Nick Clegg faces a growing mutiny within his own party before this week's budget as Liberal Democrat MPs, peers and grassroots activists accuse him of caving in to the Tories and failing to stand up for low earners.
The Lib Dem leader is struggling to maintain discipline after it emerged that the chancellor, George Osborne, is poised to announce a cut in the 50p rate of income tax for higher earners – without meeting the Lib Dems' key demand for a "mansion tax" or other property tax on the wealthy in return.
Clegg was warned that restive Lib Dem MPs might vote against the budget after the Treasury also suggested Osborne could announce radical plans to bring in lower salaries for public sector workers in poorer parts of the country.
Amid growing fears that the party is being outmanoeuvred by Conservatives keen to protect the middle classes and wealthy, John Pugh, the Lib Dem MP for Southport, said the idea of regional public sector pay could "force them [Lib Dem backbenchers] to vote against the budget, cementing coalition divisions."
In a direct attack on the four ministers negotiating the budget – Clegg, Osborne, David Cameron and Lib Dem Treasury chief secretary Danny Alexander – he added: "Many of us are wholly unconvinced that there is a credible economic case for this measure. Furthermore, the ground troops facing elections in May can only wonder at what the generals are doing."
Meanwhile Lord Oakeshott, the party's former Treasury spokesman, who angered Clegg last week by denouncing as unworkable his idea of a "tycoon tax", delivered a new broadside.
As Clegg's office tried to promote its latest plans to clamp down on tax avoidance by the rich as a big success, Oakeshott suggested that nothing but a mansion tax would work: "Taxing the super-rich is like hammering nails into a jelly – the only bit that can't wobble offshore is their luxury property," he said.
"That is why our Lib Dem mansion tax really works on the seriously wealthy, including Tory tycoon donors, unlike a tycoon tax which leaves non-doms' and non-residents' wealth offshore and off the hook."
Many Lib Dems fear the chancellor will use Wednesday's budget to help middle-class families and the wealthy, while doing precious little to assist lower earners who continue to be hit by wage freezes and rising prices.
David Hall-Matthews, chair of the Social Liberal Forum representing Lib Dem activists, said the pressure was on Clegg to deliver in the budget, particularly after he had decided to support the unpopular health and social care bill against the wishes of many in his party. The bill is expected to complete its troubled passage through parliament this week with Lib Dems voting in favour.
Hall-Matthews said: "The leadership is not giving the impression that they are pushing the Conservatives and doing so effectively. It doesn't look as though they are waging many battles."
Osborne is expected to use money raised from new tax avoidance measures to help hundreds of thousands of higher-rate taxpayers keep their child benefit – another move that will rile Lib Dems.
Clegg, on the other hand, will highlight a new announcement on increasing the personal income tax allowance from its current level of £8,105 to nearer £9,000 to help working families.
However, the policy has come under sustained attack from anti-poverty campaigners, who say it fails to help the neediest families, many of whom are out of work, or will have most of the money clawed back through cuts in other payments, such as council tax benefit.
The Lib Dems originally insisted that they would not agree to scrap or cut the 50p top rate of tax without a full-blown wealth tax being put in its place.
When the mansion tax was ruled out by Osborne, Clegg publicly championed a new tycoon tax on the super-wealthy as an alternative.
But amid Whitehall scepticism about whether it would be practical to set a minimum tax rate for the rich, the Treasury has said it will examine a series of anti-avoidance measures which will restrict high earners' access to tax reliefs. Clegg's aides says these will have the same effect as a tycoon tax.
The charge that the Conservatives are feather-bedding their middle-class core voters at the expense of the poor comes as a coalition of campaigners steps up the pressure on the government over the impact of Osborne's austerity regime.
In a report to be published on Monday, the Fawcett Society warns that decades of progress towards gender equality could be reversed by the cumulative effect of budget cuts and public sector job losses.
Andrew George, the Liberal Democrat MP for St Ives, said the price of losing the 50p tax rate would have to be a mansion tax and that proposals for regional pay contradicted the chancellor's previous statements about the country being "all in it together".
He said that removing the 50p tax rate and introducing regional pay would damage the "plausibility" of the coalition government's claims to be protecting the vulnerable and creating a fair tax system.
Describing Nick Clegg's idea of a tycoon tax as "more of a concept than a policy", he added: "I hope the government reminds itself of the themes it set itself."
Chris Leslie MP, Labour's shadow Treasury minister, said: "It looks like Nick Clegg has once again rolled over and allowed the Tories to get their way. He seems to have dropped his demand for a mansion tax and is going along with a tax cut for the richest earners.
"All the Lib Dems seem to be championing in return is a clampdown on tax avoidance, which should be happening anyway. And an increase in the personal allowance will not be enough to make up for the hit to middle- and low-income families from the VAT rise and huge cuts to working tax credits Nick Clegg has happily supported."
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