Benedict Brogan

If there is a clear winner from the Autumn Statement, it is first and foremost the Coalition.

The central purpose behind its creation was to deal with the economic mess, and the process of agreeing yesterday’s package has reminded those at the top why it is they joined forces in the first place.

Recent months have seen some bruising arguments over second-order issues — Lords reform, for example, or the boundary review — that threatened to break them apart. How trivial those issues look now.

The orderly way in which agreement was negotiated on the Chancellor’s package has given the “Quad” — David Cameron, Nick Clegg, George Osborne, and Danny Alexander — a renewed sense of purpose, I am told.

In the absence of a single party majority, the scale of the challenge set out by Mr Osborne underscores the value of having a government that agrees about what needs to be done, even if it has to negotiate the means. Addressing the full horror of our fiscal catastrophe should be their sole preoccupation.

Another winner is Mr Osborne. He showed he has learnt some of the lessons of his misjudged Budget earlier this year.

He was careful to offer something to the Tory backbenchers who wonder whether he is on their side, with the scrapping of the petrol duty rise.

They will also note that he saw off Lib Dem demands for a mansion tax, and spoke strongly against pointless attacks on the wealthy, all the while squeezing the better off in a number of discreet ways. The Lib Dems are pleased to have come close to delivering their pledge to raise the starting rate of tax to £10,000.

Nor has the published detail so far turned up any of the sort of stinkers that did for him last time, such as the pasty tax.

With luck, Mr Osborne has taught himself to eschew the kind of sleight of hand Gordon Brown used to such ill effect.

Business was suitably impressed by the cut in corporation tax and the increase in capital allowances. The markets will accept his graceful surrender to reality and prepare to downgrade Britain’s AAA-rating next year, albeit without a shock to the system. Stability is maintained.

In all, Mr Osborne had a terrible hand to play. His most important achievement was to have consolidated the idea that the Government is intent on doing what it must to keep Britain from global relegation. He was fortunate that the Office for Budget Responsibility largely blamed outside forces and the last government for the crisis.

This allowed him to rescue his weakened political position. He also restored some of his reputation for low cunning by setting up Labour to vote against what will be electorally popular limitations on welfare payments.

Ed Balls had a shocking day, and Labour MPs must be beginning to wonder if his strategy of borrowing more can survive scrutiny for much longer.

In truth though, yesterday reminded us that we are all losers, and so are our children.

The Coalition’s candour makes its political prospects stronger. But the nation’s prospects, for the moment, remain bleak.

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I said a few days ago that I expected David Cameron to rule out politicians invigilating the press, and he has. It's now Dave against Ed and Nick, and things get interesting. He hopes that MPs will consider his arguments and accept that on reflection his approach is the right one. His point is that he hasn't rejected Leveson – in fact he's accepted all of it – he's just refused the statutory bit for reasons of principle, practicality and necessity. Labour is taking up the prospect of a vote, but as the FT (£) points out it would be indicative but not binding. Mr Cameron cannot be forced to act. That may be why as Fraser Nelson notes we are getting indications that Nick Clegg's support for statute is negotiable. On the politics three obvious themes worth considering this morning: first, can Dave win round the Eusticeites? It may be that a number of them having heard his argument will be reluctant to go through the lobbies with Mr Miliband and his friends of state licensing. Second, does his position help or hurt the Labour leader? Short term populism has a habit of going wrong: I reckon he's on to a loser if his offer at the election can be distilled to 'we will gag the press' (that and the incongruity of being lectured on decency by a graduate of the Gordon Brown school of media brutality). Third, don't underestimate the capacity of a raucous and not-as-united-as-it-appears press to get it wrong, leaving Dave no option but to give ground. The press have got about six weeks to match Leveson, minus statute, allowing Mr Cameron to see off the clamour for parliamentary action. Meantime, next week is the autumn statement (the Quad met last night). Other issues, of far greater importance to the public, crowd in. And there's Christmas. My bet is Mr Cameron will pull it off, just.

Certainly, he has almost pulled off his bid to make himself a hero among leader writers throughout the land. The Times (£) praises Mr Cameron's "courage and principle" in its leader column, while the Mail salutes "Cameron's stand for freedom", although its leader makes Dave's "place of honour in our history" dependent upon beating off attempts to revive a statutory solution. The Sun is also impressed with David Cameron's courage, with its leader insisting it "just wants to stay free". That freedom will include continuing with Page 3 girls, whose ranks Lord Justice Leveson joins in the Independent's cartoon (not online yet). The paper itself is unusually supportive of the Prime Minister, its leader arguing that "Mr Cameron is right: legislation would be unnecessary, complex and slow". There's always one, though, and it's almost always the Guardian. So it has proved today, with the paper's leader arguing that while "great care, real deliberation and cross-party support" are needed to make a statute possible, it is still the desirable option.

