Yesterday David Cameron made a speech on the economy. In it he pointed to two new departures. He has “asked the Treasury to examine what more we can do to boost credit for business, housing and infrastructure”. He also said that more reform was needed in energy: “It means recognising the risks to the recovery from rising and volatile energy prices and working together to ensure energy security”.

              We have often discussed how to establish competitive banks with money to lend for good projects. Today perhaps we should consider how we might have a more plentiful supply of attractively priced energy. That would be good for business, and good to tackle what Labour called “fuel poverty”. All too many individuals and businesses have experienced a big squeeze in recent years from the ever rising energy bills they have faced. High inflation, with energy an important  part of it, has squeezed family budgets and cut demand for goods and services as a result.

                 The US industrial recovery is better than the European. There are two magic ingredients.One is more working banks with money to lend. The other is cheap energy. US gas prices are around one third of the European levels. The US has moved quickly to exploit shale gas. It has found a lot of it, and is pressing on with development of the resource. Cheap energy turns more factories. It boosts heavy energy using indistries like steel and chemcials,glass and ceramics.

                The UK should recognise that pursuing a single country approach to limiting carbon dioxide emissions may not help the planet as greens intend, but it can certainly hinder UK industry. If we succeed in shutting down or preventing new energy using industries here by charging too much, we will import the products from overseas where the energy will still be burnt.

                  The UK has good reserves of gas, shale gas, coal, and oil. The government needs to set tax rates and a licensing regime which allows expansion of output at affordable prices. It started to move in this direction with tax changes in the most recent budget.  Mr Cameron reflects the mood of the country when he says he wants to cut our dependence on imported hydrocarbons.  As more is discovered in the UK, and more produced, so gas prices should come down.

                  The Energy Department is also well aware of the need to prompt more electricity generation capacity. The cheapest is combined cycle gas production. They have licensed more capacity, but need to investigate the build rate. The current regulatory framework seems to be delaying or deterring the build of these much needed plants. The relative cost analyses suggest that nuclear is much dearer than gas, unless you assume large future increases in the gas price. They also show that many renewables are also expensive. These statements are based on figures prior to putting in penalties for carbon dioxide emissions.

                The Energy Department has started to cut the subsidies for some renewable technologies. There is a good argument for doing so. The cost of installations for solar, wind, and others is coming down as the volume of these methods grows. At the very least the subsdies should be cut to avoid super profits as the capital costs fall. The subsidies are paid for by the consumers.

                 In a very competitive world a country wishing to power an industrial revival needs to keep its power costs down, as they are such an important element in total costs. We also need to do something about domestic fuel prices, as they are one of the main reasons why inflation has stayed high and why real incomes have been falling.  Energy is a very managed market. The government needs to provide the licences, the planning permissions and the pricing and subsidy regime that helps the consumer more.

             The usually reticent eminence grise of the Conservative party, the 1922 Committee, just cannot keep itself out of the news at the moment.

               Yesterday was election day, when Conservative backbenchers could choose the people they wish to represent them on the 1922’s Executive Committee. The committee meets weekly, and meets the Prime Minister regularly to update him with backbench opinion. It might have to lobby for more time for backbench debates, or warn that a chosen Coalition measure might not get the full Conservative support it needs. They might need to arrange meetings for Cabinet members to consult colleagues before doing something, or for Ministers   to convince colleagues about something they have announced. It is not a policy making body or cabinet. The committee allows backbench Conservatives to let off steam about aspects of government, without their comments making headlines.

               Individual MPs usually put up for election. They might write a personal letter saying what they wish to do in the job to each elector. They might talk to a few colleagues to ensure a reasonable level of support. Various MP dining clubs might discuss which of the various candidates would be best. That was as exciting as it got.

              This time there were  letters from a slate of candidiates saying they were all part of the 301 Group. I was also able to read a lot about them and their platform in the press, as they decided to brief the newspapers, which is why I mention it here.

               The agenda is apparently to secure the election of 301 Conservative MPs in 2015. 301 is the magic number, because they assume the Commons will be down to 600 MPs in total by then, following the current  boundary review. It’s an aim  that no Conservative MP would disagree with, unless to say that maybe the party should aim for a more ambitious number to be safe. Their preferred method is to up the attack on  Labour, and to use the official soundbites more regulary and loudly.

                There are dangers increating a campaign group with a press arm. This time it has not led to anyone running an alternative public  slate on an alternative manifesto. Some of the 301 ers have been elected, mainly because they are interesting people and it is a good idea to have some of the 2010 intake on the executive now they have been in the Commons for a couple of years.  All the Executive members now need to show tact and discretion, whilst speaking truth to power in private as often as it needs doing. As we have discussed here before, to win an election a government needs to demonstrate   success in its policies and actions, as well as speaking convincingly about the dangers of  the alternative.

