When you are in as big a mess as the UK is in, it is vital those in authority begin with an honest review of where we are, and honest analysis of what is possible. Instead every day I read in the media half truths and lies about the financial position. We need to start from an accurate base to get the diagnosis and prescription right.

Main myths:

1. The government will borrow £78 bn this year and 8% of GNP next year.
The government’s own figures (PBR) show it will borrow £157 bn this year, more than 10% of GDP. Why will no-one write that in the newspapers?
2. The Bank will consider “quantitative easing” after lowering interest rates more, if they do not work.
The Bank’s own figures show that it is massively into quantitative easing already, with a ballooned balance sheet that makes most hedge funds and investment banks look very restrained.
3. The problems came from the USA, and this is a global problem.
Most of the UK’s problems were home grown. UK Regulators and the Bank made the same type of mistakes the US authorities made, but they did not import them. Northern Rock was a British bank lending British money to British customers under a British Regulator. It was not brought down by sub prime US mortgages.
4. We will do whatever it takes to get the banks working again and to abate the recession.
Why then did the authorities demand the banks have more capital to sustain their lending at this point in the cycle? Couldn’t they see that would make the lending crunch worse? Why did someone brief the press that our banks were weak and needed more capital, at a time when confidence was low? No bank at that point faced a run.
5. Regulators are the answer.
Why then did the Regulators set capital requirements that allowed the excess? Why were Northern Rock Directors discussing how they could increase lending and cut capital on the eve of their disaster, in order to get down to regulatory requirements? (N Rock Report 2007)

6. Regulators cannot be expected to detect fraud and scams.
What then is the point of them? Why can’t they do some detective work based on the usual warning signs of companies likely to overtrade or worse? The signs are well known to people with experience in financial markets, but it takes the Regulator’s powers to go in and find out for sure. Not all those who show the signs are bad.

The plain truth is you cannot solve a crisis of over borrowing by borrowing more. The state is not big enough and rich enough to take over all the bad risks of banking and industry at the same time. The state has to avoid borrowing so much and printing so much that it too loses the confidence of people and markets. When is this nightmare going to stop? When are the authorities going to realise they are pouring petrol onto a fire that has gone out. Instead of pouring more petrol, they need to find a match and ignite a controlled fire again.

When you look at the massive amounts of money and liquidity they are pumping into the system , when you look at the growing government bond bubble, you must feel “Here we go again”. The authorities have forgotten – if they ever knew – that there are big lags in the system. It takes time for lower interest rates to work through, just as it took time for their high interest rates to work through a couple of years ago. Nothing will work without mending the banks, but once they have found a way of mending the banks they need to reverse the ballooning of cash and liquidity rapidly before they create a big inflation. As someone who pleaded for them to halve interest rates a year ago to stave off recession, I say to them, do not cut interest rates any more until you have worked how to get on top of the government debt problem and have done more to create a sensible and competitive banking system. Zero interest rates could make the poblems worse, not better. You need to think of savers as well as borrowers when we are trying to get the country out of debt, not more into it.

So what does it take to mend the banks? A sensible way forward would be to invite them in for private talks. The Regulator shouod be prepared to amend the capital requirements temporarily to get things started again. The government should be prepared to change the terms of its short term loans and guarantees to help markets. No more capital should be offered by taxpayers, and a route to getting the taxpayer out of share ownership, and certainly out of majority share ownership should be agreed.

Every year since I have been an MP I have gone to my local Post Office around 6 am in the morning near Christmas, to thank the postal workers for their extra efforts over the Christmas season, and to wish them a happy Christmas when they reach it. Many of my colleagues do the same.

This year I wanted to go next week just before Christmas. My office was told it had to be today. I accepted and said I would arrive at 6.30 am, to catch the postmen and women before they left the Sorting office. We were told it had to be 8.30 this year.

At 8.30 I have to be at one of my regular Business breakfasts, when I brief local business people on the current economic situation and relevant matters from Parliament. My office explained this to the Post Office, and said it would be better to come early, or failing that later after breakfast, or some other day. We were told it was 8.30 on Friday or nothing.

So nothing it is then. Was it something I wrote on the blog I wonder?

At least I can use this blog to wish all the post employees a very happy Christmas, and to thank them for their work to get the post out in all weathers and at all times over the year. It’s just a pity that management would not allow me to do it person this year.

Jaguar does not need state subsidy. It needs more customers. Management needs to have more feel for the brand and for what people want from it. I want the management to fight successfully in the market place so the jobs can be saved. My thoughts are with the employees. There can be no future for their jobs if they need to rely on state subsidy rather than customer income.

When I was 36 I acquired my first Jaguar. I was appointed Chairman of a big quoted industrial group of companies. The large black Sovereign saloon came with a chauffer to pick me up for the first day’s work.

The only reason I got such a job was the Group had been bid for. During the course of the bid the Board had signed up to a stretching profits forecast for the forthcoming year. The defence worked, but shortly afterwards my predecessor as Chairman fell seriously ill. The Board asked me to take over, as they thought it unlikely anyone would want to come in from outside to deliver the profits we had promised. I recognised we needed to raise revenues and cut costs to meet it. I also realised I could guarantee to cut the costs, but could not guarantee the extra sales.

