Nick Clegg: 'Governments spend £700bn a year. You can do a lot with that'

As his party conference begins, the Deputy Prime Minister tells Andrew Grice the Coalition should be making headlines for much more than cuts

Nick Clegg in his office in Whitehall as the Lib Dem conference approaches (Susannah Ireland)

"Veto" is not a word Nick Clegg uses very often. Yet he has no hesitation in deploying the V-word when I ask him whether he really would stop George Osborne going ahead with his plan to scrap the 50p top rate of tax on earnings over £150,000 a year.

Surely the Chancellor writes the Budget? Would the Liberal Democrats walk out of the Coalition rather than allow the controversial tax cut?

"It won't come to that," Mr Clegg replies. "You cannot decide these things without both Coalition parties agreeing, without consensus." Chatting in his spacious Cabinet Office base in Whitehall, Mr Clegg is relaxed as he sinks into a comfortable armchair, dressed like his male aides in an open-necked shirt. He is in Liberal Democrat rather than Deputy Prime Ministerial mode, preparing for his party's annual conference, starting today.

But he is not playing to the party gallery, insisting that David Cameron and Mr Osborne are well aware of his views on tax. The Coalition is signed up to the Liberal Democrat goal of a £10,000 personal tax allowance and has already taken two steps towards it. With a difficult negotiation over the 50p band looming, Mr Clegg now sets his sights even higher: he declares that his long-term aim is to permit £12,500 of tax-free earnings, in line with the national minimum wage.

"There is no way that the 50p [rate] is unilaterally going to be dropped in the absence of progress on lowering tax on people on low and middle incomes and looking at ways the wealthiest pay their fair share," says Mr Clegg. "We are not there to rush to the aid of the top 1 per cent of very, very rich people who are not in straitened circumstances."

He even suggests that going ahead with the Osborne plan in the current climate could produce a taxpayers' revolt. "It would be incomprehensible to millions of people really struggling to make ends meet. Of course the tax system has to be competitive with other countries. But the tax system also needs to have the support of this country.

"If millions of taxpayers feel they are being overlooked, ignored and passed over, as preference is given to people who need the least amount of help at the moment, you destroy the very fabric of consensus without which a sensible tax system cannot survive."

The Liberal Democrat leader will table his party's policies – a mansion tax on homes worth more than £2m; a land-value tax, and restricting tax relief on pensions to the 20p basic rate. But he concedes that the Conservatives "may have other ideas".

A more immediate priority is the dire state of the economy. Although he blames the political "gridlock" in the eurozone and the United States, he admits: "It is certainly a lot darker now than people might have hoped six, 10 or 12 months ago." With a candour not shown by the Tories, he admits the Coalition is adopting a "Plan A-plus" to ensure growth.

He says: "We need to do more in government. We are doing more. We are going to do more to play our part – not just in balancing the books."

It doesn't mean abandoning the tough deficit-reduction plan. It does mean going further than Tory-favoured supply-side measures such as cutting red tape for business. Mr Clegg is pushing what he calls "the active stuff", saying: "You will see a whole series of measures we can take. For too long people have assumed that, because we are sticking to the fiscal plan, somehow the Government is impotent. It is complete nonsense. As a government we spend £700bn a year. You can do a lot with that. In many ways we have not talked enough about the demand side of things."

He promises announcements soon to boost housebuilding – a move which could fuel the row between the Government and environmental groups over new planning guidance that could result in homes being built in the green belt. "There is a need to step up the pace on housebuilding. It is good because it employs people, particularly young men. It creates a sense of activity and confidence in communities where homes are being built. It is essential to help people get a foot on the property ladder," he says. The Deputy Prime Minister backs a new round of quantitative easing or printing money, adding that the final decision is for the Bank of England. "It is free to take that step if it wants to. It is part of the armoury," he says. So what is his message to Liberal Democrats who worry that they are lashed to the mast of a Tory economic strategy that might sink? He is "optimistic" that politicians on both sides of the Atlantic will find the will to overcome the problems.

Rehearsing his party conference lines, Mr Clegg says "Liberal Democrat fingerprints" are all over key government policies on tax; pensions; schools; reforming the banks and the NHS. He insists that he has not blocked calls for a vote on the Government's NHS reforms – a decision taken by the party's federal conference committee. But he does not want the Birmingham conference "hijacked" by demands for more concessions from the Tories, and is adamant that the demands of the Liberal Democrats' spring conference have been met.

Mr Clegg accepts that the Coalition has entered a different phase since his party was routed in the May local elections and voting-system referendum. "We always fought our corner. The only difference is that some of that is more transparent now," he says. "You have got a strike a balance. You cannot run a government where you spend all your time hanging out your dirty linen. The whole thing becomes dysfunctional. The public want us to get on with it." He is relaxed about admitting to differences with the Tories on Europe, the banking system, tax and human rights, as long as the two parties don't indulge in "student politics". He acknowledges that he and Mr Cameron have a different take on last month's riots. Mr Clegg is advising against a knee-jerk reaction. "We are not going to learn the right lessons if all we do is chuck people into prison for a few weeks and somehow think the problem has been dealt with. All that happens is that they just go out and commit more crimes," he says.

There is increasing chatter on the Liberal Democrat grapevine that Mr Clegg will not be the right man to lead the party into the 2015 election because he will be so closely associated with the Coalition. He laughs off speculation that he might be tempted by an offer to become Britain's European Commissioner in 2014.

"I am leader of the Lib Dems and Deputy Prime Minister. I love what I am doing. It is a huge privilege." So will he definitely be leader at the next election? "You bet," he replies instantly.

The West London question

Nick Clegg has also suffered a revolt on the home front. His three sons love football but have rejected his attempt to persuade them to support Fulham.

Mr Clegg does not have an allegiance to a single team but Craven Cottage is a walk from his Putney home. He took Antonio, 10, and Alberto, seven, in the hope they would be hooked but has accepted defeat. "They are at an age when it is all glamour clubs," he said. "I have tried to get them interested in Fulham and the Sheffield teams [he is MP for Sheffield Hallam] but they now swerve between Liverpool and Chelsea. They are currently fascinated by Chelsea." News that is sure to disappoint Fulham owner Mohamed al-Fayed.