Sir Menzies Campbell saw off the first major challenge to his authority yesterday when the Liberal Democrats voted to scrap their commitment to a 50 per cent top rate of tax and fight the next election on a radical platform of income tax cuts and new environmental levies.
Delegates at the party's conference voted 2-1 to reject an attempt to retain its "totemic" tax on the highest earners after an impassioned two-hour debate.
The rebellion, led by frontbencher Evan Harris, had threatened to derail the tax plans at the heart of the party's attempts to sell itself as committed to tackling climate change.
Sir Menzies, who had strongly supported the tax package, was visibly relieved after the debate, insisting "the whole party is in a stronger position" after delegates backed the plans.
He said: "This was a very important day for the party because it was a day on which we had to choose between substance and symbolism - we chose substance.
"Members voted with their heads along with their hearts."
Under the proposals, the party will offer a 2p cut in the basic rate of income tax and move the threshold for top-rate tax to £50,000. Tax cuts will be paid for by a dramatic increase in environmental charges including car tax of up to £2,000 a year for the most polluting models and new tax on commercial flights.
The party is also proposing new capital gains taxes to hit Britain's wealthiest people.
Peter Hain, the Northern Ireland Secretary, said the proposals would represent "pain without gain" for Britain's poorest families who would have to pay environmental taxes but would not benefit from tax cuts.
The Conservatives have also attacked the plans, claiming they would mean people facing higher taxes.
In the conference hall in Brighton Sir Menzies looked on from the platform as delegates lined up to hail the proposals as sharply redistributive.
But rebels said the package should go further, by including a 50 per cent tax on incomes over £150,000 a year.
Vince Cable, the party's treasury spokesman, urged delegates to reject the move, insisting: "We are asking you to support a policy that is balanced ... between the taxation of income and wealth.
"We are asking you to choose substance and seriousness over symbols and sentiment."
He said: "There are people who are saying 'why don't we keep the 50p rate because at the last election it was popular and simple." He chided Mr Harris, warning: "Evan has taken out all the popular bits."
Steve Webb, the party's health spokesman, told delegates: "Those of you who like me want to radically redistribute taxes, want a much fairer tax system, have got far more out of this package than the package we had at the last election.
"Opportunities like this don't come along very often."
Paul Holmes, chairman of the parliamentary party, backed the proposals and said the party had to "move on".
But critics warned that the new tax package was too complicated to sell to voters and criticised the decision to drop the "popular" 50 per cent tax policy.
Phil Willis, MP for Harrogate and Knaresborough, said: "There are not many more affluent places in Britain than Harrogate and Knaresborough and I supported the 50p rate in the last general election and ended up with a 10,500 majority.
"Why spoil the excellent proposals by abandoning one of the key reasons many of us are proud to be called Liberal Democrats.
"The 50p rate isn't totemic for me - it underlines the principle of progressive taxation and we abandon it at our peril."
Mr Harris urged delegates to retain the 50 per cent top rate of tax. He told delegates: "I support Ming Campbell, we all do, but this is not just his party it's yours."
He told Sir Menzies that a defeat would be like a tetanus injection. He said: "You dread it coming, you don't like it at the time but when it's done you feel a lot better and your are protected for five years."