So I cut the Chairman’s salary, sold the company aircraft, placed the pilot with the new buyer of the plane, and sold the company flat in the West End. Armed with moral authority from cutting my own perks and pay, I then persuaded others to cut their costs in turn. We made the profits forecast easily and went on to hit 37% return on capital. The Jaguar was the one luxury which I kept. I asked the chauffeur to do other things for the company when I did not need him for company business trips, which had the side effect that I could drive the car as well. It began a love affair with Jaguars which lasted for a long time.

I was fortunate to inherit an older Jaguar saloon when I made it to the Cabinet. It wasn’t as good as the company one I had enjoyed, but it did have some style. I restrained officials from buying me a new Rover to replace it, managing to combine my enthusiasm for careful control of public spending with the happy outcome that I could keep a Jaguar in government that I had got used to in business. On leaving government I just had to find the money to own and drive a Jaguar myself.

At the end of the 1990s as Shadow Secretary of State for Trade and Industry I was asked to be one of the people who turned up to admire the then new Rover at the Birmingham Motor show. I did so, and gave favourable comments to the press. I also saw the new S type on the Jaguar stand. I was so glad they did not ask me which car I would buy. I thought the flowing lines of the S type were superb. Whilst it had a hint of the 1960s icon Jaguar, it was a thoroughly modern car. Place them side by side and they are very different.

Until recently I have been happy with the brand. I am now not surprised to read that Jaguar are struggling. They have made mistakes with the way they design, present and project their cars and handle their customers.

I was first mildly worried when I visited the Jaguar Formula One outfit shortly before they gave up. They were spending too much for comfort, but not enough to win. It was difficult to see why they did it for so long. Wouldn’t it have been better to have raced modified production cars in a cheaper competition, and achieved a higher standard?

The launch of the X type was not a comfortable time for the company. Many traditional supporters of Jaguar did not see it as a good addition to the range. Jaguar compounded the error by trying to persuade owners of more expensive Jaguars to switch to their new cheaper product! That was a great way of trying to cut the margins and turnover.

More recently the Group has been spending substantial sums on market research and questionnaires. I have bothered to fill a few of them in, but developed an increasing frustration when I realised they were not listening. They were not understanding the answers and were not communicating back. I explained several times that I was not yet persuaded by the design of the new XF. The windows are small, the back is very high, the width is narrow, and the radiator grill looks like a mini Bentley gone wrong. They have lost the classic elegance of many of the best Jaguar designs. I bought one of the last S types instead. Now I am being bombarded by requests to buy the XF as if I have never expressed an opinion on it.

Worse still, somehow the press picked up a negative line about those of us who had bought S types when the XF was launched. We read that the S type was old fashioned and stodgy. The all modern exciting XF was designed to sell to the younger executive, a new breed of Jaguar buyers, people who had been buying BMWs. Well if that is the case, why do they wish to sell one to me, having insulted me? What compelling deal or argument can they put to me to say sorry, if they want older Jaguar fans back? I did not see myself as old fashioned or stodgy for buying one of their cars.

The reason Jaguar is struggling is it does not have enough customers. Yes, it had to widen its customer base. No, it did not have to do that by upsetting the existing supporters. Jaguar does not need a public subsidy, it needs a stunning successor to the XJ, possibly a remodelling and relaunch of the XF, and some much more astute marketing to reposition the brand comfortably, so it can reclaim its old supporters whilst winning some new friends.

Political parties could tell them a thing or two about the need to win over new friends without losing the core support. Comments like “the new Jaguar is styled specifically to shed its stodgy British lines” and “No more for Jaguar the relentlessly retro approach that is perceived to have done the marque no favours at all in modern times” must have come from briefing close to the company. It is undermining perceptions of their previous cars, never a good thing to do given that many likely Jaguar new car buyers have probably owned one before.

It would be so 1970s to go back to subsidising car makers. In those days the more the government subsidised, the more the state aided companies lost market share. The car companies came to see the government as the main customer, as they sought cash from them, whilst the foreign competitors got on with designing and building cars that individual customers wanted to buy. It was a disaster. The UK fell further and further behind the best of modern car design.

Surely even this government must see the folly of subsidising a foreign owned company to make luxury cars to sell to people with good incomes or money in the bank? And can’t the top management of Jaguar start listening to their customers, instead of contracting that out to consultants who manage to make a former Jaguar addict like me hopping mad with the way we are being treated? I am all in favour of the company innovating, and recognising that time moves on and perceptions of beauty change. What I cannot accept is clumsy “repositioning” in a way which makes former friends uncomfortable with what the Group is doing.

I worried preamturely that the government’s wish to borrow so much would cause strains in the government debt market. Indeed, I underestimated their intelligence in this respect.

Forecasting a huge surge in government borrowing from the £43 billion for 2007-8 heralded in the Budget to around £120 billion, I discovered that the government now thinks the true figure is an eye watering £157 billion for this year, or more than 10% of National Income. (The government has of course got away with telling people half the story, with most journalists and commentators using the £78 billion figure they wanted them to believe). This could have been more than markets would willingly lend, creating new strains on our currency and long term interest rates.

Instead, the worry today is that despite the huge increase in government debt we will witness a further increase in the size of the government debt bubble. Government debt prices have been rising. How can this be?

