TERRY DIGNAN:                The Liberal Democrats begin 
their annual conference today... overshadowed by the terrible events in 
the United States but buoyed up to some extent by their successes at the 
last election.  The problem for them is what strategy do they adopt from 
here if they are to achieve the ambition many have for them and that is 
to become the main party of opposition?  As Terry Dignan reports, they 
are divided on whether to move to the left... or to the right.
In a quiet Surrey suburb, a group of Liberal Democrats attend a Tandoori 
night. Following the horrifying events of September the eleventh, the atmosphere 
is, understandably, sombre. But, on the domestic front, tonight's special 
guest feels supremely optimistic.  

EDWARD DAVEY MP:            "Because I think we will be in 
Government in Westminster within the next ten years."

DIGNAN:                    Although the Liberal Democrats 
have tasted electoral success, they say the 2001 campaign was just for 
starters. They want the top table at Westminster which means overtaking 
Labour and the Conservatives. But to achieve that aim they may face painful 
decisions about where they really stand on the big domestic issues, like 
taxation and the management of public services.

DAVEY:                    "Seven seats saw....."

DIGNAN:                    Liberal Democrat MP Ed 
Davey says simply continuing to target Conservative seats won't be enough 
to win power. Instead Liberal Democrats should make their goal Labour's 
urban heartlands where, it's argued, dissatisfaction over public services 
has lowered turnouts. Their positioning to Labour's left on tax and spending 
is seen as a strength in this regard.  
 
DAVEY:                    When people use those terms, 
they're talking about the tax and spend debate. Now I'm very comfortable 
with the Liberal Democrats' current position, which in those old-fashioned 
terms of left and right, does put us to the left of Labour. Therein lies 
an opportunity for us. Because a lot of those abstainers were people who 
didn't like Labour. They couldn't ever bring themselves to vote Conservative. 
But they didn't like the fact that New Labour was, in many ways, aping 
the Conservatives and adopting a very centre-right position.

DIGNAN:                    Yet on election night, 
the Liberal Democrats under their new leader celebrated gains made, yet 
again, mainly at the expense of the Conservatives.
 
CHARLES KENNEDY MP:            "We are very much the party 
of the future."

DIGNAN:                    But are they? If the new 
Tory leader alienates some Conservatives by moving rightwards, it could 
be a lost opportunity for Charles Kennedy if his party goes in the opposite 
direction. 

MARK OATEN MP:                I think that would be wrong, 
that would be dangerous, and this current climate where we have an enormous 
opportunity to benefit from a, a right-wing Conservative Party, we'd be 
foolish to position ourselves in the left, in that sense.

VOICE OVER:                "From the BBC. This is Five 
Live."

DIGNAN:                    In the broadcasting studios, 
with military conflict looming, the politicians respond to voters' anxieties. 
But normal politics still intrude. The voters want to know where the Liberal 
Democrats are heading. Because what they stand for now is higher taxes 
and higher public spending.  
  
EVAN HARRIS MP:                People actually trust more 
a party that has a menu with prices rather than one, as we've seen Labour 
do, saying, everything'll be fine, and no-one will have to pay any more 
tax. It doesn't add up, and I think the mass abstentions at the last election 
showed that people realised it didn't add up.

LORD CLEMENT-JONES:            I think to his enormous credit 
Charles Kennedy went for the fifty per cent above the hundred thousand 
disposable income taxation bracket in order to pay for education and health, 
to improve our public services, and I think that was a very popular policy. 
After all, we were the only party that significantly increased our representation 
at the last election.

DIGNAN:                    The Winchester MP Mark 
Oaten first came to prominence after beating the Conservatives in a by-election 
landslide. Now chairman of Liberal Democrat MPs, he worries about the party 
having a left wing image and says the pledge to raise taxes may have to 
go.

OATEN:                    One of the political dangers 
is that the commentators will increasingly see us as a populist party which 
is to the left of the political spectrum, that wants to constantly put 
taxes up and hasn't got any creative thinking. Now I don't think that's 
where we are. I think that we've been honest in the past about saying that 
we do need extra funds, but now it's a time to question that, and to say, 
well, if we want to improve our public services, maybe there's a different 
way.       

HARRIS:                    I don't think it's a question 
of left or right but if to the left of Labour means we are in favour of 
 the NHS as the best way of providing fair, good quality care, then, yes, 
and we'll certainly take our chances being identified as the party for 
decent public services.

OATEN:                    "Ingrid, do you want to 
look at the diary."

DIGNAN:                    But Mark Oaten fears that 
at its next appointment with the electorate the party will have become 
too attached to higher spending and taxes, even though the idea may be 
popular with Labour voters. 

OATEN:                    "Good. Alright."

DIGNAN:                    He wants the party to consider 
using the private sector to improve services.  
 
OATEN:                    Critically this Party has 
to make its mind up. Do we want to put the consumers at the heart of the 
debate? Do we want to come up with a form of delivery which means we have 
the best hospitals and schools for our constituents? Or are we going to 
just purely say, no, it must always be the public service which does this 
because we believe in public services and local authorities. I argue that 
the consumer should come first, and our own beliefs about how it should 
be delivered should come second.

