Question: You have called for more money for public services now that the government has finally delivered it you are criticising the fact that they are putting in place mechanisms to ensure it is will spent. Isn't it the case that you can't had out that kind of money without ensuring it's well spent?

Charles Kennedy: There has got to be accountability in two directions. There is accountability towards the centre - by definition - because ministers are in charge of budgets. They are accountable to parliament accordingly. What is glaringly absent - judging by what Gordon Brown said [in the CSR]- is a real sense of accountability at the local level, towards the people at the receiving end of the services themselves.

We would like to see all that being put on a much more democratic footing. Gordon Brown has announced a whole plethora of quango-like mechanisms that will come into being to police the police, to police the schools, to police the hospitals. But it does rather beg the question 'who polices them?'. That I think is the democratic deficit at the heart of it all.

Question: Would you still spend more than Labour?

Charles Kennedy: On current projections, we support the sums Labour are investing.

We don't share the Conservative view that they should be opposed. Our criticism is not so much 'Should we spend more, or should we spend less?' - it's that we would spend it differently and we would raise it differently. We would base it more transparently on income tax and hypothecated taxes - which are areas which Labour hasn't really addressed. They have only addressed them in so far as to dismiss them. This is a major policy difference between all three parties.

Question: Could you see your party advocating any system of NHS charging for non-essential minor operations?

Charles Kennedy: Highly unlikely. We have got our Huhne Commission which has been at work for the best part of a year now. They have been examining reform of the public services and their proposals will be debated at our conference next month. I can't hold up my hand and predict exactly what they'll decide, but I would be extremely surprised if the Liberal Democrats were to embrace charging for any core services in health. I don't see that really being on the agenda.

Question: But to what extent should NHS patients expect to be fed, watered and entertained whilst they are being treated at the taxpayers' expense?

Charles Kennedy: Well I think that people, not unreasonably, assume that in the fourth largest economy in the world you should be able to provide first class public services - in health, education, crime, policing and so on. So why is it that there is any market at all for the down-playing of expectations? We should actually be a lot more ambitious.

This is my big criticism of this government. I wake up at night sometimes, and think, just suppose five years ago I'd been elected Prime Minister, broadly speaking with benign economic circumstances and a three-figure parliamentary majority, I'd like to think that after five years we'd be seeing some tangible improvements in schools and hospitals. People self-evidently don't think they're seeing nearly enough of that yet.

Question: In Budget after Budget Gordon Brown has put hard-working families at the centre of his proposals. Where does that leave hard-working couples, and hard-working single people?

Charles Kennedy: Well, he is a son of the manse. There is no disagreement between the government and ourselves on the need to have family-friendly policies. There shouldn't be any disagreement across the political divide about that.

But I do think that, if you look at the structural changes in society - the number of people who live alone or live as single parents - that bears demographically, scant relation to what Britain looked like 25 or 30 years ago. I have no complaints about seeking to promote good support for families - but we shouldn't at the same time over-neglect the other predominant groups in society that are with us to stay.

Question: Is there a need, therefore, to address a situation where a married couple earning £50,000 to £60,000 get tax breaks but a single person earning £16,000 living and working in London will receive no help whatsoever?

Charles Kennedy: You can certainly make a big case for integrating tax and benefits - it's more complicated to do but makes it a lot simpler to understand. That - in itself - would begin to level out some of the anomalies in the system. But our bigger priority, where tax is concerned, is the levying of income tax itself. There are a lot of people who shouldn't be paying it at all. There are a lot of people at the top end of the income scale who could contribute a bit more - providing that money was earmarked for public services.

Now Gordon Brown has really not done an awful lot - OK he has tinkered around with national insurance at the lower end - but he has not done an awful lot about either end of that spectrum.

Question: Looking back over the last few years has your party achieved more by having broken-off links with Labour?

Charles Kennedy: I think so. A consequence which has been beneficial - although it was not a prime motivation in suspending the Joint Cabinet Committee - is that it has given us more room and freedom politically as a party. It also means that, unlike when I was first elected leader, I no longer spend two thirds of every interview I do talking about how close or far away I am from Tony Blair or from the Labour government this week compared with last week. People are actually questioning us on our policies. So that has all undoubtedly been to our benefit.

But - having said that - if Tony Blair were to come on the phone just now and say 'I've decided that we want to look again at proportional representation' - I'd quite happily go along and have a meeting about that. But it's not likely. I'm not sitting here on tenterhooks waiting for the phone to ring.

Question: So you wouldn't rule out a formal relationship in future?

Charles Kennedy: If there's a job to be addressed - fine. But there is no job to be addressed whatsoever. I don't, at the moment, see that altering.

The only thing on the horizon is that Labour pledged in their last manifesto, really at our behest at the time, to have a full review - after next year's elections - of all the various voting systems. Now that's something that we will be keen to see go ahead, and that's something that we want to contribute to.

