Business secretary refuses to join leader's attempt to crush call from party's left for more to be done to stimulate recovery

A growing dispute at the top of the Liberal Democrats emerged on Sunday as the business secretary, Vince Cable, refused to join Nick Clegg's attempt to crush a call from the party's left for the government do more to stimulate the recovery.

Leftwing delegates want the party to distance itself from the Conservatives by adopting a more flexible policy on the pace of deficit reduction. They also want to allow councils "with a sustainable business model" to borrow more to build an extra 300,000 homes a year, including 50,000 homes for social rent.

The row also reflects a wider strategic dispute within the party between those who want to embrace the recovery and those who would rather express concern that the chancellor, George Osborne, may be stoking a house price bubble.

In an attempt to take credit for the emerging recovery, Clegg has decided to stage what Cable and some on the left regard as an artificial showdown over economic policy during a set-piece two-hour debate and vote on Monday.

Clegg wanted Cable to speak in favour of the call not to break from the coalition's agreed deficit reduction plan, with his aides pointing out that the deputy prime minister expected all Lib Dem MPs to turn up for the vote.

But Cable's aides said he will stay away from the debate, which is being billed as a test of Clegg's authority. Cable believed a compromise could have been reached between the leadership and the left over their amendments to the economic motion, especially the right for councils to borrow more to build.

Cable will instead be preparing for his own speech on Monday, which will focus on zero-hours contracts and the disqualification of reckless directors, the aides said.

There is also growing frustration in the leadership at Cable's apparent scepticism about the basis, pace and sustainability of the recovery. In a Guardian interview on Saturday, Cable was dubious about the recovery's strength, saying "the danger lights had been flashing for some time" over rising house prices.

He proposed the government's help-to-buy mortgage guarantee scheme should not go ahead in areas where house prices are rising fast, such as in the south-east. The scheme will underwrite home purchases worth up to £600,000 with a deposit as low as 5% of the value of the property.

On Sunday the Treasury chief secretary Danny Alexander said: "We're a million miles away from a housing bubble in this country." Clegg also insisted the scheme would remain nationwide, and that it could not be sacrificed simply due to what was happening in Kensington and Chelsea in London.

Clegg's aides said that if the Lib Dems did not try unambiguously to own and celebrate the recovery after three years of Labour criticism, the credit the party deserves for sticking to the deficit plan will be "hoovered up" by Osborne.

The energy secretary Ed Davey reflected Clegg's views, saying: "We should be proud of what we have done in government. To turn our back now on what we have achieved would make no sense."

The Social Liberal Forum (SLF) said its relatively mild amendments to the economic motion did not tear up the fiscal mandate and reflected positions adopted by the party in negotiations with the Treasury over the last two years. The SLF said it still hoped to win the argument on the issue of council borrowing.

Clegg on Sunday won the support of the conference to back nuclear power and shelve any criticism of tuition fees by deferring the issue until after the election, as he tried to sell the principle of coalition politics.

He said a return to single-party government after five years of coalition would mean squandering the sacrifices made in the period of austerity. A majority Labour government would wreck the recovery, while a Conservative-only administration would deliver "the wrong kind of recovery" by allowing the proceeds of growth to go to the rich, he said. Another coalition of balanced politics could finish the job started five years ago.

The Lib Dem manifesto for the 2015 poll will be explicitly written with post-election negotiations in mind - identifying the policies which they are ready to "die in the trenches" for, as well as others which are open to compromise in coalition talks.

He implied one likely red line is a commitment to take anyone earning the minimum wage out of income tax by raising thresholds to around £12,500, which Clegg said would be a "signature tune" of the Lib Dem campaign. He suggested that the Lib Dems' cherished "mansion tax" on residential properties worth over £2m was also likely to feature, though he insisted final decisions will not be taken until nearer the election.

Party leaders tried to brush away the perennial question of whether they would prefer a second coalition with the Conservatives or instead a deal with Labour, the preferred option of most party supporters according to many polls.

The education minister David Laws said: "We have to work with the verdict of the British people, not the gut instincts of Lib Dems. I don't think we should allow central London to wag the dog of this policy." Clegg, meanwhile, is being urged by senior MPs closely involved in May's European elections campaign to say clearly before Christmas that the party will support an in-out referendum on Europe in the next parliament.

There are fears the party will be cut down, partly due to the rise of Ukip, with one source saying: "It is conceivable that we end up with no MEPs."