The government seems to have moved on from any idea that we can win a war in Afghanistan by pitching troops into battle to win and hold territory. The impossibility of putting in enough troops to garrison that vast and difficult country has at last dawned on Ministers. Whatever they may say, the hunt is now on for an honourable exit that can leave us with some reason for past sacrifice and with some hope for the future. Even if reinforcements are sent in the short term, the remit will be fundamentally different. The aim will be to support the civilian power and to reinforce a political strategy rather than to win and hold territory. The West needs to talk more and fight less in the Middle East. It now also needs to pursue its own self sufficiency in energy to curtail the power of King Oil.

The second even starker watershed was the one on public spending and borrowing created by the government’s Deficit Reduction Bill. This Bill has two origins. The first is the Treasury led market imperative. The deficit sums are so implausible that it is only a matter of time before the markets force up interest rates on government debt. Even this government will have to stop the printing presses soon. The Treasury is seeking to reassure that sometime soon the government will take its deficit in hand and start to return it to more realistic levels. The second is the manic politics of this dying administration. Labour strategists think it would be a good idea to force the Tories hands, to smoke them out, to put them in a straightjacket for a future Parliament should they win. The government wants Conservatives to have to run on Labour spending plans for the next Parliament so they can portray them as the party of cuts.

It is one of the stupidest attempts at digging a poltical trap I have ever seen them attempt. No incoming Conservative government need feel bound by Labour spending plans, even if they are set out in law. All would expect a Conservative Chancellor, if one is victorious, to review the public finances urgently and produce a new set of spending plans tailored to the needs of the economy, the fears of the markets and the priorities of the new Parliament. It would be a minor matter to repeal or amend any Budget Law he inherits as part of his first Budget, with the Finance Bill offering the obvious legislative route to put things back on a more normal budget footing. There is no need for a Tory to walk into Labour’s trap. It can be sidestepped by behaving normally.

It will instead prove to be a trap for Labour. Now the Opposition does not need to have its own answer to the question how big need the cuts be. It will be able to say that halving the deficit by spending cuts is a necessary good start recommended by the government to its successor. These can rightly be seen as Labour cuts on Labour spending plans. Some of the balance of the deficit may be curbed by economic recovery. The Conservatives may wish to shift the priorities when they see the small print of the Labour plans in the Pre Budget statement. They need not incur Labour’s wrath by suggesting a different total, as Labour itself is proposing almost £100 billion of spending cuts or tax increases.

What a great week. We were able to announce record October borrowing levels, and a big leap in inflation. Our strategy of never knowingly underborrowed is going so well. You know you can rely on us to waste more and spend more than anyone else in the market.

Even better news was the coup I managed at the European sales conference with other state companies. We pretended to want to make our former CEO of UK PLC boss of the whole European outfit. That got them scared. He was even more disliked over there than here, and the last thing they wanted was more of what we had to put up with for ten long years when he was running the company. Do you remember those dark days? As Finance Director I had to follow some strange rules about borrowing and turn down some requests for more spending, whilst finding the money for dangerous missions in the Middle East.

So when they were all wound up about the possible return of my predecessor, I said we could be persuaded not to press his suit if we could be given the job of Overseas Director instead. They fell for it. So now we have been able to promote one of our former sales ladies to this role. I am sure having a representative placed in the higher escelons of the European structure will help us in our task of spending and borrowing more. I am pleased to say our financial contributions to the European joint venture are rising strongly, which helps with the expansionary budgets we are setting. They are masters at wasting other people’s money. I do so admire that in them.

Yours in delight

CEO

Just to recap, my advice to the government for this year has included:

1. No more banking subsidies – saving £31 billion cash and £8 billion contigent liability
2. Public sector wage freeze – saves around £6 billion
3. Recruitment ban on all public sector jobs other than front line ones like teachers, nurses and doctors – saves around £5 billion by end of first year
4. Scrapping ID cards, regional government and some other quango overheads- £4 billion
5. Not cutting the VAT rate – collects £12.5 bn more revenue

Total saving £66.5bn or one third of the current deficit. In following years there need to be bigger cuts in the size of the government overhead, welfare reform to cut the cost of benefits by getting mroe people back to work, and substantial reductions in local spending along the Fulham and Hammersmith lines.

The good news in this is the implied change of policy for the Western allies. It seems to mean an end to any idea that western troops can fight their way across the whole of Afghanistan and garrison it against the insurgents. It still leaves open the issue of whether this new central government in Afghanistan can gain enough popular support to create a unified state in a country renowned for its tribal and local loyalties. The West should insist on a tighter timetable for their withdrawal, and should want a stronger political strategy to try to find a way of governing Afghanistan locally as well as centrally that will keep the terrorists out. Keeping foreign troops in Afghanistan in fighting roles will not speed the end of the insurgency, as the last eight years has demonstrated.

Meanwhile, we are now told that a Mr Van Rompuy is to be President of the EU and a Baroness Ashton to be the first EU foreign Minister. We, the electorate paying their salaries, did not even know Lady Ashton was a candidate. We had no chance to cross examine Mr Van Rompuy on his shrill federalism. It is a rare sign of political skill by the EU over this whole ghastly Lisbon process that they are underselling these people and these roles, realising how incensed the UK – and many Eurosceptics elsewhere in Europe – are about this whole development. The words coming out of Brussels tried to play it all down, saying Mr Van Rompuy will be a chairman and administrator, not a proper President.

However, at the news conference they could not keep it up when there were questions. The answer to who should the USA ring when it wants to rign Europe was answered by saying that they should ring Lady Ashton, the “EU’s foreign Minister”. So there we have it. The federalists rule. They know their coup was both undemocratic and unpopular. They may go gently at the beginning. However, choosing unknowns will not prevent them soon becoming all too well known. The intention is to move forward the project of a European superstate. This is an important part of the architecture. It means a lot of trouble ahead. Let us hope the German and French governments get worried about their monstrous creation. The UK certainly will be, as most of us wanted to prevent the whole thing in the first place.

Their late espousal of this cause tears up all that rhetoric about Labour investment and Tory cuts, and has put paid to any idea that a re-elected Labour government could carry on defying the laws of financial arithmetic by spending and borrowing as much as they pleased. What is remarkable is that many MPs and commentators have not woken up to the magnitude of what was said. Even this government, a lover of spending and borrowing, has said before an election that it at least needs to halve this deficit in four years.

