In an interesting  piece on government intervention Matthew Paris brilliantly exposed the dilemma that faces any Conservative individual, and any Conservative government. When should the might of state power be used for the good in economic matters? How far should a government go in freeing the economy  and following the laissez faire doctrine? How much should it seek to mould, speed or improve the market by Ministerial decision?

            Most of us accept there has to be a balance. Much of UK  economic political debate is about striking that balance. As one towards the free market end of the spectrum, I have always accepted the role of government to enforce a strong competition law, to provide a legal framework, to make some planning decisions about where things can be built in our cramped island, and to regulate the basics of the banks intelligently. In a mixed economy where the state controls so much of the money and resources, the state does need to take strong and good action where it is in charge.

          Matthew Paris asks me how I would have responded to the collapse of Rolls Royce, and what I thought about government intervention in Docklands to create Canary Wharf. They are fair questions which may help to illuminate how the balance should be struck.

             I was a keen exponent of Docklands redevelopment as Chief Policy Adviser to Margaret Thatcher. The land of the old docks was largely in public sector hands. Local and national government needed to provide a planning framework to get things moving, and was able to pump prime what become a very successful private sector property investment. As Adviser, and subsequetly as one of the responsible Ministers I was egging it on and helping design the right mix of public sector intervention and private sector led investment. The aim was to turn public liabilities into mixed economy assets.

              I cannot say how I would have responded to the bankruptcy of Rolls Royce, as it was before my time. Without knowing the detail it would be phoney to dream up a response now.  I can give a parallel in perhaps a more important and testing set of cases. When major banks were in financial trouble in 2007-8 I was a keen exponent of keeping the government out of owning the shares. I urged the adoption of controlled administration.

           This  would have used Bank of England temporary support to avoid meltdown of deposits and UK clearing activities, but would have forced the break up of a bank like RBS. Shareholders and bondholders would have taken more of the hit, and the foreign and investment banking arms would have been sold off rapidly to raise funds and cut risks.  This policy is now adopted by the authorities  as the way future banking crises should be handled, but is still not being followed for the one we are living through. It is rarely wise for the state to step in and nationalise the lossses. I think we would be making more rapid economic progress today if we had sorted the damaged banks out at the time of the collapse, instead of letting them carry on as malfunctioning conglomerates propped up by the public sector.

          As we saw yesterday, many Conservative MPs find themselves in disagreement with Coalition policies, because they have not seen them as Conservative friendly policies. Much of the opposition to Lords reform stemmed from principle, and from support for the Conservative party’s former position on the topic. Support for a referendum comes both from personal  conviction  and from the strong support for it from party members and local voters. Opposition to items like HS2 is often fuelled by local constituency pressures.

          There are also personal issues that can influence people to rebel. There is certainly a strong strand of whipping which believes that patronage, the ability of the party and government to offer jobs, can be a useful way of reducing or dissipating dissent. Whilst much of the dispute has been based on a clash of ideas in grand twentieth century manner, some of it can also be explained like eighteenth century Parliaments in terms of grouping of interests.  So why hasn’t patronage  worked this time round?

          The whips would say it is another price of the  Coalition. There are fewer Ministerial jobs for Conservatives, as the Lib Dems took a good slice of them. This, however, is understood by MPs and is not the sole reason there has been so little effective use of patronage. The truth is, the patronage available has been used in a very skewed way, leading to more annoyance by a growing large band of rebels. Badly used patronage can make things worse rather than calm them down. Government has patronage that extends well beyond Ministerial jobs.

          Let’s consider the patronage offered to a very small and unrepresentative group of Conservatives, that very small group of  former Cabinet Ministers who still want the UK to be fully involved with the EU as it changes and becomes more powerful.  Chris Patten was given the Chairmanship of the BBC, Lord Heseltine was asked to prduce a  semi official report on how to grow the economy and given governemnt resources to produce it, and Ken Clarke was made first Lord  Chancellor and subsequently Minister without portfolio.  This use of substantial patronage on such a small group has not only upset various MPs, but has given UKIP coverage to make claims based on these appointments. It has offset some of  the impact of the veto over the Fiscal Treaty and the pledge to repatriate the criminal justice powers, which pleased Eurosceptic Conservatives.

           Let’s also consider the last reshuffle. No MP who had voted against the government  from the new intake was allowed a Ministerial job.As more than half of them had voted against at some point, including many of the most talented with a contribution to make, it was always going to be a decision which increased the rebelliousness of MPs.  If one open  rebellion bans you, why not start to vote on more issues in the way you wish rather than agreeing with the Coalition  whip?

