I wish David Cameron well at this Conference. It is an important one. It will be used by the Prime Minister to judge whether he dares hold an opportunistic snap election, by former Conservative voters to see if they are ready to vote again for the Conservatives, and by floating voters to see if they like the new Conservative team and message. The polls are moving around rapidly. They also reveal that all the three main political parties are still very unpopular, with milllions of people unlikely to vote for anyone,and with many thinking of voting for parties that have no chance of returning a single MP.

He has the policies, set out in the Policy reviews. Many of them are good, and many of them complement each other. Iain Duncan Smith’s work on our broken society, Peter Lilley’s on tackling global poverty, the Economic Policy Review on creating a more prosperous Britain, and the Stephen Dorrell proposals on reforming public services mesh well with each other. I have commented in a previous blog on how best to be green. David’s task is to endorse the best of each and give prominence to the ideas that capture the essence of what we are about in each case.

To tackle a broken society Conservatives believe much more has to be done by social entrepreneurs. The family needs to be strengthened and given a more important role.

To tackle world poverty, we need to seek better ways of spending the large sums of aid sent by the EU and the UK, and to place more emphasis on enterprise and self help, backed by much freer trade globally.

To create more and better paid jobs at home we need to free Britiain to compete. We need lower taxes, fewer regulations, better transport and much better value for money from government.

To create more successful schools and hospitals we need to dismantle bureaucratic empires at the naitional and regional level, trusting local managers and professionals more and sending them more of the money. We should give the service users much more choice, which will drive higher quality.

David needs to explain how the problems have changed since the 1980s - then it was poor phones, energy and transport companies in the nationalised sector, and dreadful labour relations. Privatisaiton and trade Union reform were the answers which Labour has largely accepted. The external threat was communism, which the Reagan/Thatcher axis stood up to forcing reform from within the evil empire.Today it is the broken society, and the UK falling further behind the successful Anglosphere economies.
The external problems are terrorism and world poverty, where poverty is created or exacerbated by evil regimes like that in Zimbabwe.

He needs to show how Conservative values of greater freedom, less government interference, but passionate commitment to use state power where it can have an effect and where it can make a difference is what drives Conservatives. There are plenty of problems to tackle, as the policy reviews reveal. The nation does want a change, but it needs to be assured that the Conservatives are the right one.

By the late 1990s it was becoming clear to all but Labour spin doctors that the Conservative party was the most united party on Europe, united around saying more than enough power had already been transferred and we should oppose all federalist plans. We signed up to opposing the Euro, opposing a European army, opposing a common foreign policy, and against a common criminal justice policy. We sought the repatriation of policies like fishing that had gone so badly, and united in Parliament to vote against both the Nice and Amsterdam Treaties.

I felt happy that the party had united around a Eurosceptic position, and thought we could at last put behind ourselves any label that we were split. We could sit back and watch the obvious huge rows of the Blair/Brown years, as Labour knocked lumps out of themselves by being Blairites or Brownies.

I was very suprised to be told one morning that a new Tory split had apparently opened up, between Mods and Rockers, and even more surprised to learn that in the first cut I had been placed with the Rockers. This bore no relationship to any reality I knew. There were no Rocker dining clubs, no Mod lapel stickers. Most of my Parliamentary colleagues whom I asked hadn’t a clue which they were or how you defined the difference. I was certainly not about to go about and buy my leathers and a Harley. It seemed to me to be pure michief making, to keep alive the notion that the Tory party was divided.

Someone has stuck at trying to make this division credible. Even today I hear of stories that the modernisers are not going to give ground to the traditionalists - yesterday I read that the modernisers wanted to move towards the traditionalists. It still does not reflect the reality of the modern Conservative party.

I am both a moderniser and a traditionalist, and so are all sensible Conservatives. Like the bride, we think it is best to combine something old and something new, something borrowed and something blue. Yes even something borrowed in the post sub-prime world, there’s inclusiveness for you.

I am glad we have a leader (voted for by more than two thrids of the party) who wants us to join in modern debates about green issues and third world poverty. We need to respond to the agenda of the day. I am glad he wants to use the latest methods of communicating, presenting ourselves and campaigning. We need to move with the times.

I am also glad we maintain our beleif in some eternal values that will always be Conservative. We are the party of lower taxation, and of more freedom. We are the party that believes the state should do less and do it better, and that people and communities can and should do more for themselves with appropriate state help or encouragement where needed. Above all we are the party of a democractic Britain, who would give people a referendum on the EU Constitution - and give English people Enbglish votes on English issues in Parliament.

Burma is an extreme version of a thug state, where those in power control far too many aspects of people’s lives and seek to strangle all opposition to their evil rule. They are prepared to gun down their own citizens just because they want to protest peacefully on the streets against their government. They combine protecting their own privileges with incompetence when it comes to maintaining or raising the living standards of their fellow citizens. It is good that all parties and people in UK politics can combine in condemning such a regime.

