Is this the most unusual by-election ever?

With Labour's 'dirty election' win overturned, Brian Brady reports from Oldham East and Saddleworth on fading Lib Dem hopes

For Elwyn Watkins, this Thursday's by-election should have been a coronation. The more likely prospect for the Liberal Democrat parliamentary candidate is dispiriting defeat.

It should have been very different. The Oldham East and Saddleworth by-election would not be happening this week if Mr Watkins had not taken Labour to an electoral court to have its general election victory overturned because of lies told in campaign literature in May.

But politics is not fair, as Mr Watkins found last week at a meeting in Denshaw village hall. "When I went into the [electoral] court that final day," he told the animated crowd of voters who wanted to know what he could do to improve the reputation of politicians, "Mr Justice Williams said I had done a great service to democracy."

The response from the throng on a bone-chilling night in the Pennines offered little hope of just deserts: the most popular comments were "get over it" and "move on".

Colleagues blamed a knot of Labour supporters for the hostility, but clearly the combative candidate cannot rely on the gratitude of voters to deliver a victory he believes was stolen from him in May. According to the bookmakers and private polling, his 103-vote defeat in a dirty election will translate into an even heavier loss on Thursday.

Beyond the party-political pantomime, the concerns of local people in a seat crippled by the decline of manufacturing industry are genuine and deep-seated. The unemployment rate in "Old & Sad" is 6.5 per cent – the 168th worst out of the UK's 650 constituencies – and the number of claimants doubled in the five years up to last May.

The VAT rise, schools, police and, above all, tuition fees, dominate the debate. One concerned mother complains that her daughter "doesn't want to be a plumber... doesn't want to learn how to make things. She wants to go to university and get a degree." The growing assumption, rightly or wrongly, is that this is much more difficult under the coalition. Over a cup of tea in Oldham town centre, Ron Forrester fretted that his daughter "might have her chance of going to university snatched away from her".

If Mr Watkins does fail, it will be because Britain and the Lib Dems have changed radically since the election. The Lib Dems are suddenly a party of government, not spirited outsiders, and the realities of coalition with the Conservatives has seen their poll ratings plummet to 11 per cent.

"This is not a referendum," Mr Watkins gamely maintains in response to suggestions that voters' views on the coalition will determine his fate.

It is not a view shared by the Lib Dems' opponents – or even many in the highest echelons of the party. Labour have conspicuously airbrushed out of their campaign any embarrassment caused by their former candidate Phil Woolas. Instead, the party has concentrated largely on national issues, particularly police cuts and the VAT rise. Their candidate, Debbie Abrahams, told voters concerned about cuts in public services that the by-election offers "a unique opportunity to send a clear message to this government".

For Mumtaz Ali, who lives among the terraced streets of Glodwick and has been unemployed for eight years, it is an opportunity he will grasp with both hands. "I voted Lib Dem," Mr Ali, 32, said. "First and last time. We have problems here, but they haven't tackled them. They look like they don't have any plans to make things better for people like us."

Among the problems faced by the constituency is the long-standing racial tension that exploded in brief race riots in 2001 and contributed to the leafleting row in 2010. The British National Party polled 5.7 per cent of the vote last May.

But the recognisable urban strife endured by the residents of Glodwick and other areas close to the centre of Oldham is far removed from the experience of the suburbs and villages elsewhere in the seat. In Denshaw, which lost its post office and shop, a local pub landlady warned of more to come. "Pubs are closing at a rate of knots," said Angela Fordham, of the Golden Fleece. "People just can't keep their heads above water. I want to know what the candidates are going to do for small businesses."

Nick Clegg and all his party heavyweights braved the snow last week to back Mr Watkins in the type of battle which, in opposition, the Lib Dems would often win. Mr Cameron also visited visited the constituency last week, engaging in a brisk spot of leafleting and a curious visit to a car-repair workshop in Oldham.

After a walkabout among overalled men working on car-wrecks, Mr Cameron offered a brusque approval of the Tory candidate, Kashif Ali. "He is a good candidate with a very good campaign, who lives locally and is very positive," Mr Cameron said.

Nevertheless, only six Conservative cabinet ministers have visited the constituency, and Tory MPs report little pressure to support the campaign, underlining suspicions that Tory HQ wants a Lib Dem victory.

"They have been lacklustre," a senior Lib Dem in the constituency observed last night. "They have the bodies in there, but they are not working it hard. I have seen the Tories when they think they have a chance of winning a seat, and they are voracious."

For Ed Miliband, visiting a third time yesterday, a win would be a positive response to those doubting his leadership; defeat, a disaster.

State of play: Lib Dems claim it's 'neck and neck' on eve of poll

David Cameron is careering towards a crushing defeat in his first by-election since entering No 10, opinion polls in the Oldham and Saddleworth seat suggested last night.

A Populus poll in The Sunday Telegraph put Labour ahead on 46 per cent, up 14 points since the general election. The Lib Dems, who yesterday claimed in a confidential briefing seen by The IoS to be "neck and neck", were on 29 per cent, down three points, and the Tories have slumped 11 points to just 15 per cent. An ICM survey in the Mail on Sunday had Labour on 44, Lib Dems on 27, and the Conservatives on 18.

More than a quarter of people said the biggest single factor influencing their voting intention was tuition fees.

The Labour MP Phil Woolas was stripped of the seat after last May's general election when a special electoral court ruled that he had lied about his opponent, the Liberal Democrat Elwyn Watkins, in election literature.

Matt Chorley and Brian Brady