The Governor’s speech was a curious mixture of the sensible, the insightful and the wrong.

He does seem to understand that regulation failed and helped cause the crisis. He stated ” unusually low real interest rates and large net capital flows from the emerging market economies to the developed world” “provided the fuel which an inadequately designed regulatory system ignited to produce the financial firestorm.” I agree. I would ask why the MPC of the Bank kept interest rates so low for so long, as surely that was part of the problem that helped ignite the fuel? Isn’t it time for an apology for those mistakes, made month after month in the days of excess credit? As he reminded his audience, the Bank ended up with inflation above 5% against a 2% target.I accept that the Chancellor too should accept his part in this, with the government’s change of inflation target in 2003 encouraging easier money.

I agree with his prognosis that there will now be some modest turnround in activity, and with his forecast that inflation will now rise into the new year as we see the results of the further devaluation, rising commodity prices and the increase in VAT.

I also agree with his criticism of the structure of the UK banking industry, with four mega banks that are too large to fail. I wonder why the Bank did not provide a stronger voice to back those of us who opposed the mega mergers which expanded RBS and Lloyds in the run up to the crisis? If we could see the dangers, why didn’t the authorities see them and act?

What I disagree with are his twin conclusions on regulation. He firstly argues that you cannot control banks properly by imposing capital requirements. We always used to, and did so well until the last five years. The relaxation of the capital controls under Basel was part of the problem. Under the Conservative plan the Bank will be asked to control banking cash and capital in a strong and counter cyclical way. We need a Governor who does think that is possible and will work.

He also thinks the way to cut the power of the banks and to stop them being too big to fail is to split risky investment banking away from utility banking. This is another misreading of the crisis. The first UK crisis in 2007 was a crisis of utility banking. It was mortgage banks who had lent too much to the wrong people in a tradtional way. It was the deposit base which lost confidence in Northern Rock and brought it down, following the Governor’s own foolish moral hazard lecture at a time when he should have made facilities available to the Rock to prevent the crash. The worst period of the US crash was when they allowed Lehmans, a pure investment bank, to go down instead of bailing it. The US authorities then bailed out or helped others bail out Investment banks in trouble.

The truth is you can control all types of bank by proper cash and capital rules, as we used to do before the big relaxation and easy money boom of 2003-7. I think the Governor is right to want more smaller banks in the UK. We do need more competition. Breaking up RBS and Lloyds is essential, but it does not have to be on strict utility versus investment bank lines. We need more utility banks to give customers choice, and to avoid more taxpayer bail outs.

Yesterday we had an all day debate in the Commons on the recovery and unemployment. The Opposition had to call it, as the government has been so reluctant to hold economic debates. The government put in a statement on defence to cut down the time, and we were all limited to short speeches as there were too many members wishing to contribute on the opposition side. Very few Labour MPs bothered to attend, let alone speak. Michael Meacher and Frank Dobson provided criticism of what the government is doing from a left wing more state intervention perspective. The government, probably stung by the criticisms, then decided to make the so called topical debate they hold each Thursday to be about the same subject.

The debate divided along predictable party lines between the two front benches. Labour claimed that they needed to carry on printing, borrowing and spending, or else the recovery would be still born. The Conservatives claimed the deficit was enormous, growing too quickly and likely to get out of control. Labour thought the Conservatives uncaring for daring to question the magnitude and purpose of some public spending, whilst Conservatives thought Labour reckless, running unreasonable risks with the recovery by overdoing the borrowing.

I reminded the government that they are facing three financial crises at the same time. I had to take them through some of the things we have been discussing here for months, because with the Commons away for 82 days and with so few economic debates, I had had little opportunity to put on the Hansard record what we take for granted here. I pointed out they needed policies towards the over borrowed banks, the overborrowed private sector and the overborrowing public sector.

There were two obvious points I wanted the government to grasp that they seem unable to understand. The first is, they have to sort the banks out to have any kind of sustainable recovery. Today their banks are higgled by their own past mistakes and by the Regulators who are demanding too much prudence at the bottom of the cycle, having failed to demand any prudence at the peak of the last boom. The second is, the public sector is currently pre-empting all the cash and borrowings, leaving no room for the private sector to restore its fortunes properly and create the productive jobs we need.

Labour MPs did understand my anger that state subsidised and controlled banks are now proposing huge bonuses to senior staff and Directors. The Treasury bench stayed mum when I proposed they go in and change the approach to remuneration in the banks they own for us. They looked worried when I said they needed to create more UK banks out of RBS and Lloyds, so we can have some vigorous competition in the banking market. They could get a couple of new banks up, running and well capitalised out of the assorted assets and liabilities they currently own very quickly. Then they should go on to sell the rest for whatever they can get, trying to get rid of the toxic assets along with the rest. If RBs and Lloyds didn’t like it they could be offered the option of paying back all the state aid with a profit for the taxpayer instead. They failed to respond to the suggestion that the newly strengthened cash and capital requirements be relaxed temporarily to get some lending going to the hard pressed private sector.