Unfortunately there are occasions when the urge to do down legitimate opposition or overuse state power can also afflict more civilised countries with democratic governments. This UK government has gone further than its predecessors in limiting free speech through political correctness, in using anti terror laws to take away the freedoms of people it does not charge with any criminal offence,and in restricting protests near Parliament and government offices. Too many people die in custody in the UK, where the UK government fought to exempt itself from anti corporate manslaughter provisions. Some Ministers and government supporters voted for a plan to exempt Parliament from freedom of information laws.

The EU is even worse when it comes to dealing with legitimate opposition. I remember one occasion arriving by car for a Council of Ministers meeting in Brusssels. I was not taken by the usual route to the usual door, because I was told there was a protest on the streets against the Common Agriculture Policy. I immediately felt sympathy with the protesters and asked if I could be taken to the front door to meet them and hear their grievances for myself. I was told this was impossible, and saw the way they had barricaded the streets. The EU governing class treated these protesters as if they were an enemy laying siege to the city, rather than as taxpayers paying for all this EU government who might have a legitimate criticism or two. No amount of persuasion gave me as Minister power to overrule and get to the front door.It was one of the defining moments which reinforced my dislike of the way the EU does its business, and ignores public opinion.

Contrast that with what I was able to do in the UK. One day as a Minister I was told there were protesters against the Common Fisheries Policy who had chosen to waylay me on a journey in Wales. I was advised to go by a different route. I said I would go by the agreed route, and would stop to talk to the protesters. I did so, despite some official misgivings about the wisdom of this course of action. I told them to park the car away from the protesters and I walked over to meet them. It was the right thing to do, and as it turned out I entirely agreed with the protesters and they were pleased I took the trouble to listen. The protesters behaved peacefully and had a justified grievance. My frustration was with the EU for having such a bad policy.

One of the things we could do in the west as a beacon for the protesters in Burma is to strengthen the rights of all our citizens to undertake peaceful protest and to challenge the assumptions of those in power, throughout the EU.

I was delighted to see confirmation today that David Cameron will not be running with the idea that people should have to pay a tax to go to the supermarket car park, and has dropped the proposal to tax people for flying to a holiday destination. I am amongst those who have lobbied against both these ideas, and am pleased to see commonsense prevail. The flights tax was only ever a proposal for consultation, and I hear the consultation replies were heavily against.

Most of us want to be green, but we do not want greenery to become a new way of taxing us more or making our lives impossible. If we had to pay to park at the supermarket, we would be living in fear of delays at the checkout as our car park ticket ran out. It would be shopping under more pressure, worrying lest our car had been clamped because the shopper in front of us had more in the trolley than we reckoned, or the check out employee changed over before taking our cash. London has become a nightmare already of complex and varied rules governing on street car parking that requires a degree in applied regualtion to understand when and where you are allowed to park. The rest of the country wishes to be spared that intense hassle.

I find many of the people I talk to want to be green They are practical greens. We want:
1. Good recycling services that are easy to use
2. More fuel efficient vehicles
3. Better home insulation and more efficient boilers
4. More fuel efficient lighting
5. Better public transport so that it is more of an option for more of our journeys
6. Fewer new migrants coming to the UK putting pressure on greenfields and transport facilities
7. Better protection of local green gaps between settlements and beautiful countryside from developers
8. Better managed roads so there are fewer traffic jams causing pollution

We also prefer encouragement to being taxed and bossed around. The most successful green policy in the UK I can remember was the ending of lead in petrol. A simple tax incentive persauded most people to switch to unleaded without a problem, allowing the eventual abolition of leaded fuel. Why not more tax breaks for green conduct to make it easier for people to acquire more fuel efficient vehicles and appliances?

We are told that there is a battle between grey beards (against an early election) and young turks (in favour).
Grey beards have settled for holding senior positions in Gordon Brown’s government. They made their decision last time not to stand for the leadership and are reconciled to never being Prime Minister themselves. Some of the young Turks harbour ambitions. It is in their interest to have an early election, as it speeds the day when Gordon Brown will stand down.

If they think Gordon can win one election from here, he gets a maximum of five years from an early election. If he waits until 2010, he would get 7 and a half years if he won. There is always the added chance that he could lose the election which speeds things up for the young and impatient.

From Gordon Brown’s point of view there is a case to go long. He probably believes that he can improve things in the UK compared to Mr Blair. He needs time to show that. Why fight more elections than you need to? Being Prime Minister for almost eight years might appeal to him - he can do that with one election victory if he delays the election and wins. Being Prime Minister for a few months would be a collosal failure.

