Steve Richards: Power silences the doubters – for now

Clegg's insistence that the speed and depth of the cuts are necessary is the one that will be tested over the next few years. Party members are watching nervously

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The Liberal Democrats are staging a more shaded and nuanced conference than they might have done. Those attending could have celebrated ostentatiously. To some extent they had cause to do so. They are in power and the conference reflects their newly elevated status. I have reported from every annual gathering since the party's formation in the late 1980s. This is much the least earnestly fantastical. There are no angry protestations about the party's purity and claims that they are verge of government when the polls suggest otherwise.

They are in government and so fantasy is replaced with something much more substantial. The symbols of the leap are everywhere, from the security around the conference to the number of journalists attending. We journalists have few distinct skills but we can detect relevance. The Liberal Democrats have become incomparably more relevant at a national level.

But they are not going wild here, revelling in their relevance. Most of Liverpool seems to party into the early hours, at least in the part of the city where I am staying, but Liberal Democrats are not jumping with joy.

Nor are they prepared yet to despair. Again they have some cause to do so. None of them had signed up in advance to George Osborne's economic crusade. The Liberal Democrats gained quite a lot from the Coalition negotiations, but made one substantial shift in the defining area of policy, the speed and depth of spending cuts. Those at the top of the party insist they did so out of conviction, but it was a change nonetheless and not a minor one. There is a big difference between Labour's plan to cut spending by £80bn, already ambitious, and Cameron/Osborne's plans to cut £120bn. The parliamentary arithmetic propelled Nick Clegg towards the Conservatives after the election and he played his limited hand with immense skill, but he has signed up to an economic programme that is highly risky.

Yet those attending the conference are remaining calm on the whole. They have opted for a third way. They are not partying and are not funereal either. I keep on bumping into my friends at the BBC who seek desperately to interview disillusioned activists. They are struggling to find many.

That does not mean those attending are complacently sanguine. I sense they are watching nervously, with their fingers crossed and in some specific cases ready to strike. The sensible opposition to Michael Gove's so-called free schools in a debate yesterday is one example and there may be others to come this week. Liberal Democrats are advocates of localism, but most of them can detect the dangers of a free for all and recognise the need for schools to accept wider responsibilities that extend beyond cocooning a few pupils in a well funded school removed from the rest of the community. There is a contradiction amongst the more thoughtful Conservative ministers who know that local government needs to be stronger and who also back "free schools" that bypass councils altogether. In defeating the proposal the conference exposes the contradiction.

Intelligent opposition to a specific policy should not yet be taken as a sign of all out rebelliousness. The mood at a crowded fringe meeting yesterday lunchtime pointed to the more thoughtful ambiguity. The Environment Secretary, Chris Huhne, got the biggest cheer when he declared that the Liberal Democrats had always argued for coalition politics and now they had a chance to show that it works. I argued on the day the Coalition was formed that Clegg was taking a huge risk, but had an ace card. How can a party that supports coalitions walk away from the first since 1945? The ministers in the Coalition play the card already.

The questions at the fringe show why they are doing so within months of forming the Coalition. A councillor asked how they could avoid colossal losses in next year's local elections. Another pointed out that the Lib Dems performed better in elections as part of an anti-Tory alliance. A third questioner argued that the centre right was overcrowded and the Liberal Democrats must be clearly defined as party of the centre-left. There was concern from another questioner about too many millionaires in the Cabinet disconnected from the real life consequences of spending cuts. None of them called for the break up of the Coalition, but they are uneasy.

Huhne's responses were important, in some ways as significant as Clegg's speech that followed later in the afternoon. He stated unequivocally there would be no pact with the Conservatives at the next election. This got almost as big a cheer as his argument for coalition government as a matter of principle. I am certain there will be no such arrangement whatever happens in the years to come. In the 1980s the Liberals and the SDP fell out more over who should contest seats than any other issue and they were fighting as a single force. There will be no formal deal with the Conservatives over seats at the next election.

Huhne's response to questions about the deficit also conveyed the pragmatic instincts of a trained economist. He compared the current economic policy to steering a boat across the Mersey, arguing that, if the conditions change, the direction of travel will change too: "You assess these things as you go along". In other words, if Cameron/Osborne's rush to wipe out the deficit has an adverse impact on growth there could be a change of course. I have heard other Lib Dem Cabinet ministers make the same point in private. I wonder if their more ideologically committed ministerial colleagues will be so flexible.

Clegg's speech captured the nervy mood of his conference perfectly and was a partially successful attempt to address it. Wisely, he kept clear of jubilant proclamations about securing power. Instead he pleaded twice in the first few minutes for his party to hold its nerve. At the end too he urged the audience, and voters, to "stick with us". He cannot be accused of triumphalism. His case for what happened after the May election was convincing and compelling. His arguments on what will happen next were less so. He pointed out that a party does not choose the moment when power becomes possible or the economic context in which it is wielded. He asked them forcibly to imagine the implications for his party if he and others had walked away from power last May when the Conservatives were genuinely willing to make compromises.

But his insistence that the speed and depth of cuts are necessary is the one that will be tested over the next few years. It will not be like the 1980s, he told his conference. He promised, also, that it was not an ideological attack on the size of the state. Let us hope that Huhne's pragmatism in the face of changing events applies in the coming years.

Post-election conferences are a poor guide to what will follow. After the 2005 election Charles Kennedy was leader of the Lib Dems and planned to be so for some time to come. Tony Blair was Prime Minister and had not indicated precisely when he would stand down. Michael Howard was leading the Conservatives as they prepared to elect a successor. The Liberal Democrats' conference next year, after the referendum on electoral reform, local elections and the first round of cuts, will be much more of a test for a leader who is confident he is making the right moves and for a party which is less sure.

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