In the meantime, Number 10 will publish a draft bill as an exercise in showing that legislation would be almost impossible to word, a move Labour argue will produce a version packed with unattractive superfluous detail. It isn't just the wording, though. It's the principle. Max Hastings writes in this morning's Mail that the report itself constituted a "rotten day for freedom…a tragic blow to liberty and the right to know". In rejecting it, Mr Cameron has identified himself with a cause that matters to many on the Tory backbenches and all of the Tory press, as I wrote in my Telegraph op-ed, "he has answered the hopes of the Conservative Party that sometimes wonders what he stands for."

Dig around on YouTube and you will find a spoof of the Hollywood weepie It’s a Wonderful Life made in 1995 by Stephen Fry and Hugh Laurie for their BBC sketch show A Bit of Fry and Laurie. In It’s a Soaraway Life!, angel second class Clarence Cosy – Fry – shows Rupert Murdoch, played by Laurie, what Britain would have been like if he had never been born. He finds polite cabbies, ethnic minorities in pubs, no page 3 girls, and – to his horror – no satellite dishes dotting the façades of terrace houses. “Without your newspapers debasing people’s views of the world with every sentence they produce, people turned out to be interested in all kinds of other things,” Clarence tells him. “Newspapers haven’t taught people to sneer at others because they are Left-wing.”

In the end Rupert remains unrepentant, so Clarence throws him off a bridge. Cue raucous laughter. Fry and Laurie’s Rupert gag was in fact well tested by then: two years earlier they produced a political broadcast for the Labour Party in which they played a pair of tax evasion specialists called Rupert advising a succession of braying, port-sweating toffs – all called Rupert – on the best way to fiddle the government. A large portrait of John Major featured prominently in the background for those who hadn’t got the message: Murdoch + Tories = bad for Britain.

Contempt for the media magnate pre-dates phone hacking and the Leveson inquiry, which reports on Thursday. It is as old as Mr Murdoch’s more than 40-year involvement in newspaper ownership in this country, but really kicked off when he bought The Times in 1981. He was detested on the Left, and in particular by members of the liberal establishment, who contemplated him as they did Margaret Thatcher: with a venomous contempt of the kind you get when those with any sort of power are confronted by interlopers and arrivistes who might remove their privileges.

At times the loathing took on hysterical, tasteless and even comic tones. Bernard Donoughue, the Labour grandee who happily trousered Murdoch’s money before turning on him, claimed years later that the damage he had done to the fabric of British society was worse than Hitler’s bombs had achieved. Even before the alleged large-scale criminality at his publications was uncovered, Mr Murdoch was a reliable subject of knowing jokes on Radio 4 quiz programmes. Murdoch-bashing remains a staple of the metropolitan Left’s discourse. Of late, it’s been hard not to join in.

Of course, anyone who has attended events organised by the Hacked Off campaign group will recognise that its hatred of Mr Murdoch goes beyond the immediate issue of phone hacking. For Murdoch, read Tories. Far from being an isolated issue, the culmination of the Leveson inquiry this week must be seen as the latest battle in a long-running cultural and political war that began when Mrs Thatcher took office and allied herself with Mr Murdoch to smash socialism in this country. The Left hopes Lord Justice Leveson will give it the wherewithal to smash the Tories back by neutering their supporters in the centre-Right press.

This is not to suggest that the outrage voiced by MPs and campaigners on behalf of the Dowlers or the McCanns or Christopher Jefferies is insincere. Any attempt by newspapers to confront the realities of phone hacking must start with an acknowledgement of the egregious and often criminal behaviour shown by a significant number of journalists.

But we are kidding ourselves if we don’t recognise the deadly game of politics being played out here by those on the Left, who have seized their chance to strike a substantial blow against the Conservative cause. One can hardly blame them. The wanton behaviour of Mr Murdoch’s staff has given them a heaven-sent opportunity to undermine all those newspapers that have long championed Tory ideas in various forms. For them, Leveson is about far more than obtaining justice for the Dowlers and the others whose lives were vandalised by intrusive journalism. The report, when it is published, will be their indictment against the Right, a payback for more than 30 years of political pain. Leveson, they hope, will mark an irreversible defeat for the political forces that stuck Neil Kinnock’s head on a lightbulb and invited the last person to leave Britain to switch out the lights if Labour won in 1992.