Labour seems to think we are in the 1970s, when some simple neo Kensian deficit and borrowing package will miraculously lift the economy out of the mire. They forget that when they tried that in the 1970s markets lost confidence in them and they had to cut public spending in order to borrow from the IMF.

The spin plan is clear. As soon as there any real numbers to show an end to violent de-stocking or any other kind of uptick in activity, Labour will herald recovery and claim it is all the result of their actions. Will there be a recovery of sorts? Yes there will. Do I welcome that? You bet. Will it be strong enough and sustainable? No it will not. Is it one of the best in the developed world? No , it will be one of the worst.

When I asked Yvette Cooper why Australia had not been in recession and why the UK downturn had been deeper in GPD decline than the Canadian or US, she was unable to tell us. If the UK is leading the world and has played it so perfectly, you would have thought we would enjoy the shallowest downturn and be the first out. China and Germany started their recoveries in the second quarter.

I am glad the international community has had the courage to say the Afghan election was corrupted by too many false votes. They point out that most of the fiddles were for the incumbent President.

That makes today’s response by some commentators that Afghanistan needs a government of national unity led by the man who intended to profit from the corruption almost unbelievable. Surely the aim must be a run off second election to give the people the chance to decide what they think of his conduct and whether his closest rival would be better? The President is a lucky man that in this upside down world no-one us suggesting any culpability on his part for the past election, and all seem to think he should stand again in the run off despite the irregularities.

Trying to create a western style democracy in Afghanistan was always a heroic task. It requires bravery on a large scale. Today all democrats must surely say the election needs to be re-run, and all must unite behind the forces in Afghanistan that can try to allow the public there a free choice of candidate. Let’s hope the international community has learnt from the ways the eleciton was corrupted last time, and let’s hope they have enough influence with the Afghan authorities to ensure a better performance next time. Western troops should be asked to train and support those who will be running the polling, as a preparatory mission to more general training of the Afghan police and military which should be their main task from now on.

None of us in public life enjoy cutting public spending. It would be wonderful to have more money available to sponsor your pet schemes, to do good to those in need, to improve our local area.

Today we have to recognise that the public sector is simply taking too much. It is taxing too much and borrowing too much. Now it is also printing too much. If we go on like this there will be another crisis. This time the pound will sink too far, making us all poorer. Interest rates will be forced up, making many poorer again.

Even the government recognises that at some point the printing has to stop and the borrowing has to come down. The irony is the government has been busily lecturing the banks and the private sector for spending and borrowing too much, only to go on doing exactly the same itself.

The important thing in the next couple of years will be to hold on to what matters most whilst bringing the books into better balance. I will want to see money spent on good teachers, nurses, doctors and sensible management of our core public services locally. I want an end to regional government, to the regional development Agency, to the regime of Best value and Comprehensive Performance Assessment affecting Councils. I can live with far fewer glossy brochures, traffic mismanagement schemes, partnerships and officials with jargon filled titles.

There is some good news out there. If the public sector copied the best of the private, or even copied the best of the public, cost would fall and quality rise at the same time. Private health providers told me last week that they could provide operations for the NHS one fifth cheaper than the NHS hospitals manage. Under Labour’s arrangements the local NHS can use private providers to deliver service free to the patient. There is considerable scope to cut the costs of government, starting with Parliament where there are too many MPs and their offices are often very expensive.

We need Councillors, quango boards, public sector Chief Executives to all follow the same mantra. It is time to do more for less. It is time to do things better and smarter. When I was leading a manufacturing company management team each year our customers expected a 2-4% reduction in prices. They also expected better quality and prompt delivery. We did it, because if we didn’t the Chinese would. It is difficult but not impossible. That’s what we now have to do throughout the public sector, so we keep what we value, and charge what the country can afford. If we go on as we are we end up with national bankruptcy.

The BBC asked the right question this morning in response to the Regulator’s comment that we were now going to see tougher mortgage regulation. Who currently with a mortgage will not be able to refinance it? Which groups of poeple who would like a mortgage and currently can get one will no longer be able to?

As always when you try to find the small print things are not quite as they seem in the spin. Maybe the regulation will be tougher, maybe it is just for a soundbite. If it is truly tougher, then I fear it will be the self employed who find it difficult to prove their earnings. A large number of people who took out mortgages in the days of excess could be at risk of not being able to refinance if their mortgages time expire in the next few years. Will that make the world a better place?

