As conference kicks off, PM unveils new housing policy, vows to kickstart economy and seeks to keep party on centre ground

Speaking on the first day of his party conference in Manchester, the prime minister pledged to "fire up the engine of the economy" as he pushed a new homes policy – but thwarted the desires of his backbenchers for a referendum on whether Britain should stay in the EU.

The Conservatives announced plans – the extension of an existing programme – to boost the "right to buy" council house scheme introduced under Margaret Thatcher's government in the 1980s.

David Cameron announced increased discounts to encourage council tenants to buy their homes, alongside a "build now, pay later" scheme to encourage developers to build on government land and only pay for it once a house is sold.

Cameron said the policies could lead to the building of 200,000 homes and the creation of 400,000 jobs.

He and his foreign secretary, William Hague, had warm words for their Lib Dem coalition partners, and ploughed a fresh furrow: that it is the Tories, as much as the Lib Dems, who have pushed for "cuddly" policies, in the language of the prime minister.

To mark this, on the first day of the conference the party sent out a pamphlet, Modern Compassionate Conservatism, as the Tories sought to emphasise they would be staying on the centre ground of politics, despite pressure from some inside the party.

"I don't believe for a minute that this government is only held back by the cuddly Liberal Democrats," Cameron said on the BBC's Andrew Marr programme. "The proposal not to cut health spending came from the Conservatives."

Cameron added: "I described myself as a modern, compassionate Conservative. Modern, because I think we've got to apply ourselves to the challenges of today … Compassionate, because we mustn't leave people behind in our country … But I'm a Conservative because I believe, generally, if you give people more power and control over their own lives, they will actually make great decisions."

Echoing Cameron's social concerns, Iain Duncan Smith, the work and pensions secretary, told a conference fringe meeting last night that the Tories had to "engage in the business of social reform". Duncan Smith was speaking on gang culture and told the meeting: "We have a growing underclass in the UK that is almost completely detached from society as many of the rest of us would understand it.

"Unless we deal with that, what we are going to see is that frustration boiling out into the streets, with a 'stick it to the man' attitude among a lot of younger people."

Meanwhile, Cameron said he would not rule out asking Lib Dems to join a Tory government if they were to win a majority at the next election. He said: "What happens at the next election? We will fight as independent parties. We will be fighting to win. And whatever happens, happens."

Later in the day, Hague made a point of praising the Lib Dem leader, Nick Clegg, in his speech, though that received muted applause. He said: "Faced with a necessary but difficult decision over tuition fees, Nick Clegg stuck with it. In May, the British people affirmed by an overwhelming majority and with their usual good sense that first past the post is the best way of running our democracy, and put to rest schemes of playing with the rules for a generation.

"He [Clegg] stuck with our agreement all the same. We should always have the generosity of spirit to recognise the contribution he makes to turning this country around."

The Tory leadership has faced a voluble and increasingly muscular backbench and activist base over issues including Britain's relationship with the EU and government planning reforms.

The Mail on Sunday reported that MPs will get to debate the issue of whether or not there should be a referendum on Europe - because more than 100,000 people have signed a petition asking for a debate the Commons backbench committee will table it for debate in parliament.

Cameron's comments suggested government MPs will be told to vote against it. The prime minister said: "There is a European treaty that is happening right now. This is the treaty that gets us out of the bail-out mechanism that Labour got us into. Further, future treaty change is not an immediate prospect."

"For the longer term, I've been very clear, I think we gave too much power to Europe. There are some powers I would like to get back. Any future treaty change would be an opportunity to do that. But right now that's not on the immediate agenda."

Another flashpoint is the Human Rights Act, which, in opposition, the Tories said they would scrap and replace with a bill of rights. The home secretary, Theresa May, said this remained her wish and later the prime minister backed her. However both politicians are hamstrung by being in coalition with the Lib Dems and subject to a commission being controlled by justice secretary Ken Clarke and Nick Clegg meaning it is unlikely that the tory party itself will do anything distinctive on the human rights act ahead of the next election. Cameron said: "One of the problems we have here is not just the Human Rights Act. It's the chilling culture under it that means that someone drives a police van … to move a prisoner 200 yards when he was perfectly happy to walk. The Human Rights Act doesn't say that that's what you have to do. It's the chilling effect of people thinking I will be found guilty under it.

"I think that government can do a huge amount to communicate to institutions and individuals, let's have some common sense, let's have some judgment, let's have that applying rather than this over-interpretation of what's there."