James Forsyth

If you wanted a preview of the future of British politics, you should have headed through the back alleys of Westminster to Lord North Street on the last Monday in February. There, in the slightly cramped premises of the Institute of Economic Affairs, you could have seen the early stirrings of a Tory revolution. A group of MPs, most of whom had been in parliament for less than two years, were explaining why nothing less than ‘fundamental structural reform’ of the economy would solve the country’s woes. Holding a public meeting a few weeks before your own government’s budget to announce what you would do if you were in charge would normally be seen as an act of monstrous vanity.

Opponents of an elected House of Lords have been flexing their muscles in the last few days. Yesterday, Archie Hamilton, a Tory peer and former chairman of the 1922 Committee, and a sceptic of the coalition’s plans for an elected Lords, put down a manuscript amendment on the Financial Services Bill, on which the government was defeated. This means that the bill will have to go through a full committee stage. This is just a little indication of how much more difficult the coalition could find getting its legislation through the upper house once the Lords reform debate has started in earnest. So much of the proceedings in the Lords is governed by convention, that it is far easier to delay the government there than in the Commons.

The Greek election has, in terms of the Eurozone crisis, produced the worst possible result. If the Interior Ministry’s initial projections are accurate, New Democracy has come first. But it is hard to see how they can form a coalition given that PASOK, the party of the establishment left, have said they won’t go into coalition without Syriza, the anti-bailout party. PASOK’s ambivalence is understandable given that any party that goes in with New Democracy is likely to be wiped out at the next election. But the coming Greek stalemate is likely to make life particularly difficult for central bankers: do they act before tomorrow morning or wait for the aftermath of the third Greek vote?

What we saw at the Mansion House last night gave us some hints of where British economic policy will go if the Eurozone start to fragment. For the moment, Osborne is persisting in getting the Bank of England to do the heavy lifting using monetary policy rather than attempting a fiscal stimulus. The first line of defence is what one source described to me as ‘highly active monetary policy.’ The fact that the chancellor has persuaded the notoriously prickly Bank Governor to offer loans against weaker security is a definite success for him and a sign that he’s developed a far better relationship with King than either Brown or Darling.

Friends of David Cameron are pretty satisfied with how today went. Their sense is that nothing explosive came out and that if that embarrassing Brooks text is the worst headline from his four hours plus on the stand then that’s not too bad a result. The prime minister has also been greatly helped by the fact that we haven’t seen any of his text messages to Ms Brooks. When it came to press regulation, Cameron was not as emphatic as Michael Gove or George Osborne. But he was clear that he is not keen on any new laws. Instead, he seemed to be urging Leveson to opt for beefed-up self-regulation. However, Leveson seemed doubtful of the merits of this idea.

George Osborne and Michael Gove are two of the Cabinet ministers closest to the Prime Minister. In their appearances before the Leveson Inquiry, they have both made clear that they are not interested in some giant new regulatory system for the press. Indeed, the vigour with which Gove made this argument rather got under the judge’s skin, while Osborne openly mocked the kite-mark system that Leveson is so interested in. The implicit message to Leveson was: propose something too big and you might as well post your final report to the Long Grass at the back of Downing Street.   Now, both Osborne and Gove are to the right of the Prime Minister politically, and both are less inclined to seek consensus than the PM.

Two issues are dominating Number 10’s thinking at the moment: Europe and the cost of living. How to deal with Europe is the biggest strategic challenge facing David Cameron. Cameron has to work out how to use this moment to advance the British national interest. But he also knows that Europe is an issue that could split the coalition and the Tory party.   Inside Number 10, it seems that it is becoming a question of when to announce a referendum not whether to call one. As I say in the Mail on Sunday today, senior figures there are pushing for the Tory commitment to a future referendum on the EU to be brought forward from the manifesto to this year’s conference season.