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Why a clapped out DJ is a role model for a party with ambitions

Just as Radio 1 had to drop Dave Lee Travis, so the Lib Dems must update their brand

The Liberal Democrats, says a senior minister, are having their Hairy Cornflake moment. As he watches their loyal support base dwindle, he bizarrely takes heart from the survival of Radio 1 after Dave Lee Travis quit in 1993.

The hirsute DJ was angry at the modernisation of the station and walked away, taking his snooker quizzes. Within a year Radio 1 audiences slumped by a fifth to 3.5 million. But it needed doing. "Who'd want to listen to DLT now?" the minister asks. Updating a tired and much-mocked brand meant tough decisions. The beards took a trimming; new tunes were introduced.

Sound familiar? According to the DLT theory espoused at the Lib Dem conference in Birmingham, when organisations – radio stations and political parties – need to shed their tarnished image, they must take a short-term hit in popularity in order to attract a wider audience. Lib Dems believe the number of voters lost because they have tainted their brand by taking tough decisions in power will be outnumbered by those who previously thought they were not a serious political force.

Some may say it sounds complacent, but a growing number of senior Lib Dems think the stamping of sandals will eventually be drowned out by recognition that they are a contender as a party of government. If it means a few on the beardie left-wing of the party walk out, so be it.

Ministers seem to have got their act together. Whereas a year ago they talked excitedly about how well they were getting on with their Tory colleagues, they are now more wary and place more emphasis on their differences.

Among conference delegates and ministers last week there was a sense that their debut in power was not a triumph: they had cosied up too closely to the Tories and many of the problems were self-made. "It was a politically wasted first year," said one minister, who says good policy decisions were made but Lib Dems forgot the politics. Nick Clegg was mocked for suggesting in his speech that the anger over the trebling of tuition fees was a question of "perception", but he had a point. A bad situation was made worse by bungled handing and an inability to explain how the policy might have been worse if the Tories, or Labour, were governing alone.

The aggressive Tory campaign to defeat the AV referendum – which targeted Clegg in particular – and the loss of 750 Lib Dem council seats "reset the relationship". In a sign of the drop in trust between the coalition partners, The Independent on Sunday has learnt that Mr Clegg has been holding weekly meetings with his fellow Lib Dem cabinet ministers since May to ensure that they are not outmanoeuvred by the Tories. This includes an informal arrangement of "licensed dissent" which allows Vince Cable and Chris Huhne in particular to act as outriders for party policy. A minister admitted they had been "naive" not to hold a Lib Dem cabinet from day one of the coalition.

At times last week the differentiation went too far, and overshadowed positive, expensive policy announcements. Mr Cable said Tories were "descendants of those who sent children up chimneys" while Mr Huhne attacked the "Tea Party tendency" among his coalition partners. Tim Farron, the party president, was slapped down after claiming the coalition would "divorce" in three or four years.

There is a feeling that Mr Cable needs to mind his own Business department and fuss less about the Treasury. "He needs to realise he is not the Chancellor." Relations between the Business Secretary and the Treasury remain frosty. George Osborne was said to have been "furious" at Mr Cable's recent policy paper on the economy, and it has been made clear that nobody tells the Treasury what to do. "They are never going to be mates," says a friend of Mr Cable's.

The conference hall echoed to jokes at Mr Osborne's expense, from his wealthy background to his alleged connections to a dominatrix. One minister privately condemned the Chancellor as "immature". By comparison, most Lib Dems could not heap enough praise on the Prime Minister. "Cameron is brilliant," said one cabinet minister. Another added: "He has a first-class mind and a first-class temperament."

They also admit to being surprised by how much common ground they have found. Tories talk of the importance of marriage, but the Lib Dems focus on stable families. Both want the same ends – the best environment for children – but use a different language.

Reports that Miriam Gonzalez Durantez had told a dinner party her husband would serve only one term as Lib Dem leader set minds racing about who might replace Mr Clegg when the time comes. "Clegg hasn't gone through the pain barrier to only do one term. But he could fall under a bus," said a colleague, sinisterly.

So, who is in the frame? Party president Tim Farron was the darling of the conference, attacking "reactionary Tory drivel". The ever-optimistic Simon Hughes could not be ruled out. Chris Huhne clearly retains ambitions. If he led the party into a new coalition he might even make an attempt to become Chancellor himself. "Chris is very good at getting what he wants," says an admirer. And carrying the flag for The Orange Book wing of economic liberals? With David Laws damaged by his expenses problem, step forward Jeremy Browne. The Foreign Office minister, who colleagues joke is so far to the right the Tories wouldn't have him, is "the one to watch", according to colleagues.

It seems amazing that a party struggling into double digits in the polls might even speculate about its future like this. But rightly or wrongly, those trapped in the labyrinthine International Conference Centre seemed convinced that, on balance, all was going well. Time and again they quoted Tory MP Nadine Dorries's irritation that Mr Cameron needed to show his deputy "who's boss". If the right-wingers are happy, we must be doing something right, say Lib Dems slapping each other on the back.

In reality, the Lib Dems' electoral prospects are linked directly to the nation's finances. "The economy needs to improve or we will face more of the blame," a minister confided. One grandee was blunter: "If Osborne's judgement is right, we're OK and Labour is in trouble. But if he has got it wrong, Labour is laughing and we are totally fucked." Or, as DLT would put it: quack quack oops.

Lib Dem conference in quotes...

"Another term of Labour would have been a disaster for our economy. So don't for a moment let Labour get away with it. Don't forget the chaos and fear of 2008. Never, ever trust Labour with our economy again."

Nick Clegg, Lib Dem leader

"You never ever say never. But... if I did get to 80 and I've never been leader I won't lose any sleep."

Tim Farron, Lib Dem president

"I stay up all night worrying about some of the things I have to do as a minister because we have to make cuts in my department. I have people who are losing their jobs, I worry about them. I'm a human being."

Vince Cable, Business Secretary

"The danger if you don't compromise is now clear from America: the mad-cap Republican right in Congress wouldn't compromise with the President. Let that be a warning to the Conservative right here - we need no Tea Party tendency in Britain."

Chris Huhne, Energy Secretary