Modeling Journey

Chancellor Merkel turned aside Sarkozy's request for consideration of the much vaunted "Euro Bond", arguing that it really amounted to the stronger EU countries guaranteeing the debt of the weaker ones, but without any commitments by the weaker ones to remedy their public finances.

"He's now determined this is what he wants to do. It's like a reinvention of Thatcher's great drive. I always argued that the last Conservative government freed up the markets, but what was missing was the next bit – getting society in Britain ready to meet that change.

"We never did. We ended up with a sort of mid-20th century society, many locked away in welfarism, and a 21st-century economy. We see now that one cannot meet the results of the other."

Cameron has said the government will use intensive intervention to turn around the lives of 120,000 problem families. Duncan Smith said he believed that intervention during the early years could make a huge difference.

"I'm passionate about it because, if we get this right – as they have shown in Colorado over 25 years – whole communities are turned around by early intervention," he added.

Duncan Smith said early years intervention was cost-effective because, if nothing was done to stop young people becoming adult offenders, they cost the state much more in the long term. In Washington state in the US, there is even a Which?-style buyers' guide saying how much could be saved within five years for every dollar invested, he said.

The government could use this principle to persuade investors to pay for early intervention by getting them to buy a "social bond", he said.

"We could suggest to the private sector we create a social bond," he added. "We'd say: you can put your money into this for five years, and we'll give you a guaranteed return because we think it saves us money. We'll give some of it back to you."