So, what now for the Cleggmeister?

Lib Dem leader will try to use his party's spring conference to bounce back from Barnsley by-election rout

It could be a pun too far, but Nick Clegg will lead his morale-sapped, anxious band of followers to his home city of Sheffield this week to "show some steel".

A shift in strategy to make clear that it is the Liberal Democrat side of the government standing up for the least well-off – Alarm Clock Britons, if you like – will be accompanied by bleak warnings that the worst is yet to come.

After slumping to sixth in the Barnsley Central by-election – humiliatingly behind the BNP and a local independent – and a slew of bad headlines, the Lib Dem leader and Deputy Prime Minister might hope to get a warm reception ahead of his party's spring conference next weekend.

The omens are not all good. Mr Clegg has even been warned to prepare for a leadership challenge in the wake of the by-election defeat. Sue Gymer, the chairwoman of South Cambridgeshire constituency party, said: "If it is not at this conference then perhaps the next."

Many in Sheffield are still wounded by the cancellation of the £80m government loan to Sheffield Forgemasters, which could have created scores of jobs. The city council is making cuts of £80m this year, rising to £200m by 2015. It is in no overall control; the Lib Dems have just three seats more than a resurgent Labour Party.

Lib Dems standing in seats on English councils, the Welsh Assembly or Scottish Parliament on 5 May will have gulped at the Barnsley result, though they share in the blame. The yellow army which batters away at by-elections stayed away from the rock-solid Labour seat to fight for survival in their own areas.

Privately the party admits it took a decision early to put barely any effort into Barnsley and take the inevitable "massive hit" on polling day. The candidate, Dominic Carman, ran his three-week campaign from the boot of his car. There were more Cowley Street press officers in attendance for the Oldham by-election last month than for the entire operation from Lib Dem headquarters in Barnsley. It was confirmation that the party is no longer able to mop up protest votes, but neither does it know from where its support will come in future.

Aides to the Deputy PM have also become frustrated by the media narrative that he is lazy, out of touch and clueless – see the stories about his ministerial red box being closed for submissions at 3pm and his off-guard joke that he had "forgotten" he was in charge while the Prime Minister was overseas. A top priority for the coming days is to stop the gaffes which feed in to this perception, which, unfairly or not, has gained traction.

A programme of community outreach is being launched in Sheffield, with thousands of conference delegates asked to travel a day early to spend Friday canvassing. Away from the main conference hall, ministers including Chris Huhne, the Energy Secretary, Steve Webb, the Pensions minister, and Sarah Teather, the Schools minister, will hold "surgeries" to get up close and personal with the grassroots and their grumbles. It aims to close the "gap" that has emerged between theWestminster leadership and the activists and councillors who fear they will pay the price at the ballot box.

"It is important to be seen to be engaging with people and not in our highly fortified bunker behind a ring of steel," a source close to Mr Clegg said. "The best form of defence is attack," is how the party's president, Tim Farron, puts it.

The party heads to Sheffield confident it has a strong message to sell – increasing the tax threshold; linking pensions to earnings; the pupil premium; scrapping ID cards; and ending child detention. Yet critics will still question what the party has got out of government.

Securing the AV referendum was a significant step. A victory for the Yes vote could change the Lib Dem narrative. Defeat will not bring down the coalition – "bluntly we have nowhere to go," one senior MP says – but would give those with a grievance another totemic policy around which to gather.

Then there is the volte-face over tuition fees, unease over the pace and depth of the spending cuts, splits over law and order and NHS reform, and the big nightmare – the prospect of Lembit Opik wanting to stand for Mayor of London.

Serious dissent against Mr Clegg among Lib Dem MPs is rare, largely a result of the laborious process of meetings and votes that bound them in when the coalition was formed. But the leadership acknowledges a need to shift emphasis. While not abandoning the strategy to "own" the entire coalition programme, more will be done to spell out differences with the Conservatives. Mr Clegg began that process this weekend in a speech to Welsh Lib Dems, in which he attacked scrapping the pensions-earnings link as "one of the greatest injustices of Thatcher's administration" and criticised budget proposals put forward by Welsh Tories.

What causes most nervousness among senior Lib Dems is not the scale of the backlash thus far, but the realisation that they ain't seen nothing yet. The full effects of the cuts have not been felt. This year, and next, will be the most painful.

In the Yorkshire city famed for its steelworks, the knives are not yet out. But listen carefully and you can hear one or two being sharpened.

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