Lib Dem leader vows to keep economy safe

The second-biggest opposition party could hold the balance of power after an election expected in May.

Lib Dem leader Nick Clegg said his party would be the "guarantor of good sense" as Labour and the Conservatives squabble over how to tackle the record 178 billion pounds deficit, more than 12 percent of Gross Domestic Product.

"We are the guarantor -- whatever the outcome of the election -- that no risks will be taken with Britain's financial position," he told party activists at the end of a weekend conference in Birmingham.

The Lib Dems, seeking to position themselves between their two larger opponents, say they will shortly spell out a programme of 15 billion pounds of cutbacks, but would hold them back for at least 12 months until the economy was ready.

"Anyone who has ever cut back a tree knows there are many ways to do it," Clegg told the conference, the party's last major gathering before the election.

"You can cut back badly and kill the tree. Or you can do it in a way that helps the tree to flourish."

HUNG PARLIAMENT

Polls show the gap between Labour and the Conservatives narrowing enough to prevent either gaining an overall majority and creating a hung parliament -- giving the Liberal Democrats a rare chance to influence policy.

The Conservatives want an early start to cutting the deficit, incurred after the economy suffered its worst recession for generations, in order to protect Britain's credit rating.

Labour say fiscal tightening cannot start while the economy remains fragile, and has postponed serious cuts until at least 2011. Neither party has offered much detail on where the reductions in public spending would occur.

Clegg sought to quash speculation over which way his party would swing if either Labour or the Conservatives needed support to form a government after an inconclusive vote.

"I am not the kingmaker. The 45 million voters of Britain are the kingmaker," he said.

He indicated he would be neutral in his favours to the two larger parties, even though many of his current 62 MPs in parliament would naturally lean towards Labour.

"The party which gets the strongest mandate from the voters will have the moral authority to be the first to seek to govern," he said.

Under procedure, Prime Minister Gordon Brown would get the first stab at seeking alliances to form a government if he failed to win a majority.

Clegg's formulation suggests he would not automatically prop up a minority Labour government and would be open-minded about supporting a Conservative administration.

The Lib Dems hold around a tenth of the seats in parliament despite winning 22 percent of the vote in the last election in 2005, because of the way the electoral system, designed around a two-party establishment, disadvantages smaller parties.

In the coming election the party will be fighting on two fronts, defending seats in the southwest against the Conservatives, and hoping to make gains in the north in traditionally Labour-supporting areas.

(Editing by Matthew Jones)