The deficit is estimated to be running at between 12% and 14% of national Income. It is, as David Cameron reminded us, double the level of deficit relative to the size of the economy that the UK struggled with at the time of the IMF loans in the 1970s. It is massive, growing too rapidly, and out of control. Today’s figure for October confirms that the Treasury was not for once overestimating it when they forecast £175billion of borrowing for the year. Some forecasters now think it will be £200 billion. This surge in borrowing is an interesting backdrop to the decision to print another £25 billion.

Halving it means either cutting spending or raising taxes, or some combination of the two, to the tune of 6-7% of National income. That is around £100 billion of annualised spending cuts or tax increases. Yes, almost £100 billion. £100,000,000,000. £2,500 each for every adult.

All my political lifetime I have watched as political parties have fought over the odd few hundred millions. In more recent years they have battled over a few billions. As I write this the main political row is about £700 million of spending on the disabled. Suddenly, if UK politics is to rise to the challenge, we need to be discussing tens of billions to make any difference.

I asked the Prime Minister in the debate yesterday how he recommened we did cut the deficit by around £100 billion a year. He gave me three proposals, all of them tax increases, all of them announced, all of them tiny in comparison to the magnitude of the task ahead. He did not mention a single spending cut.

When I set out these broad numbers to the House, Labour MPs looked alarmed. Their front bench had not told them how big the cuts will have to be, or how huge the tax increases if that is their preferred route. Nor did anyone say to them that even if you confiscated the income of all the rich who remained behind to let you do so, you would come nowhere near sorting out this massive deficit.

Whoever wins the next general Election, curbing the deficit is going to dominate the Parliament. The next government is going to have to reduce spending in a way no government has ever done before in this country. They will have no choice. If they decide to tear up this deficit Bill and carry on spending, the markets will rise up against them. Any recovery will help mend the deficit, but the recovery is needed to start to curb the other half, the half of the deficit that may be cyclical, the half that the government’s Deficit Bill would otherwise leave untouched. The sobering thought is that even if this Deficit Bill were implemented, without economic recovery the remaining deficit would still be as large as the one we had when we went to the IMF in the last big spending crisis.

Listening to the previous speaker, one might forget that we have had a Labour Government for 12 years and one might forget that equality had risen to new highs. One might also have been led to believe that we had not been through our worst recession since the 1930s, that Britain was somehow not doing far worse than most other economies of the advanced world, that we were not the only economy that was not coming out of the recession as quickly as the others that went into it and that we were not the only country that had had a deep recession because of the policies we were following. But the truth is that is the position we find ourselves in today.

I agree with hon. Members who have already made reference in passing to the lack of any sense of occasion on this Queen’s Speech day. Members have referred to how few hon. Members have been present in the Chamber. By about 4. 15 pm, we were down to fewer than 40 Members in the Chamber, with only 13 on the Labour side; half an hour later, we were down by another 10 Members. It has been a very thinly attended debate. There were even empty seats going begging when the Prime Minister himself was delivering his remarks-something that I cannot recall ever seeing before during a Queen’s Speech debate.

The Queen’s Speech debate used to be one of the big events of the parliamentary year. It was up there with the Budget, up there with a no confidence motion were one ever tabled, up there with a really big argument over war or a major economic problem that the country faced. It was something we attended with a sense of expectation. One of the reasons that it worked so much better in the past was that we did not read all the contents of the Gracious Speech in the media and press for several days in advance.

I remember when I was chief policy adviser at No. 10 for a previous Government when I was privileged enough to work with the palace on the draft Queen’s Speech. Very few people saw the whole draft speech; it was kept extremely secret. Obviously, all those who needed to know were informed; all those who had an influence on the decisions were involved in their part of the speech-but it never leaked. None of the major or minor items of that speech ever leaked because the whole sense of drama and theatre required that the first that the world knew about it for sure was when Her Majesty delivered it in the House of Lords and that the first people who unpicked that speech, criticised it, attacked it, praised or supported it should be Members of this House in one of the most important debates of the year.

I think our visitors have been insulted today, Mr. Deputy Speaker. We invite the ambassadors of the all the great countries represented in London to be present, so they can hear at first hand what the Government are going to do over the next year and write their telegrams back to their countries. We invite many other important dignitaries and they do not come here solely for the sense of occasion-to see people in unusual clothes and the colour of the spectacle before them. They used to come because it was their first chance to be sure of the Government’s programme and their first chance to talk to others, perhaps to Ministers, about how that programme was going to proceed. If you destroy that secrecy, that drama, that importance of this Queen’s Speech, you kill Parliament, you kill debate and you stifle proper cross-examination.

When I was a Minister-making less important announcements than in the Gracious Speech, but still sometimes important announcements-I always accepted the constitutional propriety. I would make the announcement first to this House. Very often it was Members on both sides of the House who had really good questions, which made me think or want to modify the plans. That is how it should be. Then I would rush from this House-back to the Department, usually-to give the press conference and face another barrage of questions from able people, sometimes coming from different angles from those that came from the House. Today, we are told, that is very bad practice because it does not give Ministers the chance to showcase their policies and to present them on favourable terms through the media first.

David Taylor: If the past is a foreign country, what the right hon. Gentleman is describing is a different planet. He was describing, no doubt accurately, a situation that obtained perhaps 20 or more years ago, when there were just four TV channels, the internet was hardly established and the media storm and network that surrounds politics now was vastly different at that time. Is it not reasonable to respond to that in what we do now?

Mr. Redwood: There were rather more newspapers selling rather more copies in those days, as there was plenty of competition and choice in newspapers-less so in the media, as the hon. Gentleman says-but this is one of the myths of modern politics and why modern politics is, I think, so broken. The myth has arisen that it is the job of Her Majesty’s Ministers to entertain the media and that it is their job to have a story for every part of the 7-by-24 news cycle. Why is that their job? It is their job to try to govern the country well. From time to time, they come to this House to report on their conduct, to be cross-examined, to present their new policies, to sell to us and the wider public what they are trying to do. Those Ministers who forget that their prime duty is to this House usually end up doing their jobs worse than those who remember it and who are prepared to face sensible criticism. Those Ministers who think it is very media-savvy to leak their story in advance to a privileged media outlet or a privileged journalist discover in the end-if not earlier-that it is often a very foolish thing to do in terms of media management.

