he was being straight about the state of the public finances.

He is furious that the current debate focuses on his integrity and his honesty, but it is hardly surprising given the fact that he has changed his description of what is happening to capital expenditure three times in three weeks at PMQs.

Today, he also declared that current spending would go up by "zero per cent" - a slip that produced roars of both disbelief and ridicule.

I travelled with the prime minister on the train to Leicester at the beginning of a three-day tour away from Downing Street and the debate about debt, which he believes is obsessing the Westminster village, but not the country.

People care, he tells me, about jobs and housing now and not unknowable public expenditure figures for several years hence.

When I point out that the OECD, the IMF and the governor of the Bank of England all seem worried, he makes his key argument - that growth is the best answer to the problem of public debt.

Under pressure to admit that he's going to have to make cuts, the prime minister does use the "C" word for the first time.

He defines the word narrowly, though, to describe efficiency savings and assets sales and claims that these will allow him to protect front-line spending.

This is a debate he does not want to have, an interview he did not enjoy, but a subject that will not go away.

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Honesty is the new battleground in British politics. Hence that the shadow chancellor withdraw what the first secretary has dubbed a "deliberate untruth" in his interview with me yesterday.

George Osborne boasted that that he was being honest about public spending whilst accusing ministers of "lying" (yes, he unlike his leader, used the "L" word). He went on to accuse the prime minister of blocking access to a detailed breakdown of government spending.

So, what are the facts?

In pre-election meetings with the cabinet secretary in January and February, the Tories asked for access to the spending numbers broken down in over 12,000 headings. The answer - which was "No" - came many weeks later in April fuelling the Tories' belief that the prime minister had taken the final decision.

The Cabinet Office insist, however, that it was Sir Gus O'Donnell alone who decided and that, until yesterday, ministers weren't even aware of the request.

So, you might assume, George Osborne is on a sticky wicket. However, long before this row, the Tories committed publicly that they would publish these data if they get into government. Thus, publication, they can argue, is ultimately a matter for ministers.

All this raises the question: why would the government want to stop the data being published?

Whitehall sources tell me that all the information in the COINS database is already in the public domain although they concede that you may have to spend time online collating it.

It is there, they point out, because the government annually publishes to Parliament all the data by which it centrally controls public expenditure so that Parliament can vote on it and through its select committees hold the most senior civil servants to account for it.

It is, they add, published in the manner requested by and agreed with by Parliament, including the breakdown of departmental budgets into the main departmental spending programmes.

They point to the list of existing government publications - Spending Reviews, Budget/PBR, Supply Estimates, Public Expenditure Statistical Analyses, Public Expenditure Outturn White Paper, Supplementary Budgeting Information - which contain the relevant information.

To which the Tories reply - why doesn't the government agree to publish it in a simple, digestible form allowing the public to engage in programme-by-programme scrutiny of what their tax pounds pay for?

There is, of course, an underlying tale here which has nothing whatsoever to do with public spending.

Remember "Yachtgate"? It was triggered when George Osborne was not terribly discreet about a private chat he had with Peter Mandelson before he had any clue that he would be returning to government.

Mandelson did not appreciate that breach of confidentiality. Ministers believe that Osborne has similarly abused the private chats he's had with the governor of the Bank of England and, now, the cabinet secretary.

Update, 12:13PM: Downing Street says the PM had no knowledge of the request from the shadow chancellor George Osborne to see government spending data.

The spokesman said it was a matter for senior civil servants and it would be "completely inappropriate" for the PM to become involved. He said there were normal conventions surrounding information made available to the opposition and the PM believed these should be followed.

But the shadow chancellor says he has written evidence to back up his story that the Tories repeatedly asked for financial information including the COINS database. He also claims that he was told informally that ministers and, in particular, the prime minister would block the request.

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