Much has been made of the nexus of self-appointed lobby groups behind the campaign to make the press accountable to Parliament. What is inescapable is that it represents a cosy, metropolitan, elitist and Left-of-centre outlook that sniffs at populism, loathes Mr Murdoch and would quite happily see the taxpayer subsidise its version of worthy journalism. These people are many things, but not Conservatives. Their desire to curb the press has a purpose: to make life easier for the Left. While plenty of attention will be paid to what Lord Justice Leveson has to say about the press, its culture and practices, the political confrontation we can expect this week matters far more and may have profound consequences for the outcome of the next election.

Already, a political dividing line has emerged which suggests that the Left reckons it is on a roll. On the basis of the evidence presented to him, and the questions he asked, it is assumed that Lord Justice Leveson will recommend a form of statutory regulation for the press that will require Parliament to get involved. In anticipation, Nick Clegg and Ed Miliband have been coordinating their response behind the scenes, and are ready to support whatever the report proposes. Helped by those Tory MPs who seem not to realise that they are assisting their own destruction, the Left believes it has won.

Labour has been steadily hardening its position: it initially hinted that it might not welcome any form of regulation by statute, but now promises to implement just about anything the judge recommends. Its mood appears to be overwhelmingly in favour of some kind of parliamentary solution. Of particular interest are the voices of two Labour MPs, Tom Watson and Chris Bryant, who have led the charge against Mr Murdoch – and the press more widely – with frequent panache and consistently ruthless efficiency. Both have cause to be resentful, given that each was the subject of hacking and other dirty tricks. But it should also be noted that both are the products of Gordon Brown’s brutal school of politics, having served with distinction – or is it notoriety? – in his campaign to unseat Tony Blair. In the hard world of politics, the Tories might learn from the single-mindedness with which these men have pursued their objective, namely bringing down the media baron whose papers not only ransacked their lives but also betrayed Labour by switching the Sun’s allegiance away from Brown and back to the Tories. The passion they bring to their cause is no doubt sincere, but they are politicians first, and have spotted an opportunity to do David Cameron and his party lasting damage.

Hacked Off and its supporters have smartly realised how to put the squeeze on Mr Cameron. Suggestions in recent days that he might stand against statutory regulation have been met with orchestrated demands from the ordinary victims of hacking. The Prime Minister’s response, we are told, must satisfy the parents of Milly Dowler – as if anything might relieve their torment. Mr Cameron is by instinct on the side of a free press, untrammelled by parliamentary interference. He has shown in the past a deft touch in responding to moments of national soul-searching, witness Bloody Sunday and Hillsborough. Maybe he detects that the Left has overreached itself, and has been too naked in playing Leveson for political advantage. Whatever low opinion the country has of its press, it has even less confidence in politicians as invigilators. My hunch – and it is only a hunch – is that Mr Cameron will say that on Thursday.

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David Cameron arrives for a second day of EU budget talks

When even David Cameron's backbench nemesis Mark Reckless feels moved to praise the Prime Minister for his performance in Brussels, we must conclude that Dave has had a good summit. He has prevented a bad deal for British taxpayers, and won allies for his argument that the EU must stop taking its citizens – or more specifically their wallets – for granted. Mr Cameron told the press "see you at another summit soon" as he left – he knows that there is plenty more grinding negotiation to go. What seems to be the case is that his determination has been listened to with a degree of respect: Britain is not the isolated bad guy. Instead, Germany, Sweden, Denmark, the Netherlands, Finland and others have added their voices to the case for budgetary restraint.

"Britain has been listened to, is being listened to, and will be listened to," Mr Cameron said at his press conference. That in itself is progress. The headlines may say "summit collapses" but what is more striking is that Germany has backed Britain, not France: gosh, they must be cross in the Elysee. That's significant for a number of reasons, not least that it may give impetus to Mr Cameron's suggestions for slashing the Brussels bureaucracy, long dominated considered a French preserve. His charge sheet was telling: 200 Eurocrats earn more than him, they claim expat allowances even after 30 years in Belgium, and promotion – he emphasised this one – is automatic.

"Brussels continues to exist as if it is in a parallel universe," he said, and more and more across the EU are agreeing, it seems. Mr Cameron raised expectations before going to Brussels. It is to his credit that he has delivered. But this process is far from over, and history tells us that his ultimate success is far from assured.