But there has not even been the initial discussion yet about what shape or form that might take. I strongly suspect that they have not even got round to thinking about it yet.

Question: How easy will it be for the Lib Dems in Scotland to fight Labour given that in government the two are as one?

Charles Kennedy: I don't anticipate much difficulty at all. Obviously, I was conscious - as a Scot leading a UK party whose own party is in coalition with the governing party at Westminster in Scotland - that this could be very tricky!

But it wasn't a problem during the Westminster elections, because I was able to refer to the Scottish experience - to Liberal Democrat ministers who are in place and the kind of policies they are pushing through. That was undoubtedly a help to us.

In the specifically Scottish context, I don't think that Jim Wallace and our colleagues there will find it difficult - and, if anything, in some respects it should be easier. They will be able to point to a formidable checklist of things that they have delivered and Jim has the added credibility of having been Acting First Minister three times.

In fact, if you now look at the Scottish Cabinet, the only two ministers who are still in position and who took office the day it started, are Jim Wallace and Ross Finnie. They have a continuity of experience that the bigger party doesn't have.

I think for those reasons the Scottish experience should be quite a good one. And, also, though this is more of a gamble for us, if you look at the seats we tend to have and the kind of seats Labour tend to have, there isn't actually an awful lot of direct collision. But that's just accident rather than design.

Question: Will you sit the election out and let Jim Wallace lead the campaign?

Charles Kennedy: Oh no, I'll be heavily involved. Jim and I discussed this a few weeks ago in-depth. He's keen for me to play a prominent role and I'm keen to be involved. But at the end of the day, he's the head guy in this context. He's the leader of the party in Scotland, he's the Deputy First Minister. But I will be there to roll up my sleeves as required.

Question: Later this month, Iain Duncan Smith will celebrate a year in office. He's not been the extremist that you had portrayed him. How do you rate his performance?

Charles Kennedy: I know from fairly recent experience that it's a difficult thing getting established as a new party leader. It takes time.

But they are almost a year into his leadership, and one that's got all the in-built platforms and advantages that we don't have. Put like that, I think it's quite remarkable that he hasn't made more of an impression.

It's rather like William Hague. He began on a platform of more compassionate Conservatism, but they are steadily moving back to their old habits. They are against the spending increases, they are taking a pretty hard line on asylum and immigration. OK, they are trying not to talk about Europe - but that's because at best they're split and at worst they're just against it.

They seem to have a glass ceiling in the opinion polls. I would be quite worried if I was a tactician sitting in Central Office. That has to be a good opportunity for us.

Question: Are you worried, though, that they are learning from your techniques - by, for example, selecting early in marginal constituencies?

Charles Kennedy: Imitation is the highest form of flattery. There is no doubt that they are. They have been quite open about it. They are adopting practices and approaches, which have long since been standard for us. But, at the end of the day, because of their credibility problem, it's very hard to find anybody - including card-carrying party members - who think they will win the next General Election.

They just can't get over that credibility threshold, and I don't think they will - I think we would have seen signs of it by now. They are flat lining. That means the story in the second half of this parliament will be about where the more effective opposition is coming forward - and it will ultimately be interesting to see how it might be reflected in the outcome of the next general election. There are opportunities here for the Liberal Democrats - we've done well in this session of the Parliament. But there's a long way to go.

Question: Are you going to follow IDS's lead an instruct your MPs to take a week out looking after the vulnerable?

Charles Kennedy: I don't think I would have to issue any sort of instructions like that because I'd hope that they would already be well aware of the problems that everybody's facing - full stop.

If you look at the professional background of a lot of our MPs, whether it's in health, education, the caring sector, or welfare generally, there is an inbuilt level of experience there which perhaps is not so evident around Mr Duncan Smith's table.

Question: Prior to the 2001 general election it was said by some that you weren't up to the job - and by others that your heart wasn't in it. What's changed?

Charles Kennedy: I've been around the media long enough. I remember when Paddy Ashdown succeeded David Steel, for the first 18 months there were all sorts of Jonahs going around inside and outside the party saying, 'Oh, he's no good, Steel thinks he's the most prominent politician in the country,' etc.

The truth of the matter is - when you're leading a political party - more than anything else what you need is a General Election under your belt. Until you've fought a battle, people can't really judge how good a soldier you are. I've got that behind me and I think it's generally perceived to have gone pretty positively for the Lib Dems and for myself. Now I think people have calmed down a bit.

Question: It has been said that Britain in Europe could collapse unless the government sends a clearer signal on the single currency?

Charles Kennedy: I had a meeting recently with them. I think the practical difficulty for Britain in Europe is that there is no substantive campaign to fight and it's difficult to have a campaigning organisation without a campaign. It's like Hamlet without the prince. I do think the government needs to give a much clearer lead in Europe. They should do it in terms of policy anyway.

