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Yesterday Tim Montgomerie wrote a depressing piece on Conservative Home, reporting the views of Number 10 stating that Conservative victory in the 2015 election would be difficult if not impossible, and that a further period of Coalition with the Lib Dems might be the best outcome. This pessimism was based on the inability of Conservatives to win more than 36% of the vote in the last four elections, and the absence of a way of  “transforming the brand” in time for a knock out offer at the next election.

Let us assume Mr Montgomerie did his research well. I have no doubt that the issues raised by Number 10 are serious ones which Conservatives need to address. He mentioned two in particular which do matter a lot. He reported that there are worries the health changes could upset more electors. He quoted a Lib Dem source as saying that Conservative Ministers are not engaged in tackling one of the great evils of our time, unemployment.

I disagree with his statement that there are no people within the Conservative party expressing an alternative which could make a difference for the country, and in due course for Conservative electoral prospects. He is right that there is no figure on the right acting as a challenger or alternative to David Cameron. That is a deliberate choice by some figures on the so called right. They do not wish to be factional, to create an impression of personality based splits. They do not wish to divert the government from its crucial national task of economic recovery and public budget improvement.It is an irony that this is taken by some on the inside as a welcome weakness, rather than as a wise and helpful assistance to a government facing a very difficult set of challenges.

There are a wide range of attractive policies proposed by a range of Conservative backbenchers that could make an appreciable difference to the future of the coutnry, and could boost Conservative poll ratings. Many Conservative MPs do not share the pessimisim about prospects. After all, they argue, the polls were boosted rapidly by using the veto on the EU last December, and were boosted again by the benefits cap policy in January.

There are many ideas bubbling out of the talented 2010 intake on new Conservative MPs, as well as ideas coming from more experienced Parliamentarians. Most Conservatives would like to break the state banks up and get them powering a stronger recovery. Tough action to make the banks work better polls well. Many Conservatives would like a revolution in the energy department, so the UK could offer cheap energy to fuel industrial recovery as well as helping hard pressed household budgets. Polling suggest cheaper energy would be very popular, would relieve the squeeze on incomes  and could be delivered by  market solutions with private sector  investment money.

Many Conservatives want power back from Brussels, as promised in the last Conservative manifesto. Making moves to start to do that would be popular, as the country is now far more Eurosceptic than its Parliament. Tax cuts are always popular. Conservative Ministers should not let Lib Dems pose as the tax cutters, demanding a higher income tax threshold, when Conservatives are yearning for a tax break of any kind and would happily settle for higher thresholds.

Many Conservatives want a Freedom Bill, to reduce bureaucracy to liberate  enterprise to get on with creating more jobs. They want better control of our borders, so more of the jobs go to people already settled here, and want sensible welfare reforms to make it more worthwhile to work. Far from being uncaring about unemployment and people’s prospects for higher incomes, most Conservative MPs I know would list that as one of the most central tasks they wish to promote. In many cases they would say it is the overriding task. When asked about the government,  they are proudest so far of the welfare reforms being carried through.

Conservative MPs wish Andrew Lansley well with the health reforms. They were unhappy about the way the Lib Dems forced a pause and then changes in them.  Mr Clegg had after all  signed up to the whole package and  signed a ringing   recommendation of them in the original White Paper. Conservatives have no difficulty with giving more power to Doctors to make choices for their patients. They are becoming more nervous about the bureaucratic changes being forced on the government by Lib Dem and special interest pleading. It would be wrong to think the health reforms were some incubus designed by the Conservative right. Most Conservative MPs are entirely pragamatic about the reforms, wish them well, and do not wish them to do any damage (nor do they do any damage by design). All Conservative MPs I know are wedded  to the funadamental popular principle of the NHS, free at the point of need. The government did not embark on these reforms to placate the “right”.

All Conservative MPs recognise that the next budget is a crucial event for Conservative and government fortunes. This is the last budget that allows three years to see the beneficial consequences of any of its proposals, and still allows a decent length of time to undertake reform and get it to settle down before the General Election. The budget needs to set the course for faster growth – and therefore for a lower budget deficit – for the rest of the Parliament. The best way to get the deficit down is to promote faster growth and generate many more jobs. If the government does this, the Conservatives could be rewarded with a majority next time. There is no substitute for fixing the roof now it’s raining. I will return to more detailed Budget measures in the days ahead.

I can fully understand the frustrations many feel about the turn of events in the EU.

Many Eurosceptics thought that once a new Treaty proposal came along, all the UK Prime Minister had to do was to table a series of amendments and opt outs for the UK so we could loosen our relationship, as our price for signing up to let the others move forwards to yet more closer union. After all, they argued, the previous Conservative governemnts had managed to negotiate effective opt outs from the social chapter, the common borders, the criminal justice provisions and the single currency. Labour has now given most of those away, and most Conservatives want to get control back over vital matters like borders, criminal justice and the economy.

