THE Liberal Democrats were caught up in a damaging row over plans to hit middle-income households with tax rises as the party's annual conference got under way yesterday.

Insisting the wealthy had done "too well" under Labour, party leader Sir Menzies Campbell put forward plans for a radical tax shake-up, including removing 40 per cent tax relief on pension investments for high-earners.

Sir Menzies said 90 per cent of people would be better off under the package, which includes cutting the basic rate of income tax by 4p to a 90-year low.

However, in a pre-conference interview, the Lib Dem leader agreed that the remaining ten per cent - those households earning more than about £70,000 - would be "hammered".

The admission could prove costly across the South, where many families with £70,000 incomes and huge mortgages would not consider themselves wealthy.

The Lib Dems are already struggling in many parts of the South, as traditional Tory voters return to the Tories.

Asked by the BBC if the Lib Dems planned to "hammer" the ten per cent who would be worse off, Sir Menzies replied: "Yes, those households whose income is in the order of £70,000 per annum."

Senior Lib Dems later sought to clarify the leader's comments, insisting households on incomes of £70,000 to £80,000 would only pay "a little bit more".

The row followed renewed grumblings about Sir Menzies' leadership. At 66, some consider him too old and the party's poll ratings have dipped to about 15 per cent. Yesterday, Lord Rodgers, former Lib Dem leader in the Lords, branded Sir Menzies' performance "disappointing".

He said: "There's a feel- ing that there is a lack of energy and an absence of direction."

A poll of 130 Liberal Democrat constituency association chairmen - including those of all the party's current 62 MPs - found nearly a third were not convinced their leader was doing well.

The tax plans, which would also add at least £10 extra duty on short-haul flights and raise road tax on 4x4s from £300 to £2,000, will be debated tomorrow.