Nick Clegg kicks off the conference season pledging to replace Labour as "the dominant force of progressive politics". Just as a century ago Labour once vanquished a collapsed Liberal party, so now this is "the Liberal moment" again, and a moribund Labour will be beaten into third place. Looking at the pitiful state of Labour and its leader, that should make sense. But then why aren't the Liberal Democrats doing better? That's the puzzle for those assembling in Bournemouth this weekend. This should indeed be their moment. A perfect storm of opportunities should see the Lib Dems' star rising higher than it has for years. But the way things are, according to leading psephologist Professor John Curtice, they may even struggle to keep the seats they hold.

They usually score well in local and European elections – but not in the last year, coming fourth in the Euros with just 14% of the vote. The Lib Dems seem to have lost their old knack for snatching byelection seats; their share of the vote fell in both byelections this year. More alarming, in the local elections in their south-west fastness they lost three counties where they have 12 seats to defend and they failed to win the new Cornish unitary authority. After dipping in the opinion polls at the end of last year, they have risen steadily to 19% now. Vince Cable is the nation's dancing star of the crash – but he still isn't bringing in enough new votes.

With Labour stumbling towards cataclysmic defeat, the Lib Dems should be the natural refuge for fleeing centre-left voters. Labour and its leader are more unpopular than they have ever been. Nor is there much sign of Conservative popularity: they succeed only through popular determination to throw the Labour rascals out. The public is boiling with anti-politics fury after the MPs' expenses scandal, so the Lib Dems should have scored, since they were barely touched by house-flipping and tax-dodging.

In 2005 they had two bright beacon issues – their brave stand against the Iraq war, and the abolition of tuition fees. But the war is all but over for the UK, and the party has abandoned its opposition to fees.

Professor Curtice points to the failure to capture 15% of runaway voters who are bypassing the Lib Dems in favour of "others". He suggests the party needs to focus on its powerful clean-up-politics and beat its constitutional reform drum. To recapture the green vote, they need to shout a louder green message. These two great failures by the old parties are, after all, the reason we need Lib Dems.

Grown since the days when they all fitted in a taxi, they are now contaminated by Westminster. Their remarkable local government success sees them controlling outright virtually every major city in the land – Liverpool, Newcastle, Sheffield, Portsmouth, Edinburgh and Cardiff among the rest – but that makes it harder to be convincing insurgents.

Nick Clegg has personal ratings Gordon Brown would die for: a BBC poll showed around 48% saying he was "in touch with ordinary people", "trustworthy" and "competent". The poll didn't ask about consistency, but luckily few specific Lib Dem policies lodge in the public memory. Their recent tax policies have been a rollercoaster ride – reflecting a far greater uncertainty about who they are – since the departure of Charles Kennedy.

If tax-and-spend defines a party, those policies have never mattered more as emblems of identity. The detail may escape most voters, but all parties need to declare their essential character loudly. Under Kennedy, the Lib Dems proposed a 50% top rate on earnings over £100,000. But Clegg waved a very different flag: when that 50% rate was abandoned, he promised instead to cut the basic income tax rate by a walloping 4%. That flag declared that this was now a high-tax party, but aiming for middle-ground Tory votes. But that policy was abandoned too this April, in favour of taking 4 million people earning under £10,000 out of tax altogether, raking it back from the rich by cutting relief on top-rate pensions and adding new green taxes. In truth, Lib Dem tax policies are decently redistributive, yet seem deliberately to avoid flying any symbolic flag to show which way their ship is heading.

When Clegg tells the Guardian today that he will make "savage cuts", this is not altogether new. In his 2008 conference pitch, with a document called Make It Happen, Clegg promised not only tax cuts but a cut in spending, claiming Labour was wasting money on needless programmes. It seems doubtful that a boast of "savage cuts" will go down too well in Newcastle, Liverpool or Sheffield, which are mightily dependent on public spending, though it may play better further south. Yet again, caught in the old Lib Dem dilemma, Clegg fails to make up his mind about which vote he is really aiming for.

If he was serious, he could go for Labour's jugular with an unequivocally radical message. The empty political ground is not in the crowded centre, but out in the near-deserted radical wastelands. But Clegg looks over his shoulder, anxiously protecting those essentially conservative seats that so many of his MPs hold.

On any conventional reckoning, the Lib Dems are challengers in just eight of Labour's 50 most marginal seats. Tories are their main contenders in most seats. That electoral arithmetic would make it daring for Clegg to launch a single-minded assault on Labour's exposed left flank. But then what is the point of a third party if it lacks the daring of insurgency? Pickings could indeed be rich if they had to the nerve to risk their existing Tory strongholds and throw everything at Labour's rotting boroughs.

But that is not Clegg's game. His pamphlet for mainly Cameroonian Demos and his article telling Times readers that he is attacking Labour are a strategy for reassuring Tory voters. If he were wholeheartedly aiming to capture angry Labour voters with nowhere else to go, then his flags would be redder and there would be no boasting of savage cuts. He would be storming Labour citadels and summoning angry Labour voters to his cause. His flag would be an economic policy that didn't parrot the dangerous current group-think that declares debt must be paid down fast and furiously by whatever next government.

Instead he has joined the slash-and-burn brigade, just when he should be offering the alternative voice of calm reason. It is not an idle boast for Clegg to claim he could lead his party to overtake Labour; but to do it, he has to go for it – and go radical.