The government has taken strong steps to ensure lots of buyers for their debt.
They are instructing the banks to buy lots of gilts (government debt) to “increase their liquidity”. Much of the money the government has put into the banks to “strengthen” them will be lent back to the government at a loss!

They preside over a pensions regulatory system which will force many more companies to increase their pension contributions, and will encourage Actuaries and other advisers to insist this new money is stashed in gilts.

Taking interest rates down to very low levels will undermine the returns of most savers in normal deposits. Some of them will be tempted into government debt through National Savings and related products.

Injecting huge quantities of money into the system through the Bank of England will also create large amounts of liquidity to let institutions buy government stocks. They are creating a huge money go round, where the Bank of England bloats its balance sheet, to create the cash to power the government debt bubble.

In the short term the government has designed a system which will allow it to borrow collosal sums at low rates of interest. At some point this will have to be unwound. Just as the property bubble burst and the commodity bubble burst, so one day the government debt bubble will burst. In the meantime, enjoy the show.

Wokingham MP John Redwood has signed up to the online social networking site Facebook to make it easier for his constituents to keep up to date with what he is doing locally and in Parliament on their behalf. John joins a number of other Conservative MPs who have signed up for the service, and which enables users to keep up to date with his latest blog entries, view photographs of his campaigning activity and leave comments about his articles, speeches, and contributions in the House of Commons.

Currently, 40 people are using Facebook to track when John updates his website or makes contributions in Parliament, and John hopes more people in Wokingham will use the opportunity to engage with their MP online.

Speaking about his Facebook page, John Redwood said: “Facebook may be the bane of office productivity but we have also seen how social networking technology can be used to mobilise people who feel strongly about a particular issue. At a time when more and more people feel that politics is dominated by spin and politicians are seen as remote and inaccessible, this is another way that the internet can be used so MPs can outline what they are doing for their constituents, and people can let their MP know what issues concern them the most”.

John already makes good use of online technology to keep in touch with his constituents. He has been blogging since December 2006 and his website has won several awards, including being selected as the top ranking MP’s blog in the Total Politics blogging awards. John’s blog, which has a “local issues” section outlining his views on such topics as local rail services, the future of Arborfield post office and the development proposals at Kennet Valley Park, is also read widely outside of Wokingham. Visitors to his site have come from inside the Houses of Parliament, the BBC, the European Parliament, Oxford University, and various banks and financial institutions.

Note for editors:

To sign up as a supporter of John Redwood on Facebook, search for “John Redwood” and, under the option “John Redwood – Politician”, click on “Become a supporter”.

Yesterday I met people in the West Midlands, to take the temperature of manufacturing.

The sound of very little going on was eerie. My journey to and from by the M40 was all too easy. The inadequate roads were for once more than adequate for the reduced traffic. The Birmingham ringway gave me unusually free passage around the conurbation.There was a worrying quiet about the place.

The mood was of one of people waiting for the news to get worse in the new year. The crisis which hit sixteen months ago in the City of London, once a remote matter affecting people on high salaries in high finance, is now all too real. Orders have contracted, some lay offs and a lot of short time working have already been announced.

There is a worrying expectation that as the world’s factories close for extended Christmas and New Year breaks, to contract output in line with much lower demand, so there will be knock on effects throughout manufacturing. Today maunfacturing is global. Cuts in one country soon transmit to cuts elsewhere.

Even migthy China is now experiencing a savage downturn in parts of her manufacturing heartlands, as the much reduced demand for Chinese goods in the west hits a country which has been such a successful exporter that she has $2 trillion in the bank.

I wanted good news to tell them, something to raise spirits. All I could say was the US authorities, somewhat late, are now doing everything they can think of to try to turn their economy around. Let us hope something works soon. It is like watching someone in front of a huge board of electricity switches in a dark room trying every switch, but so far none turn the lights on. We just keep hoping the board is still connected to some power.

Metals, oil and food prices have tumbled on world markets. As predicted here, the story of early 2009 will be price falls, disinflation, deflation. The Central banks were so wrong to worry about inflation earlier this year, as they tightened the noose around the necks of easy credit. It’s making it so much more difficult to kick start the economies, as the damage to the banking sector is severe.

So why is US inflation well down, and UK inflation still too high? There are two simple reasons. The first is the pound is very weak whilst the dollar is strong. The UK has lost a lot of the benefit of falling raw materials and energy prices through the devaluation. Chinese imports are now also a lot dearer. The second is the cost of government. In the UK petrol and diesel taxes are so much higher than the US, with a large element that does not go down when the oil price falls. Items like Council tax always seem to go up (unless you live in Hammersmith and Fulham) whatever the economic circumstances. Many public sector fees and charges also exceed inflation on a regular basis, whilst the state monopoly post and the semi nationalised railway industry have recession defying price policies which sting the consumer.

UK inflation will come down next year. Looking at the range of government policies they are aiming to rekindle inflation again once they do manage to turn the economy round. The amount of money being printed, the low level of interest rates, and the reduction of competition in crucial areas like banking all point to a lot more inflation in due course, once they have worked out how to mend the banks enough to avoid a long and deep recession.