The proposal for a new Treaty came along quicker than the government had expected. Mr Cameron asked for less in exchange for UK consent to the others going ahead with more integration than I would have wanted, but had even his modest demands turned down before Christmas. He rightly decided to veto the EU draft Treaty, and renewed that veto this week.

Instead of bringing the rest of the EU round to offering the UK a better deal, it led directly to their decision to create an inter governmental Treaty between up to 25 states. The unresolved issue between Mr Cameron and some of his Eurosceptic critics, is could the UK find a way which works to stop the 25 (or however many finallly sign up if they do) from using EU institutions to develop and enforce their enhanced co-operation in these budget and economic matters? Some think he could. He himself says he will watch it vigilantly and take legal action if need arises.

He clearly cannot see an easy way to stop them using the EU facilities as they choose. Ultimately for the other members these issues anyway will be settled by the European Court of Justice, a federalist court. Labour signed the UK up to Treaties which introduced “enhanced co-operation” and special treatment for Euro members enforced by the EU institutions, undermining the UK position.

So what are the other options from here? The UK could hold a referendum on continued membership, and on the terms of membership, preparatory to seeking a renegotiated settlement or exit if that is the wish of the electors. The UK government could notify its EU partners of its intention to hold a referendum and seek negotations of a better deal to put to the UK electors prior to a referendum. Both these routes have been firmly ruled out by a decisive Parliamentary vote against a referendum when we recently engineered a motion and vote, thanks to the overwhelming wish of Labour and Lib Dem MPs to back Coalition Ministers.

The UK could make proposals for piecemeal repatriation of powers that have some cross party support. The idea of repatriating a third of the EU budget by opting for national control of regional and structural funds described here recently might attract such support. If it did so the government would have to take it up in the EU. Proposals this week that have come from Parliamentary sources to repatriate the lost criminal justice powers would probably attract less cross party support.

The government could take the advice some of us are offering them about the need to play tough on the issue of the use of the court and other institutions to enforce the Treaty of the 25. If the EU intends to use its legal and institutional architecture against us in pursuit of a Treaty of 25, the Uk could counter by legislating in the UK to modify our adherence to EU law in a way which offset or compensated us for the extra legal reach the 25 were asserting. There are all sorts of legal arguments about whether the UK could or should undertake unilateral legal action. Some of us think it is the obvious answer to moves by other EU states to circumvent EU agreement by having a Treaty amongst a lesser number of states, yet continuing to use EU legal process.

I understand many of you just want to leave the EU. As I need to remind you, very few UK voters vote for that view in UK General Elections, so none of the 3 main parties has it as a policy, and the Lib Dems and Labour make a virture out of being federalist parties. This means that it is not about to happen. If this Parliament will not vote for a referendum, it is certainly not going to vote to leave the EU.

That is why come out Eurosceptics have to unite with moderate Eurosceptics to try to reverse the tide of powers flowing to the EU, and to get us a looser relationship. As the last week has shown, even that is going to be very difficult. It is, however, important that for the first time the rest of EU has demanded a Treaty and the UK has refused to sign it in any form. All previous Prime Ministers have signed up to all proposed Treaties, some willingly, some after opting the UK out of important bits. We have to work with the Euroscepticism that there is in Parliament, as whatever Eurosceptics in the country want, it all hinges on Commons votes. People in the country who are very frustrated by the never ending march of EU power can help and can make their voices heard. They need to lobby all those MPs who do not vote in the Commons for less EU control of our lives, or for a new relationship for the Uk with the continental powers.

            It was typical of Mr Miliband that he used a good phrase out of time and when it was not true. Mr Cameron used the veto , refusing a UK signature on the proposed new Treaty before Christmas, and then renewed the same veto this week. He has made it crystal clear that the UK will not sign the proposed Treaty, will not surrender more powers, will not submit its budgets to Euro style controls. I for one am relieved Mr Cameron was doing the negotiating rather than the Labour leader. Labour in office gave away huge powers at Nice, Amsterdam and Lisbon.

             Some smell treachery nonetheless, saying that Mr Cameron should also have made sure the European Court of Justice  will not adjudicate in matters arising from the Treaty of the 25 proposed this week. Labour, of course, negotiated the UK into an arrangement under the existing Treaties where the Euro area requirements of the 17 are under the ECJ and serviced by the EU, even though 10 other states are not members. They allowed the idea of “enhanced co-operation” to become established. This means they do already have Treaty powers to run a club within the club.

                I and my colleagues have no wish to see  new powers gained by the ECJ as a result of a Treaty of the 25. We have been told by Mr Cameron that he has placed a veto on any new ECJ powers over the UK, and would resort to legal challenge if the UK felt the ECJ was acting incorrectly  in pursuit of a non EU Treaty by the 25. Many of us will be watching progress on just this.

