Nick Clegg rebuffs Tory right and calls on party faithful not to lose their nerve

In a speech cleared by Cameron, leader reassures his party that spending cuts are not part of an ideological agenda

Nick Clegg appealed to the public and his own party to stick with him as the Coalition Government "fixes" Britain's deficit crisis, and he promised to prevent the Conservatives repeating their "slash and burn" cuts of the 1980s.

A year ago at his party's conference in Bournemouth, Mr Clegg struggled to get his voice heard, his aides battled for media attention and his party fretted about how to clear the "wasted vote" hurdle as the election approached.

This year's Liberal Democrat conference in Liverpool feels very different. The media is here in force and party officials fend off questions about the latest alleged "split" with the Tories or Liberal Democrat grassroots revolt. There is a buzz that hasn't been there since the party was born in 1988.

Yesterday's speech was that of a new statesman, no longer a third party leader dreaming of power. Mr Clegg was sober and serious, insisting there could be no turning back from the huge cuts to be announced next month.

Urging his party to join him on the difficult journey ahead, he asked members to "hold our nerve" as the public deficit was cleared. In return, he presented himself to his internal critics as the Coalition's conscience, promising to protect the most vulnerable people and parts of the country from the Treasury axe – despite warnings from analysts like the Institute for Fiscal Studies that the cuts will be regressive.

His 37-minute address, which had been cleared by David Cameron, declared that cuts would not be made for ideological reasons, a deliberate rebuff to Tory right-wingers. "It is not an ideological attack on the size of the state," he said. "It's not smaller government I believe in. It's a different kind of government: a liberating government."

The Liberal Democrat leader dismissed criticism that the cuts would take Britain back to the 1980s or 1930s. "It isn't true," he said. "Even when all the cuts have happened, we will still be spending 41 per cent of our national income – the same amount we were spending in 2006. The spending review is about balance and responsibility not slash and burn."

Mr Clegg, a Sheffield MP, promised that the Coalition would not repeat the mistakes of the 1980s by allowing whole communities in the North, Scotland and Wales to be hollowed out. "Yes, it will be difficult, but it will not be like the 1980s. We will not let that happen. We will make these cuts as fairly as possible."

He cheered activists by announcing that the Treasury would relax its rules so local authorities could borrow money against future business rates income from planned infrastructure projects to enable them to go ahead. It could allow the redevelopment of abandoned industrial land in the Don Valley, Yorkshire; the creation of a science park in Newcastle and the transformation of the Aire Valley near Leeds. Aides denied that allowing councils to borrow millions more was at odds with cutting the deficit.

One of Mr Clegg's biggest cheers came when he replayed his party's greatest hit – Iraq. "I still think the war in Iraq was illegal. The difference is that lawyers now get anxious when I mention it," he said. He was making the point that the Liberal Democrats had not lost "our soul" by getting into bed with the Tories. "We haven't changed our liberal values. Our status is different but our ambition is the same," he said.

Nevertheless, his Iraq remarks surprised left-wing Liberal Democrats, who are perplexed by his interview with The Independent on Saturday in which he said there is "no future" for the party as a left-wing alternative to Labour.

Mr Clegg calculates that the "Iraq effect" was never going to last, even if he has speeded up its demise by joining forces with the Tories – seen as the enemy by many of those who saw the Liberal Democrats as a safe haven from New Labour. His critics fear a Labour revival in the North at the Liberal Democrats' expense when the cuts bite and wonder how their lost left-wing support will be replaced.

The party's private polling suggests that working mothers are increasingly attracted to the Liberal Democrats. Team Clegg hopes that being in Coalition will tackle the "wasted vote" argument. But it believes the party cannot have a pick-and-mix approach, and rejects calls for the leadership to distance itself from some Tory policies.

As one plain-speaking senior Liberal Democrat figure explained: "If the Government's economic strategy doesn't work, we are fucked. If it succeeds and we have been standing on the sidelines, we are fucked as we won't get any credit."

Defending the decision to enter the Coalition, Mr Clegg told his party it was in line with the "new politics" it had sought. "The truth is that I never expected the Conservatives to embrace negotiation and compromise. But they did and it does them credit. We have become more than the sum of our parts ... In life, two heads are better than one."

Telling his party that the "long-term prize is great", he asked it to imagine a vision of Britain in 2015 in which civil liberties had been restored; troops withdrawn from Afghanistan; "mass incarceration of children" ended and a fair tax system introduced.

