So, how can the Tories win back the centre?

Tony Blair has chosen to fight on values, but David Willetts argues that the Conservatives have home advantage here

We Conservatives ought now to be celebrating our triumph in the battle of ideas. The free market is winning the world over. That intellectual victory, combined with our robust defence of the West, has led to the collapse of socialism and the Soviet empire, which embodied it. No wonder that one of the ways Tony Blair tries to market his party is by openly recognising that on most of the big issues of the 1980s we Conservatives were right and the Labour Party was wrong. Indeed, if we got the big decisions so right, one wonders why he believes our values are so wrong.

Usually modern democracies reward parties that win the battle of ideas with sustained periods in office. A triumph of classical liberalism led to a generation of Liberal dominance in the mid-Victorian period, until electoral reform and Unionism created a new period of Conservative dominance. The future of Conservative government is not written in the workings of some largely mythical electoral pendulum. So how do we win the electoral prize which I believe we deserve?

First we have to explain over and over again that there is a direct link between the success of the British economy and the policies we are pursuing. Unemployment is the lowest of any major European country because of our Labour market reforms. If they were reversed with a minimum wage and the social chapter, then unemployment would inevitably rise.

Our mortgage rates are the lowest for more than a generation because we have at last got inflation down and set in place the institutional arrangements to ensure it stays down. Labour have never recommended the tightening of financial policy - it only ever wants it looser.

The prices we pay for the services of the privatised utilities have fallen because we have a tough regulatory framework that focuses on price reduction as the best way of delivering improved performance. If regulators were confused with all the other objectives Labour wants to set for them - from rates of return to board members' pay - then their performance in lowering prices would be jeopardised.

We can be proud of our economic record since 1992. That Labour is worried by this is shown by a dramatic shift in its rhetoric. During the recession its motto was "It's the economy, stupid". Now, instead, Tony Blair's essay in Saturday's Independent was entitled: "Why we need a new social morality for the Nineties". It is all, no doubt, copied from America, where Clinton won on the economy in 1992 and is now campaigning on "values".

Labour has to retreat to the moral arguments because of the manifest failure of its economic ones. Faced with the metaphysical theory that the world did not exist, Samuel Johnson famously kicked a stone and observed to Boswell: "I refute it thus". That is how many Conservatives want to refute Blair's more high-falutin' attacks on us. We just point to the companies from all over the world that are flocking to set up in Britain.

However, I believe it would be a mistake to allow Blair free rein to talk about "community", "values" and all that and for us to reply solely in the language of economics. That would allow him to occupy ground which rightly belongs to us. The institutions we really care about and which cannot be explained in the language of the market place are, above all, the nationstate and the family.

Anyone who doubts the importance of ties of national identity need look no further than the BSE affair. Have the French and Germans acted like "good Europeans"? Of course not. The Conservative Party can now unite behind an agenda for fighting for Britain's interests in Europe. That must be based on the White Paper setting out a negotiating position for the next IGC and the offer of a referendum on a single currency.

What about Labour's approach to Europe? We know it would abandon the veto in a whole range of areas where people expect their national governments to be able to take responsibility for their actions. After their ferocious editorials on the threat from European federalism last week, it is now impossible for the bulk of the British press to endorse Blair in the run up to the next general election.

As if its federalism is not enough of a threat to the nation state, Labour has further proposals that add up to the biggest change to the British constitution for nearly a century. The Royal Prerogative, the House of Lords, the union between England and Scotland would all be jeopardised by Blair's agenda. There is no coherent vision of our identity as a nation that holds his constitutional proposals together. He is just a magpie picking up bright ideas from miscellaneous advocates. If Blair really cares about more than the market, it can't be the nation, because he is willing to throw away rights which it has taken Parliament centuries to win on behalf of the British people.

What about the family? We got telling evidence of Labour's view of the family when Gordon Brown announced that the Labour Party would take child benefit away from families whose children stayed on at school after the age of 16, in order that the state can spend it instead on the Labour Party's pet projects. Over one million children, whose parents would normally be receiving pounds 560 a year, will lose out.

The child benefit proposal is part of a wider pattern. The Labour Party is also opposed to nursery vouchers - another device for putting spending power in the hands of families. Labour does not want to give money to the parents; instead it wants to allocate it direct to council schools. If you chose something else for your child, then Labour is not interested.

The arguments of the past few weeks have shown that when it comes to "values" and the institutions that embody and transmit them, there is indeed a real political argument to be had. How would I summarise it? It is difficult to beat the formulation by the much misunderstood One Nation Group. Enoch Powell, Iain Macleod and Angus Maud were not exactly a bunch of wets, and they put it this way in 1950:

"To a Tory the nation is not primarily an economic entity. It may place political and social ends above purely economic ones, and for their sake may justifiably on occasion seek to prevent change or divert it. Yet economic change is the normal environment in which nations live, and successful adjustment to it is a condition of their well-being ... This important truth was dangerously obscured and overlaid. We doubt if it yet claims sufficient attention."

Economic change is with us. It is unavoidable and indeed to be welcomed. Attempting to impede it is a sure route to poverty. At the same time, we need points of stability in a changing world - the nation, its constitution, the family. The charge against Labour is that it has got things exactly the wrong way round. Its economic policies would impede change and drive us back into the stagnation of a high-tax, low-employment economy, which failed to attract investment from abroad. Its European and constitutional agenda shows an extraordinarily irresponsible restlessness which would weaken those institutions that do indeed stand outside and above the market. We must run on our economic record. But we can run on "values", too.

David Willetts MP is Parliamentary Secretary in the Office of Public Service. His book, 'Modern Conservatism', is published by Penguin.