DIGNAN:                    Bill Newton-Dunn was a 
Tory Euro-MP before defecting to the Liberal Democrats.   

BILL NEWTON DUNN MEP:        "Getting cold?"

POLICEMAN:                "Very much so. Good evening, 
sir."

DIGNAN;                    Looking favourably on private 
sector involvement in schools and hospitals might encourage other pro-European 
Conservatives to regard the Liberal Democrats as their kind of party. 

NEWTON DUNN:                The idea of bringing in private 
finance would be attractive to the, the floating voters and even professional 
Tory MPs who are disaffected. Yes, they see that as a sensible way forward.
  
DIGNAN:                    But moving rightwards just 
to accommodate the views of Conservatives uncomfortable with their new 
leader Iain Duncan-Smith would be unpalatable to many Liberal Democrats. 
And especially if it meant downgrading the pledge to raise taxes in favour 
of a bigger role for the private sector in managing public services.  

HARRIS:                    Even if the analysis was 
right that we could compete for right-wing votes with an increasingly right-wing 
Labour Party and an extremist Conservative Party, then I don't think that 
can be done by Liberal Democrats with conviction.
 
DIGNAN:                    Liberal Democrat officials 
may struggle to attract the media to Bournemouth this week when most eyes 
will be on another part of the world. Yet domestic politics won't be completely 
overlooked:

UNNAMED WOMAN:            We do have quite a lot of photo-ops 
arranged as you know, but .....

DIGNAN:                    Liberal Democrats calculate 
that tensions in the Labour Party over public services will worsen. Having 
ended co-operation with Labour, they're well-placed to exploit them.  Here 
at Liberal Democrat HQ, the party will undoubtedly be looking for ways 
of trying to win over disaffected Labour supporters. Indeed, some argue 
the Liberal Democrats now have a golden opportunity to try to weaken Labour 
decisively by, for example, co-operating with Labour-supporting trade unions 
who oppose private sector involvement in public services.

LORD CLEMENT-JONES:            I do see it as quite historic, 
because I do not see that certainly the New Labour ethos is pro-union in 
any sense of the word. If anything, they're much closer to business. That's 
why we are, you know, having discussions with the unions because, quite 
frankly, we agree with them and we're much closer, they're much closer 
to us, on these sort of policies than they are with the Government.

DIGNAN:                    Tony Blair is accused of 
moving rightwards because he wants hospitals like this one to embrace the 
Private Finance Initiative. PFI allows companies to build and manage hospitals 
in return for a fee. Liberal Democrats say they don't rule out private 
sector involvement in public services. Yet their criticisms of the idea 
echo those made by trade unions and Labour backbenchers.

HARRIS:                    It is effectively at the 
price of no more efficiencies, taking money out of health care and into 
profit for shareholders and we wouldn't blame the private sector for that 
- that's the job of the private sector. So, the case for the private sector 
in health care, particularly PFI, is unproven and, at worse, the evidence 
is that it's counterproductive.

DIGNAN:                    Party policy documents 
call for evidence that PFI gives value for money. But some want this week's 
conference to back tougher opposition to PFI. 

LORD CLEMENT-JONES:            PFI needs to be properly evaluated 
for all the hospital building projects so far. Until that evaluation takes 
place, then we shouldn't proceed with any more.

DIGNAN:                    So the party should be 
more robust?

LORD CLEMENT-JONES:            Yes, I think they should. I 
don't think that the party will be hostile to that amendment at all. I 
think it goes with the grain of the way that they see the controversy going 
over their local hospitals.

DIGNAN:                    In seats like Winchester, 
where many Conservative voters have switched to the Liberal Democrats, 
there's a fear of the party being typecast as a pale version of old Labour. 
The last thing the Liberal Democrat MP here wants is a set of policies 
which might well appeal to some disillusioned Labour voters but at the 
expense of deterring potential Conservative defectors.

OATEN:                    I accept that we would be 
turning away some of those individuals if they saw us as being purely a 
party of the left, a party which supported trade unions, and said the only 
solution to difficulties was putting taxes up. I don't think that's where 
we want to be in the next year.

UNNAMED WOMAN:            Yes, we do take payment by credit 
card. I'll put you through to somebody. One moment.

DIGNAN:                    Others argue that even 
losing some votes to the Conservatives would be a price worth paying if 
large numbers of Labour voters switched to the Liberal Democrats.  

HARRIS:                    I think that would be more 
than compensated for by the vast majority of people who recognise the potential 
that the health service and our state school system have to deliver high 
quality public services.

OATEN:                    Charles Kennedy described 
our Party, if it were to go down to the left, as moving into the biggest 
cul-de-sac in British politics, and I think he's right there.     

DIGNAN:                    When these Liberal Democrats 
re-assemble at the Claygate Tandoori in just a few weeks, it's likely the 
talk will again be of events far from home. But the dilemma over which 
direction they should take on the big domestic issues won't have gone away. 
Until it does, the prospect of there being a Liberal Democrat Prime Minister 
will remain little more than a dream.