In this new world where the all powerful state can take on any financial obligation, I guess nationalising the Post Office pension fund deficit is small beer. After all, a one percent loss on the gross assets of RBS is three times the size of the pension fund obligation we read we are about to take on.

For those of us who still think governments too have t to control what they borrow, spend and guarantee, it is yet another large sum that taxpayers, sometime, are going to have to pay for. Pensions have become shrouded in jargon and regulatory complexity. Actuaries and experts exchange complex sums, attempting at any given date to come up with a figure for the “deficit”, the shortfall of money in the scheme to meet its future liabilities.

These deficit figures can be very volatile. They are the product of two very difficult forecasts. The expert needs to work out how much all the pensions are going to cost. That is a moving feast, as no-one knows for sure how long the pensioners will live, or how much their pensions will increase by in an inflationary world. Then the expert needs to decide how much the fund will make on its investments, an even more difficult matter to estimate.

Trustees responsible for the schemes are then faced with the issue of how they will fill in the deficit, if that is what their experts tell them they have at any given time. There are three ways of “correcting” a deficit, if all the assumptions in the deficit calculation are accepted and do not change over time. The trustees can improve the investment returns, above the Actuarlial assumptions in a way which persuades the Actuary. The Trustees can obtain more contributions from the company and the members. The Trustees can agree lower benefits with the members.

If the government is planning to take on the Post Office pension fund, it should first reach agreement with all involved on how it is going to tackle the deficit. Is the future semi privatised body going to increase employer contributions? Are members going to accept higher contributions or lower benefits? Can the investment strategy be improved? Or is the long suffering taxpayer simply going to pay whatever it takes to fill the present deficit, with no guarantee that there might not be another deficit in a few years time? If they go on getting the investment strategy wrong, or offer more generous benefits, will the taxpayer be expected to stump up?

Financial businesses are different from most other types of business. They entail sending your money to someone else to look after, on the promise they will give it back to you at a later dtae, preferably with some improvement in its value.

Because of this I have always favoured two types of regulation for financial businesses. The first applies to deposit takers. They should be required to meet overall standards of capital and cash reserves. The Economic Policy review I helped produce in 2007 demanded stronger requirements in these important areas, as we could see the banking sector was grossly over extended under the then current regulation, which could make it difficult for people to retrieve their deposits from some banks if many wanted to at the same time.

The second type of regulation should apply to all financial businesses. It should be a policing system designed to find the thieves amidst the large financial community, and take early action to prevent them trading or to wind them up rapidly where theft or fraud is occurring.

Instead, what we have witnessed is a a big growth in the regulation of the many honest businesses, in the strange belief that if you put in enough complicated rules to “prevent” some past way of carrying out a fraud, you will prevent fraud. This is never likely to work, because of course if someone is going to commit theft, breaking a few Regulators rules and lying to the Regulator is just a subsidiary part of the task in order to steal all the money.Fraudsters will break regulators’ rules as well as pocketing the cash.

I am not surprised that a large fraud may have taken place in the US. They like the UK have box ticking regulators who create ever more rules in substitute for being detectives seeking out the mercifully small number of bad apples in the financial barrel. The danger of the US system is the regulators concentrate on a wide range of honest businesses who fall foul of the increasingly complex rules owing to human error, disagreements about what the rules mean, and through misreading the complexity of all the process issues the regulator seeks to control. At the same time invetsment managers can be losing their clients billions legally, and a handful can be stealing billions of their clients money without the regulator being able to see it.

When I was the UK’s non banking financial Regulator, in the days when that role resided in the DTI, I drew up a list of things regulators should look for to try to detect crooked businssses. I told them to concentrate on that, as I was quite sure the public, like me, primarily wanted their regulators to find the Maxwells before they had taken too much money from clients or pension funds, and stop them.

Included in my list of warning signs worthy of investigation were: returns that are too good to be true;promised returns out of line with the asset returns they said they were buying; frequent changes of year end and auditor; complex company structures;lack of independent people on the Board and at the top of organisations;lack of independent custodian arrangements; market rumours.

I favoued using the invetsigatory powers, in private, when our suspicions were aroused. A public investigation, or worse still a press briefing before enough evidence had been amassed ran the risk of breaking a perfectly good business if it had good reaons for the warning sign.

In the hue and cry that will follow the Madoff case there will doubtless be the demand for yet more process regulation to “stop” someone else doing what it is alleged he did. Instead the cry should go up for a detection based approach to regulation, instead of yet more box ticking for the largely compliant and the wholly honest. People should rememnber that it is only the honest who do the box ticking honestly. Crooks can tick boxes too, and can make up the things to put in them. It’s just the same with money laundering. Money launderers doubtless have passports and gas bills. Making sure every financial business has all its clients passport and gas bill copies does not mean the end of money laundering.

According to the news media, RBS may have lost £400 million in the Madoff investment funds.

That’s not quite how I wanted the government to spend the tax money I and my constitutents send them.

The government thought the following would lead to more normal lending levels:

1. £37 billion of new equity for 3 banks
2. Nationalisation of 2 mortgage banks
3. £450 billion of short term loans and guarantees for banks
4. Much lower interest rates
5. A big increase in money market liquidity and substantial open market operations by the Bank of England

They thought all of this would bring LIBOR down close to the base rate, in turn leading to banks lending again to home buyers and businesses.

