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          Amidst the basket ball games and trip on Airforce One, the Prime Minister has plenty of time to talk to the President about the US/UK involvement in Afghanistan and the wider Middle East.

           It is a sobering week to do so. We still have in our minds the tragic deaths of six UK soldiers when their armoured vehicle was blown up by a planted bomb. We have been shocked by the mass murders of sixteen Afghan civilians in their own homes from the gun of an American soldier. Yesterday in Parliament the Deputy Prime Minister and the Deputy Labour Leader made longer than usual tributes to our forces, and expressed our common grief at the needless Afghan loss of life.

          Both leaders have long acknowledged that we need to take our forces off active duty in Afghanistan, prior to withdrawal of many of them. The policy has been for many months that we will help train more local  soldiers and police preparatory to taking a less active role and then returning home. I have just tabled some questions to ask how long it takes to train Afghan personnel. When we can get into a position where the Afghan trainees led by Afghans that are experienced and trained might undertake their own patrols and policing?

             We could move more rapdily to a position where out troops stayed in protected barracks and were on call only if some special equipment or expertise was needed by the Afghan patrols. We could plan a faster withdrawal from  Afghanistan as a means of accelerating progress in putting Afghans in charge. There is nothing like the experience of doing it yourself to complete the training.

             The period of prolonged withdrawal can be the most dangerous for our troops. For that reason if no other we should wish to curtail the period of risk. Risks are increased by incidents like the burning of the Koran and the unprovoked  murder of  civilians. All those Afghans who want foreigners off their soil or at least want armed foreigners off their streets just have more reasons to support their cause. Of course none of this was intended. Of course the overwhelming majority of foreign troops are well disciplined and generous with their skills, willing to run risks for the sake of the greater good. However, one random bad act can give propaganda victory  to those who want an early departure of overseas soldiers.

           Let us hope our leaders use their time to establish a new common position that speeds up what Mr Camron calls the “end game”. While they are about it, they might pause to reflect on how it might be better to avoid a further military intervention in the region for a bit. The USA now has access to vast shale gas reserves, which move it closer to future energy self sufficiency. The UK too could reach self sufficiency if it wished. That would be a peraceful goal which helped the world economy and took away some of the reason for such tensions over the oil rich lands of the Middle East.

It is fitting that the English word for a government loan, a bond, also has an alternative meaning as a kind of enslavement.

If the government does borrow money for a hundred years at say a 3.5% interest rate, it brings home the slavery of a nation in debt. For every £1000 million borrowed, taxpayers will over the years have to pay £3500 million in interest, before finally stumping up the £1000 million of capital for repayment.

Rational people save up their money before entering a major spending commitment, or seek to bring their spending into line with their income. If governments were prepared to get their accounts into balance it would spare taxpayers this growing mountain of debt, and the huge interest bill that goes with it.

In the US we have seen better figures for employment, rising output and a stronger Stock market. This morning we hear that most of their banks pass a tricky stress test. Why are they doing better than Europe?

It all comes back to the banks and the currency. The US left their main clearing banks in the private sector. They taught the bankers a lesson by allowing Lehmans to fail. Their banks were soon weaned off temporary assistance from the authorities. Most of their banks are now in reasonable health, and capable of financing a recovery. The Fed has not needed another round of quantitative easing. The US single currency is a settled system, backed by a political sovereign, and making large transfers from richer areas to poorer areas.

Meanwhile, in the EU, the banks are still not properly fixed. In the UK the two large ones with state shareholdings remain weak. In Euroland the banking systems of Ireland, Spain and Greece in particular were weak. Ireland has had to tackle it by massive state aid to its banks which dragged the country into special measures asnd subsidised international loans. The Euro currency does not work for the peripheral states. Too many places end up with the wrong monetary policy and the wrong exchange rate. They do not receive the large compensating subsidies the poorer parts of the dollar union receive from the centre.

In the UK the banking regulators remain tough, demanding more cash and capital to support the volume of loans they have already made. The wish to clamp down on mortgages has led to the demand for much higher deposits from home buyers. This in turn has led the government to bring in a scheme to offset some of these tougher rules, as the government is frustrated at the sluggishness of the housing market which results from some weak banks and a newly toughened regulator. If you do not fix all the banks, one intervention leads to another, some of them pointing in opposite directions. The present tougher cash and capital restrictions will also lead to Credit Easing, a policy designed to offset some of the new regulatory muscle.

One the best things this government has done so far was to allow the establishment of a Backbench Business Committee in the Commons. This Committee can choose the business roughly one day a week. This new freedom for backbenchers has brought us some crucial debates. Readers of this site in particular were pleased that this Committee gave us the time for a debate and a vote on an EU referendum when neither Labour nor the Coalition would give us time to discuss this crucial matter.

