Clegg says Lib Dem "soul" will survive coalition

SHEFFIELD (Reuters) - Deputy Prime Minister Nick Clegg told Liberal Democrats on Sunday to hold their nerve ahead of difficult local elections and a key voting referendum whose outcome could strain the 10-month-old coalition.

"These are testing times for us as a party," Clegg said as he closed a party conference in Sheffield held under the tightest security ever seen for a Liberal Democrat rally.

He was speaking a day after 3,000 demonstrators angry at government spending cuts had protested outside the central city hall where party members were protected by a 8-foot (2.5-metre) steel fence and a phalanx of police officers.

The party's poll rating has more than halved to about 10 percent since joining the larger Conservatives in coalition following last May's inconclusive general election.

"Yes, we've had to toughen up. But we will never lose our soul," Clegg said.

Analysts expect the Lib Dems to do badly in local elections in eight weeks' time as former supporters abandon them for joining a government committed to steep cuts in public spending to tackle a record budget deficit.

The party has also lost credibility with many voters after abandoning its pre-election pledge to abolish university fees and instead supporting a near tripling in charges.

"We could not deliver our policy to abolish tuition fees. I know how deeply people regret that," said Clegg.

NHS REFORMS CRITICISED

He promised there would be no privatisation of the National Health Service after party members passed a motion criticising sweeping health reforms devised by Conservative health minister Andrew Lansley.

"No government of which I am part will tamper with the essential contract at the heart of the NHS -- to care collectively for each other as fellow citizens," he said.

Parliament is still considering legislation making it easier for private companies to provide NHS services and party spokesmen said Lib Dem ministers would take the members' concerns back to government.

In a BBC TV interview Lansley said the proposals were "always under review," and suggested the government could make concessions.

"We will look at if, in the bill, we can make clear that some of the things that people are concerned about will not happen," Lansley said.

Clegg urged people to vote yes, on the same day as the local elections, on switching the parliamentary electoral system to "alternative vote" from the current "first-past-the-post."

The referendum was a key measure won by the Lib Dems on joining the coalition, but the AV system, under which voters rank candidates by preference, is opposed by Prime Minister David Cameron and most of his Conservative party.

The coalition partners have agreed to differ on the issue, with Clegg saying AV would end safe parliamentary seats and prevent a repeat of the expenses scandal that saw MPs claiming for moat cleaning and shelters for ducks.

"On the 'No' side of the argument are the British National Party, the communists and the Conservative Party," said Clegg.

"If you want more duck houses, vote no. If you want more democracy, vote yes."

(Editing by Michael Holden)