The issue is fundamental to the work of the royal commission into reform of the House of Lords, which will be formally set up this week. Baroness Jay, the Leader of the Lords, has made clear that she would like to see Jewish, Muslim, Hindu and Roman Catholic leaders sitting alongside Anglican bishops in the new upper chamber. This would undermine the uniquely powerful position that the Church of England has in Parliament simply as the national religion. It would also raise far-reaching questions about how the "holy trinity" of church, state and monarchy should interact.
Anglican bishops at a conference in York last week could talk of little else. Over after-dinner port, the men in purple privately agreed that they would almost certainly have to accede to Lord Irvine's demands for them to give up some of their 26 seats, in the name of modernisation. Committees have been set up by the church to compile evidence to submit to the commission about why the bishops should maintain a role - but most senior figures are preparing to compromise.
But the debate did not stop there. The senior clergy began to discuss the prospect of disestablishment. Few bishops support such a dramatic move, but they realise that change is inevitable and that the church should try to set the agenda rather than being bounced into reform. The Most Rev David Hope, the Archbishop of York and the second most senior churchman, has privately been involved in a consultation group, based in Sheffield, which has been examining the future of the relationship between church and state. "It is important that these questions should be debated," he says. "We should not be covert about it." Last November, Philip Mawer, the Church of England's secretary-general, hosted a meeting with representatives from other Christian denominations to discuss options for the future. The General Synod has also set up a special committee to consider whether the Prime Minister should still be involved in appointing bishops. Everything from the future of the coronation to MPs' power over the church is up for grabs.
The Rt Rev Richard Harries, the Bishop of Oxford, is adamant that the status quo is not an option. "What's quite clear is that the nature of establishment has changed, is changing and will change," he says. "Having an established
church is a symbolic statement that there is something more important in life than politics, that there's a standard to which all governments are ultimately accountable. But the church is not going to be desperately fighting our own corner because we offer the establishment link as a service to the nation if the nation wants it."
Canon Dr Martyn Percy, an Anglican theologian and editor of the journal Modern Believing, who is also involved in the Sheffield initiative, said discussions were "bubbling up" throughout the church. "There does need to be some new reflection on the nature of an established church in relation to a society that is now being radically transformed," he says.
Crucially, advisers to the Queen and Prince Charles are also thinking through the implications of the Government's constitutional reforms for the monarch's role as Supreme Governor of the Church of England. This is a central part of the relationship between what Martin Luther called the "two kingdoms" of church and state. He thought they should act as a check on each other's powers. But some royal advisers are concerned that this could make the sovereign seem out of touch, in an age when only 700,000 people take communion at an Anglican church every week. The Prince of Wales has spoken of his desire to be "defender of faith" rather than "defender of the (specifically Protestant) faith" - although he has also said he is not in favour of disestablishment.
THERE HAVE already been some informal discussions between palace and church about the way forward. Both courtiers and clergy now agree that a loosening of the ties between church and state is "inevitable" in the medium to long term. Insiders talk in New Labour language of a "Third Way" between establishment and disestablishment, with the link weakened but still intact.
Tony Blair is keeping out of it in public. But privately Blairites are thinking the unthinkable on church-state relations. The New Labour think- tank Demos recently proposed disestablishment, as did the Christian Socialist Movement, of which the Prime Minister is a member. The Right Rev Robert Hardy, Bishop of Lincoln, believes that the church will be disestablished within 30 years. "There is a slow breaking up of the link between church and state," he says. "Society is more secular in all sorts of ways."
Although there is unlikely to be a sudden announcement that the link between church and state is to be broken, the tapestry is being unravelled at many levels. The future of the coronation is one of the most controversial threads being picked at. The Right Rev David Jenkins, the former Bishop of Durham, has been asked to write a paper on the subject by the Sheffield group of academics and clergymen. For more than 1,000 years the coronation has been a sacred ceremony - even in 1953 the Queen was "anointed, blessed and consecrated" for her role by the Archbishop of Canterbury and pledged to maintain the Protestant church. However, in an essay published in the Independent on Sunday today, Dr Jenkins proposes that the next king or queen should be installed through a secular inauguration "to which contributions were made from other faiths". The idea of other religious leaders being involved in such a ceremony has found surprisingly widespread support among church leaders and academics. One senior clergyman said it would be an "abomination" for the Church of England to retain exclusivity over the coronation in a multicultural society. Many bishops - including those of Oxford and Portsmouth - also argue that it would no longer be appropriate for a communion service to be included in the ceremony. The words of the coronation oath will almost certainly be rewritten to downplay the commitment to the Protestant church. Even the Most Rev George Carey, the Archbishop of Canterbury, privately acknowledges that "things will move on" when the next monarch is crowned.
This is not the only reform being proposed. Pressure is growing for the church to get full control over ecclesiastical appointments. The Prime Minister's power to choose bishops is usually seen as theoretical - as Jim Hacker found in Yes, Prime Minister when it was made absolutely clear which of the two names on the list of possible appointees he was presented with was "appropriate". But Mr Blair irritated some Anglicans last year by rejecting both the people proposed for Bishop of Liverpool and choosing his own candidate. The General Synod committee examining the issue is likely to call for the Church of England to be given greater autonomy over appointments, possibly in return for relinquishing some power in the Lords. Some within the church also want to remove Parliament's responsibility for approving canon law - they were annoyed that MPs had the cheek to kick up a row over the ordination of women when the General Synod had already approved the move.
Another problem is the legal requirement on the Church of England to allow parishioners to be married, christened and buried in their local Anglican church. Some evangelicals argue that only practising Christians should have the right to go through these fundamentally religious ceremonies.
THE MOVEMENT for Christian Democracy is among the organisations moving towards a disestablishment position because it believes the church's wings are "clipped" by being linked to the state. "The state has no right to control what should be issues of conscience about how the church runs itself," says Jonathan Bartley, its general-secretary, "and the Church of England should compete on a level playing field with other denominations and religions."
The Anglican church is terrified that it is going to be seen as out of touch with modern, multicultural Britain - although Muslim and Jewish leaders have in the past expressed support for establishment on the grounds that it encourages general spiritual awareness. The Right Rev Kenneth Stevenson, Bishop of Portsmouth and a church historian, said the aim was to become "more inclusive". "The danger of disestablishment is that it will lead to a completely secular state, and I don't actually think that's what people want," he says. "But there is scope for some changes. The established church may still be there as a religious reference to the nation, but it has to operate in different ways."
After centuries of debate about these issues, radical reform is now genuinely on the agenda. The tapestry may not be entirely unravelled, but as the new millennium starts it will certainly be resewn.