The good news is I take it from the latest spin that the government at last concedes that house prices ran up too far too fast thanks to excess mortgage lending. They spent years telling us the reason was a shortfall in the number of homes built, when it was obvious to any sensible observer that 97% of the homes sold were second hand and their prices were driven higher by excess credit. I doubt however they will say sorry for their gross misreading of the situation.

Nor will they revisit the argument I had with them over what kind of mortgage regulation is needed. I said we needed strong regulation of cash and capital at mortgage banks. If you do that it limits the total amount of mortgage money available, and forces the banks to make more sensible judgements both aboutthe level of house prices and individual credit worthiness. The government introduced a whole panoply of new regulation of the process of granting mortgages. This patently did not work, as it s imposition coincided with the worst mortgage crash any of us have lived through, with the collapse of several mortgage banks and the big fall in house prices. If only they had regulated the right thing, as I urged, and left the process alone, all would have worked fine as it used to.

Today’s announcement is regulation without the numbers. What we need to know is how much money in total mortgage banks are allowed to lend, given the current state of their balance sheets. If they want a recovery they need to relax a bit. If they want to carry on fighting the last war which they lost, they should carry on tightening.

I awoke this morning to the news that the government is thinking of a tax on banks and a tax on car boot sales – taxes from the ridiculous to the sublime.

In the current anti banker mood there might even be cheering in the streets for the idea of a tax on banks. First the government whips up the blame on the bankers,to avoid too much probing of its own role in the crisis, then it thinks banks might be one of the ways to help the state out at its time of financial emergency.

Taxing the car boot sale will not be so popular. It’s another example of how a flexible market will be brought down by regulation and taxation if the government has its way. Good heavens, say the taxation Ministers, people have found a way to raise some cash or even turn a small profit which might not be going through the books. We will move into the sunday field and take a slice of the action. We will clearly need a new army of Sunday inspectors and box tickers to list all those trading and offering the facilities. Another bit of freedom will fall under Labour’s bureacratic yoke, amidst much hand ringing over how wrong it is that some people have been enjoying themselves or raising some cash in this irregular way.

But let’s get back to the banks. Could you take a lot of tax off them next year? Yes. Would it be popular? Yes. It would however be a strange thing to do when the Regulator is shouting at them they do not have enough cash and capital for their current level of business, and when you want them to carry out more business. If you take tax off Lloyds and RBS the state if taxing itself. The money is just going round in circles. If you take tax off Barclays and HSBC you force them to raise more money some other way, maybe by increasing charges on UK customers.

I have advocated taking more money off the state banks in return for granting them their freedom. The best answer is to encourage them to buy themselves out from state shareholdings. They should be offered the chance to cancel the state shares in return for the share capital money put in and a penalty premium so the state is rewarded for the bail out. Let’s pass over the vexatious issue of why they needed bailing out in the first place and the government’s role in that. A deal could be done which would give the taxpayer both cash and profit earlier, and remove the taxpayer from risk.

One of the reasons people like the idea of a tax on banks is they see a return to mega bonuses in parts of the city. If banks that need state support are planning bonuses there is an easier way to tackle the problem. The state as shareholder should intervene and tell the bank managements there will be no mega bonuses for senior executives and Directors, all the time they remain in state hands. The bonuses being paid in unsubsidised banks and trading houses are the direct result of the easy money policy currently being pursued, which is doing good for the fat cats but not helping the rest of the economy much. I have explained before how the government could change its monetary policy and banking regulation to address this crazy imbalance. I guess they prefer to bash everyone including the banks in the private sector to ensure the state takes all the money they are printing.

Mr. Redwood: I rise to support the excellent contribution by the hon. Member for Thurrock (Andrew Mackinlay), in the spirit of cross-party co-operation in which the new clause was moved.

I love the image of England in the 1960s, when I grew up, when independent and civically minded people were in local government and there were fewer representatives of political parties. I am sure that there were, indeed, people who could harness the good will of people of all parties and of none in solving problems. Local government now is much more politicised, although I do not think that we are about to reverse that.

All the main political parties want to test their strength in local government elections. They also wish to propose, in an understandable way, a national and local programme combined. Some voters agree with that. Some say that they do not, although I suspect from how they vote that in practice they think that there is something to be said for a party platform. However, I would argue that the hon. Gentleman’s proposal works equally well in the more modern world, where party political groups are likely to predominate in councils, because the most important thing is the role of the average councillor.

The enforced cabinet system in local government has given back-bench councillors a reduced role and made a lot of them rather unhappy. Not only do they not have a proper role in the decision making of the authority to which they were elected with equal strength to those who do, but they do not even have the same ability to hold the administration—the executive—to account for the people whom they represent in their wards and divisions, because we all know that the officers do not take them as seriously if they do not have executive power and are not members of the cabinet. I have known councillors who cannot even get information out of their council, but surely a councillor should have a privileged position and expect to see the business of the council, if necessary on terms of privacy, if it relates to individuals or sensitive matters.

