Robert McLennan MP, the party's spokesman on the constitution, says that voters feel "too often unconsulted and dissatisfied." Parliament is "perceived to lack independence of government and is inadequate as a forum of the nation".
To counteract the power of governments, the Liberal Democrats propose radical reforms of the Commons and the Lords, plus citizen-initiated referendums. In the first instance, referral to the electorate for a decision on a burning issue of the day would be triggered if 1.5 per cent of the voting population - approximately 650,000 people in the UK - signed a petition to parliament within a six month period.
MPs would be required to debate the issue raised by signatories and, if they refused to implement the change demanded, the issue would then be put to a full referendum of all voters the next time the country went to the polls for local or national elections. A simple majority would be enough to endorse the proposition.
The outcome of such referendums should be advisory rather than binding, say the Liberal Democrats, but they would exert a great moral force on the government of the day.
The influence of special interests, most critically the pro-hanging lobby, is recognised by Lib-Dem leaders. But they question whether a referendum would actually yield a majority for capital punishment campaigners. "And if they did, it would be democracy," said one source.
The party's proposal has surfaced at the end of a week that saw Labour discreetly reaffirming its pledge to hold a referendum on electoral reform if voted into power. It also follows a threat from Sir James Goldsmith, the maverick billionaire businessman-politician to mount a challenge in every constituency at the next election on a European referendum ticket if the major parties fail to offer this option.
The policy paper, Reform of the House of Commons, is being circulated to party activists in advance of the annual conference in Glasgow later this month. It says that the legislative process is flawed, with a lack of consultation before bills are presented.
"The Commons is rightly criticised for too often spending time trading insults rather than debating constructively," the McLennan paper admits.
"Some of the conventions that have evolved around parliament now seem archaic, and there is a good case for a thorough review."