The PM’s failure to explain what he wants for Britain allows others to drive the debate

By his work on Europe we shall know him, and what we know about David Cameron is dangerously confused. The Prime Minister, who heads for Brussels on Thursday to confront the rapacious demands of the European machine, adopted another one of his Eurosceptic poses yesterday, declaring that he was fed up with the EU “picking the pockets” of its citizens. It’s just the sort of robust language British leaders like to spout on their way to a summit when they are anxious to secure a victory or – more usually – avoid a defeat.

Mr Cameron knows he is on course to be stuffed in the negotiations for the next EU budget, which kick off in earnest on Thursday and will in all probability drag into next year. His position grows weaker by the day. There was a time when he went further than his party by offering to confront the EU in ways that none of his predecessors ever tried. Now he finds himself outpaced, both by Conservatives who sense his weakness and by EU countries whose hostility towards Britain is hardening fast.

This week, all attention is on the prospects of securing agreement on financing the EU. Mr Cameron wants a real-terms freeze in the amount countries will pay to Brussels between 2014 and 2020. The Commission has demanded a rise in spending of between 5 per cent and 6.8 per cent, despite the ravages of austerity playing out before their eyes. The case for budgetary restraint seems obvious, except to them, apparently.

Tory backbenchers, more militant than at any time since the Maastricht revolts of the early Nineties, have gone further. More than 50 joined forces with Ed Miliband’s understandable opportunism last month to pass a Commons motion that required the Prime Minister to seek a real-terms cut. The vote was not binding, but it told Mr Cameron that anything short of such an unlikely outcome would fail to find favour when he brings it back to Parliament.

John Major famously pleaded with his MPs: “Don’t bind my hands when I am negotiating on behalf of the British people.” Mr Cameron by contrast has been hog-tied. He knows he will struggle to secure the freeze he wants, and he has no chance of winning a cut. His only hope of placating his own side is to deploy his veto to block whatever largesse is agreed, which brings its own perils.

For a start, if he uses it to scupper a deal that requires unanimity, then the EU goes into special measures that mean British contributions automatically go up by more than inflation. The taxpayer on whose behalf he is acting would end up paying more for Mr Cameron’s failure to ensure he pays less. That’s a high price for appeasing those for whom saying “no” to Europe at every chance is now a point of principle. Deploying the veto would have other consequences too.

Eurosceptics want Britain to defy the EU more often, all the better to ensure that our views are heard in the renegotiation they believe is inevitable. From the other side of the Channel, though, British defiance is increasingly understood as a precursor to departure.

Brixit is now openly discussed, after Angela Merkel legitimised the subject this year when she said she couldn’t imagine the EU without the UK. In fact, most members might on reflection think of good reasons why we should remain: our wealth as net contributors, for starters. To many in Brussels, when Britain says “renegotiation” they hear “taxi!”. They mutter that we are exploiting the euro crisis to give ourselves a better deal. Far from a passive response to British contortions, more and more are saying “just go”. It is in many ways a parallel process to the evolution of English attitudes to the Union: the more Scotland bangs on about how much it loathes sharing a flag with its neighbours, the more England is minded to say “on yer bike”.

Consider, then, the euro-impasse Mr Cameron has backed himself into. He has been in trouble on the EU since before he became Prime Minister, when to secure the support of the Tory Right for his leadership campaign he offered to change the way the party did business in Brussels by pulling out of the centrist EPP block in the European parliament. He struggled to redeem the pledge when he discovered that withdrawal from the EPP would leave him with no other parties to team up with.

His MPs were placated – some were delighted – when a deal was eventually done to set up a new grouping with various minor parties from eastern Europe. That pledge was redeemed at least, unlike his offer to hold a referendum on the draft Lisbon treaty, which he dumped once the legislation was ratified by the entire EU, including the UK. The U-turn left a bitter taste with many MPs, activists and voters, who discovered in that moment a worrying gap between Mr Cameron’s rhetoric and his action.

It was for that reason, and memories of how Europe divided Conservatives for a generation, that Mr Cameron and George Osborne tried so hard to quash it as an issue before the 2010 election and subsequently in office, all the while peppering the Tory manifesto with commitments to review a swathe of European powers. Eurosceptics who delighted in having William Hague in the Foreign Office soon began to complain that he was, if anything, downright emollient to Brussels.

