Steve Richards: A party that doesn't realise the power at its disposal

At this stage of the political cycle, Cameron cannot do without the Lib Dems. The Tories have no overall majority, as the fate of the health reforms highlighted

The Liberal Democrats are holding their second conference in power. They are calm. There is little rancour. But they are too calm, and there should be a little more rancour. For all parties the second annual gathering in the political cycle should be the most creative and open.

The first conference season in the cycle following an election is when parties are shell-shocked, still coming to terms with the result. The third and fourth conference seasons take place with the next election moving into view. The need to project unity is overwhelming. With the next election a safe distance away, now is the time for debate, risk taking and exploration of ideas.

Of course it is a difficult balance to strike. Labour was so open about its dilemmas and differences in the 1980s that it was slaughtered in three elections. The media in Birmingham is a little disappointed not to witness an equivalent bloodbath among Lib Dems now. But while their calm is impressive on one level it obscures the challenges facing them and does not help them address them.

Although they have started to perform better in council by-elections, the Lib Dems' poll ratings are dire. Not surprisingly, their identity has become more even more blurred since forming a partnership with the Conservatives. Tony Blair is an unreliable observer of British politics, but he has a point in relation to the Lib Dems. Recently he argued that a party positioned to the left of New Labour before the election and marching side by side with the Conservatives afterwards is bound to be in deep trouble.

Blair makes a general observation, but there is a very good specific example. A party leadership that argued with some passion before the election against cutting too quickly and deeply has signed up to the fastest deficit-reduction package in the western world, a decision that looks even more misguided now than it did a year ago. Yet on the deficit there is complacent unity at the conference and not a hint of public questioning.

In other areas differences are profound, but understated in ways that can lead to paralysis. The Liberal Democrats are at the point where they can exert maximum influence over the Conservatives. As I argued on Friday, since their defeat in the A/V referendum Nick Clegg and other senior ministers have started to highlight more openly some of the areas where they apply distinctive and substantial pressure. This is one of the reasons why he and his party still dance in relative harmony. The public love-in with the Conservatives is over.

Nonetheless the Lib Dems' influence could be greater still. At this stage of the political cycle David Cameron cannot do without them. The Conservatives have no overall majority, as the fate of the original health reforms highlighted. When the Lib Dems voted overwhelmingly against them at their spring conference, the proposals were doomed. Suddenly there were not enough MPs willing to vote for them.

Such assertiveness could apply more widely. The former minister David Laws has argued that his party must decide whether to be a block or an engine in the Coalition. He makes a false distinction. Both are required. Their veto of the NHS reforms was a block, but one that kept the Coalition on the road. If the reforms had gone ahead, both parties would be in even deeper trouble than they surely will be when the shambolic compromise proposals are implemented. The Lib Dems' problem is not a lack of influence but the divide within their party about how to wield power that is unfamiliar to them. Harold Wilson used to describe the Labour Party as a "broad church", a neat euphemism to explain raging divisions. One senior Liberal Democrat describes his party as a cathedral, an equally euphemistic image to address the divide between so-called Orange Book liberals and social democrats.

The party's president, Tim Farron, delivered a speech to the conference that was something of a political work of art, mapping out a more social democrat argument while declaring several times his overwhelming admiration for Nick Clegg's leadership. His opposition to the removal of the top rate of tax was unequivocal, and in connecting the desire for abolition with the Conservative party, unqualified in its disdain: "Twenty economists called for scrapping the 50p tax rate. They have many supporters in the Conservative party. They are utterly wrong."

In an interview with The Independent on Saturday, Clegg was not so unqualified. He indicated that abolition might be feasible if it were replaced with a more effective tax on the wealthy. So will the Liberal Democrats veto the scrapping of the 50p rate up until the election? They cannot answer that question because there is not one that they would agree on.

Farron was much more mischievous when he turned to public-service reform. For parties supposedly on the centre left, public-service reform is almost as divisive as Europe is for the Conservatives. It was at the heart of the Blair/Brown policy divide and still causes unresolved tension within Labour. For the Lib Dems the tensions are more immediate because they are in power. Farron appeared to praise Clegg for challenging the NHS reforms: "Who is taking the Blairite nonsense out of the NHS bill? Nick Clegg!"

This was almost Shakespearean in its multi-layered trouble-making. In relation to public-service reform, Clegg is a Blairite. Broadly he supported the original NHS reforms, as did his closest ministerial ally Danny Alexander. Both moved fast when they realised that a political catastrophe was looming, but were relaxed when the mountainous White Paper appeared from nowhere. It took the social democrat Shirley Williams to recognise the practical dangers arising from Andrew Lansley's revolution.

The term "liberal" is the most flexible in British politics. From the left to the right, nearly everyone claims to be liberal – one reason why Liberal Democrats have at times appealed to disillusioned Tories and Labour voters. But now, at the point in the political cycle where they have most leeway, the reluctance to debate and resolve differences limits their influence within the Coalition.

Who would have thought it? The Liberal Democrats are becoming almost too disciplined.

s.richards@independent.co.uk