Yes, of course a Minister can get away with a few spectacular leaks to chosen media outlets who will puff up him or her and the story, but all the rest of the media are hopping mad that that is the way the Minister has chosen to do it, and they will not all feel that they can get closer to that Minister and get a privileged leak themselves, so they are more likely to write badly about the Minister and his or her plans. I would say that even in the Government’s own terms of media management, it is often quite stupid to leak in advance through selected outlets rather than let all of them have a fair chance on the day, when they can come to the Gallery or watch the Queen’s Speech on television or go to the press conference and ask their privileged questions and ring up for specialist interviews as soon as the statement is made to this House. The sooner we get back to that system, the better-the better for the Government of Britain, the better for the scrutiny of the Government of Britain and the more meaning this House will have.

I say to colleagues that this Parliament is dying; it is in a very parlous condition. If the next one is going to be any better, it has got to learn the lessons. Those lessons are not just temporary lessons relating to some foolish expenses claims. They tell us that this model is broken.
The Government are not treating Parliament seriously, Parliament is not kicking back and making the Government treat it seriously, and so people are bypassing Parliament. The electorate are not stupid; they can see that Parliament is weakening and being damaged, and so they bypass Parliament. The media scorn Ministers who behave in the way in which many Ministers now behave, and so they bypass Parliament as well. They have their special lines, and their reliance on spin doctors. The result is what we see today: a hopelessly broken Parliament, with a few faithful parliamentarians here and the rest perhaps working elsewhere in the Palace of Westminster, or perhaps saying “There are no votes today, so I need not be there although it is Queen’s Speech day”.

The issue on which I want to concentrate is what I consider to be the most fundamental issue. It is at the heart of this Queen’s Speech, and it will be at the heart of our politics for the next few years whatever the result of the next general election. I refer to the fiscal responsibility Bill and the parlous state of the public finances. After years of denial and after months of fevered political activity in an attempt to prove that the Opposition and those who challenged them on the deficit were wrong, the Government have put at the heart of their mock legislative programme a Bill providing for the deficit to be halved over a four-year period.

The Government may be right. I am impressed by the magnitude of the numbers about which they seem to be talking, which implies to me that at last they understand that the country is lurching towards bankruptcy at an unacceptably rapid rate and that they need to reimpose the fiscal disciplines that they discussed so liberally in the late 1990s, and even practised until about 2001.

Mr. Ken Purchase (Wolverhampton, North-East) (Lab/Co-op): I am listening carefully to the right hon. Gentleman’s speech. He made some very good points earlier. However, I think that he uses the word “bankruptcy” a little carelessly. Does it not mean that one’s liabilities exceed one’s assets? That certainly does not apply in the case of British plc.

Mr. Redwood: What it means is that anyone who thinks that a Government of this country can continue to borrow at the current rate will experience a rude awakening. I remind the hon. Gentleman what happened to a previous Labour Government in the 1970s. They thought that they could go on borrowing. They had perfectly good things on which to spend the money, or so they thought. The hon. Gentleman may recall what happened: a Chancellor of the Exchequer had to be called back from the airport, and had to go off to the International Monetary Fund and beg for special measures to stave off bankruptcy. The special measures and the terms imposed on the Government were thought to be extremely damaging, but if they had not accepted those special measures and terms, they literally could not have paid the bills. Bankruptcy means not being able to pay the bills. It can mean illiquidity as well as a shortage of assets relative to liabilities.

The hon. Gentleman is in denial. The country is now building up the most colossal debt that it has ever seen. The Government are going to double the national debt that they inherited in just two years of borrowing, and that cannot go on. Every sensible person knows that it cannot go on. The hon. Gentleman’s own Front-Bench team knows that it cannot go on. That is why today is such a significant day in British politics. It is the day on which the Government themselves have said that they have been borrowing too much and cannot go on doing so. It is the day on which the Government themselves have said that the next four years of British politics, whoever wins the general election, will be about how they are to get the deficit down.

This is a totally different world from the one to which we have been accustomed, in which Conservative and Labour Governments alike have always been able to increase spending. We have had our rows about the speed of the increase, we have had our rows about which programmes are more favoured and which less favoured, but throughout my adult lifetime in this country we have discussed how to increase spending, apart from that one year in which the IMF took over to stave off the difficulties faced by the Labour Government.

The Government have said that they think they need to halve the deficit over a four-year period. We know that the deficit will be running at 12 to 14 per cent. of national income next year. That means that the Government wish to cut the deficit by between 6 and 7 per cent. of national income. It means-in round figures-£100 billion of annual spending that must be cut or £100 billion of extra taxes that must be imposed, or some combination of the two.

During what has passed for a debate today, I managed to ask the Prime Minister how he thought it would be best to make that reduction in the deficit-how he thought it would be best to remove that £100 billion from the accounts. I did not prejudge whether he would reply “tax increases” or “spending cuts”; I left that to him, because he is the man proposing the overall measure. His response was very interesting. He instanced three very small tax increases about which we already know-small in terms of the amount of revenue that they would raise, that is; not necessarily small in terms of the economic impact that they would have, which could be rather severe and negative. As those increases are already included in the figures, they would not produce the £100 billion. The Prime Minister was talking about loose change or petty cash. He was talking about just a few billions. What his Bill is talking about is £100 billion off spending or on to taxes, or some combination of the two.

I renew my challenge to those on the Front Bench to go away and think up an answer. This is a question that the Prime Minister has constantly asked about Conservative plans for years and years. I asked him the most simple question in the book-the one that he always asked-and he had no answer to it. I was amazed.

David Taylor: The right hon. Gentleman is posing a false choice. He is suggesting that the only way of starting to bridge the growing gap is either to cut expenditure or to increase taxes. I am sure he would acknowledge that one significant way of bridging the gap in the medium term would be returning banks to the private sector and regaining the money that we, the taxpayers, have had to invest to underpin them. I might regret that, but it is what the Government have said will happen. Does the right hon. Gentleman acknowledge that accelerating the process would provide a source of necessary income?