Also, there is no doubt that there are a lot of people and organisations out there who would subscribe to Britain in Europe, but who won't do it in a vacuum. But, at the end of the day, this is an issue for two people in Downing Street - Messrs Blair and Brown.

I don't think Britain in Europe is going to fall apart. But I do think it would benefit from the impetus of actually having some kind of timescale to work to.

Question: Is the backsliding coming from Blair or Brown?

Charles Kennedy: It is very difficult to read. I suspect that they have not yet - either individually or collectively - made up their own minds, and I don't think they will do so for some time. The two of them - at some point - have to have that critical internal conversation. It's pretty clear it hasn't happened yet and I don't know when it will.

Question: You criticised the No Campaign's advertisement. Isn't the truth of the matter that they are taking the populist approach because that's what's required to win?

Charles Kennedy: There is no doubt that they are taking a rather nasty populist approach. There were certainly people who were offended by the Hitler analogies. If this is the opening shot of the campaign, I hate to think - when we get into the campaign proper - what they will come up with. It will backfire badly on them.

The evidence of the polls is that, yes, there is a considerable amount of scepticism about the single currency, but there are two recurrent features which also come through.

One is that people want more information - whichever end of the argument they are inclined towards. They want more practical information in order to reach an informed judgement.

Secondly - whether sceptical or enthusiastic - most people accept that the time will come when we can no longer be insular.

If you combine those thoughts - a good, upbeat, persuasive Yes campaign can and will win.

The other problem is that the Prime Minister is in danger of ignoring his own campaigning handbook - that you can't win elections in two weeks, you win them in two years. It's the same with a Referendum campaign. With an issue which is as complex and controversial as this, you just can't expect to win it from a standing start in six weeks. You should be making the case week, upon week, upon week - and making it now.

Question: Given that this isn't happening is there grounds for scepticism about a referendum this side of a general election?

Charles Kennedy: There will only be a referendum when Gordon Brown and Tony Blair are convinced they can win it. They are not going to hold a Referendum if they think they will lose - or both their careers will be in considerable trouble. So the referendum will only take place if they believe that there is, within any acceptable democratic margin of error, a high probability of success.

The irony is, that the longer they prevaricate about making the case, the more difficult it is to achieve. So the whole thing becomes self fulfilling. Then, before you know where you are, we will be half way through this parliament and it will be too late to hold a Referendum this side of a General Election. That's the danger zone - and we're heading right into it.

Question: Your party has talked about the possibility of becoming the official opposition. To what extent is this only possible once your party decides where it is really coming from. Currently you pick up support from the left of Labour and the left of the Tories - this isn't sustainable or scaleable?

Charles Kennedy: I think we are already doing that - if you look at the results at the last election. Why is it that on the same night we win Guildford and we win Chesterfield?

Question: Could it be because you send out mixed messages from area to area, something you couldn't do if you across the country as a whole?

Charles Kennedy: No, I don't think we are. Just look at the way the party bought into the national manifesto. It was very, very, positive. Indeed, it was probably the most positive party response we have ever had.

What we were finding in seats like Guilford and Chesterfield is that somebody who votes for us who may have voted Conservative in Guildford was attracted by policies like free long term care for the elderly or getting rid of student tuition fees. But somebody who was dissatisfied with Labour in Chesterfield was equally enthusiastic about those policies. I don't think there is a contradiction.

Leaving aside the hardcore on the left and right, middle opinion - if you like - isn't as contradictory as some of the psephology suggests. The reality is you wouldn't be able to win if you were saying completely different things in one place and another - which, in any case, we weren't. We were saying the same thing nationally day in day out.

Question: But can you take that beyond 50 seats to 150 seats?

Charles Kennedy: I'm not sitting here saying that by this time in the next parliament we'll have 200 seats. But we have reached, now, a point of critical mass. What people said about the 1997 election was 'Flash in the pan! Unpopular Tory government! Lib Dems benefited from the anti-Tory swing!'.

They also said things would return to two party normality after last year's election - which, of course, it didn't.

We've now got that credibility factor. People are not now going around saying the Lib Dems will be back to a couple of dozen seats after the next election. They are assuming that where we're at is a staging post for something else.

That makes it a lot more intriguing and enjoyable for me personally - but it also makes it a lot more unpredictable. Once you cross that credibility barrier with the public then really anything can happen - particularly with as distortive a system as first past the post.

Question: How has married life changed you?

Charles Kennedy: I don't know - you'd have to ask Sarah. I think in way our relationship had already had a benign influence on me. Sarah is an active politician in her own right. Her experience of the party has been very grassroots whereas mine has been a bit institutionalised at Westminster. So that in itself is rather good because it's a correcting influence in my take on things. Apart from that, I think people - all of us - do a better job when we're happy - and I'm a very happy chappie.