Charles Kennedy put a brave face on questions surrounding his leadership of the Liberal Democrats yesterday, as he declared the party was the "last, best hope" of British politics.

But quizzed by his own activists at the party conference in Blackpool, the issue of whether he was the right person to lead the Lib Dems into the next election came up repeatedly.

One delegate, a candidate in the last election, complained he had been forced to spend too much time defending Mr Kennedy on the doorstep, rather than explaining the party's policies.

Mr Kennedy appealed for party unity, arguing the Lib Dems were "mature" enough to hold an honest debate without descending into in-fighting.

But the atmosphere at this conference is unusually heated for the Lib Dems, as the party re-examines not only some of its most cherished policies but its direction.

Yesterday, delegates defeated the party leadership on a motion to limit European Union spending.

Solihull MP Lorely Burt, who took her seat from the Conservatives at the last election, said she was " disappointed" by the result of the vote. She said: "We have a eurosceptic public out there - I know, because they tell me every day. We have to listen to what people say, otherwise we will never be elected."

But proposals to introduce a cap of one per cent of GDP on EU spending were defeated after delegates claimed it would put funding for projects across Britain at risk.

The debate illustrated the choices facing the Liberal Democrats. Some party members believe the party must be willing to reform, and even re-consider traditional positions, if it is ever to become a real contender to form a Government.

A similarly contentious issue will be debated today, when the conference considers proposals to privatise the Royal Mail. The leadership argues this would raise money to invest in post offices, but the Lib Dems have traditionally opposed privatisation.

While Ms Burt supports the policy, John Hemming, the Lib Dem MP of Yardley, opposes it.

And discussion about reform of the party's tax policy is also likely to lead to arguments.

Mr Kennedy insisted yesterday that nothing has been decided - but also dropped strong hints that he wanted to abandon proposals, included in the party's General Election manifesto earlier this year, to impose a 50 per cent tax rate on the highest earners.

He asked delegates to consider the number of voters who might be put off supporting the Lib Dems at the next election because of the policy.

He asked: "How many will aspire to be in that tax bracket in four years time?"

Mr Kennedy, who will deliver his set-piece speech on Thursday, took part in a question and answer session from the podium yesterday.

He said the Lib Dems faced a number of disadvantages, including the first-past-thepost electoral system, lack of funding compared to other parties and the refusal of the media to see Britain as a three-party country.

Questioned by the candidate who had been forced to defend him on the doorstep, he said: "The interpretation across the country, and that is borne out in the opinion reviews, is that compared with the other party leaders, the leader of the Liberal Democrats is considered a net asset."

He said the other parties had attempted to focus on him, adding: "They won't stop me. I have a thick skin and I won't lose sleep about it."