The reform was one of the results of the soul searching in the last Parliament about how the stature of Parliament could be enhanced. Many of us saw Parliament needed to be more relevant and more in touch with the concerns of electors and with their news agenda, even when this was inconvenient to Ministers and to Shadow Ministers who otherwise choose the business. Several of the Backbench debates have highlighted important issues that would otherwise have been ignored or played down – the European Court of Human Rights, the Hillsborough disaster and the plight of circus animals were other examples.

Yesterday the government rushed proposals through to change the way the Committee is elected in future, against the wishes of the current Committee. It was a sad and strange decision. Everyone speaking claimed the current Committee has done a good job. They were all elected by the whole House. They have not operated in a party political way. Now the government wants them to be elected by party, with Conservatives voting for Conservative members and Labour voting for Labour members. Backbenchers fear the front bench aim is to exert more influence over who gets these jobs.

I spoke against the government’s proposals. I urged them to leave it alone. Colleagues who also spoke wanted to wait for the Report of the Select Committee looking into it all before making any changes. The government used its payroll voters to push through its wishes. I will post my speech on this site. The main point I made was that Ministers should not see scrutiny and accountability to Parliament as a limit on their power. The true limits on their power are the EU, the European Court of Justice, the European Court of Human Rights and the many independent quangos that have been set up. It this we need to address, not the power of Parliament to cross examine government.

In this Jubilee Year maybe we should not ignore the question of the monarchy. I have never asked my readers if they are monarchists or Republicans. Now is your chance.

As a young man I was a reluctant monarchist. I could see the difficulties of keeping a monarchy in a democracy. I could understand why the American and French revolutions had seen the need to remove the Crown, though I abhorred the violence and extremes that powered the French Revolution to the terror and then to an autocrat. I accepted the modern monarch as a figurehead, a link to our past. The clinching argument for me was that I could not think of a better way of choosing the Head of State if you wished to preserve Parliamentary government with a powerful Prime Minister and Cabinet. I had no appetite then to move over to an elected powerful President.

My enthusiasm for the monarchy became greater as the attack on our constitution from the EU intensified. The monarchy as an institution clearly does not fit with a state which has become a wholly owned subsidiary of the EU. Though a constitutional monarch will go along with any degree of European humiliation elected politicians place on our country and will not itself be a source of strength against federalism, it is another awkward reminder or symbol of the vaunted freedoms and independence Englishmen and latterly UK citizens fought for over the years prior to 1972. That is the irony. Because Parliament took the power of the Crown away, granting back duties and money as it saw fit, the monarchy did become subject to our democracy and part of it.

The Queen has made it easier for monarchists. She has intuitively understood that the unelected monarch has to defer to the elected Prime Minister. He will pay court to her in public, but she knows he makes the decisions. She has understood that she and the leading members of her family need popular support as if they were elected, and have to avoid public hostility or disdain. She has scrupulously avoided commentary on the foibles and attitudes of her successive governments, and of her people in their various moods and fashions. Every day the royal family put themselves into the public eye, they are in a way running to retain office. It is a sign of her success that for most of her reign support for the institution of monarchy has been very high, and there has never been a serious republican movement.

One of the strange contradictions in some attitudes to monarchy relate to whether people want their monarch to have a very different lifestyle, or whether they want her to show signs of ordinary life. Some seem to like it when small details emerge of tv programmes shared, of breakfast cereal in tupperware, of travelling to an engagement by normal train. Others expect their Queen to be Queen like. Our present Queen does a bit of both. Studied ambiguity is best when the audience is so split.

For me, the important thing about a royal family in a democracy is that they should play their part in public life by staying well aside from the arguments, and by pursuing excellence and style. When the Queen visits a school or university or business, that institution usually has a spring clean, the staff turn up in smart clothes, and everyone is on their best behaviour. It is not just about the Queen. It is about them. It is their opportunity to show themselves off at their best. That is why the Queen has to turn up in smart clothes, perform her ceremonies precisely and with care, and should travel in style. I think people expect to rise to the occasion, so the Queen has to confirm that sense of occasion. The visited want her media appeal to shine briefly on them. They want her recognition, knowing it represents the recognition of the wider community.

The Lib Dems have a big problem with Coalition politics. They are the one party that believes coalition government can be better than majority party government. They are the one party of the top three that know they will need a coalition in future if they are to be in government again. Despite this, they cannot help themselves from constantly criticising the Coalition government from without. Some of their Ministers are endlessly making proposals they know Conservatives cannot accept from outside the government despite being members of it.