The spinners and briefers are not helping him. We have heard:

Position One: (on taking office) No need for an early election. John Major did not hold one in similar circumstances, and went on to win.
Position Two: (Brown bounce) Gordon may announce early election in his Conference speech in September, forcing Conservatives to cancel their conference.
Position Three (Brown bounce tails off) They plan Conference speech with no mention of election.
Position Four (Brown bounce reappears) They spin that Gordon Brown could announce early general election on the day of David Cameron’s speech to Conservatives.
Position Five (Labour conference) They spin that Gordon Brown will tell Parliament as soon as it reconvenes there will be an early election.
Position Six (today, after poor local Council by election results for Labour) They say that Gordon Brown will examine polling with his advisers this week-end and make a decision.

They should be careful lest they make their Prime Minister look too opportunistic if he calls an election and too indecisive if he doesn’t. If he appears opportunistic any poll lead could evaporate quickly in the campaign, as people question why we need an election at all and suspicions build that he is rushing it to avoid bad news coming out. He will also remember that the polling in Scotland is poor, and some of his leading MPs are at risk there. The Prime Minister has to make his own decision on this, and would be advised to tell the briefers and spinners to keep quiet until they know what he wants to do.

It’s great to see the people take to the streets in Burma to try to sweep away a repressive and incompetent regime. It’s great to learn that the mobile phone and the internet allows the rest of us to hear and see their protest, motivating more of our own governments to try to increase the international pressure on the military tyranny.

Even the UN woke up and tried to broker an agreement between Security Council members to pressurise the Burmese executive.
The UN also revealed, once again, how difficult it is to use that body to get concerted and effective action to defend the right of people to free speech and democratic self government, when some of the most powerful countries of the world still do not have that themselves, or do not believe in it sufficiently. Let’s hope that this time the people can break through. If they do, it will be a triumph for people power and a victory thanks to their bravery.

It is also leads me to ask why is there such a crushing international silence on the outrages in Zimbabwe? Is it because a defeated and damaged people cannot get onto the streets in sufficient numbers for the western media to have good pictures? Is that what it takes to get western governments these days active and concerned about such flagrant abuses of human rights?

We learn this week that Mugabe is going to nationalise all foreign owned companies in his country, by forcing them to sell 51% of their businesses, under the pressure of not being able to trade if they refuse. Mugabe and his cronies will be able to decide what if anything they pay for the shares.

The main losers from all this will once again be the overwhelming majority of the Zimbabwean people who are not Mugabe’s cronies. Large multinationals have relatively small investments in Zimbabwe and will be able to write these off if they haven’t already done so. The evil regime has hoisted a large notice over the prison doors to their country “Do not invest here. Do not create jobs here. Do not buy and sell here”. Will someone in western governments please do something? Will the UN wake up from its slumbers and show it has the diplomatic skills to mobilise the international community against this evil?

One of the ways I try to cut my fuel bills - or reduce my carbon footprint as we have been taught to say- is to delay putting the heating on in the autumn. I usually go well into October without touching the switch, but this year September is so cold I gave in and put it on today. I have been wearing out my warm clothes in the last few weeks working from home, because we have had such a cold and wet August and now a chilly September.
It was a shrewd move by the powers that be to rebrand “global warming” as “climate change”.

We might have expected some vim and vigour concerning the war against terror being fought in Iraq and Afghanistan by British forces, but that was sadly lacking yesterday.He gave us no sensible account of what has been achieved by the presence of our troops, why they are still fighting in Afghanistan and at risk in Iraq, what victory might look like and how long the mission may continue. He told us there could be no military solution but failed to explain how diplomacy was now going to succeed where presumably it has not so far.

More predictably, he refused to countenance a referendum on the EU on the basis that the EU had split the last government and was not going to split this one! Once again we see the government playing low politics with the big issue of how much power we give away to Brussels.
I don’t remember the last Conservative government being damaged by the Euroscepticism of some of its members. I do remember the government and the nation being damaged by being too European, participating in a currency scheme that did a lot of damage - one recommended by Mr Brown and by the Lib Dems.

Reading today’s press which is none too flattering about Mr Miliband. I would suggest to him he minds his back. The best way of doing that would be to take the nation more seriously, and give us a stronger analysis of where Britain’s interests lie and what our troops are being asked to do.

With no sense of irony or timing Ed Balls pops up today to announce an independent Regulator to assure high quality exam standards, modelled on the ever popular and successful independent Bank of England.

Is that the same independent Bank of England who today makes

One of the Conservatives more memorable lines from 2005 has now been answered. The answer is “very” for some NHS hospitals.

Today we will learn that the problem is so worrying the government willl spend more of our money on a new regulator to supervise hospital cleanliness, and on a deep clean for every NHS hospital in the land.

Once again we have top down solutions imposed from outside a large organisation that are unlikely to work.

The Regulator is unlikely to improve hospital staff morale and motivation, will issue countless bits of guidance on how to wield the mop, and encourage a box ticking mentality. Doubtless hospitals will appoint Cleanliness compliance officers to talk to the Regulator’s officials. It will all get dearer and more complicated but not better.