Now it is not working they have added:

1. The reflationary package, based on a VAT cut
2. Much higher levels of public borrowing
3. Lecturing the banks

So why isn’t it working?

1. The banks still have to write off substantial bad debts. HBOS last week revealed an additional £8 billion of write offs, three quarters of the new capital the government is supplying. If all or most of the new capital just matches losses it cannot be used to lend more.
2. The Regulator has chosen this bad moment to demand more capital and cash to sustain existing levels of lending. As a result new capital above the write offs does not necessarily allow any new lending.
3. Banks are lurching from being too confident to being very cautious about new lending. They are now reluctant to lend as they fear more losses.
4. Further big losses are emerging, as we learn today concerning a large US Investment fund. Such losses hit confidence and in some cases impose more direct losses on banks.
5. The Regulators are requiring banks to rely more on retail deposits and less on wholesale money. Retail deposits are dearer, making it more difficult for banks to make profits. Loss making banks are weak banks, unable to lend more.
6. The two nationalised mortgage banks are effectively winding down their mortgage books. This means far less mortgage money is available in the markets, leading to further falls in house prices. This in turn leads to more mortgage loan losses for the banks.
7. The sharp deterioration in business conditions in the UK, US and EU in the fourth quarter of 2008 will create more corporate loan losses. Bank executives are busy fire fighting problems in many of their customer companies.
8. The Regulator is going to require the banks to hold a lot more in gilts so they are more liquid. In other words the banks are going to be made to lend more to the government!

What can be done?

It is not easy breaking a vicious circle of less lending, more losses, less lending. The government should summon the Bank of England, the Regulators and the lending banks. It should say it wants to change the terms of its £450 billion package to make it more effective. The Regulator should be asked how it could be more counter cyclical to make it easier for banks to lend in difficult conditions. At the moment regulatory and monetary policy are pulling in opposite directions. That needs to change. The government needs to find a market answer to allow Northern Rock and Bradford & Bingley to lend again. It needs to find a way to limit taxpayer risk in RBS.

If they carry on in current mode we should expect more property price falls, more bankruptcies, more job losses and more bank loan losses. This is not a great backdrop for recovery. Whilst it is important the government stands behind the main UK banks to avoid another Lehman disaster, it must avoid feather bedding them. Taxpayers should not be subsidising six figure salary executives and their bonuses. The financial sector generally has been paying itself too much. The sooner costs and charges are cut, the sooner more normal business can resume.

The serious allegations about a large US investment fund show us how little a big Regulator achieves. The very least we should now expect is Regulator help to solve the current problems instead of making them worse. Putting in tougher controls to prevent the excess they allowed a few years ago just digs us deeper into our current hole.

Don’t let this nasty recession wreck your Christmas. One of the things I most like about the Christmas break is you have time to do more homely things for yourself, and more time to think of others. So often what people want is some company and thoughtfulness rather than expensive presents. The comfort of the family group, the warmth of neighbourliness is easier to achieve when you do not have to do battle with peak hour traffic or wait on a cold station for the delayed train.

Of course this Christmas has an economic shadow over it. On the High Street some famous stores are struggling. Many are nervous of how long their jobs will last or whether the incomes for their businesses will hold up. I am doing all I can to explain the crisis to government and to offer advice to try to lift us out of the downturn.

In the meantime against such a background the true spirit of Christmas can make a difference. The work of our local charities and the countless deeds of friendship and helpfulness of so many in our community are all the more welcome at a time when people are counting the pennies. I want to say a big Thank you to all the volunteers, carers, Mums and Dads, and good neighbours who do so much to make the lives of others better day by day.

Christmas got off to a good start in Wokingham thanks to the organisers of the Winter Carnival. The lights came on to the sound of the first carols. There are many good Christmas events planned over the days ahead to light up the dark winter days. If we can all recapture some of that magic of Christmas that most of us were lucky to experience as a child, it will have done its job. It’s not how much you spend or what it says on the label that makes the difference. It’s the spirit you do it in that matters most. Sometimes the most modestly priced gift gives the greatest joy because it is what the person wants, or because they are moved that you bothered.

So what can I give, poor as I am? Give my heart.

We are told a big review of the Post Office awaits Lord Mandelson. The Unions are afraid it means faster rounds and more job cuts. Taxpayers are afraid it means more subsidies and underwriting the huge losses in the Pension Fund. What it reflects is the poor management of the company in recent years, cutting the quality of the service whilst increasing the prices and demanding more cash from the government.

What should be done? The first task should be to empower regional and local management, making them responsible for their own revenue generation as well as for costs, and putting them in charge of their property and other assets. It’s not much fun for local managers, constantly being told to cut costs and offered no control over assets and revenue to grow the business in more positive ways.

A couple of years ago I proposed a way of improving the service and releasing cash in my Wokingham area. The main Post Office in Wokingham town occupies a prime position. At the front is a handsome facade and shop space to handle the counters business. At the rear is cramped and inadequate sorting office space in assorted sheds and industrial style building, with a narrow access to the side across a busy town centre pavement and main street.

I suggested they sold off the sorting office and back land for what then would have been a lucrative office redevelopment, bought a suitable modern property on an industrial park with good vehicular access for sorting, and increased the number of counters by knocking the shop through into the store room within the main building to cater for increased demand. Local management thought this all made a lot of sense, but the idea got lost in the rambling central bureaucracy.