He launched a surprisingly strong attack on Labour's failures in office, saying it was "imprisoned by timidity" and had "squandered a golden age". Now it was in denial about the deficit, he said. His criticism raised doubts about whether he could ever share power with Labour. But he left the door open by saying that the Coalition with the Tories was right for now.

Voices: 'He made clear we will act fairly'

The backbench sceptic

Tim Farron, MP for Westmorland and Lonsdale: "We have to work very hard to spell out what we stand for. He did a really good job in doing that today. He made very clear we as a party will make sure the recovery from this appalling recession is be handled fairly."

The former MP

Dr Evan Harris: "Liberal Democrat leaders in opposition would use their set piece to speak to the country. Now Nick Clegg is Deputy Prime Minister of the country, he set about the task of reassuring the party, which is right. We will see if the party is reassured by the Government's actions."

The grass-roots activist

Lord Greaves: "It was a step towards clearly differentiating Coalition policy and Liberal Democrat policy. He has got to trumpet the Liberal Democrat gains in coalition – he did that very well – and what the compromises are and why we have come to them."

The Clegg loyalist

Lord Clement-Jones: "It was the toughest speech Nick Clegg will ever have to make. Everybody is anxious, nervous, he is having to reassure a lot of people. It will be easier next year because we will have more achievements under our belt."

The senior statesman

Lord Ashdown: "It's exactly the speech we needed, a chin-up, chest-out speech. The road ahead will be tough, but there is a huge amount that can be achieved."

The worried blogger

Stephen Tall: "It was a sober speech overall, without the usual knockabout stuff that you would usually get in a Nick Clegg speech ... This was Clegg acting in his role as Deputy Prime Minister – it was naturally different in tone."

Lib Dem leader's key messages

4.17 Hold our nerve and we will have changed Britain for good.

4.18 By Christmas, ID card laws will be consigned to the history books.

4.18 Banks will pay a new levy that will help fill the black hole they helped to create.

4.18 900,000 low earners will stop paying income tax altogether.

4.19 I still think the war in Iraq was illegal.

4.20 I'm still trying to explain to my children that going from leader to Deputy PM isn't a demotion.

4.21 We are going to establish an elected House of Lords.

4.22 The Coalition Programme ... is not the Liberal democrat manifesto. But it is not the Conservative manifesto either.

4.23 Imagine if we had turned away. How could we ever again have asked the voters to take us seriously?

4.25 Two parties acting together can be braver, fairer and bolder than one party acting alone.

4.25 This is the right Government for right now.

4.27 Speak to councillors who've led councils across the country: they know what it's like ...

4.30 We are spending £44bn a year on interest alone ... It should be paying for police, care workers, hospitals and schools.

4.32 We are determined to wean the economy off Labour's lop-sided obsession with ... the City of London.

4.34 We have done more in five months than Labour ever did to sort out the greed and the recklessness of the banks.

4.35 It must never happen again.

4.36 Unlike Labour, we'll be tough on cheats too.

4.36 Tax avoiders and evaders must have nowhere to hide.

4.38 We will put local government back in charge of the money it raises and spends.

4.39 We will be giving local authorities the freedom to borrow.

4.39 Local people, local power, local change.

4.41 This country could not have borne five more years of Labour.

4.42 Never in the field of political memoirs has so much been written by so few about so little.

4.44 At times of great difficulty, great things can still be done.

4.45 Building, brick by brick, the changes Britain needs.

4.47 There's one freedom new schools shouldn't have – freedom to select.

4.47 No more selection

4.48 Make it easy for everyone to get out to work and get on in life ... that's what this government will do.

4.50 You'll be campaigning alongside Liberal Democrat candidates for the House of Lords.

4.50 The clapped out politics of First past the Post is gone for good.

4.52 Stick with us and together we will change Britain for good.

Clegg: in his own words

"I did not come into politics to make spending cuts. But it is the only choice if we want to steer Britain out of the economic mess Labour made. We are gripped by a crisis."

"There is nothing fair about denying you have a problem and leaving it for the next generation to clear it up. Would you ask your children to pay your credit card bill?"

"The years ahead will not be easy but they will make the difference our country needs. Stick with us while we rebuild the economy. Stick with us and together we will change Britain for good."

"Never again will anyone be able to frighten voters by claiming that coalition government doesn't work. Liberal, plural politics will feel natural; the sane response to a complex world. Just imagine how different our country will be."