Nick Clegg has been warned by Liberal Democrat activists that he must not allow George Osborne to impose more welfare cuts in return for securing the party's long-cherished goal of a wealth tax.
The Social Liberal Forum (SLF), which is on the party's left, fears that Mr Clegg is preparing the ground for a Coalition deal under which the Lib Dems back the Chancellor's plan for £10bn of welfare cuts in return for moves towards a wealth tax such as a levy on homes worth more than £2m.
The SLF will seek to tie Mr Clegg's hands at the Lib Dems' autumn conference in Brighton, which starts a week today and has the power to decide the party's policies. It will table amendments to promote wealth taxation as "fair and economically efficient in its own right, not as a trade-off with further unfair cuts to welfare spending".
On the economy, the group will call for the Coalition to change course, proposing a "flexible approach" to fiscal policy rather than another round of "self-defeating spending cuts."
David Hall-Matthews, who chairs the SLF, said yesterday: "George Osborne's Plan A has failed. The country needs the Liberal Democrats to lead the way in changing the direction of government economic policy. We cannot afford the social costs of more welfare cuts: it is time to use taxation more to address the deficit.
"We welcome Nick Clegg's recent call for a wealth tax, which should be part of a wider attack on inequality, that we hope conference will adopt as party policy – an attack that would see greater investment in early years, greater equality of pay and power in the workplace, and ending the undue political influence of big money."
The Deputy Prime Minister is unlikely to openly distance his party from Mr Osborne's Plan A. He believes that the Coalition's economic strategy is more flexible than it is given credit for, citing plans to boost housing and infrastructure and to clear the deficit over a longer period than originally planned.
Senior Lib Dems believe some further savings on welfare are inevitable but say they will try to limit their impact on the most vulnerable people.
Mr Clegg has joined forces with Iain Duncan Smith, the Work and Pensions Secretary, to propose curbs on winter fuel payments, free bus travel and TV licences for better-off pensioners, but the move has been blocked by David Cameron because he promised at the 2010 election to protect them.
The Liberal Democrat leader told Cambridge University students that he would consider coalition talks with Labour after the next election – but only if that was the message from the British people.
Displaying a lack of enthusiasm for a Lib-Lab deal, he said: "I don't buy this idea that Liberalism is somehow a subset of the Labour Party."
Unions oppose payout limit
Unions yesterday criticised Vince Cable's plans to reduce the maximum £72,300 compensation for unfair dismissal, warning that it could deter mistreated workers from making claims. The TUC welcomed the Business Secretary's decision to kill off a controversial "fire at will" proposal backed by Downing Street. Business leaders gave a broad welcome to the employment law reforms, intended to give companies confidence to recruit.