Richard Grayson: Don't become too safe in your views, Mr Kennedy

The Liberal Democrats are seeking to reshape government, yet the country doesn't know that

At the end of their conference week, Liberal Democrats have a chance to reflect on how their fortunes have changed since they last held their conference in Bournemouth. That was three years ago, in the aftermath of 11 September.

At the end of their conference week, Liberal Democrats have a chance to reflect on how their fortunes have changed since they last held their conference in Bournemouth. That was three years ago, in the aftermath of 11 September.

Then, some people asked whether the conference season would go ahead at all, and the Liberal Democrats refocused their agenda on international issues. Charles Kennedy ripped up his conference speech drafted over the summer, which was primarily domestic in content to flag the main themes of the party's review of public services policy. Instead, he spoke of the issue in everyone's thoughts.

Since then, the fortunes of the Liberal Democrats have been transformed. That the Liberal Democrats are now so distinct from Labour is partly related to Iraq, and also because Charles Kennedy is personally performing better than some months ago. It also has much to do with the policy development work in the party's pre-manifesto, Freedom, Fairness, Trust.

Developments in policy are also seen in The Orange Book, containing essays by the so-called Young Turks of the party. Some members are angry that this has distracted attention from the pre-manifesto. Others dislike its proposals on healthcare, which have already been rejected by the party.

There is a good case for being relaxed about The Orange Book. Its critics might reflect that parties of government are broad churches. Labour still includes both Tony Blair and Tony Benn. Edward Heath remained in Margaret Thatcher's party. Roy Jenkins, knowing all about the sectarianism of the left, warned against being a "right, tight little party": such parties do not govern. That sage advice is not always heeded by Liberal Democrat activists.

A useful effect of The Orange Book has also been to focus the debate on principles. Consequently, there has been talk that one option on offer is a return to the Gladstonian brand of 19th- century liberalism: "peace, retrenchment, reform" and a minimal state.

However, the party's official policy programme and most of The Orange Book cannot be so labelled. Except for international policy and some favourite quotations, the party has forgotten Gladstone. That's hardly surprising since as early as the 1860s, the Radical Liberal Joseph Chamberlain built active local government in Birmingham to improve social conditions for the masses. Ironically, when the party split over Irish Home Rule in 1886, those Radicals opposed to Home Rule co-operated with the Conservatives and found that long-held Radical proposals such as the establishment of county councils were granted by a Conservative rather than a Liberal-led government.

Chamberlain's radical liberalism actually had more impact than Gladstone's liberalism on the sweeping changes that the Liberal government made to Britain in 1906-14, even though by that time, Chamberlain was a bitter opponent of the Liberal Party. The New Liberals of those years sought to advance individual liberty, but they wanted government to create the equal opportunities that promote liberty, particularly through a decent welfare system.

Crucially, New Liberals did not set an absolute standard about how "big" government should be. Instead, they said that where government existed, it should be as local as possible. Government per se is not wrong, but there is plenty wrong with too much central government. Government can be a place where people come together to promote freedom, if decisions are made more locally.

That distinction is not heard enough from Liberal Democrats. Charles Kennedy has spoken of letting "local communities and the local doctors and local nurses make the decisions". Rather than scrapping government, that means refocusing it to local decision-making. What the Liberal Democrats are seeking to do is reshape government, yet the country doesn't know that. The Liberals did it in 1906; Labour did it in 1945, and the Conservatives did it in 1979. Each party persuaded people that they would revolutionise government. Yet the Liberal Democrats are today often too timid in advocating their new localism.

The thinkers of New Liberalism, and local government radicals such as Joseph Chamberlain, offer a guide for the future. An active government role in tackling poverty through a mixture of state-run redistribution and local initiatives (often voluntary) where possible is an attractive option. Britain's political tragedy is that social liberalism was sidelined as the Liberal Party fell apart. Now that we have three-party politics, the country has a second chance to choose social liberalism. But it can happen only if the Liberal Democrats persuade people that a change of government will mean a real change in the way the country is governed.

The writer is a lecturer in British politics at Goldsmiths College, London, and former speechwriter for Charles Kennedy