Instead, the central management decided on the closure of two branch offices in Wokingham, claiming people could go to the main Post Office in the Town Centre instead. We objected, but they did not wish to hear us. I said they needed to increase the number of counters at the main building first, as there were already long queues. Instead they blundered on with the closures, causing worse queues and worse service in the main office as well as making it more difficult for the elderly to get there at all without a car.

The Wokingham example is just a small one, indicative of problems across the network. the whole thing is one big missed business oportunity, a great franchise that has been grossly mismanaged in recent years. We cannot afford the losses, and cannot afford the Pension losses. Both fund and business need new directions. Whatever the rights and wrongs of the speedy postman debate, the bigger problem the Post office has is the quality and power of management. There is some good local management, and doubtless some bad. None of it has the power to do the job. That’s why the results are poor, there are many missed property opportunities, and many missed opportunities to fire up the staff. They could start by giving them all a share in the business. That would help electrify it.

Green is so much last year’s colour for western governments. Now they have stumbled into a policy which will cut carbon emissions sharply, their policy of falling living standards and recession, they are all rightly trying to run away from it. So are their voters, who might tell pollsters they want to live in a lower carbon world, but not if it means they have no car and have lost their job.

Let me make it clear. I see myself as a sensible green. I want to stop overbuilding, leaving some green gaps and lovely countryside between English settlements. I want to clean up the water and air through better technology and some regulation. I think the biggest domestic policy error of the Bush regime was the failure to work away at energy self sufficiency, to cut dependence on unreliable supplies from elsewhere, and see the UK government’s failure to find new, more fuel efficient home grown energy solutions as one of its more important mistakes.

What I dislike are the authoritarian greens, who see the cause of lower carbon as a means to try to stop personal transport, who wrongly think trains and buses do not cause some of the problem, and who refuse to look at the audit of where the carbon comes from. They do not accept that for some journeys the car is the lower carbon alternative to the nearly empty bus or the inconvenient train. They never tackle the carbon excesses of the public sector – all that air conditioning and over heating in bureaucratic offices, and all that travel on “fact finding” and “diplomatic” junkets, whilst condemning the commuter who dares to try to get to work through their congestion loaded streets by car. It seems to be freedom they want to stifle, rather than carbon.

The German government has faced a dilemma. Representing a car ridden economy, where the automotive industry is a very important part of their activity, the government has lobbied and argued for less onerous carbon regulation at the EU level. They have decided automotive jobs matter more than the latest fashion in carbon targets.

The US government faces a dilemma. President Obama is not yet in office, elected on a green ticket, before he is letting it be known that saving the gas guzzling car makers of Motown is important to him. Yes, he will dress up help with programmes to encourage them to make more fuel efficient cars, but in the meantime he accepts the reality that too many jobs are riding on making grossly inefficient vehicles to be a rigorous green. He is not about to say “thank goodness these makers of fuel wasting cars are about to go bust or slim down. That will help me to hit the new targets I want to impose”. Once again in the USA we see those two bank nationalising, war fighting, high spending and high borrowing advocates of big government, George Bush and Barak Obama, united in their approach.

In the UK we have come to expect contradictory responses, and differing language depending on the day of the week and the nature of the audience. One day we are told in the House that tougher carbon targets are the order of the day. The next we are told that propping up the auto industry and trying to get the banks to lend more money to the companies that make the cars and the individuals who might buy them is crucial to our future success. Meanwhile, in Labour inclining Manchester they vote by 4 to 1 against Labour’s mistaken green policy of trying to switch people from carbon emitting cars to carbon emitting public transport at a £1.6 billion cost of borrowed taxpayer money, and £5 a day for those who still want to use a car.

The Manchester defeat should be seen as the end of an era. Labour’s whole transport strategy was based on the premise that if they spent more on trams and trains, and taxed people more for using cars, they would achieve a “modal shift” . Only the rich would be able to drive their own personal transport, alongside the Ministers in their chauffeured limos. The rest of us would willingly take the shiny new trams or crowd onto the already full peak hour trains, saving the money on the Congestion charge to pay the extra taxes for the losses the public transport systems usually make.

This policy has recently suffered a defeat in London. Some Londoners voted Boris in to get rid of the anti car policies, and to scrap part of the Congestion zone. The consultation the new Mayor carried out was clear. The voters wanted the western zone scrapped, and he has said he will do so. Now it is defeated in Manchester.

The people are right. This very expensive switch will not make a huge difference to carbon output, but it will cost large sums of money and may make the journeys of many even more inconvenient. We need instead a positive policy of sensible investment in the railways to get more capacity out of them, and road improvements to cut congestion and improve the safety and flows at junctions. Motorists have had enough of taking all the blame for carbon output, when there are so many other sources of it from the inefficient domestic boiler to the old fashioned power station. The government needs to work away at improving the capacity and technical performance of much of the infrastructure, without inventing new taxes for people already groaning under the burden of wasteful government. 11 years have failed to deliver the modal shift, and the modal shift was not going to solve the carbon problem anyway.

