Now begins the battle for the Tory soul: Daniel Finkelstein examines the emerging fault lines that will define the future character of Conservatism

OVER THE next four days a vital debate will be taking place at the Conservative Party conference. From time to time this debate will be heard in the conference hall, but it can best be followed by attending the meetings on the fringe, where every day controversy will intervene before lunch and dinner. Its subject is the one the Conservative Party needs most to grapple with - the future of Conservatism.

This debate recognises that while the party's difficulties appear to be short-term and political, they are, in reality, long-term and intellectual. The Eighties died with John Smith. Conservatives need to prepare themselves for the next century, developing a durable and coherent post-Thatcher vision.

Such a vision must provide the party with a programme that gives firm answers to pressing public concerns. Yet it needs to do more. It must rebuild traditional support among the middle classes, whose feelings of insecurity contributed to Margaret Thatcher's fall and contribute now to John Major's tribulations. It must reach out to new constituencies and young people. It must help create intellectual alliances, providing new ideas and replacing the exhausted links with neo-liberals.

The Conservative debate about how best to do this can, broadly, be divided into three parts. The first concerns the nature of the state - it is a debate in which positions range between the views of demand-siders and supply-siders. Its immediate consequences have been felt in the discussions over tax cuts, in the attempt to establish the Citizen's Charter as a major policy theme and in the Portillo review of public expenditure.

Demand-siders want to return to the ideas of devotees of a minimal state. This would involve reducing demand for public services. All but the poor would insure themselves privately rather than use the NHS, provide their own basic pensions, pay for schooling and protect themselves against unemployment. The state would provide only a safety net and the very basic services of policing and defence. Although minimal state policies have previously been rebuffed, a combination of tough leadership and, perhaps, a new set of constitutional rules would see the changes through.

Demand-siders regard this as the only clear and robust Conservative vision. They also see it as the way to revive middle-class support. Only major reductions in demand for public expenditure can allow significant and durable tax cuts. Demand-side reforms would return money to core voters and allow them to buy services of far better quality than those provided by the state.

Conservative critics of this view regard it as naive and regressive. It misunderstands the Conservative voter. Voters want liberty and prosperity, but they also want security and have a strong sense of community. They would not support the dismantling of the welfare state, something Mrs Thatcher understood perfectly well. These critics believe that reform of government should instead start with the supply side - the way public services are provided.

Supply-siders believe that the central planning of welfare services has undermined individual responsibility and the independent institutions that sustain communities. Government should retain its role as the guarantor of service provision, but the provision itself should be through voluntary organisations and entrepreneurs. The detailed direction of local institutions by Whitehall planners should stop.

This view provides an immediate programme of deregulation and public/private partnership. It also provides a language - of a civic conservatism based on community values and responsibility, of a welfare state that empowers individuals and families and rewards responsible behaviour.

Supply-siders also believe that their view can build support for the Conservative Party. It responds to middle-class anxieties with a promise to retain the welfare state. It replaces the traditional Labour public sector with a rich variety of public providers who have a stake in Conservative reform. It even promises tax cuts through increased efficiency.

The second part of the Conservative debate involves different views of nation - views lying in a spectrum between those of nationalists and federalists. This is the debate that underlay the Maastrict treaty split.

Nationalists believe that the sovereignty of the British Parliament, the integrity of the Union and the unity of the British people are the precious heritage of Conservatives. This heritage, they argue, is under serious attack. Continental Christian Democrats are intent on creating a United States of Europe and Britain, keen not to be isolated, will slowly be drawn into it. At the same time the demand for regional government and national parliaments will prove difficult to resist.

The rot, they believe, has already set in with the Irish peace talks. It is the first duty of the Conservative Party, the nationalists believe, to resist the assaults on the independence and unity of the United Kingdom. There is, they argue, a large audience for an appeal to nation, perhaps also involving strong anti-immigration policy.

Federalists find these arguments unconvincing. They believe there is no future for the Conservative Party in resisting the inevitable. Britain can argue for a decentralised, free-market Europe but it cannot isolate itself from the Continent. A federal Europe might look very different from a centralised state. They also believe Conservatives must respond sensitively to nationalist and regional feelings within the United Kingdom. While the Union is not negotiable, some political concessions are possible. The party might otherwise be wiped out in whole parts of the county.

The debate about the UK's future as a unitary state also involves the future of local government. Many Conservatives are unconcerned about the centralisation of local government functions, regarding this as the unfortunate but necessary response to extremism in London and incompetence elsewhere. Others see local government as an essential part of a Conservatism that stresses community and believe that reform is essential, perhaps involving elected mayors and stronger local executives.

The final debate, one that has just begun, concerns whether to lean towards traditionalism or modernism. This was launched dramatically at last year's conference with various ministerial addresses on single-parent families and the Prime Minister's 'back to basics' speech. It is a debate about how best to respond to social breakdown, to rising crime, to the tide of divorce and ruptured family life. Traditionalists argue that this is strong ground for the party. Conservatives should speak out for conventional family life, discipline, law and order. They should mount a challenge to the Sixties revolution in values.

Modernists are sympathetic to some of this. Yet they are concerned that Conservatives might alienate potential supporters whose lives reflect new mores and do not conform to the traditionalist ideal. A political party cannot be seen to be lecturing its voters. This is particularly true if, as modernists suspect, there are no policy proposals to accompany the rhetoric. Better to pursue decentralist policies and let values be generated by families and communities.

It is from a resolution of these debates rather than tactical brainwaves that salvation will come. Such a resolution will not result from the fruitless and impossible exercise of picking sides, categorising individuals and battling for extreme positions. It will come instead from a creative synthesis of the ideas being discussed. However successful Bournemouth turns out to be, it will only be able to make a small contribution.

The writer is director of the Social Market Foundation.

Beatrix Campbell's column appears tomorrow.

(Photograph omitted)