Nick Clegg signalled a fresh battle over budget cuts with George Osborne on Sunday after warning that it would be "wholly unrealistic" for the coalition to pursue further reductions in welfare spending without increasing taxes on Britain's richest 10%.
Under pressure from appalling polling figures which showed his Lib Dem party fourth nationwide behind Ukip, Clegg's commitment to protect the poorest in society from "wild Tory demands" could not prevent a surprisingly pointed attack from his own side on the first full day of his party's conference in Brighton.
A spiky Q&A session brought calls from angry delegates for Clegg to rein in the Lib Dem Treasury chief secretary, Danny Alexander, who was described as being more rightwing than the chancellor. Clegg's sometimes uneasy relationship with his party activists will not be helped by the London mayor, Boris Johnson, writing an article in the Telegraph describing Clegg as a natural Tory who needs to be supported by the Conservatives.
Clegg was also criticised for failing to apologise earlier for breaking his election pledge not to raise tuition fees, while the party president, Tim Farron, twisted the knife by saying the Lib Dems should have fought harder in parliament to retain their manifesto pledge to abolish fees, saying the pledge itself was "fine".
The Liberal Democrat membership is slowly absorbing the political implications of the agreement made by the two coalition parties, and revealed by Liberal Democrat cabinet members at the weekend, that they will agree a cuts programme for the year 2015-16, spanning the next election. Detailed talks are due to start soon on a spending review next year. The two parties have agreed that this will detail departmental spending cuts for 2015-16, but not for the following two years.
Clegg said the agreement, reducing the two parties' mutual independence at the election, was unavoidable because "the lights would go out in Whitehall" without agreed spending plans for 2015-16.
He called on his party to have "a grown-up recognition that the reality is whoever is in power in 2015, Conservative, Labour or Liberal Democrat, or any combination … there will be more belt tightening in the years ahead".
Clegg said the conference should seek to establish that the financial decks will be cleared, but it would be done fairly. For the first time, he said he hoped the additional taxes on the wealthiest would hit the top 10% of the population.
The coming talks on the spending review mirror the intense Whitehall battle over the March 2011 budget, when Clegg resisted Osborne's plan for a cut in the 50p top rate of tax to 40p, later scaled back to 45p, unless tax allowances at the bottom were raised. Clegg tried to reassure a nervous conference by saying he had for months been telling his Conservative colleagues that additional savings required from 2015-16 must start at the top and work down. "We will not start, as some people are suggesting, at the bottom and work up," he said.
But he added it was "wholly unrealistic" for the welfare budget to be immune from cuts in 2015-16, pointing out that it represents a third of public spending.
He told the conference: "We will not allow some of these wild suggestions that are coming from the right of British politics that all the savings should come from welfare, and that we should scoop out a £10bn-sized hole in welfare." He added he would also reject "wild suggestions" that he "wave a wand and put a freeze on benefits for two years", saying that would hit the most vulnerable in society.
The business secretary, Vince Cable, is redoubling his demands for a "mansion tax" on properties worth more than £2m, but Liberal Democrats are also looking at alternatives such as adding two extra council tax bands at the top of the property ladder, or increasing stamp duty.
Reluctant to divulge details of the coalition talks at this stage, Clegg hinted that he was prepared to look at other options to attack wealth, apart from a mansion tax.
Clegg admitted he had so far failed to persuade the Tories to accept the mansion tax, and privately his aides said the resistance from Downing Street was still strong. But Clegg said he would continue to make the argument, adding that an increasing number of Conservatives understood the merits of more tax on high-value properties.
He added: "The mansion tax is not the only way in which you can make people at the top make a fair contribution to this huge national effort of balancing our books, and we've already demonstrated to you, through capital gains tax, through stamp duty, through tax avoidance, already ensured that the top 10% pay more, and we can do more than that."
Facing a direct challenge from the floor of the conference on Monday over the party's commitment to the fiscal targets set out in 2010, Clegg surprisingly admitted that the Lib Dems' "critics have bluntly been pretty successful in portraying the party's economic policy as unthinking, blinkered, rigid, dogmatic, ideological, rightwing small state agenda". He said the reality was more flexible than that.
