LONDON (Reuters) - Voters punished the Liberal Democrats for their role in a deficit-cutting government on Friday, rejecting the party's efforts to reform the electoral system and deserting it in local elections.
The outcome points to a rockier future for the Conservative-led coalition government, with analysts predicting a more combative stance from the Lib Dems, the junior partners.
The Scottish National Party (SNP) scored a bumper haul, winning an outright majority in Scotland's assembly -- which has limited powers devolved from London -- and opening the door for a referendum on secession from the rest of Britain.
A fully independent Scotland could change the handling of profits from North Sea oil fields, a crucial source of tax revenue for cash-strapped Britain.
It might also have implications for the Royal Bank of Scotland, bailed out during the global financial crisis and now 83-percent owned by the state.
Voters overwhelmingly rejected a proposed reform to the voting system in a blow to the Lib Dems and their leader Nick Clegg, who had championed the change.
The campaign for Thursday's referendum on voting reform strained the year-old coalition, prompting angry exchanges between Lib Dems, who backed change, and Conservative defenders of the current system.
Both Conservative Prime Minister David Cameron and Clegg, the deputy prime minister, pledged on Friday to continue working together in the coalition, which has embarked on tough austerity policies to slash Britain's record peacetime budget deficit.
CONSERVATIVE VOTE HOLDS UP
Cameron, whose party saw its vote hold up in local elections, said he believed the coalition would survive until 2015 and complete its austerity programme.
"Now Conservatives and Liberal Democrats must come together again in this government and provide strong, decisive long-term good government in the national interest for Britain," he said.
The main opposition Labour Party, which has overtaken the Conservatives in opinion polls, had mixed results. While support in local council elections in England was positive, the party took a beating in Scotland, normally a heartland of its support.
SNP leader Alex Salmond, who remains Scotland's first minister after his party's stunning gains, said he would speak to Cameron on Friday to lay down markers over what the result meant for Scotland's relationship with the United Kingdom.
"We've given ourselves the permission to be bold," he said.
The party aims to hold a vote on independence from Britain within five years.
The big losers were the Lib Dems, who have fallen sharply out of favour with voters because of an array of policy reversals since entering the coalition in May 2010 -- notably their U-turn on a pledge to oppose higher university tuition fees. They suffered heavy losses across the country.
Clegg called the referendum result a "bitter blow."
"But the answer is clear and the wider job of the government and the Liberal Democrats in government will continue -- to repair the economy, to restore a sense of prosperity and jobs and optimism to the country. That's the job that we've started and we'll see it through," Clegg said.
Defenders of the current first-past-the-post voting system in parliamentary elections won the referendum by more than a two-to-one margin. They rejected a change to the "Alternative Vote" system that helps smaller parties like the Lib Dems.
Labour held on to a parliamentary seat in Leicester where a lawmaker's resignation prompted an election. Votes for both the Lib Dems and Conservatives were down sharply from last year's national election.
FEARS OF SPLIT OVERDONE
The Lib Dems' poor showing prompted a few commentators to ask if the coalition could split and derail the austerity plan. But financial market investors did not share those fears.
"Do they (the election results) jeopardise the coalition? Absolutely not, because the junior coalition partner has nowhere to go," said Andrew Roberts, head of European rates strategy at RBS.
The referendum on voting reform was a key concession won by the Lib Dems for joining the centre-right Conservatives last year in creating Britain's first coalition since World War Two.
The referendum loss and poor local vote results might spur challenges to Clegg, but no contenders have yet emerged.
Analysts expect the Lib Dems now to try to better defend their policies to claw back popular support.
"Lib Dems will expect their coalition representatives .... to be seen to be defending very publicly Lib Dem principles and winning battles. That is something the Lib Dems will have to do more of to show that they are actually making a difference in the coalition," said Nottingham University's Steven Fielding.