Andrew Grice: The lesson of Oldham? There is life in the Lib Dem parrot yet

Inside Westminster

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To avoid a messy media scrum, a meeting of Liberal Democrat ministers at 8am yesterday was hurriedly switched from Carlton Gardens off The Mall to the safe and secure Grimond Room, named after the former Liberal Party leader, inside the Palace of Westminster.

News of the meeting had leaked to the Labour Uncut website on the eve of Thursday's Oldham East and Saddleworth by-election. Fearing a bad result, the Liberal Democrats did not want television cameras to capture Nick Clegg and his ministers trooping in and out of "crisis talks" (even though the session had been planned before the contest was called).

In the event, they need not have worried. The Liberal Democrats got a respectable second place behind Labour in Oldham and their ministers could breathe a collective sigh of relief when they discussed it. If Liberal Democrat activists had gone on strike over the party's plummeting opinion poll ratings and refused to go to "Old and Sad", Mr Clegg could have had a third place and a mega-crisis on his hands.

Instead, members turned up in droves and he was able to tell yesterday's meeting: "When we go out and talk to people about what we have already achieved in government they are prepared to listen. So let's be confident about what we are delivering and let's make sure we are out there to make our case."

No party leader likes to admit to a change of strategy, knowing that "U-turn" fits neatly into a headline. Mr Clegg is adamant that he isn't changing tack. Yet his remarks acknowledge the need to "make our case" more forcefully – both to the public and his party.

Before last May's election, the Liberal Democrats were better prepared for coalition talks than either the Conservatives or Labour, but by definition they were ill-prepared for government. They have had no option but to learn on the job. One lesson is a dangerous divide between the 18 mostly happy ministers who are enjoying an unexpected taste of power and the 39 rather grumpy backbench bunnies. Efforts to prevent the party's MPs becoming "two tribes" will be stepped up.

Mr Clegg has not changed his view that his party must take full ownership of Coalition decisions. "We can't be a niche within it," one close ally said. Otherwise, Mr Clegg judges, his party will have no chance of getting any credit if the Coalition's economic "rescue mission" works.

A delicate balancing act is required: the Deputy Prime Minister must point up how his party has made a difference and achieved some of its key goals. According to the agenda, yesterday's ministerial meeting discussed "making the Coalition work as a partnership of equals". Easier said than done. Clegg aides believe they could easily boost their poll ratings by screaming their gains from the rooftops. But if Mr Clegg trumpets them too loudly, the Tories will hear a message that these things would not have happened without the Liberal Democrats. That would weaken Mr Clegg's hand in future negotiations with David Cameron. Tricky.

Like Mr Clegg, Ed Miliband has been under growing pressure from his restless MPs and has also won a breathing space from the by-election. The Labour leader will need to use it to achieve some momentum in order to silence his critics.

Mr Cameron won't lose too much sleep over the collapse in the Tory share of the vote in Oldham. He will be privately relieved that the Liberal Democrats did not come third. That would have created a problem for Dave because it would have been a disaster for Nick.

Yet in the new world of coalition politics, Mr Cameron must also perform a constant balancing act to keep the Liberal Democrats and his own party on-side. Right-wing Tories who want the Coalition to fail are on the march over the party's poor showing after a half-hearted Tory campaign designed to bolster Liberal Democrat prospects which, as I revealed last month, was discussed by the Cabinet.

Although the strategy worked, Mr Clegg is under no illusions. He is prepared for an even more difficult year in 2011 than 2010. The "heavy lifting" on university tuition fees may be over, but tricky decisions on bankers' bonuses and control orders will also strain relations between the Coalition partners.

Dave will not be able to throw Nick a similar lifeline in the May elections to the Scottish Parliament, Welsh Assembly and English councils. He will be on the opposite side in the May referendum on the voting system. If that is lost, Mr Cameron may not be able to guarantee Mr Clegg's Plan B – early action on an elected House of Lords, to which there is strong Tory opposition.

So there will be many more occasions when Mr Clegg has to tell his party to hold its nerve and play it long. "It is a marathon, not a sprint," he told his ministers yesterday. Oldham should give the Liberal Democrats an energy burst.

The Liberal Democrats, once dismissed as a "dead parrot" by Margaret Thatcher as she ridiculed their yellow bird logo, are still alive. Mr Clegg's internal critics have nowhere else to go – unless they want an early general election in which the party would face a meltdown. Oldham vindicates his long-term strategy. As Baroness Thatcher also said, there is no alternative.

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