A single deep clean may help a little, but it does not tackle the day by day attention to detail needed to create a bug free environment. It also leaves open the question what are we paying the in house cleaners and the contract cleaners for at the moment, if there needs to be additional super cleans from time time time? Have they set the wrong standards for the current contracts? If so, why not amend them?

Cleaning buildings more may not be enough - it may require a different approach from all people entering a hospital.

People have lost faith in politics because there is such a gap between what the government says and what it does.

When the floods hit my constitutency (and many others) this summer I complained about the lack of action from the Environment Agency. They spend over

I cannot believe what suckers for crude spin so many in the media are.

Gordon Brown delivers a dull speech with many references to Britain and our island story - spin.
Gordon Brown backs a further large transfer of power to the EU - reality.

Gordon Brown says he is going to restore faith in politicis by listening to people - spin.
Gordon Brown refuses a referendum on the constitution - reality.

Gordon Brown says he wants jobs and prosperity for all - spin.
Gordon Brown presides over an overtaxed and over regulated economy where 5.4 million adults of working age have no job - reality.

Gordon Brown claims to be the champion of manufacturing - spin.
Gordon Brown presides over the loss of 1 million manufacturing jolbs - reality.

That was no Conservative speech.
A Conservative speech would have:
promised a referendum on the EU constitution;
promised repatriation of powers, not a further give away;
promised the abolition of much hated regional government and many quangos;
talked about cutting back on the surveillance society;
offered tax reductions;
set out a programme for reducing unnecessary regulation;
and offered real reform of our public services.

No wonder people are fed up with Uk party politics.
Today the Labour conference is expected to approve the Leader’s decision that members of the Labour party should no longer be able to table and vote on “contemporary resolutions” - topical matters that concern them. His reason - the members will probably have a different view from his and he has no intention of changing his view!
This is consistent with the Prime Minister’s scorn for the views of the rest of us, which has led him to cancel the promise of a referendum made by his party solemnly to help them win the last election. The reason he has cancelled this is he fears his view - in favour of the Constitutional treaty - is opposed by a majority of the electorate.
A few weeks ago when he came to power without a vote being cast by anyone to make him Prime Minister he told us he wanted to restore trust in politics, and would take the views of people seriously! We now know what he meant - he takes the electorate’s views, and the views of members of his own party, so seriously that he intends to do the opposite on the important things, and deny us a vote.

It all proves that Gordon Brown hasn’t understood why so many people hate modern party politics. It is because people feel their views are ignored. They see politicians spending a fortune on polling and focus groups, saying just what these black arts tell them people want to hear, whilst carrying on doing things (or not doing things) that people dislike.

Just look at all the nonsensical spinning about whether there will be an early election or not. I am a sufficient constitutional traditionalist to defend the right of the UK Prime Minister to decide when to hold an election, but I do not like to see a Prime Minister spin and dither endlessly on the subject in a way which blacks out more important news.

We were told firmly by spinners at the beginning of the Brown regime there was no need to hold an election. He has a majority inherited from the last election and the last leader.
Then we were told he might hold an early autumn election after such a “good start” this summer. We now know this is not going to happen.
We were then told he would announce an election if he wanted one in his speech at Labour conference.
Today, the day of the speech, we are told the speech will not be about the election date!
We are also told there could still be a late autumn election, but we are not even told when we will be told!

It’s pathetic. It either shows a complete inability by the Prime Minister himself to make up his mind, with his spinners and minions at a loss to know how to deal with enquiries - or it shows a deliberate attempt to use the power to call an election to keep down the questions and headlines about foot and mouth disease, crime on the streets, the state of our troops in the Middle East, the credit squeeze and other features of contemporary life worthy of contemporary motions people could vote on.

Whatever happened to the idea of leadership? Leaders used to go to their party conferences to argue against members who held different views, to persuade the majority they were right. Those conferences were better attended and better reported, because they were more important and more interesting. Leaders have to learn that the different views do not go away if they ignore them and prevent them being expressed - instead the people go away, deciding parties are not worth joining and their conferences not worth attending.

The papers are full of the idea that the UK will have a General Election on 25th October 2007. For readers in the US and elsewhere, the UK Prime Minister can decide when to hold an election, as long as it happens within five years of the last one. The last general Election was 5th May 2005, so we could go for another 2 years 7 months before going to the polls. This Parliament is not yet at its half way point.

The newish Prime Minister would have to justify going this early to the polls on the grounds that he needs his own mandate. He would have to swallow his earlier words that there was no need for him to submit himself to an electoral test, but I guess this government has swallowed so many others that would not be too difficult. If the electorate do not buy this U-turn, he stands accused of opportunism and holding a needless election if he goes early.

Normally none of this would matter, as he could rightly say he is a democrat who wants to hear the voice of the British people. However, this is the man who refuses to grant the people a referendum on the major constitutional change planned in the latest EU Treaty, when his party promised such a referendum to get them through the last general Election on this tricky subject.