          It would be  bad management to create a large group of people who feel they are outsiders. They have causes enough to pursue, and will do so endlessly if they feel that the management of the party does not like them and has no wish to employ them or to accommodate some of their views. Major parties are coalitions within themselves.  Eurosceptic and anti Lords reform viewpoints are the predominant part of the Conservative coalition in the country, but are not properly represented in the appointments made. It is also the case that too many Ministers are still allowing officials to make appointments in the old mould, as if there had been no change of government. This undermines further the reasonable and permissible patronage a government usually wields.

I will answer this question with a couple of posts. Today I will look at the policy issues behind the disagreements. Tomorrow I will consider the people.

The rebellions all represent a frustration that not enough Conservative policies are being pursued by the government. Conservative MPs point out that the Conservative party won an overall majority in England, so has a mandate to govern in England. This is frustrated  by Coalition and UK votes in the UK Parliament. MPs want English votes for English issues, with Conservative Ministers for English issues as a result.  They also often argue that Lib Dems have too large a say in policy in proportion to the number of seats they hold.

Some Conservative MPs were not happy about the original Coalition agreement, with many regreting the absence of a proper discussion within the Parliamentary party about the terms, and the absence of a vote to approve it. Few Conservatives ever wanted constitutional change. They were happy to let the Lib Dems have a  referendum on AV because they could themselves oppose AV and vote No.  They never bought into the idea of Lords reform, backing their Leader who had always made it clear prior to the election that he did not regard it as a priority and had no particular plan to bring it about.

Most Conservatives are fully signed up to deficit reduction. Most wish more of this to be achieved by controlling public spending. Far from being uneasy about cuts, many of the rebellions come from people wanting some cuts. There are strong groups of Conservatives who wish to see cuts in the EU budget, cuts in the overseas aid budget, cuts in regulation and  bureaucracy, and sensible cuts in welfare. They would like to see cuts in energy subsidies,  and the end of expensive projects like HS2.

There are strong groups against particular policies. HS2 is a very unpopular project, especially with those with constituencies along its route. Windfarms are unpopular with a significant number of MPs, both because of their environmental impact and owing to the high cost energy they sometimes generate. The delays in controlling immigration numbers frustrates some Conservative MPs.  The intervention of both the ECHR and the ECJ in UK affairs often riles Conservatives.

Many Conservative MPs want some flesh on the bones of the new policy of negotiating a new relationship with the EU. They want a referendum on our relationship.  Some are uneasy about the extent of the defence cuts, a department which has been singled out for far more cuts than other departments.

All want a strong private sector led recovery. Some were frustrated by tax increases in the last budget. Many dislike high fuel duties. The free enterprise groupings dislike current Income Tax and CGT levels, and see them as too high  for the recovery.

The most serious worries relate to the EU. In that MPs reflect the mood amongst party activists. Our relationship with the EU dominates much of what the Uk does or is allowed to do, and is at the centre of Conservative wishes for constitutional change.

   Yeesterday we saw how a full whipped vote of the Commons is binding, requiring the government to accept its terms or engineer a reversal or amendment. Today I wish to look at the new question of “backbench” or “thursday” business.

       I welcome David Cameron’s excellent decision to introduce a number of days in the Parliamentary year when backbench MPs can choose the business. Normally business is chosen by the government, or by the leadership of the opposition, to an agreed timetable. Backbench business days  are as good for Parliamentary demcoracy as John Major’s great decision to launch powerful Select Committees to question and advise government departments on policy and administration.

          Because in the early period of the new system backbenchers sometimes chose issues which did not suit the government, and arranged votes which could result in a government view or policy being overturned, the government is now seeking to establish the convention that backbench business can only result in a non  binding vote. Again, this needs examination.

           Two weeks ago I attended Parliament when we were debating the issue of the closure of the 2nd Battalion, the Royal Regiment of Fusiliers. I had divided views on topic. I had sympathy with the local MPs who wished to defend their battalion. I also understood the need to allow senior officers and Ministers to streamline the forces sensibly, given the decision to cut the amount of money spent on the army. At the end of the exchanges there was a division. I asked the whips for advice on how I should vote. They said that they were instructing all government payroll members to abstain, so that was also  their advice to me. I agreed to do so.

           The vote resulted in a government defeat by 57 to 3. Those voting for the maintenance of the battalion were mainly local MPs concerned about it, and defence specialists who are unhappy about the army cuts. MPs came from both sides of the House to vote Yes to the motion.  The government says this was a non binding vote.

           I think they have a better case here than over the EU vote. The turnout was small. Many MPs accepted whips advice to abstain. If a significant  group of MPs or the official opposition  think the mood of the whole house might support overturning government policy on this issue, then they could insist on another vote in official opposition time or on some other occasion. If the Opposition picked it up as an issue, the government would then  have to instruct its MPs to vote it down.