We need to devolve power more properly to local government. I would hope, as the hon. Gentleman does, that if we could do that, more local authorities would choose a committee structure and return to the idea that the important decisions should be thrashed out in common in the political groups, so when the political groups presented their views to the council, not only would the group leaders know that they spoke for their group and know what the balance of opinion and forces was within it, but each back bencher would feel that they mattered, because they would have an equal vote in the group. If they are powerful speakers, if they feel passionately about something, if they have a good case or if they are on the popular side, they will have the joy of knowing that they will help to form the group proposal. All that would become possible again if the hon. Gentleman’s new clause 8 were passed.

Robert Neill (Bromley and Chislehurst) (Con): My right hon. Friend makes a powerful point. Perhaps his experience of the committee system is reinforced by mine when I was a committee chairman in local government. In effect, the committee chairman and the leader formed a cabinet and gave officers a steer. However, once the policy was agreed, my job as a committee chairman was to take the members of my committee with me. At the very least, that meant taking the back-bench members of my side and sometimes, if I wanted an easier ride, taking members of the opposition as well. Is that not a much healthier situation?

Mr. Redwood: I am grateful to my hon. Friend for that comment, and I hope that that means that those on the Opposition Front Bench will support new clause 8, should there be an opportunity to vote on it.

When I was a county councillor in Oxfordshire in my younger political days, I, too, was privileged to be a committee chairman. I therefore had some executive authority. However, I always felt that that authority came from and was vested in the majority group. I was always pleased to take what I wanted to do to the group. I thought that I was doing the right thing, but it was a lot stronger if I could take it to those in the group and persuade them, because then I knew that they would vote for it willingly, unlike under the current system, where things are worked out in private, often on the advice of the officers and without a lot of political sense involved. Then things have to be driven through against the unwillingness and the voting patterns of the majority councillors, with all sorts of arm twisting of the kind that people sometimes experience even in this place, in a way that gets in the way of good government and common sense.

People elect councillors because they think that they have talents and skills, so surely all those talents and skills should be deployed. Not all councillors can have executive posts, so let them be involved in the big decisions. Indeed, perhaps we could learn a bit from that in this place. Of course we need a Cabinet—we all understand the importance of Cabinet government—but successful Cabinet Ministers in this place are Ministers who consult, consider and listen to colleagues before they go snap on a policy. Successful Cabinet Ministers not only understand their policy and know how to pilot it through this place, but are people who have tested it out in advance and do not think that everything has to be secret. Then they know that they have a constituency for change. I hope that we can vote on new clause 8 and free local government to have that option.

On Friday I was trying to explain the financial mess the UK is in now to some Councillors. I was urging them to cut their overheads by natural wastage and other measures now, as I fear whoever is in government in seven months time will tell them “the party is over” in Callaghan fashion. One just couldn’t agree, and carried on arguing as if we were still circa 2006 and the government would find some more money if they made a good case. So let’s have another go to explain why I think we are in the worst public sector financial crisis of my lifetime.

Let us look at the financial plight of an imaginary Mr and Mrs Public Sector. They are on a good income of around £50,000 a year. They don’t feel it is nearly enough, as they are spending this year £67,500, financing the extra £17,500 from borrowing. They are lucky, because they do not have to pay any tax on the income, so what they earn they can spend.

They already have an £80,000 mortgage. They owe £110,000 to the pension fund, as they have not paid any pension contributions in for years. They have borrowed another £50,000 on credit cards and hire purchase to buy furniture they fancied and to undertake some training courses. They have guaranteed a couple of businesses that have gross debts of £300,000, but the businesses also have plenty of assets so they are hopeful they wont lose too much on them.

What would you advise Mr and Mrs Public sector to do? Would you say they should spend and borrow some more, because one day their income should be well above their current spending level? Or would you say to them, you have borrowed too much and are spending too much?

Mr and Mrs Public sector are currently paying just 4% interest on the mortgage. They don’t know what they will have to pay on the credit cards and HP, as it all depends on loads of small print in the contracts. If the interest rate on all their borrowings turned out to be 8% then they will have to pay one fifth of their income on interest charges alone. They also ought to be paying more than a one fifth or £11,000 a year into the pension fund to eliminate the deficit over ten years.

I think a friend would say to them, sell the shares in the businesses and get out of that risk. Start to sort out the pension provision, at least by stopping future increases in what you owe on that account, and start to get the spending down a bit. I can’t believe most people think the answer for them is to spend more and borrow more.They could end up with very little to spend on their basic living costs, given the debt interest, the losses and the pension contributions they might have to pay.

