One in five members of the Liberal Democrats quit the party last year, with the worst losses in constituencies represented by government ministers, as disaffected activists walked out in protest at the coalition.
An investigation by The Independent on Sunday reveals the Lib Dems' collapse in support in the polls has been matched by a desertion of thousands of members. The exodus – far worse than the usual post-election drop-off – threatens to undermine the party's support base. Officials in one minister's constituency reported "members and supporters not being willing to campaign for the party".
The loss of thousands of members will leave a hole in the party's finances. To join the Lib Dems costs a minimum of £12 a year, or £6 for students, under-25s and those on benefits. The financial accounts of all local parties with an income of more than £25,000 paint a grim picture for the Lib Dems.
Membership of the Scottish Liberal Democrats has shrunk by 26 per cent. Craig Harrow, convenor of the party, said campaign teams were "devastated" by last year's results in the Holyrood elections, with MSPs "swept from office on a tsunami for the SNP".
The trebling of university tuition fees to £9,000 appears to have hit the party particularly hard, with Liberal Youth, the party's student wing, seeing more than half its 6,000 members quit in 2011.
Over the same period, Labour Students rose eight per cent to 6,782. Among nine Labour constituency parties to report, there was a net drop of just one per cent. Labour said it will not comment on national membership figures until they are published later this year. A survey of 100 Conservative associations reveals an average drop of seven per cent of members in the last 12 months. David Cameron's Witney constituency reported a two per cent rise.
The fact that the talks are becoming public will place further strain on the coalition government and will be seized on by Tory MPs unhappy with what they see as Mr Cameron abandoning traditional Tory policies while waving through Lib Dem-friendly moves such as legalising same-sex marriage.
The news infuriate Mr Clegg as well as other "Tory-friendly" Lib Dems in the coalition, who include Jeremy Browne, the Foreign Office ministers tipped for promotion into the cabinet.
A key Labour go-between with the Lib Dems is Lord Adonis, the former transport secretary and Downing Street adviser under Tony Blair, who recently re-entered frontline politics as an adviser to the Labour leader on industrial strategy.
The peer has kept up links with the Lib Dems dating back from his past as a member of the Social Democratic Party (SDP) which formed an alliance with the Liberals in the 1980s.
A Labour source said: "Lib Dems are waking up to the fact that Nick Clegg has led them to the edge of the abyss interms of the next election. They could be looking a dramatic reduction in the number of their MPs.
"These talks are designed to find common ground so that, if the next election result is inconclusive once again, we could enter a progressive coalition with them."
"We do not want to attack the Lib Dems as such. We want their votes. We need to concentrate our fire on Nick Clegg and a few others."
Last week Mr Cable annoyed Mr Clegg's inner circle by publicly casting doubt on the coalition lasting a full term. Many Lib Dems want the party to pull its ministers out of the government some months before polling day, expected to be in May 2015, leaving the Tories to run a minority administration.
Such a move, it is argued, would allow both coalition partners some "breathing space" to establish a different set of policies for their respective manifestos.
Mr Cable said last week: "Everybody involved knows that before the next general election, the two parties will have to establish their own separate platforms and identity.
"But how that disengagement takes place, over what time period, is very much an issue for the future.
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