             It would be better if the government simply voted down backbench motions they do not accept at the time. However, I can see the force of allowing low turnout votes. Then it is up to Parliament to insist on a proper vote where the government has to engage its forces, to test the true will of the House, if people think the minority raising the issue in debate in practice speak for the majority. All of these things are subject to argument and day by day tactics.

          Parliament is likely to  allow government non binding  votes  on backbench business, but they could be escalated to binding  votes if Parliament wishes. If government were to  lose a thursday vote by a large margin with more than half the House against, I think it then has to accept that was a binding vote after all. I do not think there is anything like a majority to save the 2nd Battalion, so the will of the House was not on this occasion thwarted.

          Perhaps there should be a convention that where the government wants a thursday vote to be non binding, the Backbench Business Committee should table a motion starting with “This House advises the government to….”

Then the government could respond during the debate or shortly after to the advice either way. It would be entitled to reject it. It would also need , of course, to watch carefully the voting patterns. If too many MPs overall, or too many government MPs supported the advisory motion, there could also be a binding motion later.

      I am intrigued by the new doctrine of the non binding vote.  As far as I am concerned, a vote in Parliament is a vote in Parliament. It results in whatever action or expression of opinion is contained in the motion approved. As sensible Ministers accepted yesterday morning, Parliament had expressed a view and the government has to live with that result.

      It is true that Mr Reckless’s amendment did not simply  instruct the government to negotiate a cut in the EU budget. It did however call on  the government to seek a real terms cut. It did not specify how large the cut should be nor how the government should try to negotiate it. That was sensibly left to the government to determine, as Mr Reckless was not seeking to oppose the government but to strengthen its negotiating hand. The actual words approved were ” so calls on the government to strengthen its stance so that the next MFF (financial framework) is reduced in real terms”.

        The government can scarcely argue now that just seeking a real terms freeze is sufficient response to the motion as passed. Parliament’s will was clear. It wishes the government to seek a real terms cut. That is exactly what the government should do.  The government put its case as to why it should not seek a cut, and lost the vote.

     The government cannot argue that there was something unclear about the amendment, nor can they say Parliament failed to express its view with sufficient numbers. 601 MPs  voted, an unusually large number. All were whipped to do so. 13 Conservatives abstained. 9 of those abstained on principle, because they did not agree with either the government or the amendment, or perhaps did not wish to vote with Labour on the amendment whilst agreeing with it. 4 were granted leave of absence. Doubtless some members of other parties were also away on approved duties  or ill. A rerun is unlikely to produce a different result or many more voting.

         The government should now draft a new budget proposal which results in a real terms cut. They should then seek to win over other member states to their view. Sweden is already working on cuts to the budget.  Germany is not keen to see spending going up.

          There is another reason why the government should seek to do as Parliament advises. If the government does at some stage agree a budget and a framework with the rest of the EU, it will need Parliamentary approval for the expenditure that entails.  If Parliament is satisfied the government tried its best to get a real terms cut, Parliament may  vote for the money. If Parliament thinks the government did not try or does not like the outcome, Parliament can refuse to sign the cheques, leaving the government without the means to implement its promises to the EU. At some stage the government will need a very binding vote, a vote to approve spending. That is when government and Parliament had best agree. Ministers cannot take for granted the voting of extra spending for the EU after the vote this week. They need to explain that to the rest of the EU. They also need to reassure Parliament that we should vote for the final outcome, because they have done their best to get a deal Parliament regards as acceptable in the circumstances.

                The Heseltine Report “No stone unturned”  was a return to the rain drenched downlands of little Neddies and Labour’s economic plans of the 1960s, laced with that old storm, balkanised England. The Report proudly sets out suggested bondaries for another effort at regional government. I prefer the government’s approach, ending RDAs, regional planning quangos and much of the rest of the panoply of false regional splits in  England. We do not need or want yet another layer of government. We do not want our country broken up  in the way the EU seeks.  Large projects require the national government, smaller ones can be handled by Councils if the public sector is needed at all.

                 Nor are the proposals much more welcome when it comes to analysing their democratic content. The Report recommends taking nearly £50 billion of spending over a four year period and giving it to unelected bodies like LEPs to distribute.  This is money largely at the moment allocated and supervised by elected Ministers.  Businesses are to be encouraged or dragooned into Trade Associations and Chambers of Commerce, who will then speak for them, supply them with services and regulate them all at the same time. The old mysteries or guilds have been long asleep, but this report seems to wish to waken them back into life.

                   The Report throws in for good measure the abolition of all remaining two tier local government, whatever the local preferences.

                    The answer to the UK’s growth needs rests more with tax reduction and simplification,  with simplification and removal of complex and less desirable regulations, and mending the banks.  Changing local government fundamentally, redirecting training and apprenticeship monies, and seeking to give wide ranging powers to unelected regional bodies is not the answer.

