THE Liberal Democrat leader can start to relax. Yesterday Sir Menzies Campbell both established his authority as leader and went a long way towards defining the identity of his party.

Imagine if the leadership had lost the vote on retaining the top 50p rate of income tax and Charles Kennedy had delivered a barnstorming speech prompting calls for his early return to the front bench. Sir Menzies’ authority would then have suffered a serious setback and there would be rumblings over his leadership before his big speech tomorrow.

But neither of these threats materialised. After a vigorous and amicable two-hour debate, probably better than anything we will hear over the next fortnight, the advocates of the 50p rate were beaten by well over two to one. This was a bigger-than-expected margin, and Sir Menzies looked relieved.

Then, three hours later, Mr Kennedy delivered a fluent, but over-long and self-indulgent speech. There was no apology for, or even admission of, his alcoholism.

Mr Kennedy still has remarkable political talents, but he does not yet look ready to return. He received the expected standing ovation, as a mark of genuine respect and thanks. But the conference was affectionate rather than enthusiastic, in marked contrast to the ecstatic reception that Margaret Thatcher was given by the Conservative Party conference in October 1991, the first after her downfall the previous November.

So Sir Menzies no longer has to look over his shoulder and has won his first symbolic conference victory. The argument was not about the tax package as such, but over a relatively small, £2 billion addition to £20 billion of tax changes.

Both sides conceded that it was about signals. Supporters of the 50p rate argued that it would be an easily understood sign of a commitment to redistribution. For the leadership, retaining this rate would complicate the package and might send the wrong signal about penalising ambition and aspiration.

Phil Willis, the populist MP for Harrogate, wondered whether “modernising our taxation isn’t a slippery slope towards more right-wing draconian policies”. That is a weird view of a package that would substantially increase taxes on the top 10 per cent. Cuts in the rate and scope of national income tax would be balanced by the replacement of council tax by local income tax as well as big changes in capital taxes and higher green taxes. This represents a big shift from the taxation of income to taxation of wealth and energy consumption. Chris Huhne, the party’s energy spokesman, has argued that, in contrast to the Greens, the Lib Dem package aims to change behaviour by incentives rather than proscription.

Admittedly, the proposals would do nothing to cut poverty, but taken as a whole they could not have been proposed by either Labour or the Tories. Sir Menzies insisted yesterday that he wanted the Lib Dems to be a party of the Centre Left, although he places as much emphasis on the liberal-authoritarian contrast. That involves considerable electoral risks as the tax proposals will provide ample ammunition for attacks by the Lib Dems’ opponents. But yesterday should be remembered as when the shape of the Campbell-era Lib Dem party first become clear.

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