Clegg's tax-cut pledge: 'I'll hand back spare public money'

He used his first leader's speech to a party conference to pledge to hand back spare public money rather than spend it on schools, hospitals and welfare if he came to power.

Mr Clegg's move to shed the Lib-Dems' image as a high tax party came as he set out his vision to tear up the "rotten old system" of politics and offer a "new type of government".

He warned Labour and the Tories that the price of his party's support in a hung Parliament would be a major constitutional shake-up - including the possible introduction of proportional representation.

And in a shot aimed at those MPs who rebelled last week by ignoring his order not to vote for a referendum on the EU treaty, he stressed the party could only progress if it was "united and disciplined".

Mr Clegg's vow to "never stop thinking" about how to cut taxes is a bold move coming less than 18 months after the party leadership won a bruising battle with activists to end its commitment to raising them to fund services.

The high-level of investment by Labour meant funding was no longer a problem. He said: "Taxes should be fair and they should be green. They should raise the money we need and not a penny more.

"So, if before the general election, we find we can deliver our objectives with money to spare, we shouldn't look for new ways to spend it. We should look for new ways to hand it back."

Insiders said that alongside an already promised 4p cut in the basic rate of income tax, the party could also look at increasing tax thresholds.

Party chiefs are already committed to a huge hike in environmental taxes and a crackdown on the super rich.

In his speech to the Spring conference in Liverpool, Mr Clegg made clear there would be no coalition in the event of a hung Parliament without a promise of major constitutional reform.

Speculation on the LibDems' position has intensified with the prospects of no party gaining an overall majority at the next general election.

Mr Clegg hinted he was prepared to deal with either a Tory or a Labour minority administration - but he said a wide-ranging electoral shake-up would be the price.

He said: "Will I ever join a Conservative government? No. Will I ever join a Labour government? No. I will never allow the Liberal Democrats to be a mere annex to another party's agenda.

"But am I interested in building a new type of government? Yes. Based on pluralism instead of one party rule? Yes. A new system, that empowers people not parties? Yes."

Senior insiders said the Lib-Dems would refuse to cut a deal unless there was an explicit promise to look at the way Britain is governed, including an examination of proportional representation and the state of devolved administrations.

He called for a new crackdown on sleaze - with by-elections for MPs who break the rules.

Mr Clegg also focused on education and health. Under a Lib-Dem government, school classes in deprived areas would be half the size of those in affluent parts of the country to improve education for the poorest children.

He also promised a "high risk strategy" to inspire the British people, including risking court action by refusing to sign up for the identity card scheme, boycotting banquets that celebrated regimes such as Saudi Arabia and exposing corruption in the European Parliament.

He accused David Cameron of engaging in "sham politics" - challenging both him and Gordon Brown to take him on head-tohead in a public debate.