The Opposition has several advantages from an early election:

1. The Liberal Democrats are currently very low in the polls. Conservatives should make good gains at their expense, as in many parts of the country the battle is between Conservative and Lib Dem, not Conservative and Labour. There were 62 Lib Dem MPs at the last election. The Conservatives should aim to win at least 25 more seats from them in these conditions.

2. The boundary reviews that come into effect should give the Conservatives at least an extra 15 seats without any change in the voting patterns. Last time the Conservatives polled more votes in England than Labour but received 93 fewer MPs for their trouble!

3. In Scotland where Labour won 41 seats in 2005 to the Conservatives 1 and the Scottish Nationalists 6, the Labour polls are especially weak at the moment. Labour could lose badly in Scotland, where the SNP are currently well ahead of them in the polls. In 2005 Labour polled more than twice as many votes as the SNP in Scotland. They could lose a lot of seats north of the border.

4. In the Labour/Conservative marginals the polls are very volatile, sometimes showing the Conservatives likely easy winners of the 30 most marginal ones, sometimes showing Labour doing better.

5. The Conservatives have a unique selling proposition in an early election, offering a full referendum on the much hated EU Constitutional treaty. This should unite more of the Eurosceptic vote around the Conservative cause, squeezing the 2.38% that voted UKIP last time - a significant percentage in a close contest, but one which only earned UKIP 451 lost deposits and of course won them no MPs. This offer has more force in an early election beore the Treaty is ratified, and is important given the government’s broken promise on this very subject.

The press tells me today that the “new” government has handled a succession of crises well and this will help them in an election. That strikes me as odd.

The new government is coming over as a very unlucky government. We have had terrorist attacks, floods (in both the north of England and the south at different times) pestilence (two lots of foot and mouth and now blue tongue for cattle) and a run on a bank (for the first time in more than a century). Worse still, from the government’s point of view, it has not found lasting solutions to these problems:

1. Flooding - there has been no announcement of how in future the government will make a better fist of keeping drainage ditches, streams and conduits clear. There has been no big programme of public works put out to tender to ensure better capacity for dealing with future flooding. The Environment Agency did not do well in the run up to the last inundations.

2. Cattle disease. The government claimed it had handled the outbreak in Surrey brilliantly, and celebrated with spin the “ending” of the outbreak, returning things to normal just in time for a further cases to be identified. Now the Prime Minister is less in evidence as new controls are belatedly imposed. Meanwhile the government has had to acknowledge that the virus came from a government laboratory facility shared with one of its own contractors!

3. The run on a bank. The Chancellor has had to intervene with the so called “independent” Bank of England. In his search for someone or something to take the blame for the crisis he has decided to criticise the tripartite structure Gordon Brown set up for banking supervision when he first came into office. He will spend his next weeks trying to unpick his master’s work, without wanting to highlight the architect of this malfunctioning structure.

If this is all success, I am very glad we are not having to live with failures!

The latest national polls show a Labour lead over the Conservatives of around 6%. In 2005 the final polls showed Labour with a lead of 5-6% . The ballot result was a Labour lead of only 2.9%. Labour’s vote share of 35.2% in the election compared with several late polls putting it at around 38%. Voters are not very committed to any main party,are far more likely to switch and individual contests can now deviate from any so called national swing by large margins.

Some in Labour are urging an early election, because their latest polls apparently look good.

There are three reasons to go early. The first is they can claim they want the newish Prime Minister to gain his own mandate. The second is the polls might get worse the more people get to know him as Prime Minister. The third is we are now entering a tighter period on public spending which could upset more of Labour’s traditional voters who work in the public services.

There are several reasons not to go early. The electorate does not like unnecessary elections, and Labour has a strong majority until May 2010 if it wishes. The polls are fluctuating wildly, especially in the crucial marginals. Labour is in a very weak polling ppositon in Scotland, where a general Election would see them lose seats to the SNP. Big SNP advances at Westminster would mean a Parliament dominated by rows over the constitutional issue in a way which would weaken Labour, traditionally dependent on Scottish representation to a considerable extent. There is every reason for Labour to fear the polls could swing around a lot more in a rowdy election campaign.

Opposition parties could play up the “cut and run” election, asking what the Prime Minister knows is still hidden on the economy, financial system and elsewhere after the difficult events of recent weeks. Now we have the Chancellor himself telling us it is not good to have rising house prices the election could ask what is going to happen to people’s main asset in this new climate. Any election could not be held before the end of October. The evenings will be drawing in and the weather may be worse, which does not help the incumbent. Foot and Mouth could spread more, fianncial problems could re-emerge in the cash starved markets. In short, there are plenty of events which could be unhelpful to the government, who would be held to blame by Opposition parties granted the oxygen of General Election publicity and urged on by the need to win their own seats.

Those who say he cannot afford to go early are underestimating the willingness of the Trade Unions to fund Labour should the need arise. It would still be a big gamble for the new PM, who would go down in history as a huge failure if he gambled and lost.

