Is the Coalition marriage doomed to end in divorce?

It is all rather unfortunate timing, given this week sees the first anniversary of David Cameron’s election victory, followed six days later by the birth of the Coalition. A year already since the cheery banter and bad jokes at the Rose Garden love-in. Now the talk is of whether the forced marriage will end in divorce, as the Liberal Democrats watch their dowry dissolve into fool’s gold.

The real worry, however, is not that the Coalition is killed but that it is crippled. Will the legacy of this week’s referendum and local elections be the Government’s drive to transform public services undermined by in-fighting among Lib-Dems and their need to assert themselves in the wake of a crushing setback?

Public service reform is the agenda that excites Downing Street. The cuts are a necessary evil, the legacy of inherited economic mess. The job of salvaging Britain’s welfare state, of transforming services so they serve the interests of both the taxpayers and the people most in need, is the prize that eluded both Margaret Thatcher and Tony Blair.

This is the reason the Government has ignored concerns at a time of austerity to push ahead so far, so fast and on so many frenzied fronts that it is called “Maoist” by its own internal critics. This is why it is seeking to shake up everything from schools and hospitals to the police, pensions, prisons and planning.

Mr Blair, an influence on many ministers, was among those advocating such a pace of change. But in his biography he also argued that the challenge for the Coalition was the two parties did not really agree on domestic reform. He predicted that the Tories would be at their worst when held back by “the Old Labour instincts of the Lib-Dems”.

Like many observers, he failed to notice the party had been captured by a small group of genuine liberals centred on the infamous Orange Book. This was why in the formative days of the Coalition, politicians who had been rivals were surprised to find they had so much in common. “The Orange Book remains far more radical than anything we proposed,” says a Tory minister admiringly.

But it is an orange veneer on a dull red background. Party ranks are filled with social democrats who hate the idea of market-led reforms of state services. Many work in the public sector and are instinctively hostile to handing power to consumers. They share the stifling conservatism of many on the Left, wedded to outdated models of delivery despite all the evidence of failure, such as schools letting down the poorest pupils, families trapped on welfare and the rates of recidivism among offenders.

Unfortunately, Mr Blair’s forecast could come true. Until now, most of the friction within the Coalition has come from the Right. In recent weeks, David Cameron seems to have rediscovered his inner conservative, and his position would be strengthened not just by a victory in the referendum but by the manner of the victory. He has dampened the discontent on his backbenches.

His focus will remain on holding together the Coalition but he must paper over the cracks that have opened up during the referendum debate. The Coalition is likely to remain in place – not least because it makes no sense for any of the three major parties to hold an election at present. The more likely contest is within the Lib-Dems, leaving Mr Cameron forced to give concessions to shore up Nick Clegg’s position within his party.

Mr Clegg deserves far more credit than he is commonly given. But he has made two big mistakes over the past year, both of which he was advised against by Cabinet colleagues. The first was voting in favour of tuition fees instead of abstaining, amplifying his broken pledge to the electorate. The second was allowing the ambitious energy secretary Chris Huhne to miss the tuition fees vote because he was attending a climate-change conference in Mexico.

Mr Huhne has spent the past weeks recasting his image in case rank-and-file concerns crystallise into a challenge to Mr Clegg. His behaviour has led to complaints to party whips. But this need to pacify Lib-Dem troops threatens to shackle the Coalition’s ambition to be one of the great reforming administrations. “They’re terrified of anything that looks like we are going back to the Eighties,” says one Cabinet minister.

Most Lib-Dems activists remain, at heart, hostile to the Government’s radicalism on public services. They attacked free schools, hate the health service reforms, distrust the housing shake-up and dislike anything that smacks of “privatisation” or undermines the control of their precious local authorities. And they are not without allies among more cautious Conservatives.

Already the health service reforms have been summoned back for surgery after an uprising led by Shirley Williams. When they re-emerge, we are likely to see the most transformative elements – those that increase competition – hacked back. Plans to bypass local councils and fund schools directly have been dropped. Now Lib-Dem peers are attempting to delay the introduction of elected police commissioners.

This could just be the start. It will not be enough to throw them the bone of House of Lords reform. One year in, the price of the Coalition’s survival may be appeasement of the most conservative instincts of the smaller partner. And that would be a disaster for the country.