David Cameron takes heart from Labour vitriol

David Cameron is at his first international summit, working the room, turning on the charm, establishing the personal rapport that is vital in high-level politics. Sitting in a room alone with seven other top leaders over lunch and dinner – albeit with officials listening in from outside the room – must be the moment you realise with total certainty that you are prime minister.

He has also piled up four bilaterals, including a big one yesterday with Barack Obama, a man of real professorial intelligence, but he is also thinking domestic politics. He is strangely thrilled at the way in which Labour is attacking the Liberal Democrats for the big betrayal of joining the coalition, especially Nick Clegg's role in the axe-wielding, VAT-raising budget.

Why is the prime minister so happy? Well, he thinks the tone of the Labour attacks is driving the Liberal Democrats deeper into the arms of the Conservatives, and that from Labour's point of view this is hardly intelligent politics. It is creating a realignment in which Labour ends up on the wrong side.

As to the polls showing the Lib Dems on the slide and his own party popular, Cameroonians think it is early days to worry about polls. Overall, Team Cameron think the public like the sight of politicians co-operating, a sentiment that Labour's attacks possibly miss. I suspect that Team Cameron is airing these views off the back of discussions with his deputy, Nick Clegg.

Cameron thinks that Labour, by being so vitriolic, is cementing a burgeoning relationship between Tory and Liberal Democrat ministers. That relationship has been helped by the budget in which neither side leaked against the other in advance.

He seems almost to have a soft spot for the rebellious-minded Bob Russell, whom he has known since his gym days at Westminster. Even Simon Hughes's warning that he might put down amendments to the budget in the finance bill have not upset the Tory camp.

Hughes had been responding to speculation that Cameron might ditch his own firm election pledge to keep a raft of universal benefits for the elderly, such as the winter fuel allowance. These cost a lot of money, but Cameron made such a song and dance about keeping them during the election TV debates that he will not backtrack now. They are staying. So Hughes can rest easy on that score.

Cameron has set up a clear choice in the wake of the budget, between 25% cuts in every unprotected department, and welfare cuts. Find more welfare cuts and the unprotected departments can suffer less in the September spending review.

Tory ministers have been struck by how hard it had been to slice just £11bn from the welfare bill. Hence the difficult discussions starting – aired in the Sunday Telegraph – about how further savings can be made. It was noticeable that incapacity benefit was not included in the slicing exercise in the budget, so expect Iain Duncan Smith, Chris Grayling and Lord Freud, the superstars of welfare reform, to train their eyes on whether in this area they can go further and faster than Labour had proposed.

All this Labour anger with the Liberal Democrats is understandable, and probably emotionally necessary. It infuriates Labour people to see the sometimes sanctimonious Lib Dems backing a rise in VAT that the party's leadership spent the election campaign condemning.

According to the Lib Dems the budget had fairness hardwired into it, but if you look at the Institute for Fiscal Studies analysis, much of this hardwiring was actually installed by Labour in the form of the NICs rises in its March budget. Team Cameron is happy to acknowledge that they included Labour's NICs changes in constructing the tables showing the distributional impact of the budget, arguing that George Osborne could have taken the NICs rises out if he so wished, and therefore it was legitimate to do so.

Team Cameron's view is that the IFS did them little damage and did not find any hidden explosive device in the small print of the budget, something that frequently happened in the Brown budgets, which eroded confidence in the Treasury and, ultimately, in politics.