It was predicatble but sad that the Dutch cabinet have considered and ruled out a referendum on the “Not the Constitution” Treaty.
What is even more typical of the present governing classes of Western Europe is the reason given in some of the press - that they could not hold one because they would lose it!
This Constitutional Treaty comes over more and more as part of the grand plan to sideline and overrrule the electors of Europe, forcing us all to accept yet more government from Brussels when there is little chance of persuading all the electorates to freely welcome it and vote for it.
All the fine words in their declarations about human rights and democracy are meaningless if they will not let us all have a vote on this unloved Treaty. They are inventing their own governing language, where their words have nothing in common with their undemocratic actions.
All governments that are seeking to force this Treaty through without a vote should be ashamed of themselves. I trust those governments that have to go to the polls soon for other reasons will be made to suffer for their refusal to let us vote on the EU Treaty.

The Fed’s decisions to supply more money to the markets and to cut interest rates are starting to work. The Bank of England’s tough love approach is not. Telling us that supplying money to illiquid markets creates moral hazard is 3 years too late. The moral hazard was created in the easy money times when it did encourage too much lending. Conditions have changed. The Fed has woken up to that. When will the UK authorities?

The Chancellor’s interview in the Times today is better than his dreadful pre U turn interview in the Telegraph on 13 September, but it reveals two worrying features of his latest thinking.

The first is, he does not seem to grasp the dangers of the tripartite arrangements put in place ten years ago, splitting responsibilities. His comments are a further nail in the coffin of so-called Bank of England independence, as he is by implication critical of the Governor’s comments and actions. He criticises the regulators’ efforts to find a buyer for Northern Rock, and makes it clear that he will change the regulatory system on the back of this crisis. He is evidently in charge, but he is not addressing the immediate issue of market liquidity which is what this crisis is really all about.

The second is, he is clearly terrified of the idea that he should have to alter EU law and regulation. He backs away from the sensible proposal of the Governor that we need a change to the Market Abuses Directive to make it possible for the Bank of England to act as lender of last resort without the bank concerned having to make that public. Instead he wants to make many banks borrow from the Bank of England from time to time to take away any stigma. This could appear to be an artificial device, and may be seen through by market analysts anyway who would be able to spot the bank that really needed the money.

He is keen to avoid changing domestic and EU rules on takeovers to allow rapid work to be undertaken to permit the takeover of a bank short of liquidity by one with more cash. He seems unaware of the government’s own laws, as he condemns such actions as deals in “smoke filled rooms”. I thought they had banned such smoking in the workplace. The early takeover of Northern Rock before the run on the bank would have been a solution to the problem and I can understand why banks and regulators were looking at such a possibility.

It is hopeless situation if the UK can now no longer adapt law and practise to deal with its hugely important financial services industry because the framework has been dictated by inflexible EU legal rules. It is also worrying that the Chancellor has no proposals to ease the credit crunch and the shortage of liquidiity, which is the very essence of the crisis in markets we are witnessing. He should look at how the actions of the Fed have started to ease the problems in the USA, because the Fed has supplied more funds to a market starved of cash, and has started cutting interest rates.

Yesterday the Goveernor of the Bank of England stated that he would like to have lent money to Northern Rock without making it public, but had been unable to do so owing to the legal position established by the Market Abuses Directive.
Some say the Market Abuses Directive would have allowed confidential lending in these circumstances, but clearly that was not the view of the UK authorities who presumably took legal advice on the matter given how important it was.
This seems to mean the Bank can no longer act as “Lender of last Resort” in troubled circumstances to a bank, as the announcement it was doing so helped generate the queues of depositors wanting their money out of the Northern Rock.
This invites a number of crucial questions to the Chancellor and the UK monetary authorities:

1. Why did no-one realise when the Market Abuses Directive was negotiated that this could be a problem? Why didn’t the UK insist on a clear opt out for the Lender of Last resort activity?
2. Does this mean that in future the Lender of Last resort facility, if used, will have to be used with a Treasury guarantee on all deposits, as proved necessary in the end with Northern Rock?
3. When is the UK government going to propose a suitable amendment to the Directive so that confidentiality can be used when appropriate?

Some people think that more transparency is the answer to this problem. As someone who usually favours more open reporting and the free exchange of informaiton, I do think the opposite is the case in this sensitive area.

If a company other than a bank discovers that its usual bank will not offer it the size of loan it needs to carry on trading, but it can get a loan that is sufficient from another source, it does not have to make public statements about this. Loan negotiations for heavily borrowed companies can be difficult, and they are best done by those who need to know away from the glare of publicity. Directors know that they must not carry on trading if they do not have access to sufficient money to cover their bills for the following year, and know there will be an independent audit of this annually.

The same should be true for a bank. The fact that a bank may use the Bank of England, the bankers’ bank, as the source of its temporary cash needs, does not make this different in kind. If the business is solvent, and it so happens that it needs to use the Bank of England’s facility at a particular time, it should be allowed to do so without a special announcement to the markets.