If you multiply all Mr and Mrs Public Sector’s numbers by 10 million you have the rough numbers of the national public sector. Why should multplying it up make the financial predicament different or the remedy easier?

Yesterday Lloyds/HBOS actually sold something. It sold a chain of estate agents, bought near the market peak for a much higher price. The taxpayer will share in the £1 receipt the banking group will enjoy.

The Halifax branches in those estate agencies will be closed. So that’s another blow for a less competitive banking market, and more lost jobs courtesy of state ownership. The bank couldn’t be bothered to work away at turning these branches from loss to profit, and clearly does not want too many branches hanging around in its portfolio in case a new government comes along and requires it to form a decent competitor and sell it on. We lose 121 bank branches and 460 jobs.

Meanwhile the Directors and senior executives who had the great idea of buying and building the chain for millions, doubtless are still enjoying their bonuses as the bank now write the whole lot off.If only Lloyds would continue their “ongoing dialogue” with us MPs who have to vote their subsidies, we might understand the genius of it all a little more.

Late yesterday afternoon I received a phone call from Newsnight. They told me they had a leaked document from the Post Office management, setting out how to grind the Union down and force them into submission. They asked me what my views were on the way the Post Office handled its industrial relations. I referred them to my blog on how I would tackle the Post Office mess, and explained the faults on both sides that had led to the current break down in relations. I was then told they were grateful for my briefing, and they put the phone down before extending an invitation to appear on their show.

The Labour line appears to be that some in the management want to take a tough line, and this would show they are like “heartless Tories”. All that such a lie requires is a willing Tory to go on and defend this “management” paper, which does not seem to be the policy of the top management of the Post Office anyway. It would be interesting to find out more about who commissioned this paper, who leaked it and what its purpose is. I doubt we ever will!

Will they never give up trying to distort the public debate? And can they never get a bit more subtle to make it more likely someone interesting will fall for it? They are running this line without anything to back it up!

Yesterday defence Ministers backed a Report which tore into the inefficiency, incompetence and high costs of Defence procurement. The Report showed how programmes on average take years longer than planned and come in way over budget. Ministers commissioned, encouraged and sanctioned this Report. Why?

This government has always treated Defence differently from the rest of the public sector. They have wanted to reduce or control spending, where elsewhere the more money spent the better. In health or education when asked anything about quality or achievement, the answer would be to point to the large increases in costs they had incurred and were planning for the future. In defence they were more careful with the amount of money. As a result they faced charges that their relative parsimony meant insufficient support and equipment for our troops at war. Their answer was to probe, to discover how badly spending was organised, and to promise reform. In this one department even they saw you needed to do more for less. Elsewhere any apparent problem was dosed with huge sums of money, with no intelligent reform of the way the money was being spent.

There are two problems with this approach. The first is the MOD not only has accountable Ministers responsible for all its spending, but even has a Minister whose sole job is to gain value for money in defence procurement. If the department is as bad as the Report and Ministers say, the Ministers are to blame. The second is, much of Whitehall is the same as Defence. Ministers now need to tell us when they will undertake the same kind of review of the rest of central spending, and when they will seek to improve that.

The Defence Report makes the points I have been making generally about public spending. The figures for delays and overruns are huge. We are not talking about a good manager being able to do a few percent more for the money, but being able to do much more. We are not talking about taking say 5% off the cost of a given activity, but being able to take 25% off. The bad news is that is not unique to the defence department. Any good manager coming in could make this good news for taxpayers, by saving the cash without reducing the activity.

Last night I was speaking to a dinner. One of the people I met runs a consultancy to help companies be more efficient. He had recently undertaken a project in the public sector. The particular business attracted public subsidy for its activities. His team discovered that with process improvement they could treble the output each week using the same basic plant and equipment they started with, and using the same employees! That degree of improvement can transform the accounts of an enterprise and remove the need for any subsidy.

It reminds me of electricity privatisation. When I was advising on it from within the civil service I needed to put a figure in for productivity improvements at power stations once they were in the private sector. The industry told me the plants were as efficient as they could be. I put in 20%, as that was the typical saving we achieved by contracting out activities. They objected, and said it could not be done. A couple of years later I contacted a power station and asked what had happened in practise. I was told I had been wrong – my estimate was far too low!

It is not going to be an easy task changing attitudes. It is patient and detailed work, seeing where and how effort is wasted, and putting in place the incentives and sanctions so staff will make the huge improvements in process that are needed.