The government is discovering that wishing for housing to be more affordable, as they did for several years, creates an uncomfortable world of negative equity, weak banks and mortgage famine. They by now should have worked out that their theory that you needed to build more houses to bring house prices down was completely wrong. We today have plunging prices at the same time as large cuts in new building.

So when will housing be affordable? There is no single good price level, as it all depends on what price level the mortgage banks will support. They, under strong regulatory influence both ways, have lurched from believing very high prices are affordable, to working with much lower prices. What is affordable when banks will lend 5 times salary is not affordable when they will only lend 3 times salary. What was affordable with a 100% mortgage may not be affordable with an 80% mortgage.

The boom was so overdone in London that even people on good incomes were priced out of the London housing market unless they already owned a property or had some other windfall to help them. Still today, after considerable falls in the market, a new MP on £63,000 a year would be hard pressed to find anything more than a studio flat he or she could afford north of the river near the office. A professional, middle manager or Doctor on around £100,000 would have little choice of anything other than a one bedroom flat in the central districts if they were starting out with a mortgage and not much else. Pity anyone on average wages, they do not have a chance in inner London.

I fear this all means the fall has further to go. The government has not yet found a way to help mend the banks. The mortgage market is still far from happy. Northern Rock is in effective run off, so Northern’s mortgages need refinancing elsewhere as they fall due. On current policies we have not found a base for the property market. That means more losses at the taxpayer financed banks, in line with the deteriorating loan experience revealed by HBOS in their figures yesterday. Taxpayers are currently losing more than £7 billion on the bank shares the government has bought for £37 billion at current prices.

This week I asked the Foreign Secretary why it appears that Northern Rock cannot offer competitive busniess rates in the market owing to EU competition rules, but this constraint does not seem to apply to RBS. He said he would write to me with an answer. I think we need to know, as it seems odd that the smaller bank is prevented from writing much new business, whilst the bigger bank is unaffected.

Every time the public is allowed a vote they show their scorn and dislike of current EU and UK government policies. The French, Dutch and Irish all voted against the ghastly EU Constitution and its renamed look alike. The people of the North East voted against regional government. The people of Manchester voted against more surveillance cameras and a further tax on motoring. In the latter two cases it was not a marginal decision or a small vote. The feeling was overwhelming, in carefully chosen Labour areas. The people had been beaten up by the Labour propoganda, yet they still voted No.

The frustration with governments is now intense, as they seek more ways to annoy us, and to thwart the popular will. Why will they never learn? They spend a fortune of our money on polling and researching our views, yet when they give us a vote they ignore the result. They should get the underlying message. We want more freedom. We want to keep more of our hard earned money to spend as we see fit.

People are so often great. This time they have voted down the Congestion charge in Manchester. They dared to vote down a £1.6 billion “bribe” – more public spending which of course would all be borrowed and which the people of Manchester and elsewhere would have to pay back with interest sometime. Great news.

All this will come as a huge surprise to many of my MP colleagues who still bellieve people want all this public spending on the never never, more than they want more money in their own pocket to pay the gas bill, the mortgage and for the family car. Labour especially is always complaining if Conservatives do not approve every extra penny of borrowed money, even when it is being wasted in a most obvious way as with the VAT cut, unelected regional government, ID computers and the like.

They need to think again. Or will the people of Manchester have to vote again, as they got it wrong.? Will Labour adopt EU style democracy, where you have ballot by exhaustion till they get the result they want? Or will we have Lab style democracy, where you vote down regional government one day, and are told they will keep it on an unelected basis the next !

The government has had to reveal at last just how big a deterioration there has been in our economic prospects and the public account. They now accept we are going into recession. They see that we are going to face a winter of job losses and bankruptcies. Woolworths and MFI have led the way in recent days. There are all too many more companies in distress, or good companies that cannot get the borrowings they need to see them over a difficult patch.

Interest rates are the price of borrowing money. When the private sector was borrowing too much, the Bank kept the price too low, encouraging many more people to pay too much for houses, and allowing businesses to pay too much for commodities and raw materials.

Then they decided to end the party, bringing down prices, damaging the banks, and disrupting trade and jobs.

Now the government is going to borrow too much. It looks as if the Bank is going to cut the price of money further, to allow the government to borrow more than it should – all the time the markets still allow them to do that.

Before the last round of interest rate cuts I suggested that the Monetary Policy Committee wrote to the Chancellor and said they would only cut rates if the government agreed to keep its borrowing under reasonable control. There was no letter, but the Bank and the government did start telling us they saw the need to have a clear pathway set out to return government borrowing to more normal levels, from the £157 billion bulge this year. The government also decided to talk about £78 billion borrowing this year – leaving out the money to buy bank shares and pay for the bank losses.

The proposed pathway back to sensible public sector borrowing still leaves us too much in debt. The Monetary Policy Committee should have another go behind the scenes to get the government to see sense. If it cannot, it needs to leave interest rates higher to allow for the government excess.

The problem is the Monetary Policy Committee is acting out of fear, following several years of getting it comprehensively wrong. They failed to see either the inflation or the recession they triggered. Now they are likely to misread the government debt problem.