            Parliament today voted for a real terms cut in the EU budget. The government would be wise to welcome this guidance, and to strengthen its efforts to instil some budget commonsense and discipline into the EU partners.  The Coalition Minister responding to the debate made clear that he and his colleagues also think there is much waste and less desirable spending in the Eu budget, so they do not seem to disagree with the desirability of making reductions.

           The fact that the Labour party voted for the Conservative backbench amendment shows how far the mood of the country has swung against more spending and more power being exercised from Brussels. Labour, after all, was the party that needlessly gave away part of our rebate, and agreed to a substantial uplift in the EU budget for the last longer term budget settlement.  We seem now to have agreement amongst most politicians that the EU budget is too large and the spending powers of the EU too great, at a time when national  budgets have to be pruned or controlled.  I voted for a smaller EU budget.

           On Monday evening I heard a lecture given by Judge Lenarts, Vice President of the European Court of Justice. 

            He began by conceding  many thought there is a democratic deficit in the EU. He argued that the Council and Commission are not directly elected. More power to the EU undermines national Parliaments. There can be a lack of transparency in a  complex decision making process. The EU Parliament does not have full powers of control over the EU government.

             So far so good. However, the thrust of his lecture sought to establish two propositions. The first is that the EU is not a state and does not intend to become a state. The second is that the ECJ, Parliament and Council between them do offer appropriate democratic accountability for the institutions of the Union.  He argued it with several audience pleasing genuflections to UK democracy and court systems, with intelligence and numerous case examples of ECJ decisions. Each was designed to show how in his view the ECJ tried to uphold or strengthen democracy at both EU and national Parliamentary levels.

              I found it unconvincing as an argument. It is difficult to maintain that a set of institutions that have a flag, a supreme court, a currency, a central bank, a Parliament and a vast law code is not seeking to be a state. It is also difficult to argue that a Court which sets out to judge and decide against the wishes of national Parliaments is other than an attempt to impose a superior international law and discipline on unruly democracies that think differently about problems. It was interesting to see  UK Judges, UK Supreme Court judges and a Minister sitting at his feet to hear how he thinks the superior jurisdiction of the EU will develop and affect them.

               The problem with this dispute is that it is fundamental to understanding and tackling the problems of the Euro and the current disagreements between EU states. The Judge took an altogether very laid back approach to it all, as if the EU has all the time in the world to evolve answers to its democratic deficit. Meanwhile the system is posing crucial questions of why should citizens in Greece or Spain obey the policies and laws of the EU  when they feel powerless to change them?

           The UK is a heavy contributor to the EU budget. The EU’s wish to increase this budget in cash and real terms is unpopular in the UK. Many people here think that we need to cut our deficit, and that we need to do this by reducing public spending. EU spending should be at the top of the list of budgets to cut, not at the top of the list of budgets to protect and increase.

            The UK in particular dislikes the high subsidies paid to small and inefficient farmers on the continent from our money. We dislike the regional policy, which entails UK taxpayers subsidising relatively affluent regions on the continent. We dislike the large regulatory bureaucracy, which imposes costs directly through the EU budget, and indirectly by requiring us to have so many enforcement and compliance officials in domestic departments.  There could be a fairer and cheaper agricultural and regional policy, and less regulation. Mr Blair was promised agricultural reform in return for losing some of our rebate. The reform was never delivered.

             On Wednesday in the Commons the government will ask the Commons to express its view on this important issue. Many of us think that  now is the time for the UK to say that we do not want to lock ourselves into a rising budget for the period 2014-20.Maybe  now is the time to consider how the budget could be cut, or to consider how the UK could have a new relationship that did not require us to be part of the expensive policies that we currently do not like. The government has tabled the idea of a real terms standstill. Mr Reckless, a Conservative MP, has proposed an amendment to press the EU for a real terms cuts. The UK has a veto over the seven year budget settlement, a rare event in EU matters these days. There will be a debate over how far this veto can be used and when the UK is going to set out the new relationship the government says it seeks.

           Past governments have tended to concentrate on the UK’s net contribution to the EU. We should, of course, look at the gross contribution. Getting some of our own money back in ways the EU wishes to spend it is no great deal for us. It is all public spending, and all needs tax revenue to pay for it. That is why we should be able to  review all of the spending and decide which we no longer need, and which we should sacrifice in difficult times because it is not a priority.

           In the event of a veto being exercised so there is no new multiannual framework Article 312 of the Treaty says they have to stay within the limits of the last year of the old multiannual framework, i.e. no increase.  If the Council and Parliament fail to agree  or set an annual budget, the Commission proceeds on a monthly basis  with no increase on the previous year.