Readers of this blog will know I have been trying to engage in the “ongoing dialogue” the Public Affairs department of our part state owned bank decided to initiate by writing to all MPs. My latest letter to the Chairman, seeking his response on the future conduct of his bank, the repayment of the taxpayer and the improvement of competition in the UK banking market goes unanswered. It is proving to be a very one sided and short lived “ongoing dialogue”. At least I seem to have stopped them wasting any more money on conducting research for MPs and sending it to us. If I were Chairman of an organisation in receipt of so much taxpayer aid I would be prompter in my replies to those who debate and vote the money.

Today I awoke to the Today programme telling me Lloyds was likely to receive another £5,000,000,000 from taxpayers to top up its capital. No, No, No. The answer must be No.

Lloyds has plenty of assets. They should sell some. Lloyds has too big a position in the UK mortgage market, thanks to the foolish acquisition of HBOS egged on by the government. It should be made to sell some of it off. Lloyds can now raise some money from private markets, so let it do so. Lloyds has enormous scope for cutting its costs, starting with the huge salaries its Board members and senior executives draw from a subsidised business. My constituents have no wish to see more of their money go to underwrite such conduct.

The taxpayer should not be standing behind more than £3 trillion of banking liabilities and assets. We should be plotting our exit strategy. Lloyds should be told to buy itself out of the taxpayer support, with the Treasury offering to swap its shares for short term loans with a stiff interest rate to encourage repayment, also incorporating a premium on the amount put in as share capital to repay the taxpayer for the risks run so far.

The single fastest way to improve the public finances and cut the risk is to get our money back from the banks and make them stand on their own feet. To do so they must be split up, so we have more banking choice in the market and more smaller banks to diversify the risks.

The silence from the President on whether he will back his General and send in more troops or not is deafening. He made it as major feature of his election campaign that he would intensify the war in Afghanistan. It was one of the reasons I did not like his policy platform. Let’s hope he thinks again.

The truth is, there is no front line in Afghanistan, no field army to fight, no fixed and organised band of opponents who can be bombed and shelled into submission to come out one day under a white flag and give themselves up. The terrorist insurgents live within the communities of the country,move around, lie low, appear from behind as well as from in front of allied forces, and recruit as they die in skirmishes. All the time villages and towns will harbour them because there is support, or because they are afraid of them, the allies have a problem. Fighting them when they are embedded in local communities makes the loss of life of non combattants all too likely, which makes winning hearts and minds more difficult. It also makes defending our troops from harm more difficult.

Foreign troops cannot capture every settlement and garisson them to prevent all Taleban incursions. Terrorism will only be reduced and finally eliminated when an Afghan government and its own domestic security services are capable and willing to stop the violence. The state needs to have a monopoly of force and to use it wisely and rarely. The government needs to have widespread support and consent to create a peace loving society.

I assume Mr Obama has realised that committing much more to supporting the present government is a far from a pleasant option. Why doesn’t he insist on a second round run off in the election as the price for continuing allied support? Why can’t US and allied forces then help create a sufficiently honest election for people to have confidence in the results? Then the job of supporting the regime and training its own police and army could be get underway more intensively, with the clear understanding that the allies were there to transfer the duty of creating and maintaining a peace to local forces, not to be an army of occupation.

We hear this morning that Mr Brown will set two conditions for sending more British troops – they should be well equipped and other NATO allies should also send more. He should add a third. Their task should be to train the locals, not to try to capture and hold more territory in an asymetric war.

It is perhaps a fitting end to the Labour era that we should again be on the verge of an important public sector strike in a badly run nationalised industry. One of the dangers of monopoly businesses is they give too much power to both management and unions to conspire against the public, often offering poor service and high prices combined. In the case of the basic postal service we have seen fewer collections and deliveries and higher stamp prices in recent years.

The Post Office is now a curious British amalgam. The postal delivery and sorting operations are public sector businesses,conducted by public sector employees in state owned property. The transport operation is partly contracted out, whilst the main network of smaller Post offices with counters business is a network of private sector franchisees.

I have written before on this site about the way middle management is thwarted by senior management. They cannot manage the revenues or the assets. They just have to keep managing cost down, which makes keeping morale up difficult. There is now some competitive pressure at the edges of their business which limits the scope for higher prices and poorer service. If they go on strike they may find there are more competitors and other options than they bargained on.

I would like there to be a radical move in Post office policy. Central to a good service and to favourable customer perceptions of the service are the postmen and women who sort and deliver the mail. Why not give them shares in the enterprise as part of an attempt to energise and improve morale. Why not at the same time give local and middle management more say over property improvement and sale, and over revenue generation.

I would like to see a negotiation to let the employees and managers take control of the shares in the Post Office, in return for also taking over the Pension plan. There would need to be a negotiation over what extra funding the government would need to put in to make it a worthwhile transaction for both sides.All know there have to be changes in the fund and its terms. Why not give the employees an incentive to help push through such changes, as shareholders in the sponsor company? Any government contribution could be given in the form of new government bonds, and could be phased over time.