           The French President’s plane was struck by lightening en route to meet Mrs Merkel. Was it some music of the spheres, some intervention of chance or the gods, to herald the crisis Euroland now faces?

             They needed all the time together they could get, to mend fences, and work out how to respond to the failure of the Greek politicians to form a government.  They needed time to discuss how the EU should handle the forthcoming Greek election. Should it be made a referendum on belonging to the Euro, with the public told the conditions that are attached? Or should the EU keep out, and let all parties pretend there can be a renegotiation of sorts, that the terms of membership and of the loans are flexible?

                    Recent Euroland elections have underlined how little power  old and the new governments have within the semi  disciplined framework of the Euro. Government A is thrown out for playing by the rules, only to be replaced with Government B  who also has to play by the same rules and offer the same policy. Membership of the Euro has been lethal for incumbent governments in recent months. Now Mrs Merkel herself faces voting meltdown, as Germans too grow weary of the current system.

                    Meanwhile, in the real world of the technocrats, Central banks and bureaucracies of Europe, there are grave nagging doubts and fears. Germany is worried that so much of her money has been deposited by commercial banks with the European Central Bank. The ECB has lent this  on to the struggling banks elsewhere in the Union. The ECB now makes the interbank market for many, as the markets themselves are too apprehensive to work well. Technocrats worry where the next government will come from in some countries to carry on approving and passing the necessary measures to comply with the plan.

              German taxpayers are worried about the potential liabilities under the various bail out funds, and many dislike the idea that the southern states will now flex the German credit card more. Meanwhile southern resentment and disappointment mounts, as their economies fall.

               The new leadership of Merkel as modified by Hollande, will probably talk more about growth – which is much needed. They will probably offer a few extra spending programmes from the European Investment Bank and some under raided EU budget headings. Meanwhile, the true battle of the gods will be the battle over the banks. Can the ECB keep on providing enough money to the banks in the weaker areas? Will the weak banks hold on to enough deposits? Will the rescuers have enough money to pay for past losses? It all gets much dearer and scarier if the southern economies continue to decline. That will mean lower asset values and more exposed banks. If the Greeks act irresponsibly in Euro terms they threaten the structure without willing the answer, their own exit from the currency.

                  The latest phase of the Euro crisis is the battle of the banks. Mrs Merkel and Mr Hollande have to be more than passive bystanders arguing over a  Growth Pact.

            Yesterday I joined in the Queen’s Speech debate on the economy. I wanted to draw attention to the gathering storms over the Euro. Time was limited, so let me add a few points.

             Yesterday  it seemed unlikely that Greece can form a government. New elections are likely to produce a government even more strongly against the current EU/IMF loan package and austerity requirements. If a government can be cobbled together at the last minute from the present Parliament, it will have to go to Brussels to request a change of policy.

              There are three possible outcomes following the formation of a new Greek government demanding a change of tack. One is that the EU/IMF say they can give no more. They have twice negotiated this package, and have accepted one large write down of Greek state debt owned by banks and other private sector individuals, companies and funds. They could take the perfectly sensible view that allowing another lapse in conditions of the loan would simply lead to other countries demanding the same treatment. It would undermine the discipline the zone needs, and would send a signal to all that there is no need to meet solemn requirements entered into. Either Greece has to back down and try to do implement the agreement, or they need to move  quickly to arrange an exit from the Euro on this option.

               The second possibility is we have another temporary fix. The EU/IMF would heave a sigh and give Greece some formula to relax the demands a bit. Maybe more debt could be written off. Maybe the timetable for meeting the requirements for reform and budget deficit cuts could be extended.  The ECB might issue yet more money to other worried banking systems to support other states in trouble. Just enough cash would be released for Greece to pay the basic bills and stave off full bankruptcy.  It would remian a matter of time before we had the same crisis again.

              The third possibility is the Euro area moves more swiftly to fiscal union, with the richer areas accepting their responsibility to send much more money by way of transfer payments to the poorer parts like Greece. It is difficult to believe Germany would be willing to do this. Mrs Merkel has just suffered a bad regional election defeat and is unlikely to want to have to tell her electors in the run up to the German General Election next year that they are going to have to pay a lot more tax to subsidise the weak parts of the Euro zone.