               Some of us will also be very surprised if this Treaty comes to pass in anything like its current form. It will presumably need the referendum approval of the Irish and maybe others. The front runner for French President says he wants to scrap the current version and wants fundamental revision. Other countries are keeping a low profile but may have ratification problems ahead if it comes to that. The Czechs have jumped ship since Christmas.

                        This one will run and run. It is good that the UK has consistently placed a veto on any of this applying to us. The UK now needs to play its hand well over any extension of ECJ power over other members.

          Defra has recently published a large amount of material on climate change. It needed to do so under the last government’s  legislation, to produce a “risk assessment”. I went along to hear about it from the Chief Scientist and Secretary of State, and have read more about it on their website.

          The fascinating thing is how uncertain the scientists are about their predictions. By the 2080s they forecast an increase in temperature in the UK of somewhere between 1 degree and 8 degrees.  They think summer rainfall may have increased a bit, or may have fallen sharply. They think winter rainfall may have stayed the same, or may go up a lot.

            They are not even sure what is happening to emissions of carbon dioxide. They say “It is too early to establish whether actual emissions are pursuing any particular emissions scenario”.

               Their historical graphs show that there was no warming between 1860 and 1970 overall.  This was despite a very intensive coal burning phase to global industrialisation. There was a warming pattern between 1920 and 1940, but cooling ones from  1900 to 1920 and from 1940 to 1970.  They then extrapolate warming since 1970 and project more to come.

               Their resulting risk assessments conclude that we will spared a substantial number of deaths from the cold in winter, which will far exceed the extra deaths from heat in summer. They reckon there will be more extreme weather, overheating of some buildings, and greater water scarcity. When I asked wasn’t it good news that fewer people will die of cold in the winter, I was told that global warming does have some good effects.

                My view is we will be short of water because the population growth is outpacing new water provision. It would be a good idea to put in some more capacity. I also suspect there will be more flooding, largely because there has been too much development on floodplain. It would be a good idea to improve drainage and strengthen flood defences where there are large settlements. This morning on the radio a Minister assured us they would seek to do that.

                 Defra’s risk assessment needs to concentrate on the here and now and the eminently forecastable. We do need more  water and we do need to protect ourselves from floods. Let’s just get on with it.

            Mr Hester decided to waive his bonus when he heard there would be a Commons vote on it. Labour who had signed such a generous contract in the first place decided to table a debate and vote  in Opposition time to condemn it to make amends for their original deal. Many Conservatives and Lib Dems would have voted with them. 

             The truth is the Board of RBS was set the wrong task and given the wrong remuneration for doing it when the bank was stupidly nationalised in the first place.

              Will this government now call them in and change the requirements? They should be instructed to split the bank up, creating new functioning smaller High Street banks which can be immediately floated off into the private sector, where they need to raise more capital to allow them to lend more to power an economic recovery. The sooner the government does this, the sooner its economic policy will function better. If the current Board does not want to do this, then there are plenty of able people who would happily go in and do it for them, for less pay.

          Mr Osborne’s rhetoric on using the IMF to prop the Euro has firmed up more. He has always said the IMF should not lend money to prop up a currency, only a country in trouble. I interpret this to mean the IMF should not lend to any Euro member, as that would in my view be lending to prop a currency. Mr Osborne may define it less severely.

            Now Mr Osborne is saying the UK should not make more money available to the IMF to lend to Euro members, unless and until France and Germany have made a larger contribution. He seems to have in mind those states putting more money into the European bail out fund. This is extremely unlikely. Germany thinks the problem countries should do more to rein in  their own deficits. France is becoming financially strained herself and is not looking for more ways to spend money. That would seem to mean no more UK money for these purposes, which would be excellent news.

           However, whilst there is still argument over IMF funds for Europe  and Big Bazooka bail out funds within the Euro area, it looks as if for the time being the European Central Bank has issued enough new money to commercial banks to delay the crisis. Italian and Spanish bond yields have fallen. The European banks have gorged on 3 year money at 1% interest rates. We are told in a few weeks time they will be able to take some more from the bountiful Central Bank.

          I am surprised the Germans have taken this so well. They have in the past fought against the ECB buying up government bonds itself. They wrote in the clause that prohibits the Bank lending directly to governments. So now the Central Bank has found a way round these restrictions,  by lending large sums to commercial banks who in turn can hold or buy government bonds, lending to the governments.

          Why have they in the past argued against it? Because Germany’s own experience is bitter when they had too much inflation. They are most concerned that this type of direct monetary action, effectively printing more money at one remove, will be inflationary. I guess they are hoping that in the short term the weak state of the banks will stop them lending this on to others and in so doing bloating the money supply. The ECB needs to be on vigilant inflation and money growth watch from here. It has pumped a lot into the system. It needs to see whether that finds its way into uses that allow banks to gear up and go on a lending spree. If it does, then watch out for inflation. If they are lucky, the broken state of the banks will stop too much inflation for now, whilst preventing collapse in the Italian markets.