Mr. Redwood: I fear not. I have been probing the issue in questions, and I think that even the Government admit that a fair amount of the money that they have tipped into the banks they have lost.

I am the one Member of Parliament who has consistently said “Do not buy shares in these banks.” There were other ways of avoiding a catastrophe. I have always thought that we would lose all or most of the money that we were sinking into those shares, and that seems to be the view emerging from the Treasury. The Treasury decided to buy in at too high a price. As we now know, the market price is well below the price at which the Treasury bought in. If the Treasury decided to sell all those shares on the market any time soon, the price would be considerably lower again. I do not think that we are going to recover huge sums of money from the very foolish share-buying into which the Government have entered.

That is a one-off capital item. What we are talking about is a deficit running at 10, 12 or 14 per cent. of national income every year. We are talking about a massive gap between annual spending and annual income, and-even if the hon. Member for North-West Leicestershire (David Taylor) is right and I am wrong-a few one-off capital receipts would not suddenly transform that position. We would still have to deal with the structural deficit.
Some Labour Members may think that the way out of this is growth. Of course growth will narrow the deficit, but we need it to narrow the other half of the deficit, which may well be cyclical and may well be related to the tragic recession and the state of the economy. However, we cannot leave this deficit at 6 or 7 per cent. of national income, because we know that the last time the Government tried to do that, they had to go off and take special measures as a result of the IMF lending.

Whoever governs the country, in the next four years-in the next Parliament-hanging over British politics will be the Prime Minister’s question: how can the deficit be cured? Throughout the time in which they remain nominally in charge and continue to recommend to the House a piece of legislation telling us that we must control the deficit, those on the Treasury Bench are honour bound to come back with a better answer than they managed today to the simple question that I have asked. I have said “Fine: you want to get the deficit down by around £100 billion, excluding the cyclical recovery and the natural consequences of some growth. How do you propose that that should be done by this Government, or a future Government?” That is the dominant question in British politics, and it will rule all our lives-or the lives of those who are fortunate enough to be re-elected-in the years to come.

The second aspect of the Queen’s Speech that I wish to raise briefly is the issue of control of the banks. As Labour Members have said, one of the reasons our economy is in such a mess is that we made a bigger mess of regulating our banks than many other countries around the world, and we happened to have rather bigger banks. Indeed, one of the most egregious regulatory failures was the regulator’s decision to allow those massive banks to accumulate so many assets by merger and purchase. I was very much against the series of mergers that produced RBS, and I was also against the prominent public decision of the Government to back the Lloyds and HBOS merger, because it has led to Lloyds unnecessarily being sucked into this vortex of underperforming bank assets, state subsidy and semi-nationalisation.

It is the failure of the regulator in Britain that has made our financial and economic position so much more difficult than those of many other competitor countries around the world. I therefore asked the Chairman of the Treasury Committee, the right hon. Member for West Dunbartonshire (John McFall), to remind us of the findings of its very important report on why the banks in Britain went wrong. He gave us a very fair answer again today, when he said that, of course, the main problem was regulatory failure-the proper rules of prudence were not applied. By that, he meant all the rules that were always in place under previous Governments to control both the amount of cash a bank needed in case people turned up off the streets and wanted their money back and the amount of capital a bank had in case it lost lots of money on foolish investments and needed to pay the losses. That was always governed by very strict controls under the Conservatives-the deregulating Conservatives. We always had very firm controls on cash and capital. In our day, the banks were not allowed to gear and lend anything like the quantities of money they came to lend in recent years.

Keith Vaz: The right hon. Gentleman was a member of the last Government when BCCI-the Bank of Credit and Commerce International, which was the sixth largest private bank in the world-closed because of a lack of regulation. I think he may have been at the Department of Trade and Industry at the time. There then followed the Bingham report into why the bank failed and why it was not properly supervised. Lord Justice Bingham-as he then was-suggested that the supervision of banks should be taken away from the Bank of England, and, indeed, the Government, and placed in the hands of an independent regulator. It may be the case that the regulator has not been up to speed, but surely the right hon. Gentleman is not suggesting that regulation should be returned to the Bank of England.

Mr. Redwood: Yes, of course I am. The Bank of England occasionally made mistakes-it did so with BCCI and in two other cases that I can remember-but it never made systemic errors and it never made a mistake in respect of one of the major clearing banks that affects everybody in the country. What has happened on this most recent occasion was that mistakes were made with a whole series of banks-several of the mortgage banks, several of the large clearing banks, and some other financial institutions. The result was therefore a comprehensive disaster on a scale that, fortunately, we have never seen before.

To return to the line of argument I was previously pursuing, we need good regulation of cash and capital, but that is what we did not have. The Government have belatedly woken up to this, and now, at exactly the wrong point in the cycle, they are telling the broken banks that they need to have a lot more cash and capital. At the same time, however, they are telling those same banks that they need to lend more money. The Government have to make up their mind as they cannot do both: either they make the banks far more prudent immediately, in which case no further credit will be extended in addition to what is already out there in the economy and some of the existing credit will be withdrawn, or-this is my view-they say, “The current situation is so grave that now is not the time to strengthen cash and capital. As we know that no banks will go under and we the Government stand behind the most damaged banks anyway, that can be sorted out later. The priority must be to get money pumping through the economy again, so let’s delay strengthening the cash and capital until there are signs of greater activity in the economy.” If the Government want there to be any kind of economic recovery in this country on a faster and better basis than we are currently experiencing, my recommendation is that they need to sort out the banks, and also that they should not require them to do opposing things because at present the banks will listen to the regulator rather than the exhortation to lend and, if the regulator intervenes in the suggested way, all our constituents who run small businesses or need loans will face difficulties.

The Government also have the strange idea that the problem will go away if they can control all the remuneration of the highly paid people in the banking sector. I regret to have to tell them that it will not. First, the bankers in the private sector will be far too swift and clever for them; they will move offshore or find other ways of remunerating themselves-share-based rather than cash-based awards, perhaps, or deferred awards. Whatever might be necessary, there will be lots of people working very hard to try to solve that problem because these bankers like being highly paid. Secondly, even if it is possible to control the pay of all these bankers, that does not mean they will run a bank well or solve the cash and capital problems, or that the banks will suddenly come gloriously right, because they have been so badly regulated in the past and they are now so comprehensively broken.