As someone who is sceptical of coalition this neither surprises me nor dismays me. However, I do not want it to get in the way of doing things now that would help turn our economy round. Surely for at least the first three years of the planned five year coalition Lib Dem Ministers should concentrate on doing the things that Conservatives and Lib Dems agreee about? The aim should be to stress the advantages of the polices that both parties can accept, not to stress the frustrations that Lib Dem Ministers feel with things the Conservatives will not accept. The aim should be to find more things that both parties can happily do together.

There are many Conservatives today like me who want to see more freedom for UK citizens. We feel the state has grown too big and bossy. We want a government which trusts more of the people more of the time. We want a government with the confidence to repeal some of the excessive number of laws and rules we have, and to cut back on the number of things the state interferes with at considerable cost. I thought there was meant to be a strong strand of liberalism within the Lib Dems. Can’t we have some more of this?

I went to see Nick Clegg early on in the governent’s life. There were strong rumours that he was going to put through a Freedom Bill. I took forty or so proposals for repeal to add to his measure. I set them out for him in writing. In the meeting I explained that doubtless he would not like all of them, but several of them would seem natural for Lib Dems to welcome. I expected that if he had another list I would like many of the items on it. He was friendly, but it ended with the news that he was not going to put through such a Bill after all. Isn’t it time to revive it?

Conservatives are tax cutters by instinct. We do get a little weary of hearing that the wish to cut Income Tax is a unique Lib Dem proposal. We are willing to cut Income Tax in the particular way they wish to get some tax cuts through. Together the parties should be able to come up with a stronger agenda to cut tax on enterprise and effort.

At the start of the government’s life I was asked by a senior Conservative Minister what I thought of the idea of major reform of the NHS. I said that “would be brave Minister” and went on to suggest not attempting it in this Parliament, given that we had not won the election and given likely coalition pressures. I argued that successful reform of education and welfare would be difficult enough. When I read the Preface to the White Paper on NHS Reform signed by David Cameron and Nick Clegg I decided that their vision was one I should support. I overcame my worries and have ever since voted for the measure and done my best to explain the government’s case for it. I was also swayed in favour by some of the comments in the Lib Dem’s Orange Book and their Manifesto, though their proposals went further than I would have chosen myself. I therefore find it surprising, eighteen months on, to read that it is the Lib Dems who are toning this measure down or saving the NHS from these reforms, when they had such impeccable Lib Dem origins and support as well as appearing in the Conservative manifesto.

The cruel paradox for Lib Dems is this. They need to show coalition works. Instead, every time Labour attacks them from the left for daring to support it, Lib dems are wobbled off and attack the coalition with Labour. They are undermining the public’s view of coalition at the very time they should be trying to show it works.

Some have queried my comment that rail sibsidies fell in the early years of privatisation, only to rise rapdily again after the nationalisation of Railtrack.
The figures are:

1993/4 £1627 m

1995/6 (post privatisation) £431 million

2000/01 £1214 million (lowest Labour level)

2009/10 £4619 million

It was never easy challenging the accepted wisdom. Indeed, if you look at what they did to poor old Galileo, it has got easier. In the freer west people do not normally get put on trial in a court or sent to prison for disagreeing with the official view, though in recent years thought crimes have become more popular again with legislators.

I first encountered this difficulty in the 1970s when I argued that nationalised monopolies were a great way to harm the consumer, cost the taxpayer a lot of money and lose employees their jobs all at the same time. It took more than a decade to persuade government that they needed to introduce competition into telephones and sell the oil and steel industries. Even today there is still a rearguard action trying to claim that nationalised monopolies in “special cases” like railways could do the job better. As someone who believes in free debate, I am not complaining they think and argue that,but it is a tired old argument based on amnesia about how BR used to run.

Challenging orthodoxies got a lot harder when the orthodoxy was made in Brussels. I was one of the few who tried to dissuade the CBI, the Conservative and Labour parties and the official machine that the Exchange Rate Mechanism could not possibly work for a divergent economy like the UK. Every trick was used to crowd out our case and to argue the famous “golden scenario hypothesis”, that we would soon be moving rapidly to a land of milk and honey, powered by exchange rate stability and low inflation. That was a mightily expensive collective mistake. Some write in to this site and say devaluation would not work for Greece, yet it was essential for the Uk at the end of the ERM era and ushered in a good period for economic performance.

Those of us who took the same pessimistic view about the future of the Euro had some more success. We first persuaded the Conservatives to offer a referendum, and then more importantly Mr Blair followed. That saved the pound. Mr Brown helped by continuing to block it, so we could watch for more than a decade as the Euro passed through its heady first phase when the poor got richer by borrowing, to its crisis phase when the money ran out and the strains led to three countries needing subsidised credit and special measures(so far). The UK establishment ended up with a better record on the reality of the Euro, even though many members of it had argued the case for us to join on many occasions.

