Liberal Democrat activists won the party a crucial local byelection victory because Momentum campaigners were in the pub canvassing for Jeremy Corbyn in the Labour leadership contest instead, the Lib Dem leader Tim Farron has suggested.

In a dig at the Labour compliance unit, which some party members claim has been unfairly denying leadership ballots to potential voters, Farron said the Lib Dems would not target anyone “for thinking the wrong thoughts or belonging to the wrong group”.

“But you will get purged for wimping out and knocking off at 9.30 on polling day,” he told the party conference’s members rally in Brighton on Saturday night.

Farron said the Lib Dems victory in the Mosborough byelection in Sheffield, where the party came from fourth place to win the council seat, was because local Labour activists were preoccupied with the party’s leadership election.

“Just yards away from where the Lib Dem team were knocking on doors, some of the local Momentum activists were in the pub. They were telephone canvassing for Jeremy Corbyn in the Labour leadership election.

“Meanwhile in the real world outside that rather nice Sheffield pub, real people were voting in a real election.”

A Momentum spokesperson said: “Sheffield Momentum members and supporters campaigned for a Labour victory during the Mosborough by-election, alongside phone-banking in the leadership election just like Owen Smith supporters. We are looking forward to this leadership contest ending so we can focus entirely on building Labour victories.”

Farron said the donation of £2.1m to the party by Labour peer Lord Sainsbury before the EU referendum showed his party, rather than Labour, was seen the “movement capable of delivering a pro-European campaign” – a pitch to other Labour donors who have expressed some hesitation at supporting the party under Corbyn’s leadership.

“In a few days time, Labour looks like choosing to continue its flight into fantasy and pointlessness,” Farron said of the Labour leadership election, where Corbyn is expected to defeat his rival Smith.

Farron, whose own party is currently polling at about 8% nationwide, said the Lib Dems were not prepared to accept the result of the EU referendum and said the defeat of the remain campaign was “temporary”.

“I will not be told that I am not a European. I will not accept that my country has been lost to the nationalists,” he said. “Britain can still stand tall in Europe and Britain can still be freed from the Tories. Let’s take back control.”

Earlier in the day, Farron told Labour and Tory moderates they could find a new political home by defecting to his party. At the rally, he dismissed suggestions by the former chancellor George Osborne who told the BBC last week he wanted to stand up in parliament for the “liberal mainstream majority” post-Brexit.

“It is a bit like Darth Vader saying he is standing up for hard-working Jedis,” Farron said.

Conservative minister Tobias Ellwood also came under fire from the Lib Dems on Saturday afternoon, with the party’s foreign affairs spokesman calling on him to resign over his defence of Saudi Arabia’s human rights record.

Tom Brake, a south-west London MP, said Ellwood was the “only person” to believe that Saudi Arabia had not breached any international laws during its military action in Yemen. A joint report by the House of Commons business and international development select committees this week said there was “clear evidence” of violations.

Brake said he wanted to see Ellwood’s “head on a plate ... as the minister who has defended them as vigorously as he has done is going to have to pay the price for it”.

During Saturday’s party conference, members voted to support a “presumption of denial” for arms exports, which would mean licences for exports would not be issued until business could prove they would not be used to breach international law. This would effectively block arms sales to the Saudis.

Lib Dem health spokesman Norman Lamb told the conference that the government should consider moulding national insurance into a ring-fenced NHS and social care tax, to give more resources to under-resourced services.

Lamb said the party would explore whether dedicating the tax to the NHS would make it easier to increase the amount without losing public support. “I think people want politicians to be honest,” he said.

“There’s a conspiracy of silence on this, everyone knows the NHS needs more money, and political parties are scared of saying anything about tax. They see it as not in their interest to be completely honest about the scale of the problem, so nothing is said.”

Party members also debated liberalising prostitution laws, including one local chair suggesting school careers officers could suggest prostitution as a profession for pupils.

“How many schools are going to have careers officers say to people, ‘have you thought about prostitution?” Dennis Parsons, chair of Cheltenham Liberal Democrats, told the conference. “It’s not going to happen. And that’s a cultural thing. Why shouldn’t they? Why shouldn’t they?”

Farron distanced himself from the remarks but told the Press Association it was a “wonderful thing that we are in a party where those sort of views can be expressed and you can have that sort of exchange. They are certainly not my views.”