I say this to the Government: by all means examine the issue of bankers’ remuneration as there are examples of excess, but the cases of excessive remuneration that I see lie in those banks that are state subsidised. If a bank decides to pay its staff lots of money because it is very profitable and trading very well, I have no philosophical problem with that. That might mean there is not enough competition in the market, in which case let us put in some more competition in order to try to lower the overall returns; but we should not start regulating the pay of the staff. It may be that there is a foolish private institution that decides to pay a few people too much money when it is not making a profit; it may or may not trade itself out of the difficulties, but as long as its private shareholders are paying the bill, again, I have no philosophical problem with that. I would have a problem, however, if that institution were then to expect a state subsidy because it had been paying its people too much, or if it were already in receipt of a state subsidy.
As the majority owner of RBS and the leading owner of Lloyds-HBOS, the Government should put in place a remuneration policy with which we can all live. I cannot live with those bankers getting megabucks when they are having to be subsidised by people in my constituency who are on very small incomes compared with their own. Why must they pay more tax to tip money into these state-subsidised banks so that these people can earn a lot of money for losing us, as those banks’ collective owners, so much? Surely the Government can put that right. It does not need an Act of Parliament; it will not be sorted out by the Bill in the Gracious Speech. What is required is a bit of management and courage from the Treasury Minister responsible; he should go to his new charges and say, “We need to change the remuneration structure. Until you’re profitable, we cannot accept this. We do not want dozens, or hundreds, of people paid more than the Prime Minister when the overall results are so dreadful. We cannot sell this to our constituents.”
Let me conclude. If we are serious about rebuilding Parliament, we need to learn from this disgraceful Queen’s Speech; we need to learn that we have insulted our guests and that we have done ourselves damage by not treating the Queen’s Speech seriously, by having it briefed out to the press in advance, and by then not creating a great debate to give it proper scrutiny. If we are serious about mending our economy, we need, first, to mend the banks. It is more important to deal with the problem of bank lending than it is to deal immediately with the inadequate amounts of cash and capital-assuming the Government stand behind those banks, as they clearly do. That is my recommendation for trying to deal with that part of the problem.

Above all, I wish to point out that British politics has changed dramatically today thanks to the idea of a Bill to control the deficit. We face years of work-out ahead in order to try to tackle this deficit. As yet, the Government are simply play-acting on this, and they owe us a reply to the very simple question: where is the £100 billion coming from?

The government further undermined the solmnity and importance of the occasion by brieifing that the Speech was just a bit of politics designed to snare the Tories. Some of the bills are a caricature of spin politics.

They propose a Bill to halve the public deficit in the years ahead! Why does a government need to legislate to control its own spending? All it needs to do to curb the deficit is to spend less. It can set out in its budget documents how it will curb the deficit.

They propose a billl to control the rewards of bankers. As they own two of the biggest banks, why don’t they simply put in a pay policy to those banks that reflects their views on bankers’ pay? Why legislate to control your own pay policies?

They propose to make cluster munitions illegal. As the government is the only body in the UK that could possibly buy cluster munitions, why not just announce they are never go to buy any again? I am pleased to report there are no cluster munitions in Wokingham shops,and no demand for them.

The government has made the whole spectacle a non event, by too much spin, too much ill thought out legislation, and too much crude politics.

PQs worked for several reasons. MPs had privileged access to information through them. On behalf of the public they could find out things that others were unable to. The assumption was that if the government knew the answer it had to supply it to an MP unless it compromised national security, commercial confidentiality or was a sensitive matter about an individual. The answer was published in Hansard. The press and media regularly read Hansard answers, often finding good stories from the MPs’ detective work.

The Freedom of Information legislation effectively removed the privileged access for PQs. Anyone can now ask a good question of the government, and have an equal ticket in the lottery for an answer. All will encounter delay and reluctance to part with information, especially MPs with a reputation for asking good or embarrassing questions. A member of the public may draw a better lottery ticket than an MP when trying to get to the bottom of an issue. It may suit the government to let them know rather than the MP, as their answer does not have to be published in Hansard and they may less access to the media than an MP.

Some time ago I highlighted here the large sum of money we gave via the Financial Compensation scheme to Santander to take the retail deposits of Bradford and Bignley. No-one would run this story in the media, as the spin had told them something different.
Recently I revisited this issue, and asked the Treasury

“Whether any public money was provided to Santander in respect of Bradford and Bingley’s deposit liabilities” .
The answer admitted they did make payments, but as always it refused to give away the crucial details:

” Details of the financial support provided to banks in 2008-9, including the amounts involved in the transfer of Bradford and Bignley’s retail deposits to Abbey, are set out in the Treasury’s Resource Accounts for 2008-9″

Notice they not only decline to provide the true answer on the Hansard record, for fear no doubt of it being reported, but they also change Santander to Abbey, presumably because Abbey is a British bank. They do not wish to acknowledge that we financed a very handy large cash injection to a large Spanish banking group at the same time as nationalising a couple of our other banks.

I asked about the highly charged issue of bonuses to bankers in banks subsidised by taxpayers. I asked particularly “How much has been allocated for the payment of bonuses to staff by banks and financial institutions in receipt of public money in a) 2008-9 and b) 2009-10?”

You would have thought they both knew and could answer at least with respect to the year completed six months ago. Instead I was told

“The banks in which the government is a shareholder are managed on an arms length commercial basis by the UKFI…..(followed by guff about eventual publication of details)”

Once again the government had absolutely no intention of answering a straightforward question of great public interest about an issue they are currently proposing to legislate on!

There was a similar refusal to give any figures in a question about the true level of the public sector debt, a refusal to provide any information about the bad debt figures for RBS and the due diligence findings, and a refusal to provide a timetable for the sale of Northern Rock which has been trailed in the media.

