The intellectual heart of Cameron's Conservatism

Policy Exchange – widely regarded as David Cameron's favourite think-tank – was founded in 2001 to keep the modernising flame burning in Conservative ranks after the right-winger Iain Duncan Smith was elected leader.

Originally called C-change, it was set up by two disaffected supporters of Michael Portillo: Francis Maude and Archie Norman.

Its philosophy – that the Tories needed to undergo fundamental change to win back voters – was a foretaste of the message that was to underpin Mr Cameron's campaign for the party's leadership four years later. It changed name a year later and soon began to make waves in Tory circles under its chairman, Michael Gove, and its director, Nicholas Boles.

Both were close friends of the future leader – and Mr Gove, now the shadow Education Secretary, is today one of his most influential advisers. The Tory leader has also brought Mr Maude back into the Shadow Cabinet and given him the task of preparing the party for government.

All three have ended their ties with the think-tank but it has gone from strength to strength. Policy Exchange keeps up a steady stream of reports, setting out ideas in recent months for turning round failing schools, promoting innovation in the NHS and examining the real extent of knife crime. It also has a penchant for courting controversy, demonstrated by its investigation into alleged extremism in mosques.

Mr Cameron labelled his old friends at Policy Exchange "insane" this week after they suggested that efforts to regenerate struggling northern towns should be abandoned and their residents encouraged to move south.