Campbell will use taxes to boost the environment

Sir Menzies Campbell is preparing a series of radical "green tax" reforms after using his first speech as Liberal Democrat leader to offer his party as a "rallying point for liberal Britain".

Speaking at the party's annual conference in Harrogate, Sir Menzies insisted that the tax system "must provide incentives to companies and individuals to behave in a way that sustains our environment."

Aides hinted at a range of new environmental taxes and tax breaks for ecologically-friendly measures for the home and business. Some of the new taxes would replace conventional income taxes. The party is considering taxes to hit low-cost flights, petrol and even domestic fuel bills, shifting taxation from income towards consumption. Sir Menzies emphasised his commitment to making the Liberal Democrats the party of ideas, promising "a greener, fairer, decentralised and democratic Britain".

He told the BBC: "Aviation is making an enormous impact upon climate change. I think we've got to be honest enough to say to people, look, cheap flights come at a cost, they come at a cost far greater than what you actually pay for them and if it's necessary then we may have to have a system of taxation on aircraft movements, so as to discourage unnecessary use of aircraft ... I think that's the kind of directness and honesty that our party ought to subscribe to."

He told his party not to become "fixated on one tax rate", hinting at changes to the party's policy of creating a new 50 per cent top rate.

Sir Menzies also attempted to bridge the gap between the modernising "Orange Book" grouping in the party and its traditionalist left. Sir Menzies said: "Liberal Democracy cannot be a struggle between those who wish to modernise and those who do not."

Sir Menzies will announce appointments to the key home and foreign affairs and treasury portfolios today at the start of a root-and-branch reshuffle that is expected to bring the party's young modernisers - his key leadership backers - to the fore. Vince Cable is expected to retain his Treasury brief, while the new MP Nick Clegg was being touted as the new home affairs spokesman and the defence spokesman Michael Moore was tipped for foreign affairs. The leadership challenger Chris Huhne is widely predicted to take over the environment brief.

Sir Menzies will embark on a programme of major policy pronouncements in the run-up to the party's annual conference in the autumn, covering the economy, the environment, welfare reform, better government, education and crime.

Sir Menzies emphasised his commitment to changing the party's operation in an interview with The Independent, saying that he could foresee Liberal Democrats in government in his lifetime. Yesterday Sir Menzies turned his fire on David Cameron, accusing him of "stealing our clothes" and branding Mr Cameron as "a real con", telling his party that the Tory leader had been the author of "the most reactionary, unpleasant, right-wing manifesto of modern times."

The Liberal Democrat leader attacked Labour for its record on centralising government, social reform, and for stifling free speech, highlighting ID cards and the cases of protesters held under anti-terrorism laws.

He branded the Government's record on human rights "a disgrace", arguing that ministers "never tire of invoking terrorism and security threats to justify illiberal laws."