CHARLES KENNEDY is likely to resign as leader of the Liberal Democrats after the next general election, according to senior party sources.

Despite growing unease, particularly among new Lib Dem MPs, about the direction in which he is taking the party, Kennedy has decided not to stand down before polling day.

He does believe, however, that barring a spectacular Lib Dem breakthrough at the next election it will be time, after 10 years of leadership, to hand over.

By then he will have fought three elections as leader, one more than Lord Ashdown, his immediate predecessor, and the same number as Lord Steel, the previous leader.

Kennedy, who has led the party since 1999, intends to see a close lieutenant installed as his successor.

He will try to give the party’s conference, which begins today in Blackpool, a celebratory feel after winning 62 seats in May, a gain of seven.

However, there is now a substantial body of opinion that the party needs to correct a drift to the left if it is to challenge the two main parties.

Kennedy made great play in the election about the Lib Dem stand against the Iraq war but the issue failed to deliver as many votes as party managers had hoped for.

The modernisers, nicknamed “Orange Book” MPs after a publication last year co-edited by David Laws, the member for Yeovil, argue that the party needs to be more economically liberal.

These MPs, who style themselves as “new Liberals”, include Mark Oaten, the home affairs spokesman, Nick Clegg, the Sheffield Hallam MP, and Jeremy Browne, who regained the Taunton seat from the Conservatives in May. There have been some suggestions that Kennedy may be open to a leadership challenge within the next two years. The leader’s camp dismisses this, saying that he will definitely stay on and fight the general election.

One source close to Kennedy said yesterday: “This is a hugely successful politician. He is strong, experienced and he wants to go on.”

Lack of an obvious challenger is also a problem for those who believe that Kennedy is not the right man to make a breakthrough. Sources say he could favour Vince Cable, his Treasury spokesman, as the man to succeed him after the next election, which is likely to be in 2009.

Cable could prove controversial. He recently hinted that the party may have to consider a coalition government with the Conservatives. In recent years the Lib Dems have been seen as far closer to Labour.

Under party rules the leader is selected by a ballot of all members, but Kennedy’s endorsement will carry weight.

Several senior members on the right of the party believe that it should have won 75 seats in May. One MP said: “We are not euphoric. Remember we only have one in 10 of the MPs. There is a worry that we lost ground to the Tories and many of our wins were with slender majorities.”

Kennedy will this week try to decide which policy areas need to be improved.

Steve McCabe, Labour MP for Birmingham Hall Green, said last night that the Lib Dems must decide where they stand. “To one audience, the Lib Dems masquerade as a party of the left. But to another they give the impression that they are moving to the right,” he said.

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