At the same time the Post office could raise new capital from outside shareholders by selling newly created shares, to give it more investment capital to modernise.

Last year the Post Office lost £229 million post tax, on a pre tax profit of just £49 million. The previous year they lost £77m pre tax, and enjoyed a tax rebate. The CEO was paid just under £1 million last year for this performance. The operating profit was struck after cutting pension contributions from £743 million in 2008 to £527 million in 2009. There was also an additional deficit reduction plan and contribution. The Pension fund deficit stood at £6,776 million at the end of the last financial year.

The scope for future losses is large given the manifest failure of current arrangements to work well. We need to limit taxpayer losses on both the business and the pension plan as quickly as possible, whilst there is still a business there to support the workforce and pensioners.

The first preliminary round of the Wokingham Schools Debating Competition will be held this Thursday, the 15th October, at Luckley Oakfield School from 7pm. Teams from Luckley Oakfield, The Forest School, The Willink and Maiden Erlegh will battle it out for the John Redwood Cup for debating. They will be joined by teams from Bearwood College, St. Crispin’s School, Emmbrook and The Holt the following Thursday, the 22nd October at Bearwood College.

This Thursday, Luckley Oakfield will kick things off by proposing the motion “This House believes extremist views should not be aired on television”, with Forest opposing. The Willink will then propose “This House believes in free speech, as sticks and stones may break your bones but names can never hurt you”, which will be opposed by Maiden Erlegh.

The Forest School’s second team will then propose “This House thinks that everyone who wants to go to university should be able to do so”, opposed by Luckley Oakfield’s second team, and to wrap up proceedings Maiden Erlegh’s second team willl argue “This House would scrap coursework in favour of exams”, opposed by The Willink.

The contest is open to anyone who wishes to come and observe and we would ask teachers to encourage their pupils to attend even if they are not taking part. If you would like photographs for media purposes please arrive slightly earlier as we will be starting at 7pm sharp.

The competition is a yearly event, with previous contests having been won by the Emmbrook and Maiden Erlegh schools. It is organised by Wokingham MP John Redwood and is made possible by sponsorship from 3M, Clifton Ingram and Bill Clark.

For more information, please contact Carl Thomson on 020 7219 4205, or if you have any questions on the day please contact Christine Hill on 0118 962 9501

Last night at an MP group I chair we began to compare notes about what local Councils were doing to prepare for the new age of public austerity that Mr Darling has offered for after the election, and George Osborne has confirmed. The general view was CEOs were starting to prepare their Councillors for severe scenarios, probably with a view to making the political task of reducing expenditure look unacceptable and impossible.

The next local authority grant for 2010-11 will be settled by the present government next february. It is likely to be tough by previous standards. Labour is well aware they do not control many Councils anymore, and some in Labour would like to see Conservative Councils forced to cut owing to a low grant to be able to make the point that “that’s what Conservatives do”. The government will need to come to a more balanced view, not wishing to undermine the remaining large city Councils and having to stick to a grant distribution formula to decide how much each Council gets which can be defended in the courts and in the public debate. It is likely to leave the main task of reining in local spending to the next government, just as it is leaving national spending to a future day.

If a Conservative government is returned in May 2010 there is likely to be an emergency budget to tackle the deficit more urgently. This is unlikely to re-open the local government settlement for 2010-11, as Councils will be a quarter into their year and have already settled their Council Tax levels and sent out bills. The first full year when local government will be asked to make a sensible contribution to controlling spending will therefore be 2011-12. This gives all prudent Councils plenty of chance to get on top of their budgets well before the shock of a poor grant settlement hits. As much of their cost is personnel costs, applying strict disciplines on recruitment from now could leave a good Council well placed to tackle any tight financial requirements in eighteen months time. Councils should be looking now at reducing the number of posts with Nulabour type job titles that have proliferated in the murky worlds of PPP, partnerships, strategic planning, cross cutting, networks, communications, business services and corporate services. We need to get back to simple and leaner structures, with just Heads of the main services like Education,Social Services and Highways, and Heads of Finance, Property, IT and Personnel. These Heads need to drive higher quality and efficiency throughout slimmed down structures. Using natural wastage and reorganisation should achieve a lot over eighteen months to create a better value Council without needing compulsory redundancies.

Yesterday it became clear that the biggest share of the £16 billion asset sale the government now envisages is planned to come from local government. It was a bit of a problem that local government did not seem to have been properly consulted about this. It is also something that is not entirely in the government’s control. It is quite likely Councils have surplus assets which they can and should sell sometime. It is not, however, good practise to pay the daily bills from capital receipts. If they do have assets to sell, the best thing to do with the money in current circumstances is to repay some debt, cutting the interest bill for taxpayers.