I asked why the government plans to buy more shares in Lloyds. This was the pathetic non answer:

“As a shareholder, the government has the option to take up part of the newly issued equity. (of course – it is a rights issue). If we did not do so, the value of the existing taxpayer shareholding would be diminished (if they did not do so their rights would be sold in nil paid form to someone else, and the taxpayer would receive a payment). To protect the value of our shares, we have therefore decided to take up our share of this new capital investing £5.7billion net of underwriting fee” (In other words hasn’t a clue why they are buying more shares)

They have killed the written Parliamentary Question.

The inflation came from a wide range of items. Transport and fuels led the pack. Second hand car prices shot up. Air fares, DVDs, computer and other games and telephone charges all rose. So too did meat, vegetables, bread and cereals. It feels as if it is getting dearer out there, and it is. The public sector is still increasing its fees and charges. More rail fare increases are on the way. Commodity prices have been rising rapidly, and that will feed through, especially if the pound weakens again.

The Bank may want a little bit of inflation, and the government may want even more. They should be careful lest their wishes come true on a scale that embarrasses them both. It looks as if we are in for nasty rise in price increases across the turn of the year. That will come as no surprise to readers of this blog, or to students of the very lax monetary policy they have been following for months now.

So how did they do it? One good example is the Council newsletter. They inherited a forthnightly glossy magazine which cost £400,000 a year to taxpayers. They now have a fortnightly newspaper which costs taxpayers zero. They cut the costs of printing and production, and took in advertising to provide some revenue. No worse service. Big saving.

They cut the debt by £20 million, saving £1.7m a year in debt interest payments. They put £90 million of work out to tender to cut costs and improve efficiency. They have cut the number of people needed to deliver H and F Direct from 227 to 149. They are already saving £10 million on their IT budget through a new approach with their partner business, and aim to save more than the same again.

In dozens of individual areas they are showing you can do more for less. What they have been doing in tjhe last three years, many more parts of the public sector have to do in the next couple of years. The good news is you don’t have to undermine schools or damage care for the elderly to bring in big savings.

Stop press: Further Council Tax cut planned for next year, fourth in a row.

Last week’s contest saw one team from Luckley Oakfield propose the motion, “This House would use the law to reduce the pay of British bankers”, which was opposed by Bearwood College. St. Crispin’s proposed the motion “This House would use the law to reduce the pay of British footballers”, which was opposed by a second team from Luckley Oakfield.

At the end of the contest the two teams with the highest scores were one of the teams from Luckley Oakfield, made up of Helena Thompson and Lucy Hammond, and the team from St. Crispin’s, made up of Laura Webber and Carrie Matthieson. Both teams will now go through to the final at the end of November, where they will compete for the John Redwood Cup for debating. The winning school will receive a projector from 3M for their school, and both teams will be invited to lunch at the House of Commons and a chance to watch Prime Minister’s Questions with Wokingham MP John Redwood next spring.

John Redwood chaired the proceedings at the semi-final, and said: “Once again the standard of debating was really high. I was particularly impressed by the debate on footballers’ pay. Both the teams had really done their research and put forward some impressive arguments. The judges told me it was very close and difficult to pick two winners”.

The motion to be debated in the final round will be “This House believes that anyone who wants to come and live in the UK should be allowed to do so”. St. Crispin’s will propose the motion and Luckley Oakfield will oppose it.

There will also be a short prize giving ceremony after the final debate where all the pupils that took part in the contest will receive certificates commemorating their participation in the tournament.

The evening will start at 7pm in Wokingham Town Hall on Friday the 27th November. Attendance is open to all, and we would strongly encourage you to come along and support the local schools.

For more information please contact Carl Thomson on 020 7219 4205

I have a message for Labour. How the Conservatives vote on each of these proposals is not going to make much difference to the opinion polls. Nor will it make any difference to the legislation, given the large majority Labour enjoys. Conservatives might as well oppose the Bills, as that is what an Opposition is for. They can do so with impunity, on the grounds that these are not serious measures, but just crude examples of party politics.

I’m old fashioned enough to think that a Queen’s speech should be for a government to announce new legislation it thinks is needed in the public interest. Sensible governments legislate only when necessary, and only when they think the legislation will make our lives better. I also think it was better when we were not told what was in the Queen’s speech before it was delivered. I now have to write my response to the Queen’s speech two days before I can hear it and debate it in Parliament. Once again Parliament is marginalised.

Let’s take the headline Bill, the one to give the Regulators powers to retrospectively remove bankers’ bonuses. Any politician facing a close election will be tempted to support, given the low public esteem towards bankers. Yet this Bill is just another political stunt.

The regulators we are told, armed with this power, will be able to stop excessive risk taking. They can already stop excessive risk taking if they can identify it. The problem in the last cycle was not lack of powers, but lack of ability to see that too many risks were being run. The modern regulator can order a bank to raise more capital or to lend less, through the controls it operates on cash and capital. It can also limit or ban certain products if they are thought to be unduly risky. My main argument against this latest Bill is I do not think it will work.

Many of us do find excessive bonus payments unacceptable. If the bank paying big bonuses is already in receipt of taxpayer subsidy, we say there should be no such bonuses for the higher paid. You do not need an Act of Parliament to stop such bonuses. Taxpayers own these banks, so as owners we can put in an appropriate remuneration policy. What’s stopping the government from doing this? Why does it do the opposite, and offer huge bonuses to executives in loss making banks?

If a bank reaches the point where it needs taxpayer support, owing to poor management and weak regulation, then at that point the government can insist on bonus cancellation as part of the deal to support the bank. Why didn’t they do this when they moved against RBS and Lloyds?

If a bank is able to pay high bonuses because it is very successful, or because its shareholders are happy to subsidise pay for their own reasons and the bank is not going to need taxpayer support, there is no need to intervene. As a general rule the high bonuses of the past have only been possible because there is too little bank competition, so the sooner the authorities get on and create some more competition the better. That will solve the problem.