              There is a paralysis in decision making at the heart of the zone. Just as this phase of the crisis blows up France is undergoing a major change at the top. The new central partnership of Merkel/Hollande is still  to be developed. Mr Hollande will be pressing his domestic demands, fresh from the French election trail, at exactly the moment both need to concentrate on Greece.  More people are now saying Greece has to leave the Euro, but there is still no clear sign that that has become the prevailing view of the main players. To do it they will need speed, confidentiality and united purpose. They will also need a Greek government to deliver the Greek end of it.

               It seems most likely we are in for another round of brinkmanship and temporary expedients. The worry some commentators are now expressing is that talk of Greek exit could lead to yet more money being shifted out of Greek  bank accounts. The more the political leadership of the problem drifts, the more damage the markets can do. The drain on Greek bank deposits so far has represented a further tightening of cash and credit for the Greek private sector, at a time when that sector needs more money to grow to start to ease the pain.

       The Centre for Economics and Business Research forecasts that this year City bonuses will be down to £2.3 billion.   This contrasts with their peak of £11.5 billion in 2007-8, and with £7.3 billion in the last Labour year.

       The Coalition can show that on their watch the problem of City bonuses has been well and truly tamed. The UK is in this way now a more equal society. As CEBR point out, it also means a big reduction in tax revenue, (more than £4 billion) so we can now afford less public service.

        So I would like to know, are people today much happier because City  bonuses are likely to be down by  80% on peak levels? What benefits should we now expect from this development? How should we replace the lost tax revenue?  Should the government now claim victory and move on, or should we expect them to remove more of these  bonuses?

           I do think the government should offer a lead on linking pay for top executives clearly to performance.  Rewards should go for returning a  bank in receipt of state shareholdings and subsidy  in whole or parts to the private sector, getting taxpayers money back and generating susbstial cash profits to reward  shareholders. Shareholders have been without dividends now for a long time, and should have priority.

          The idea that politicians and parties should seek consensus is popular. Many people say it would be good if parties learned to work together more for the sake of the country. They tell us they think behaviour at Prime Mininster’s Questions (PMQs) is poor, that the Commons should have more serious and well informed debates.

           There is, however, another side to the popular view. When my constituents say they would like to come to the Commons to see it in action, they nearly always want to come for PMQs. PMQs is so different from most of the rest of the work in the Commons – noisy, partisan, point scoring debating at its best and worst. If I say, why not come to a good debate the following day on reform of welfare or our foreign policy, there is little interest.  Some of the time in the Commons small groups of MPs specialising in an important topic debate and discuss amongst themselves in some detail, often without party rancour.  There are , of course, plenty of seats available in the public gallery for most debates, but PMQs is an all ticket match with intense competition for the tickets.

          Voters also often write in and demand that an MP or party puts over their points more strongly or insistently. People understandably want their MP to represent their view as stridently as possible. Rarely do people write in urging us to compromise a view they hold dear for the sake of consensus. Voters are more likely to criticise an MP for not standing up for his principles or for the promise he made at the election, than to complain the MP has failed to compromise such promises or principles for the wider good. Obviously if a constituent did not like an MP’s promise in the first place then they will be pleased if he compromises.

             For the Commons to work at all, there needs to be considerable agreement between the main parties over what is to be debated and how debate is to be conducted. The Commons has long standing conventions that one MP does not make personal accusations about another without giving that MP warning so he can be present to defend himself, that reasonable courtesy is observed between MPs, and that extreme language is avoided. Debate can still be heated, passionate, lively when times demand it and when parties or individuals disagree strongly.

             So often I have found that when all parties agree government usually makes its biggest mistakes. Seeking more consensus can result in very little happening, or in fudge.  Worse still, it can result in disaster. The Exchange Rate Mechanism was an economic policy which did large damage to the UK economy. It was agreed by all three main party leaderships and most MPs. The anti global warming legislation went through with all three party leaderships supporting it. No party asked whether dearer energy was a good idea for the UK economy and consumers, or asked if it might just transfer the carbon dioxide emissions elsewhere as we lost the factories here. .  The public are right to tell us that sometimes we should try harder to reach agreements, but they are also right to love the cut and thrust of true challenge and choice. There needs to be some passion in politics, and there need to be some real differences, to make elections worthwhile. There also needs to be strong criticisms, alternative views and challenges to the orthodoxy before Parliament commits us to major policies which could do damage to our prospects.

            It’s a strange choice to hear debated. Of course most of us will choose growth, if the alternative is austerity. Mr Hollande’s slogan was the more popular in the French election. In a way the surprise was how narrow the gap turned out to be , not how wide, between him and his rival.