The confrontation they had hoped for failed to materialise. Until, that is, Tory backbenchers, and in particular members of the large 2010 intake, began to stir things up by pressing for a renegotiation to repatriate powers. In their discreet but effective way, they refused to go along with the quietism adopted by Mr Cameron, and instead held him to account for the promises he had made and the poses he had struck. Indeed, encouraged by constant mutterings from inside No 10 about the awfulness of dealing with the EU, and regular Euro-hostile briefings from Cabinet ministers, backbenchers have pressed the case for a referendum on Britain’s very membership. When Michael Gove let it be known that he was not uneasy about the prospect of Britain leaving the EU, the dam burst. Now the leadership look fearfully at what Ukip might do to the Tories in the 2014 Euro elections. What was once an issue of the political fringes is now part of the mainstream.

And all this has happened without Mr Cameron giving a clear idea of what he believes, or what he wants. It is fashionable to talk about sleepwalking towards the exit – Mr Miliband complained about it yesterday, without a hint of irony – but in fact Mr Cameron has been strolling towards it, with a degree of insouciance that is profoundly worrying. Not because the prospect of leaving the EU is to be feared – on the contrary, it may be as wonderful as those advocating it suggest – but because we know nothing about what it entails in practice. Mr Cameron is allowing a conversation to take place in which the participants are motivated by belief, not facts.

His friends say he is a conviction Eurosceptic who feels no need to bang on about it. They suggest, plausibly, that in common with the vast majority of the British population, he would like, in Mr Hague’s phrase, to be in Europe, not run by Europe. The question he doubtless wants answered is not whether we should be in or out, but whether there should be more or less. He has said that he opposes withdrawal as inimical to British interests, yet has allowed his party to give the impression it is ready to offer the British people the choice of staying or leaving.

How the Prime Minister finds himself in this perilous position is one of the great curiosities of his seven-year leadership of the Tory party. His style has always been to avoid appearing passionate about things. Like Plantagenet Palliser, he nurtures Trollope’s “exquisite combination of conservatism and progress… without any motive more selfish than of being counted in the roll of the public servants of England”. But because we don’t know what he really wants, and the Government has done nothing so far to explain what a new relationship with Europe might look like, we are in the dark. This debate about Europe is a debate about David Cameron himself, and the kind of leader he is.

The good news, so say those around the Chancellor, is that the economy is getting better. Not fast, not noticeably, not reliably, but all the clues suggest that it is growing nevertheless, and that the dire conditions that kept us in recession are easing. George Osborne is sanguine enough after two years of unrelenting misery to know that everything is relative: anything would look better after what the economy has gone through. He suspects growth this quarter is likely to be weaker than in the last one. There are still years of austerity ahead, and unless some bold decisions are taken to reduce the call of the state on national income, the chirpiness among his advisers will turn out to be recklessly misplaced. For the moment, though, his friends cannot help themselves noticing that unemployment is down, job creation is up, business confidence is improving, money is cheap and inflation is falling.

Next month we will hear Mr Osborne’s Autumn Statement, and the Office for Budget Responsibility (OBR), the national invigilator of fiscal rectitude, is poised to dispel any sign of Treasury over-confidence. Based on what we know about the state of the public finances and the consequences of a double-dip recession that lasted until well into the summer, the expectation is that the OBR will conclude that Mr Osborne is on course to miss his target of reducing overall debt as a percentage of GDP by the end of the Parliament. Even this week’s sleight of hand that allowed the Treasury to claim a spare £35 billion left over from the Bank of England’s suspended money-printing programme is unlikely to make a difference. The Chancellor will be castigated by his enemies for falling short of the discipline he set himself, and scrutinised by everyone to see how he responds.

Confronted with evidence that the plans on which he asked to be judged are off-track, he faces two broad choices. He can shrug his shoulders, accept that circumstances have turned out differently, and announce that it will take longer to begin reducing Britain’s debt mountain. He did much the same thing last year by accepting that the absence of growth meant that eliminating the structural deficit by the end of the Parliament was no longer possible. With voters demanding greater openness, he might make a virtue of embracing things as they are. When the facts change, I change my mind, and all that. So far there is no suggestion that he will follow this course, and in my view it would be a mistake. He depends too much on the goodwill of the markets, which continue to reward his performance with phenomenally low interest rates (though part of the credit must go to the vast sums of cash pumped into the economy by Sir Mervyn King), to treat the matter so casually.