                  Meanwhile, back in the real world, politicans in Euroland should be in panic about the high level of youth unemployment and of general unemployment. Now youth unemployment has gone above 50% in Spain and above 40% in Greece, they should ask themselves why they are so much in love with the currency scheme which has helped to bring about such a crisis.

          I would like David Cameron, in the privacy of the  meeting to say:

        “The UK wishes Eurozone members success with their currency. We will not be providing unhelpful remarks or commentary in public on it. As the Eurozone sells us many goods and we sell into the zone, it is in our interests that the future of the zone is handled with a view to restoring growth and greater prosperity.

          The UK does not think further Treaty changes demanding greater austerity and financial discipline are either needed or will work. The current Treaties make it clear what is expected of Eurozone members. The problem is one of enforcement, not a shortage of law and guidance.  Imposing fines on countries with large deficits that can no longer borrow money in the markets to pay their bills, let alone pay the fines, is not going to improve things.

          The Uk sympathises with the German view that each Euro member state has to solve its own budgetary problems and accept the common discipline. The German people are understandably reluctant to pay more money to help the weaker countries. But the UK also has sympathy for the countries currently unable to balance their budgets or to trade themselves out of the large trade deficits they are incurring, owing to their membership of the Euro and the present state of their accounts.

          The Eurozone is being stressed by trade imbalances, by a lack of competitiveness in some peripheral countries, by state debts and banking weakness. All of these issues need tackling urgently. Some countries may need to leave the zone and to devalue to sort out the scale of the problems they face. That is a matter for them and the zone.

         Meanwhile the UK is ready as  a member of the EU to lead an attack on too much EU level government, excessive EU budgets, too much regulation, and other EU levels matters which are impeding a common recovery in European economies. The EU needs to contribute to the spending cuts needed for sensible austerity in public sector budgets. It has much more scope than member states to cut its own budgets.  It needs to promote  policies which help enterprise and innovation, instead of constantly looking for new ways to tax and regulate business”

        The cross party group on repatriating powers from the EU this week launched a piece of work on regional policy. They pointed out that the EU structural funds  account for Euro 348 billion over the seven year budget period, the second largest budget head in the EU accounts.

          The UK is the third largest loser from these funds, after France and Germany. We contribute Euro 35.9 billion over the 7 years to these funds, and receive back just Euro 10.6 billion. Much of the money goes in circular flows, being sent to the EU only to return to the original contributing country, or even circulating within the same region via Brussels.

           In the case of the UK 70% of our overall contribution goes to other member states. 25% of our contribution is given back  to the same region that raised the tax and sent in the money in the first place, with 5% being sent back to a different UK region.

           Apparently the last Labour government looked at the possibility of changing the EU policy by limiting regional transfers to sending money only to regions with average incomes more than 10% below the EU average. Most EU countries would be better off as their contributions would fall substantially. The three largest winners would be France, Germany and the UK.

           Within the UK at present only two areas are net recipients of funds from the EU structural programmes – West Wales and the Valleys, and Cornwall. The rest are part of the money go round, getting a portion of what they send in back. It is returned as   EU approved project payments, often spending money on less valued projects which we not choose for ourselves.  Regions with relatively low incomes per head like Northern Ireland, the West Midlands and Merseyside, are net contributors to structural funding elsewhere.

           It was good to see a cross party consensus emerging that we should push to repatriate much of this policy. We could make savings on the expensive double administration at present. We could then  make choices about how much of this spending we want at home, where we want it, and how much we should spend  on the whole programme.

          The media is contrasting the  US growth rate which hit 2.8% per annum in the last quarter of 2011 favourably with the stalling economies of Europe. What they are not doing, however, is picking up on the different composition of growth.

            In the UK the public sector made a positive contribution to growth, whilst industry and mining fell, producing an overall small decline.  In the US federal spending was down 7.3% and total public spending  down by 4.6%  whilst  the private sector grew well, producing the overall gain of 2.8% per annum.

 I presume this part of the truth did not fit in with the highly spun stories abouts cuts, or with the belief that Obama has avoided cuts.  The facts show in the last quarter tough cuts in US public spending along with good growth. In the UK there was public spending growth with no overall growth.  That’s too difficult for UK commentators to explain!

             When the government was working on a new policy for high pay and large bonuses I raised the issue of RBS. I raised it again when Dr Cable announced his policy in the Commons. People will judge the success of Dr Cable’s bid to control large bonuses in no small measure  by the government’s  success in handling RBS pay and  bonuses, where the government is the shareholder and the employer.