            It’s also a false choice. You cannot have either auserity or growth, if you start from the position of many European countries with high state spending and high state borrowing.  Most serious people in the debate from all parts of the political spectrum agree that highly indebted countries with large deficits need to get the deficits down. Most  agree that borrowing more is not the way out of debt. The argument is over how you get the deficit down.

            Some say that if a country heavily in debt with a large deficit allowed itself just one more “fiscal stimulus” – allowed itself to spend just a little bit more in the public sector – and pay for that with more borrowing, it would trigger growth. It is difficult to see why that might work. After all, the Greeks, Portuguese and Spaniards have been running huge budget deficits for some time, yet their economies are amongst the weakest in the EU. State spending that is financed by borrowing  may provide very little stimulus to activity. If the money is borrowed from the private sector in that country, the private sector then has less to spend, similar to the effect of  a tax rise.

            Many of these heavily indebted countries want to get their deficits down by more tax revenue, rather than by cutting spending. If this happened through the proceeds of growth, that would be benign. Unfortunately in several cases there is no growth, or there are large falls in output and in tax revenue. If the countries then respond by increasing the tax rates or becoming more aggressive on tax collection, they may make the position worse. They might take their countries above the tax saturation point, and end up with less revenue, not more.  The rich, the enterprising are always looking out for legal ways to arrange their affairs to pay less tax, or move to more hospitable jurisdictions. Others in the society may simply move into an enlarged black economy.  

              Countries in a financial mess have to do enough to control spending to keep the confidence of markets and to create some downward pressure on total spending. They also need to do enough to promote a more vigorous private sector led recovery. Higher taxes could kill that. Weak banks are also a big part of the underlying problem. If a country gets into a badly exposed situaiton like Greece, then the banks will find it hard to keep hold of deposits, leading to further contraction. As bank deposits fall, so bank lending has to be reined more as well.

I feel one of the old myths reappearing in the political debate. Some are out and about saying that the Conservative party has to be more united to stay elected. They clearly remember no political history.

Margaret Thatcher and Tony Blair were both very successful Prime Ministers when it came to winning elections. Both won three in a row with large majorities. Both led divided parties, with very visible splits. Margaret Thatcher faced continuous opposition especially in the early years and at the end, from the so called “wets”, senior politicians including Cabinet members who thought her economic policy was wrong. They regularly briefed the press against her. There were occasional resignations and vocal opposition in the Commons from backbench sympathisers of the rebels.

Tony Blair faced down – and probably encouraged – old Labour opposition, as he wished to show New Labour had changed and was different. His belief in lower taxes, fewer rights for Trade Unionists, and tough on crime was designed to hold some former Conservative voters into his coalition, However, he faced far noisier and more serious opposition from within the heart of government, from his Chancellor living next door.  There were endless stories of the rows and tantrums. Both men had small armies of MPs and adviser supporters, briefing their corners. Foreign Secretary Cook and Overseas Aid Secretary Short both resigned – somewhat belatedly – over Mr Blair’s wars.

None of this is to say that divisions and mega personality rows at the top are a good thing, but it is a reminder that  unity is not the main thing that electors look for. They look for a strong economy, for their own rising living standards, and for other  policy changes that go in a direction they like. They do not regard division and disagreement as an impediment to voting for that party. Some see it as a positive, showing that there is challenge and tension within the government, making the top people think carefully  before committing. Reasoned challenge to policy ideas or statements of the government’s position is a good thing.

Nor is it true that John Major’s government was brought down by Maastricht rebels. It was brought down by the failure of the Exchange Rate Mechanism economic policy, and the high interest rates and tax rates that brought. Labour campaigned persuasively against “Tory tax rises” and “boom and bust”, the symptoms of the ERM failure. I do not recall them campaigning about the joys of the Maastricht Treaty.

There are voices today within the Conservative party urging differing policies and choices on the leadership. That surely is entirely healthy. It is best done without personality disputes and rancour – the Blair/Brown tensions were often over the top and unpleasant in tone. If there were  no arguments going on about what the government could do next., and how to improve the lot of  voters, some would ask is the party dead or merely sleeping? A lively political party has internal debate, and strives to improve through discussion and argument. Please do not go back to the odd idea that everyone in a party thinks the same, and therefore has to say the same thing. If that happened government would struggle more, and the public would then have a good  reason to demand a change.

The Prime Minister and his Deputy chose a tractor factory to pre launch the Queen’s speech agenda on Tuesday. They heralded the opening words of the Gracious Speech, that this new session of Parliament is going to be dedicated to sorting out the economy and promoting faster growth.