1. Giving away so much power to the EU.
2. Failing to honour his promise to give us a vote on Lisbon.
3. Selling large quantities of our gold at the bottom of the market to buy Euros
4. Running up the largest ever public debt
5. Nationalising two banks and losing us a fortune in them
6. Requiring our troops to fight a war in Afghanistan without a proper political strategy
7. Undermining our Parliament by stifling proper questioning and debate
8. Lurching from boom to bust to attempted boom in his money policy
9. Blocking reform of our schools and hospitals
10. Failing to control our borders

Don’t get me wrong. All the Conservatives I meet would love an election in three weeks time. All are impatient for change. They want an end to the present government and the present Parliament, which has failed us. Most members think the Conseravtives are likely to form the next government, either with an overall majority or because the Conservatives are the largest party. If it is a hung Parliament many will want David Cameron to become PM leading a minority administration, taking each vote as it comes with the other parties until they decide to force an election by defeating the government. The mood is not sombre because they fear another bad defeat. The mood is sombre because they think we might well win.

I can best describe the feelings by analogy. It is as if we, the parents, had returned from a tour of duty abroad to find that the 18 year old twins we had left in the UK home had wrecked the place. As we get back we discover that the carpets and decorations have been trashed by too many all night parties. The power no longer works properly, the electrics are damaged, the plumbing is blocked and the cooker is so dirty you would need a day to clean it before you could cook. Worse still we discover they have run up an enormous phone bill ringing friends in far away places for long chats, they have used our credit for the biggest off licence bills and take away bills you have ever seen. The credit cards have been well and truly flexed. We have to come home to work to pay off the debts, run up in our name but not with our authority. They are at war with the neighbours and the place is in disrepair.

That’s how we feel about the inheritance any new government will receive. So many fine British institutions have been damaged or run down by this government. We need reform in the schools and in the hospitals, on the roads and the railways, in the Post Offices and in the quangos, at the BBC and in the EU. The debts are on an unbelievable scale. We are now borrowing £1 for every £4 we spend. The state owns two massive banks and has done precious little to get them into shape or to cut their losses.We have inflation rising against a backdrop of the biggest fall in activity since the 1930s.

Conservatives are sombre because of the possible task ahead. They realise it might be time for the public to want us to serve again in government. They know it is going to be far from easy or comfortable to do so. Only a fool would welcome the challenge ahead. Only a democrat truly dedicated to public service would take it on.

On Friday a Shadow Minister came to a Conservative lunch for the Wokingham constituency. After his speech members closely questioned him on the EU, climate change, the Afghan war, the BBC and open primaries. The questions revealed a wish for reassurance. Members wanted to know that the new Conservative EU policy will include a strong pursuit of powers back from Brussels and a move towards greater self government. They wanted to know there is a better strategic view of the length and purpose of the Afghan war than the present government seems to have, with the emphasis on the wish to cut back on the fighting by British troops. They wanted to be told that a Conservative government would not cynically use climate change theory to put taxes up. They favour strong action to cut or remove the licence fee from the BBC. They were worried that open primaries will produce the wrong candidates and weaken local control. In other words, they were beginning to act as a party close to power, offering criticial comment on the tasks ahead. They offered supportive criticism to ensure their representatives understand the needs and the mood.

In the private sector many companies are cutting earnings, and in some cases cutting pay. Employees and managers have reached agreement that they would like to keep more jobs, and accept shorter hours or worse remuneration to do so. In competitive businesses, especially in cut throat manufacturing where the Chinese and other overseas competition is most intense, there is no choice but to cut costs. The UK is showing a new and necessary flexibility in the labour market. Sensible companies that have to cut employment costs do so fairly, making management shoulder their share of the pain as well as factory workers. Executive numbers are being slimmed and executives asked to accept less pay or no bonus, just as the shop floor is going through lean times.

The conduct of parts of the public sector is atogether different. Where the private sector is controlling cost, the public sector is adding it. Where the private sector reaches difficult agreements without strikes, the public sector is strike prone. Where most in a private company see the need to be reasonable to survive, some in the public sector go on expanding cost as if there is no problem.

Some in the public sector get it. We can cut the costs of running our offices and our services. In recent days I met the Leader of Windsor Unitary Council, who will be cutting their Council Tax next year. Another local Council has embarked on a cost reduction programme amongst the high level executive jobs that have built up over the years. Looking at the BBC’s long list of highly paid executives, there seemed to be plenty of scope to do something similar there to reduce the burden on the licence payer – and that list of highly paid jobs was far from comprehensive.

Public sector managers who are not starting on cost reduction and efficiency programmes are irresponsible. The day of reckoning cannot be that far away, given the huge sums that are being borrowed. If we are to avoid high interest rates and other signs of financial distress, we need to take prompt action to control costs. If the public sector would just match the performance of the private sector in keeping earnings and wage growth down, we will be able to keep more jobs and services.

Yesterday when I wrote about possible futures or the world economy many of you wrote back about the UK economy. I did not mention it specifically in my review, as it is an extreme case of an economy borrowing too much. You cannot solve a crisis brought on by borrowing too much by borrowing more. The UK’s experience is likely to be disappointing compared to the world average when it comes to inflation, output and efficiency in the months ahead, because the UK is pursuing extreme short term policies which leave it at risk. One day markets are likely to have their revenge, as they did in lesser crises of over borrowing in the 1970s.

This week a constituent told me the best rate he was offered by a local bank for a business loan was 12.5%, when we are told interest rates are at bargain basement levels. It’s a case of one low interest rate for the government, and high rates or no money for everyone else. The Bank regulator is demanding they lend less and hold more cash and capital at the same time as the government claims to want the banks to lend more to struggling business.

Lloyds and RBS should be made to sell businesses and assets to raise the money they need. I would like to see half a dozen new banks on the High Street offering us choice and better service, to replace the nationalised duo. The regulator should not tighten his requirements now, but leave that until the recovery is underway.

The UK has the largest budget deficit of any major country. It certainly hasn’t lifted us out of recession in the way we were told it would. Just as subsidising the banks is holding us back, so spending and borrowing too much in the public sector is starving the private sector of cash. That too is now holding us back. It threatens us with worse problems. If the markets lose confidence because the government is spending and borrowing so much, we will face even higher interest rates and more disruption in the economy.

The government now accepts that sometime it has to start bringing spending and borrowing under control. The public debt on official figures is doubling in a two year period. The state is borrowing one pound for every four pounds it is spending. They should start right away. If you need to control your debt, it is not a good idea to go on one more spending binge before you try to sort it out.