Huge amounts of liquidity are being built up. In the short term this will not be inflationary overall , as the broken banks are not passing it on to the private sector. It remains inflationary in the public sector, which lives in an unreal world compared to the rest of us. The money is being passed on within the state, allowing many quangos, departments of the government and some Councils to be overmanned, and paying many very high salaries over £100,000 to people taking little risk and in some cases making little useful contribution. The public sector still has huge advertising and consultancy budgets, still has a massive army of officials looking for new ways to check up on us and persecute us, and still churns out the forms, compliance manuals, consultation documents and bossy boots instructions as if nothing had changed.

We certainly have two Britains. The government has split the country into the hard working compliance ridden tax paying private sector, shivering without cash and awaiting the call of the well heeled state Inspector, and the overbearing, camera wielding, humourless, play by the increasing number of rules politically correct Inspector state where any amount of borrowed money can be channelled into more nonsense. This is why the state can afford to prosecute us for parking in the wrong place, for offering a client a glass of wine or for using the wrong words to describe people, festivals or religious observance with no sense of proportion.

There is a growing sense of injustice amongst all those who run businesses and try to make a contribution through the private sector, and growing sense of unfairness between the towns and districts where people mainly work in the private sector, and the ones where a majority now draw their income from tax and public borrowing.

In the longer term the danger is that the government will want to use the printing presses to sort out its huge debt, which will be inflationary when the banks are working again.

The outrageous decision to make the Irish vote again shows the EU is thoroughly anti democratic. The Irish voted No, and that should be that. I hope the Irish vote it down even more heavily next time.

It also appears that there are changes to the Treaty, over the number of Commissioners. This means it should be put again to the people and Parliaments of the EU everywhere. This time the Uk government should honour its promise to give us a vote.

When the Prime Minister misunderstood the comment on this blog which said that on the policies he is following there will be pay cuts and lower living standards, he showed how out of touch he has become with what is happening in the economy.

This week the Trade Unions at Corus are discussing a 10% pay cut for steel workers in the UK. JCB we hear on the BBC have already done a deal to save some jobs by cutting pay. At the other end of the remuneration spectrum some amongst the unloved Hedge funds and derivatives businesses are reducing their fee levels and bonuses and shedding employees. In many companies the cut in living standards is being made by making large numbers of people redundant to cut the overall wage bill. In all too many cases the choice is stark – sack some to save the others, or ask all employees to take a pay cut to save more jobs.

In the USA the same thing is happening. There the Democrat politicians in charge of the Congress demanded action from the Unions to cut the costs of employment before they would agree to put in temporary aid to the three ailing car giants.

I repeat, I hate recessions and want to see living standards rising. It is the result of the huge errors of their respective Monetary policies and bank regulations in the last six or seven years that the UK and the US have lurched from boom to bust. In this downswing companies are struggling to survive and are posing their workforce with the cruel dilemma. Do some lose all their earned income, or do all lose some of their earned income? Why can’t the PM grasp that?

Perhaps it is because he lives in the cosseted public sector, where he thinks he can carry on increasing the numbers of box tickers and administrators with salary rises and pension increases well above the private sector average, all to be paid for by borrowing more or taxing the emaciated private sector more. Surely given the sacrifice so many private sector workers are being asked to make, now is the time for the government to show the way to controlling public borrowing and costs, by asking for a pay cut from all public sector employees paid more than £100,000 a year, starting with cabinet Ministers? I thought this group of Labour politicians believed in justice? Is the relative treatment of the high paid in the cabinet and the upper levels of our nationalised banks fair when compared to the Steel workers?

Yesterday when the PM made his howler about saving the world, the desired headline inadvertently popped out from the supreme regulator of our financial sector and monetary policy in a way which brought the House down. Far from saving the world, Mr Brown has not even got the banks to work. David Cameron was right to challenge the PM on why his banking package is not working, and to ask him to amend it. I predict that for all the bluff and bluster, the government will now look again at it, because under the surface they must be alarmed at what is happening in the real economy.

Meanwhile Mr Brown is learning an expensive lesson in how the EU works. When the UK is told it ought to be more engaged to have more influence, it does not mean the UK has a licence to dictate policy to the rest. Mr Brown lurched from being gently sceptical of the value of all those meetings, to thinking it would provide him with a great mezzanine stage to play “saving the world”. He went with his prepared lecture on reflationary packages, and the dodgy policy of cutting VAT. The Germans rightly took fright at such an idea. They saw the danger of expanding public borrowing to offer a modest price cut on discretionary items at a time of falling prices and lost jobs. Mr Brown misunderstood the mood and pressed his case too far. This week he is being badly scalded by the German Finance Minister, who has launched a severe attack upon the Brown economic policy and gained great publicity for the public put down.

It takes diplomatic bungling on a grand scale to get into such a row when you clearly did not intend to. Mr Brown should now wake up on this issue, and realise that the EU does not want the UK to be engaged and influential to take the EU in a different direction. They want us to go along with what Germany and France have decided. On this occasion it just happens that Germany is right, and ironically it is now Germany that is arguing for the EU to keep out of economic policy and leave it to individual member states at a time of crisis.

So I add one cheer for the German Finance Minister, to my one cheer earlier this week for Ms Merkel. Which reminds me – yes I do back the Telegraph’s campaign for a tax break to help savers. That would be possible if Mr Brown cancelled his unloved VAT reduction and started to get to grips with public sector costs.