So what should the government do now?

1. Check the legal advice of the Bank over the question of disclosing the use of the Lending facility
2. Help the Bank explain that offering money to banks as Lender of Last resort is not a “bail out” but a commercial transaction where the banks have to repay with interest. It has always been part of our system that the Bank of England has to supply cash to the market as apppropriate, and has a monopoly over banknote issue which the other banks need as till money.
3. If the Market Abuses Directive does prevent confidentiality, table proposals urgently in Brussels to amend it
4. If changes are needed in UK law or can be made via UK law, table those urgently
5. Work with the Bank to restore normal conditions in money markets so it can cancel its taxpayers guarantee on deposits as quickly as possible.

If the government does not do this, it appears that we have just lost another function of an “independent Central bank”, the function to act as lender of last resort to the banking system in an effective way.

Readers of this site may remember that there was plenty of warning that money market conditions were too tight before the Northern Rock queues of depositors. On August 29 when I wrote “Markets fall again” it was clear money was very tight. On September 5th the blog highlilghted the different approach of the ECB/Fed who were supplying liquidity to markets to that of the Bank of England who were not. On September 7th in “Benign or malign neglect?” I urged the UK authorities to ease conditions in money markets. On September 10th I reported “City doubts” about the Bank of England strategy and on September 13th when the Chancellor gave his stern interview ruling out help to banks I was critical of his interview and asked when he would intervene to ease the obvious difficulties.

We now know the answer to that question. Shortly after he gave the interview he decided to approve intervention to lend to the Northern Rock, and after a disastrous weekend decided to offer a guarantee on all deposits. Recently the Bank has announced that it is making money available to the banking sector after all.

Today the Treasury Committee has its chance to ask the Governor some questions. I hope this will be followed quickly by an interview of the Chancellor. We will certainly need a Statement in Parliament from the Chancellor as soon as the party conferences are over and Parliament is allowed to meet again.

The obverse side of the coin of “independence” is “accountability”. Those who believe the Governor does run an independent Bank will hold him responsible for the events of the last few weeks. Given that the Chancellor was clearly heavily involved in the crucial decisions to lend money to Northern Rock and guarantee deposits isn’t the Chancellor ultimately responsible? He after all, is the senior member of the tripartite arrangement for banking supervision Gordon Brown established ten years ago.

Questions that should be asked of the Governor include:

1. Why did he not intervene to ease monetary conditions in late August and early September when other Central Banks were doing so?
2. What was his view of short term interest rates in the money markets climbing well above Bank Rate? Did he think this mattered?
3. What has changed this week that warrants supplying liquidity now when the Bank did not favour intervention before the Northern Rock problem?
4. Will he confirm there are no major UK banks (with assets of more than say

The huge relief shown by both the US and the Uk Stock markets to the 0.5% (50 basis point) reduction in US interest rates says it all. The UK market bounce from the US news was bigger than the bounce from the Treasury guarantee on deposits. That’s because the interest rate cut is of more lasting use.

The current US monetary establishment has in the past appeared criticial of Alan Greenspan, the former head of the Fed who famously cut interest rates whenever a crisis appeared on the financial horizon. This kept the US economy performing very well, but of course allowed substantial debt to build up. Now it appears that the current Fed feels they have taught the banks and funds a sufficient lesson with the money tightness over the first part of this year, and are now resolved to cut rates to avoid a slowdown becoming a recession. I am glad they are now taking this view. I do not see much of an inflation problem, but see obvious signs of monetary distress with the sub prime crisis, the big falls in house prices in some states, and the likely slowdown of consumer demand.

Today there is welcome news that after weeks of saying it should not intervene in the longer term money markets the Bank of England is going to ease conditions by supplying ??10 billion. It is a pity they did not do this some time ago before the problems of the last week, but I guess it is better late than never.

There is going to be an argument over whether this means the Bank has been overruled by the Chancellor, or whether the Bank has had an independent change of mind. I do not think this is that important. What matters is the fact they are now doing it, which should start to ease the obvious tensions in our financial markets.

No-one can believe any longer that we have an independent Bank, after a week in which the Chancellor himself was part of the decision to make money available to Northern Rock, and the Chancellor himself announced a taxpayer underwriting of any deposit in a UK bank in a situation like Northern Rock. Both these decisions were very important for the conduct of monetary policy and for banking and market supervision. They show that democratic control has been asserted at a time of crisis. If the government has any respect for the truth they will stop reciting their silly soundbite that they made the Bank of England independent.

Anyone who believed the government’s spin that the Bank of England was independent needs to think again after the events of the last week. We saw the Bank set out a clear policy of keeping 3 month interest rates higher than its own Minimum Lending Rate, keeping the markets short of cash, and saying that any commercial bank that has made mistakes would have to bear its own losses.