More likely is that Mr Osborne will take steps to ensure that debt is indeed on a downward path by 2015. This will mean reducing spending and raising revenue beyond what was already planned. “He used to tease Gordon Brown for constantly shifting the goal posts. He can hardly start doing the same,” one ally says. “He has no choice but to do anything it takes to keep himself on course.” It will be a test of his mettle then, a measure of how reliable he is. He promised, therefore he must deliver, regardless of the considerable political obstacles in his path.
Hence his need to seek further cuts to the welfare budget. Current spending plans run out in April 2015, before the general election, so next month he will begin to flesh out what he intends for the year 2015/16, ahead of the full spending review that will probably take place next summer. About £15 billion in cuts are planned for, at least £6 billion of them to the welfare budget (and possibly £10 billion the following year). To achieve that he is predicted to do a deal with Nick Clegg by offering him some form of levy on high-value property in exchange.

Certainly, plenty of Tory MPs have taken recently to talking approvingly of shifting the burden of taxation from income to property, perhaps by introducing additional council tax bands. In fact, the idea was on the table for the last Budget, but was dropped after David Cameron objected. A further complication is that Eric Pickles ordered the database for the required council tax revaluation that would follow to be destroyed, which means any tampering with council tax would take three years and an estimated £260 million to introduce. Mr Osborne made much in his conference speech of the Conservatives being a party of property owners, which makes the head of steam building up behind the idea puzzling. I would bet against it.

None of this makes a blind bit of difference, however, as long as the middle classes who are bearing the brunt of austerity do not share the Treasury’s nascent optimism. At every turn the so-called squeezed middle has felt the effects of the economic crisis and the measures necessary to contain it. Inflation and depressed earnings have left them with less take-home pay. Fuel and food prices have climbed faster than incomes. The public services on which they depend are under strain. And it is on them that the cost of filling the deficit is falling.

Those who embody the aspirational dreams that once marked out Margaret Thatcher’s Conservative majority are now being held back by the imperative of fixing the mess Gordon Brown got us into. There is little to suggest that Mr Osborne is about to ease the relentless pressure on the middle-aged, striving middle classes, who no matter how hard they work face ever increasing taxes. The Chancellor has done admirable work to get those at the bottom of the income scale out of tax altogether by pushing the threshold up towards £10,000, an under-appreciated fiscal tonic for consumption. And he has gone part-way in eliminating Mr Brown’s destructive 50p rate by reducing it to 45p from next year. But the great bulk of middle earners remain as they were, vulnerable to the Treasury’s demands. Fiscal drag continues to take its relentless toll. According to the Institute for Fiscal Studies, the numbers paying the 40p higher rate will climb to five million by 2014, hitting in particular those living in the South East at the peak of their careers. Next year, 15 per cent of taxpayers will pay the higher rate, compared with 5 per cent in the late Eighties. It is not an issue that Mr Osborne makes a habit of mentioning, despite it being championed by the influential Free Enterprise Group of Tory MPs, who last month urged him to raise the effective starting point for the 40p rate to £50,000.

Mr Osborne would say that he is at his best when he deals directly with the big issues and avoids the gimmicks he has at times borrowed from his discredited predecessor. The 40p rate has to go back to being what it was intended to be: a tax on the wealthy. The Chancellor is in trouble enough with his argument that those who qualify for the upper band should lose their Child Benefit. As we wait to hear what mix of tax and spending he proposes on December 5, he would do well to consider Mr Cameron’s conference pledge to reward those who aspire to a better life for themselves and their families. Where wealth starts and at what point it should be penalised is a debate he should lead.

CCHQ and Downing Street are putting together their 'lessons learned from the US election' briefing for David Cameron, who hopes to speak to President Obama later today to congratulate his fellow incumbent. Those around the PM are being polite about Mitt Romney – 'of course, we would have been happy to work with him' – but can't disguise their relief that it's Mr Obama who won. (Btw the extent to which British Conservatives identify with American Democrats bears extensive study. At least one CCHQ staffer took time off to work for the Obama campaign.) "There's a degree of satisfaction around here," one Tory at the centre says. "The PM and the President have developed a good relationship. David Cameron talked about his 'friend' Barack Obama this morning, while the President said 'we are all in this together'."

The first lesson Mr Cameron has noted, not surprisingly, is the power of incumbency. He sees in Mr Obama's re-election the outline of his campaign in 2015, which will focus on pointing out the progress made so far on the deficit – they hope to improve on the 25pc reduction they claim so far – coupled with a warning not to put that in jeopardy by electing Ed Miliband. No10 stresses in particular the importance of incumbency at a time of great economic difficulty: where the critics see incompetence, the Tories intend that events will allow Mr Cameron to claim he got us through the worst of it. They report that when they explain the progress on the deficit to focus groups, they score higher. 'It could be better, but don't throw away what we've achieved so far' will be the message in 2015.