This is a final reminder that the deadline for John Redwood’s Christmas card competition is fast approaching. The competition is open to all primary school age children in the Wokingham constituency, and involves sending a painting or drawing about Christmas to John’s office. The winning picture or painting will be used as the design for John’s Christmas cards and be sent to MPs and local people in the constituency. Four runners-up will also have their pictures printed on the back of the card, and the winners and runners-up will receive a clean copy of the card to keep as a memento.

The deadline for entries is Monday the 19th October. Your pictures and paintings about Christmas should be sent or dropped off to Christine Hill at the Wokingham Conservative Association, 30 Rose Street, Wokingham, Berkshire RG40 1XU and must not be folded. If the picture is drawn it should be in bright and vivid colours so it can be electronically scanned and reproduced. Please write your name, age, and school in pencil on the back of your painting.

For more information please contact Carl Thomson on 020 7219 4205

Asset sales are a necessary policy when you are so deeply in debt. An even better policy would be to limit the spending. The week-end press still offered plenty of marginal or non jobs in the public sector at fancy salaries, as if all was still normal with the public accounts.

Some criticise the government for selling anything at all. There is no choice when you need to raise so much money. Whilst prices will not be as good as in 2006-7, at least selling them now the taxpayer gets some benefit for all the money printing, which is boosting values somewhat.

In the Conservative Economic Policy Review we discussed the long term rate of growth of the UK economy. We pointed out it had been 2.5%. The Treasury had recently raised its forecast, saying the long term rate had actually risen to 2.75%. We concluded the rate of growth was being flattered by temporary favourable trends that were likely to end. We reckoned the long term rate of growth on unchanged policies would be considerably below 2%. Two trends in particular, the advent of excess credit, and the favourable impact of Asian industrialisation and rapid migration might not remain as positives for productivity and low inflation.

In the introduction I drew attention to the way excess credit expansion, easy money, loose banking and off balance sheet financings were expanding activity in an unsustainable way. I said “There is considerable uncertainty in world markets about how far the Fed, ECB and Bank of England may go in raising rates to squeeze inflation out of the system. They must know there are huge pyramids of debt throughout the system, and inflation will not be killed unless the appetite for more debt is blunted. They also know that if they push interest rates too high for too long they could bring the debt structures crashing down ….” leading to recession.

Unfortunately I was wrong. They apparently did not know they could bring the whole system down by keeping money too tight.

Recently the Taxpayers Alliance has published an economics report by CEPR , an independent consultancy. They conclude that on present policies the Treasury trend figure of 2.75% growth is unrealistic. Their central estimate is for 2% growth only, with a pessimistic figure of 1.5%.

If this is right the deficits stay high for a long time, and the figures will all look a lot worse than the official ones. I think in the light of severity of the Uk banking problems and the scale of the crisis, we are looking at the pessimstic end of their assumptions without policy change. If anything the Conservative Economic Policy Review understated the damage the crisis was likely to do, as we lived in hope the authorities would pull us out before it got so bad.

After keeping rates too low for too long in an inflationary manner, the MPC turned to keeping them too high. Throughout 2008 when interest rates were higher and a credit crunch and recession seemed likely, I called regularly for lower interest rates. More importantly, from within the MPC, so did Mr Blanchflower. I praised him for doing so at the time, as he was right. Events showed how damaging keeping rates too high for too long proved.

More recently, Mr Blanchflower has spoken out to defend more or less any level of deficit and any degree of money printing as he remains of the belief that the recession is so deep that we should carry on hurling large amounts of printed and borrowed money at it by expanding the public sector. I strongly disagree.

In his attempted political put down of the Conservative Leader he says “The Tory economic proposals have the potential to push the British economy into a death spiral of decline that would be almost impossible to reverse for a generation” !

He clearly wanted media attention, hence the hyped and very political rhetoric. His economic prescription includes “A few years of inflation, around 5% or so” and raising the CPI target so the Bank does not have to worry about controlling prices.

It is absurd to suggest the wish to control the deficit over the next few years in the way set out by Mr Obsorne could do damage in the way Mr Blanchflower asserts. The issue he should be looking at is the way the public sector is currently crowding out credit and activity in the private sector. He should worry that if deficits balloon too much for too long markets will force up interest rates and undermine confidence in government finances, which would make the situation worse. Has he learned nothing from Iceland, Latvia and Ireland in recent months?

A sustained recovery requires progress in sorting out the public finances.Controlling inflation remains important to the proper conduct of business and to the value of savings.The government is right not to relax the inflation target. The MPC needs to watch out that it does not overshoot it again.