It’s not as difficult as some politicians and public bodies seem to think. I was talking to companies who deliver public services for some branches of government already. They reckon many things could be done for a fifth less without damaging the quality. I embarked last year on a programme to cut my Parliamentary office and personal costs by 10% a year in both 2008-9 and 2009-10. The latest unaudited figures from the Commons show I am well ahead of my target cuts. Transferring the newsletter from printed copy to the web for the next edition is the only visible sign of change in service people will see. I started as the 19th cheapest MP in the table, but realised it can be done for less.

Across the public sector we need to do more for less where the service is important, and less for less where it is not.

I am now planning my talk. The idea appears to be based on scenario planning. We all accept that single forecasts of the future are prone to error. Instead we set out a range of possible outcomes, and then try to ascribe a probability to each. Here are four to try for size.

Scenario One: “We all live happily ever after”. This is the best case of the authorities. In it the US and the UK are miraculously transformed into nations of savers and exporters, whilst the Chinese, Germans and Japanese develop a passion for consuming and importing. The US and UK withdraw their monetary stimulus in perfect time, leaving quantitative easing behind them and then putting up interest rates sufficiently to prevent inflation but not so high that they choke off recovery. The benign forces of globalisation and digital technology resume their reign. The world grows again in a sustainable way. No, that was not a pig flying. We could be living through an extreme version of a normal boom/bust/boom cycle.

Scenario Two:” One bubble more”. As investors pile into gold and index linked securities, this is a popular view. In it the monetary excess evident today in China and India as well as in the US and UK spills over from asset prices and commodities into shop prices and wages. We have another flurry of fun, before the whole edifice comes crashing down again when the authorities lurch back to tight money and puritan attitudes to debt and spending.
Yet broken western banks currently are not able to pass on the high powered money to private sector lenders. Private sector wages are under tight control on both sides of the Atlantic. The probability of this happening in short order seems low.

Scenario Three “The US and the UK are the new Japans”. There are still gloomsters about arguing that we are in for a long period of deflation. After 1990 Japan had an industry of broken banks. It took them years to sort them out. The government attempted money printing and huge fiscal deficits, but nothing made much difference to no growth or low growth. No amount of quantitative easing could lift the price level. Persistent zero interest rates failed to solve the banking and credit crunch. Could the US and the UK find the same happened to them? After all they have had a similar over extended property boom, a similar collapse in banking credit, and are now following similar monetary policies? I suspect not. The Anglo Saxons do not have the same ageing population and the same drive to save as the Japanese. They are better at inflation.

Scenario Four “Markets force adjustments”. The remorseless rise of Asia, led by China continues. The Anglo Saxon economies find there are limits to how much they print and borrow. They enter a period of painful adjustment, with higher interest rates than they would like as they seek to sell their debt. They grow more slowly than their old trends, and are forced to divert more money from private and public spending into exporting and debt service. The world grows, but at a slower pace than prior to 2007. There are occasional country crises, marked by currency and or banking collapses.

I would be interested to hear how you see the future. If you have a better scenario than one of these, then I will borrow it.

They argue that inflation will the subside again later in 2010, and will tend to be around the 2% target thereafter. Let’s hope that’s right. This forecast assumes no more quantitative easing after the £200 billion, and no further major devaluation in the pound. The Bank reminds its readers that market rates imply Bank rate will rise to 1.1% by Q3 2010, to 1.6% by Q4, and to 3.2% by Q4 2011. It may need to go up by more than that if the forecast of a stable pound is to be met.

The Bank is less sure of foot when it comes to the deficit. The Governor in his oral remarks implied that excessive borrowing had to continue in order to sustain the public sector part of demand. His report says that the debt ratio will need to be stabilised. In a masterly understatement they say this “will require some combination of a reduction in government spending and a rise in taxation as a share of GDP.”! Stabilising the ratio means not letting the proportion of debt to our national income rise any more. That would require spending cuts and or tax increases on a scale none of us have ever seen. For my part I cannot see why they should imagine any tax increases would help. The UK is not undertaxed. It is overspending. Higher taxes on individual and company income could make the position worse, driving away business and enterprise. We need more private sector jobs, demand and investment, not less.

Latest wage pressures show the public sector problem. The private sector has decided on job sharing and lower wages as a response to the recession. The public sector continues to push up wages unaffected by the downturn. As a result public sector pay is rising by almost three times as much as private sector. The public sector has to do more for less in the core services, and less for a lot less in the marginal areas. The longer the UK delays making the adjustment to the deficit the more painful it will be and the greater the burden of debt interest we will face. The Governor is irresponsible to suggest recovery needs the current profligacy. Countries that are recovering more rapidly than the UK have lower deficits. Too high a deficit will adversely affect confidence and lead to substantial financing problems in the future. Curbing the deficit will aid recovery. Failing to do so could lead to another crisis.

So what are the main options the President must be weighing?

1. Major reinforcement, to pursue the old strategy of fighting to win and control more territory. This would need many more troops, and the commitment to long term garrisons in many places to seek to prevent the insurgency gaining numbers and ground. This is unlikely. Even the military hawks are now talking about concentrating the win and hold strategy on a limited number of strategic cities.

2. The surge, as sought by the General. 40,000 extra troops would be sent to seek to kill more insurgents and impress people with the force of the commitment, whilst the civilian power uses the breathing space to intensify its training and deployment of its own forces to take over. This now seems less likely, given the briefing coming from sources close to the Oval Office.

3. Steady state, allied to moving more of the current roops deployed into safer bases, and using them more for training the Afghan army and police, and for support operations when needed. This also seems unlikely, as people would ask where was the new thinking and the greater clarity over the mission which many are now seeking.

4. An explicit change of policy, stepping up training of the Afghans and announcing a timetable for withdrawal of most allied troops. The idea that the allies were fighting a war would be replaced by the allies seeking to support the Afghan government who would make their own choices about how to handle the insurgency.

5. A change of policy towards many new political initiatives. The aim would be to see if there is a series of political deals over development, security and local government which could be done in order to allow a reduction in foreign troop numbers and their role.

6. A decision to withdraw, saying that now Afghanistan has a new government they need to sort out what remains themselves. This is most unlikely to be attractive to the US.

A possible outcome is some increase in troop numbers but less than the 40,000, an increase in political and training activity, and some recognition that the commitment to Afghanistan will be time limited.