The second, more contentious lesson, is that social liberalism wins votes. No10 looks at the overnight trends in the US and finds vindication for Mr Cameron's championing of gay marriage and message of tolerance on difficult issues. They look at the decapitation of the Tea Party and the demographic shift towards the Democrats and they see justification for the kind of compassionate conservatism Mr Cameron has adopted – and some would say neglected more recently. "Look at how social conservatives did," one ally of Mr Cameron says. "The language of compassion, of being collegiate, of civility is very important. We have to look to the common ground on social issues and who we are talking to." The US result will convince Mr Cameron even more that legalising gay marriage, for example, is a vote winner for Tories.

Final point: it's reassuring that no one in Tory high command is too troubled about the travails of the Republicans. There is no suggestion that Mr Romney's defeat is being taken to highlight the dangers that face a divided party that gets bogged down in interminable ideological disputes. Whatever Mr Cameron might think of the backbenchers causing him trouble, the divisions among Tories are as nothing compared to what Mr Romney faced. Ideologically, the Conservatives are fairly united and in American terms not much more right wing than, say, Barack Obama. Tory divisions are far more about tactics than high principle, something Mr Cameron should be grateful for.

Tories are contemplating the implications of Nick Clegg's decision to throw out the boundaries review by supporting Labour in the Lords – and in the Commons. My column detailed the breakdown between Dave and his deputy this morning. James Landale has his own take on events in the Lords. What's making things more complicated is a rather obscure debate between the Government, led by Lord Strathclyde, and Labour under Baroness Royal, over the admissability of Labour's amendment. The clerks have ruled that Labour's amendment to the Electoral Registration and Administration Bill is inadmissable, because it's about something else (namely, pushing the boundaries review back to 2018). Labour, I am told, have sought outside legal opinion to support their case that the amendment is fine. The Upper House is in a tizz because it is not the done thing to challenge the authority of the Whips.

You will immediately have spotted that while this is all terribly fascinating, it gets away from the central point, that Mr Clegg is ready to dynamite the Coalition to prove his point. To judge by the reactions I've had so far on the Tory side, they won't just take the blow and move on. One decision being contemplated is a small but important stylistic one: Conservative peers and MPs are being urged to drop all reference to the boundaries review, and refer instead to 'reducing the number of MPs' or 'the measures to get rid of MPs'. At the very least, they say, the public should be left in no doubt that Mr Clegg is trying to block a reduction in the size of the House of Commons. Given the public mood, it's a brave politician who fights to protect Westminster from the axe.

The Coalition, in happier times

The Prime Minister will have to hit back if his deputy deliberately kills off the boundary review

Today marks the precise halfway point of this parliament, and to listen to those at the top, all is going swimmingly. Disagreements on the margins over wind farms, a wealth tax, benefit cuts and employment rights have had little impact in the centre. Nick Clegg and David Cameron go out of their ways in private to say nice things about each other. The relationship on which the Coalition is built – that between Tory Prime Minister and Liberal Democrat deputy – remains impervious to the stresses of life in the political trenches.
And a good thing too, you might say. The Coalition has a central mission at its core: to tackle the obscene deficit that threatens to drag this country into the league of busted, third-rate nations, condemned to be supplicants on the world stage. The Government’s central analysis – that we must avoid at all costs ending up among the losers from this financial crisis – is the right one, and it is to their credit that the two leaders remain focused on that task. Without their collaboration, there is no Coalition: the bond of understanding that concluded in the Rose Garden agreement in 2010 is what holds the show together. Or at least it did until last Tuesday, when Mr Clegg rolled a hand grenade into No 10.

It is a measure of the shock caused by the Deputy Prime Minister’s surprise attack that details have only begun to emerge. Seldom are political machines stunned into silence, but the Tories have been this time, and with good reason. For a week now, they have been contemplating the sudden end of the Coalition. What looked solid and stable suddenly appears fragile and vulnerable. A relationship based on trust and a handshake has been put at risk, possibly irretrievably damaged.

If that sounds overly dramatic, consider the startling message that Mr Clegg delivered in private to the Prime Minister seven days ago. Actually, before you do, a brief history. Last year, Mr Clegg suffered a terrible humiliation when his idea for changing the way we elect MPs was resoundingly rejected by the electorate. Lib Dems complained in Cabinet about the abuse he suffered at the hands of an anti-AV campaign masterminded in large part by George Osborne. Such allegations were a bit rich coming from a party that fights dirty as a way of life – but Mr Cameron’s willingness to tolerate personal abuse of his deputy was noted by his partners.