It does not worry me that the Speech was light on new bills. The UK is scarcely short of laws. Much of what needs to be done now requires competent administration rather than lots of  new legislation. The health, welfare and school reforms require patient and purposeful execution and follow up.

Nor does the backdrop of their news conference cause me as much concern or amsuement as some journalists who wrote the obvious pieces about tractor production statistics, and the sea of blue and yellow tops sported by the workforce. The government after all has said much about leading an industrial revival, so it needs to paint its picture, and it needs to listen more to people who make things to see what else it can do to promote more home grown manufacturing.

I still think it is going to take more radical action on banks, on energy supply and prices, and on sensible deregulation to make the UK a compelling proposition for the much larger projects and sums the government has in mind for  industrial investment. The Queen’s Speech left open opportunities to promote more competition in areas like energy and banking, and to respond to these obvious needs of the economy.

In his Monday Telegraph article Mr Cameron pledged not only to preside over the creation of many more jobs, but also to see that more of these jobs go to people who are unemployed citizens resident here. He did not just want to create work for “new arrivals from overseas”. This was a crucial promise. To honour it takes success in both the area of economic management, and  in following a suitable and sustainable immigration policy. The PM’s statement reminds us that he and the governemnt do wish to get the total down, and to offer more of the opportunities to people settled here. The PM will be trusting that the Home Office are now taking the necessary measures to bring  about the anticipated  big alteration.

He also said he loathes “the bankrupt high taxing something for nothing society”.  It takes deficit reduction,welfare reform and other changes to banish those disliked idols.

            All those who claim to be wise in politics tell you that a leader and his party must seek the centre ground to be successful. In one sense this is obvious,if it means that a party may have to extend its coalition of support well beyond its comfort zone, its original idea or  heartlands in order to construct a winning majority.

              There are, however, at least two major flaws in the proposition that a party should always seek the centre ground. The first has been pointed out by those who think instead a party should seek the common ground. It may be that the centre ground is not as popular as some ground to the right or left that is much more popular. These advisers say the leader should seek out that common ground, and not worry if it is to the right or left in common parlance. What matters is to satisfy majority opinion, or build a wider coalition of support for popular policies.

            The second flaw is that the party and the country  may not be starting out from somewhere near the centre. A winning party may inherit a situation where the centre has been wrenched to the left or the right as conventionally described. To get back to the true or mean centre ground may require a sharp move to right or left, depending on the starting position.

             I do not think left and right mean very much any more. Certainly right wing is a much abused term, forming part of BBC and Guardian demonology. They tend to lump Hitler, anti German neo Nazis in Greece, fundamentalist clerics, and UK  Conservatives they don’t like all under the same term of abuse, as right wing. They seem to think there is something in common between authoritarians and free enterprise Conservatives, between Eurosceptics and religious social Conservatives, between tax cutters and those who think the state should spend more on law and order and defence. It’s all a great meaningless muddle.

            I suggest instead the better terms to capture the debates and disagreements in modern UK democractic politics are these. There is an argument between those of us who want many more things to be decided by UK democracy rather than by EU bureaucracy, and those who want the UK to adopt more and more EU laws and controls. I have never understood why a belief in UK or English democracy is right wing, as it is a view I share with Tony Benn.

               There is a disagreement between those of us who  think economies and societies work better when individuals and families are left more of their income after tax to spend on looking after themselves and their loved ones, than if the state takes more of the money off them and then gives some back as benefits, and those who think the state should take more and give back more.

                 There is a disagreement between authoritiarians and libertarians. Some of us think we should have more of our freedoms back, whilst others think the state  should control more to protect us from ourselves and our neighbours.

                            In each of these cases, finding  the centre ground is not easy. Some of us would argue that the current state of play for the UK and England in the EU is now at an extreme. Successive treaties and years of transferring powers means the UK has lost a lot of its capacity for self government. We would say the centre ground lies way in the Eurosceptic direction. This would also seem to be the same for the common ground, judging by the polls of people’s attitudes to the extent of EU power. Having more democracy in the UK and England is popular.

                          Tax levels are at a high in the UK. Never have so many paid so much to partly pay for such a record high level of current public spending. You could argue that returning to the centre meant relieving the squeeze on individuals and companies that very high public spending has generated in recent years. Maybe we should regard Gordon Brown’s income tax and CGT rates as the centre ground? His top Income Tax rate of 40% was well below the current level, and far fewer people were in the 40% band. His CGT rate of 18% was well below the current 28%.

                          Many civil liberties have been taken away in recent years in the name of counter terrorism and being tough on crime. Is the current level of surveillance, detention and restriction really  the norm or the centre ground?