Why Redwood is not the answer

One issue dominates political debate today: do we want to transfer more power to Europe, or has the process gone far enough? The resignations of the Conservative Party leader and, just as importantly, the Foreign Secretary, present the party with the opportunity to reinvent itself as the party of moderate Euro-scepticism.

A sensible Euro-scepticism does not mean withdrawal from Europe. Only a fool or fogey would want to destroy the institutions which ensure that Europe's leaders meet and talk so often that war between member states is unthinkable. We should all celebrate the fact that young people travel by Eurail en masse to the south every summer and get along comfortably. We should cherish the single market and apply competition policy rigorously to make it work better. But that is quite consistent with resisting any further transfer of power from British to European institutions, starting with the creation of a single currency.

The fact is that the European Union is a profoundly statist creation. Many of the proposals emanating from Brussels are interventionist and protectionist. The Conservative Party enjoyed great success in the Eighties by asserting that the man from Whitehall did not know best. It must be the historic destiny of the Conservatives to oppose the forward march of the man in Brussels.

The central ideological difference between Labour and Conservative is that Labour is quite comfortable harnessing the power of the state to achieve social goals (redistribution of income, more spending on health and education) whereas the Conservatives wish to give more responsibility to the individual. In practical terms, this means keeping taxes and public spending as low as possible.

Over most of the post-war period the Labour-Conservative debate has centred on this key economic issue. The debate about Europe has always been regarded as a matter of foreign policy rather than economics. What is becoming clear is that a vote for European integration is a vote for more state power. Under these circumstances the party that opposes higher taxes and high public spending is bound to oppose the advance of Europe. The sooner the Conservative Party adopts this position the better.

There is one very simple measure of statism: the proportion of national income that is spent by the state. Many in the Conservative Party are uneasy about the fact that public spending in Britain has recently crept back above 40 per cent of GDP. But in Germany the proportion is 51 per cent. In France and Italy it is 55 per cent; in Benelux 56 per cent.

The difference between a public sector which accounts for 40 per cent of national income and one which accounts for 55 per cent is huge. In the old Six, the heartland of Europe, the influence of the state over the lives of its citizens is more than a third as large again as in Britain. This contrasts sharply with the US, where public spending accounts for only 34 per cent of national income. The proportion is lower in Japan, and much lower in the south-east Asian "tigers".

A sensible Euro-sceptic view would affirm that Britain remains committed to holding public spending at or below 40 per cent of GDP, and deeply resistant to the encroachment of the state that has been accepted on the Continent. As an earnest of this intent, the Conservative Party should come out decisively against the single currency.

At the moment there is nobody offering an acceptable package for the moderate Euro-sceptic. Mr Redwood's manifesto commits him to opposing the single currency, but to secure the support of the right he has added proposals on tax and spending that sound disturbingly unrealistic. The legacy of the so-called supply side economics of Ronald Reagan was a budget deficit and debt from which Americans are still struggling to escape.

By contrast John Major is offering a realistic package on tax and spending, and his rhetoric on Europe has become progressively more sceptical. But he remains wedded to the policy of not having a policy on the single currency.

It is time to come off the fence. If Mr Major will not, the party must find another leader who will. On the evidence of his manifesto, Mr Redwood is not the man for the job.

The writer is a director of the consultancy London Economics and former special adviser to Norman Lamont.