Fast-forward to this summer, when Tory MPs, with the tacit approval of the Prime Minister, scuppered Mr Clegg’s second wheeze – an elected House of Lords. The Lib Dem complained bitterly and publicly that the terms of the Coalition contract had been breached: that the PM had failed to deliver his side of the constitutional bargain.

What precisely was that bargain? If the Coalition Agreement was a justiciable document, then the lawyers would have a field day. Buried at the back is a commitment to legislate for a referendum on voting reform and a smaller House of Commons. Further on, it says that the Coalition will also “bring forward” proposals for an elected Upper Chamber.

The Government did indeed legislate for a referendum – which Mr Clegg duly lost – and to reduce the number of MPs from 650 to 600. It also produced a scheme to replace the Lords with a new elected chamber, which was dumped when Mr Cameron realised that he could not put together a majority. Mr Clegg, who had once argued that a smaller Commons was the quid pro quo for a plebiscite on AV, changed tack. Now, he claimed that the accompanying boundary review – vital to the Tories’ electoral chances – was conditional on Lords reform. When that failed, he announced that he would no longer support the review, even though it has already been legislated for.

That was in August. Since then, the Tories have said that they will proceed with next year’s vote confirming the new boundaries, in the hope that the Lib Dems might yet be won round. Ignoring Mr Clegg’s public pledge to oppose it, they have made mischief by suggesting that he could be bought, perhaps with a deal on state funding for political parties. This irked the Deputy Prime Minister, who felt he was not being taken seriously.

Which brings me to the troubling events of the past week. The Lords are currently considering an obscure measure to change the system of voter registration. When Labour tabled a provocative amendment that would, en passant, put off the boundary review until 2018, Mr Clegg pounced. The amendment would achieve what he wanted, namely to kill off the bit of the Government’s constitutional package that still stands. The revenge would be all the sweeter since he knows how much Mr Cameron needs a fairer electoral map in 2015 (according to Anthony Wells of YouGov, the Tories require a swing of 11.1 per cent to secure an overall majority on the current boundaries, but only 2.7 per cent on the new ones, if the Lib Dems continue to score so low in the polls).

To Mr Clegg’s mind, killing the scheme dead was the tit to Mr Cameron’s tat on Lords reform, a chance to hit his rival where it hurts. He told the PM that the Lib Dem peers, including frontbenchers, would support Labour in the Lords. The Whips did the maths, realised that the Government would be defeated, and pulled the Bill on a technicality. It was due to come back yesterday but – we are told – Mr Cameron is abroad and has not had a chance to discuss the matter with Mr Clegg: it remains deferred while heads are scratched and lifeboats manned.

So what, I hear you ask? Who cares about a spat over some obscure bit of Lords legislation? Except that what Mr Clegg added, perhaps as a little “by the way” when he and Mr Cameron had a brief word last Tuesday, is that it won’t end in the Lords: he and all his ministers and backbenchers will vote with Labour when the legislation returns to the Commons. In other words, Mr Clegg will lead his party against the Government – against his own Bill – precipitating its near-certain defeat.

The Prime Minister will doubtless try to shrug this one off with a pained grin and a “Nick will be Nick”, and hope that, when he gets back, he can talk his partner round. He is well used to explaining away Mr Clegg’s eccentricities, and the frequent political contortions he must put himself through to satisfy his party.

The Lib Dems, meanwhile, are resolute. “The Tories thought Nick was a nice guy who could be pushed around,” says one Clegg ally. “They thought we weren’t serious. That’s why they are so shocked.” Still, they reckon that Mr Cameron will accept this as a one-off piece of choreographed retaliation that should have no consequences.

The effect, I fear, could be far more serious. If Mr Clegg’s plan goes through, any pretence of collegiality between Tories and Lib Dems will end. Party discipline will collapse. Mr Cameron will be powerless to sanction his own rebels when the Lib Dems are allowed to defeat the Government – and Labour will look for other ways to tempt them across the floor.

Surely, Mr Cameron must be thinking, Mr Clegg wouldn’t endanger the Coalition just to prove a point? But otherwise, how can he credibly explain the deliberate destruction of a piece of primary Coalition business by his own party? And how can Mr Cameron not hit back when he is smacked in the face? The Lib Dem leader may be out to prove that he is not to be trifled with, but in doing so, he is placing the Coalition in deadly danger.