It's all Yellow: What Next for the Lib Dems in Government?

A year ago, many people thought the Liberal Democrats had sold out. It's now clear that they have grown up.

A year ago, who could have predicted that Nick Clegg would be heading to the 2011 Liberal Democrat autumn conference with his leadership unquestioned? Despite the fragile state of the UK economy, the furore over tuition fees, the loss of the AV referendum and disaster in the Scottish parliamentary elections, Clegg's party will gather in Birmingham this weekend in characteristically high spirits.

The things that troubled Liberal Democrats during the early days of coalition (the perception that they had signed up blindly to policies they disagreed with and that they were not doing enough to show their distinctiveness in government) have become less troublesome.

This is due in no small part to the way their coalition partners behaved during the AV campaign, which led to a considerable hardening of the Lib Dem stance across a range of issues. There has been a clear strategic shift towards a more businesslike relationship with the Conservatives and a determination to appear more distinct. The change of direction has been warmly welcomed by Lib Dem members and there are some early signs that it is being rewarded by an upturn in the party's poll ratings.

What the Liberal Democrats must continue to do is hammer home their positive achievements in government, while pointing at what they are stopping the Conservatives from doing. Cries of "yellow bastards" along the Tory backbenches can be read as a signal of the Lib Dems' influence - it certainly won't worry the party faithful.

So what next?

The period up to the next general election will be all about the economy. The turmoil in the financial markets and debt problems of the US and many Eurozone countries has vindicated the tough stance the coalition has taken on the budget deficit, however painful this will be in terms of public spending cuts. And it has also further exposed the ostrich like attitude of the Labour opposition.

In the aftermath of 'hackgate' and the Vickers report on banking, Vince Cable's reputation is stronger than ever. Over the coming year, we can expect to see the business secretary becoming more confident in spelling out what the government should be doing to restart the economy, straying where he can from his narrow departmental brief to return to his perch as chief economic spokesman for the Liberal Democrats. He is likely to push for full and quick implementation of the Vickers proposals for banking reform, greater infrastructure spending and more demand management - more Plan A+ than Plan B.

Nick Clegg's stated aim is for the Liberal Democrats to be seen as a party of economic competence - in contrast to Labour - and of fairness - in contrast to the Conservatives. As well as staking out a Lib Dem position on the economy, tax will be a critical area for burnishing the party's fairness credentials. Conservative calls for the abolition of the 50p tax rate play straight into Lib Dem hands, as it allows the Liberal Democrats to stress their pre- and post-election commitment to increasing the personal income tax allowance to £10,000. The recent CentreForum paper by Lord Newby 'Tax and the coalition: fairness and responsibility?' indicates where Lib Dem priorities on tax will lie.

The Liberal Democrats will be seeking to set out distinctive policy proposals in other areas too. There will be a continued drive to put a firm stamp on energy and climate change policy, the promotion of social mobility and in areas like housing and employee participation in industry, a traditional liberal enthusiasm.

A year ago, many people thought the Liberal Democrats had sold out. It's now clear that they have grown up.

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