We have now heard the Chancellor carry out an astonishing U turn, moving from this position to saying that all deposits in UK banks have some kind of government guarantee. At the same time,the Bank of England started to loosen conditions in money markets to make it easier for financial institutions. The Chancellor has taken control of the situation and has been making the important statements in the last few days.

I have gone hoarse trying to explain to people that Gordon Brown never made the Bank independent. On the contrary, in 1997 he took regulation of individual banks away from the Central Bank and gave it to FSA, and took managing the public debt away and gave it to the Debt Management Office under the Treasury. He also intervened with the Bank’s actions in foreign exchange markets, requiring them to sell substantial gold holdings at low prices.

His stated claim to fame that he made the Monetary Policy Committee more independent, and responsible for setting interest rates wasn’t the whole story either. He decided before the 2005 election to change the target he set them for inflation, which had the effect of keeping interest rates lower for longer, leading to a bigger build up of debt.

The truth is that in a democracy a Central Bank can only remain independent? for as long as the government think it is doing a good job. As soon as they disagree with it, or as soon as they want to achieve some new objective that the Bank hasn’t been asked to achieve or is failing to meet, the government overrules them. We saw this in Germany, which had a long period of an independent? Central Bank in the post war period. The politicians overruled it twice towards the end, once to effect a monetary union with east Germany on terms that made no banking sense, and once to order it to abolish the very currency it had been set up to uphold! The government won again!

I just hope that now the government has taken a lead on monetary issues, they will understand that they must ease conditions in money markets if they want to avoid a continuation of a very nasty credit crunch. Inflation was yesterday’s problem, created by easy money a couple of years ago. Today’s problem is a lack of money for all sorts of purposes. This government has lurched from boom to bust in its approach to allowing people and companies to borrow. They need to steady the ship.

As expected, the Federal Reserve Board is the first of the major central banks to realise the credit squeeze is too tight and interest rates need to be lower. It is good news that they have cut by 0.5% (50 basis points) in one go, to show markets they are serious about wanting to ease credit conditions.

It makes the actions and inactions of the UK authorities over the summer even more difficult to defend. The Chancellor and Bank simply watched as market interest rates rose above the Bank rate, as inter-bank lending dried up, and as cash became very short.

The UK banking system did not need a “bail out” and should not have needed the extraordinary taxpayer guarentee on all deposits. What it needed was a UK monetary authority that realised money market conditions were too severe, and cash in too short supply. Individual banks cannot issue banknotes and Treasury Bills. The Government and Bank of England control that monopoly, and did not handle it properly to preserve banking stability.

The UK authorities should now ensure they do keep UK market interest rates around Bank rate levels, and should cut the UK bank rate. The UK version of the credit crunch was an especially unpleasant one, and was made worse by the failure of the UK monetary authorities to preserve reasonably liquid markets. In recent days the bank rate set by the Bank of England meant little, as 3 month market rates were well above it, representing a further unplanned tightening of credit.

There was a good reason why the west needed to borrow a lot in the last decade. The advent of China and India as big producers led to a big increase in their savings. If the west had not helped recycle and spend that money we would have lived through low growth or recession. More recently the oil producers also built up big surpluses which needed recycling.

Some are now implying that lending money to people who could not otherwise afford to buy a home as wrong, and lending money to companies to expand was foolish. Yet a lot of the lending was sensible then and is still OK today. The lending which is going wrong has largely been forced into difficulty by too extreme a swing in interest rates and in anti inflation policy.

The authorities were not wrong to allow borrowing. They were wrong to encourage too much borrowing a couple of years ago by setting interest rates that were too low. Now they are wrong to deter so much borrowing, by setting interest rates that are too high. I just hope they realise in time. It looks as if they are going to start to lower rates on both sides of the Atlantic.

There is nothing worse that the authorites fighting the last war. The anti inflation war is won. Today we need to fight the anti recession war. If anyone thinks money is still too loose and credit too easily available, they must have been asleep for the whole summer!

Today inflation on the government’s measure, the EU CPI, fell again, to 1.8%. This is below the Bank of England target and indicates no problem on the infaltionary front.

At the same time the Retail Price Index rose to 4.1%. This is more in line with the inflation people are experiencing, as their mortgage, Council Tax, petrol and utility bills go up. RPIX is also running well above the CPI.

There are some thoughts on this:

1. What a fiddle Gordon Brown’s switch of inflation targets turned out to be. He told us the old 2.5% target on the RPI was the same as 2.0% on the CPI - a gap of 0.5%. The gap today is much larger.

2. Action taken recently to cut inflation in the short term is driving the RPI up, as it involves making mortgages dearer.

3. Whilst the current level of the RPi would argue for caution on the interest rate/inflation front, I think we are near the peak on the RPI. The people setting interest rates need to look ahead. For once I would be grateful if the Bank would stick to the CPI target and see they need to cut rates.

There is plenty of price cutting power out there in the global economy which is likely to reassert itself now fianncial squalls have hit western economies.