Cameron and Clegg fall out over alliance plan

Talks between the Conservatives and Liberal Democrats over reforms to the political system have collapsed at the first hurdle and provoked a row between David Cameron and Nick Clegg.

The Tory leader offered an olive branch to the incoming leader of the Liberal Democrats by proposing the two opposition parties forge a "progressive alliance". Mr Clegg replied by proposing an independent convention involving all parties and all parts of society.

Their discussions have stalled after Mr Cameron did not back the convention but proposed more limited co-operation between the parties issue by issue. Mr Clegg regards that as "old politics" and an attempt by the Tories to keep on good terms in the hope of wooing the Liberal Democrats in the event of a hung parliament.

In a sharply-worded letter to Mr Cameron, Mr Clegg accused him of missing the point of his plan for a convention. "These are not issues which can be resolved in closed meetings between just two parties examining a narrow range of issues on a piecemeal basis. That is the old way of doing politics, which I am determined to change," he said.

Mr Clegg, who has said the political system is "broken," told Mr Cameron: "I remain of the view that the political renewal of Britain will only occur when all political parties come together to agree on an extensive programme of constitutional and institutional reform."

Allies say Mr Clegg's letter reflects his determination not to be lured into co-operating with either Labour or the Tories unless they are prepared to discuss sweeping change to the political system. He suspects the other parties are more interested in keeping channels open in case no party wins an overall majority at the next election, when the Liberal Democrats could be the kingmakers.

Gordon Brown made a similar approach to Mr Clegg after he won his party's leadership last month. The Prime Minister told him during Commons questions this week: "There is an open door for him, and we are ready to discuss the major issues that affect the country where there is common ground."

Today, the Tories will launch a major campaign to dent Mr Brown's reputation by branding him "incompetent" on the economy. They will blame him for the downturn expected this year, saying he missed the opportunity to protect Britain from the current global economic turbulence.

George Osborne, the shadow Chancellor, will say in a speech in London: "We've got used over the past decade to Gordon Brown boasting about his reputation for economic competence. But his actions betray him. It is his economic incompetence and fiscal incontinence that have Britain more exposed than any other developed economy to the current crisis."

Mr Osborne will add: "Let's be clear: the trigger may have been pulled by US sub-prime lenders – but the gun was loaded in Downing Street. The blame lies squarely and fairly with Gordon Brown. He didn't fix the roof when the sun was shining. His 11 Budgets have left us with the worst public finances in Europe. The system of financial oversight he personally insisted on left Britain as the only country facing a run on a bank. His taxes and regulations have left the British economy more inflexible and less competitive."

A Tory government would reform the fiscal rules so Britain would never borrow in a boom again so it was left exposed to a downturn.