Today we have the green establishment. It is hard work trying to win the argument that if the UK adopts more anti carbon dioxide measures than other countries, and hikes the price of energy too high at home, we lose jobs and business but the world does not end up with less carbon dioxide. This obvious point got lost in the enthusiaism of the many in the establishment for the global warming theory. At least now we have a new ally in the form of the UK Chancellor of the Exchequer who has warned that high energy prices do more to deindustrialise the UK than to cut worldwide carbon dioxide output.

One of the strange features of global warming theory is the reaction of its leading protagonists. They say it is scientifically derived, but then go on to say the science is proven and established.I thought the essence of scientific method was to reach a hypothesis that seemed to fit the facts, and then to keep trying to improve or destroy it by further testing or experiment. This seems to be a thesis where the aim is always to buttress it rather than test it. For many years scientists thought Newton had said the last word on planetary motion, but the twentieth century did not rest until they had replaced or improved on the Newtonian universe in a dramatic way.

Today’s news that the Greek debt reduction has attracted the support of 85.8% of the bondholders is what passes as a success these days in Euroland. The Greek state can now use the collective action clause to make all bonds held under Greek law convert to the new terms. The Greek government claims it will hit the IMF/EU targets for debt reduction through debt restructuring. Bondholders are being made to pay some of the bill of Greek excess spending in recent years.

Each bondholder will receive 15% of their money back in a cash equivalent, and 31.5% of the face value of their bonds in the form of a new 30 year Greek bond paying just 2% at the outset, rising to 4.3% over its lifetime if all goes well. The stated reduction in bondholder wealth is therefore 53.5%. However, the new bonds are unlikely to be worth their par value. Early indications are that Greek debt will continue to change hands on very high yields, meaning if a bondholder wants to sell their new bonds they will have another large loss. They might lose threequarters of the par value on the new bonds, taking their full loss to around three quarters of the capital value at the issue price of their original bond.

Individual investors of course may have lost a lot less, as they may have bought in at much lower prices, and will have received some income. The government is also offering sweeteners in the form of the promise of extra payments if the Greek economy grows well in the years ahead. These probably have little value today, though we all hope for the sake of Greece they do in due course become more valuable.

Whilst many are treating this outcome with relief, it is scarcely good news. An advanced country and a member of the Eurozone has failed to repay its debts. Markets still do not trust fully the new debt instruments the Greek state is issuing. The Greek economy, deep in recession, has just lost more potential spending power from private sector holders of these bonds. This follows hard on the heels of the extraordinary decision to cut the minimum wage by 22%, the minimum wage for young people by 32%, and some of the pensions in payment by 12%.

Greece is an extreme example of how a western economy locked into a single currency has to slash living standards to try to live within its means. After years of building up debt, the country faces the reality that no-one wants to lend to it on anything like normal terms. Inside the Euro all the adjustment has to take place by some combination of smarter working, job losses, wage cuts, and in extreme cases failing to repay debts. The Greek decision to make bondholders take very large overall losses is just part of the huge price the better run members of the Euro and many prudent savers in Europe are now paying for Greek membership of the currency. It would be better if Greece left the Euro as soon as possible, to help them and to help the reputation of Euroland.

The Greek debt swap is seen as a success, but it is part of a much larger painful adjustment which is far from over. Portugal should be worrying, as they are still a long way from being able to return to the markets to finance themselves in the normal way.

Labour have understandably decided to make “fairness” the test of government policy. The Coalition government has decided to dance to this tune. Everything that is done has to be fair – fair between different groups in society, fair as judged by a general goal of greater equality, even fair between Lib Dems and Conservatives. If we are to live through austerity, the politicians argue, we must show that policy is fair. Those with the broadest shoulders should take the heaviest load.

Let me disappoint some of you. I do not think a government should set out to make unfairness part of its policy. Far from it. I do however have two worries about this test or doctrine. The first is, there is no consensual or agreed view of fairness. The second is, the government should not do things in the name of fairness that might delay the recovery, stand in the way of sorting out the mess, or deny the reality that the state has run out of money. To do any of these will add to unfairness and unhappiness in the longer run, not reduce it.

Fairness is to some extent in the eyes of the beholder. Labour and the government argues that it would be unfair to increase benefits for the unemployed by less than price inflation. After all those benefit levels do not permit lots of luxuries. Many people going out to work for low incomes ask is it fair that out of work benefits go up by 5.2% when their wages may be frozen, or rising just 1-2%? Politicians tend to say that it would not be fair to impose strict conditions on receiving benefit concerning how strenuously people should be looking for work, and on what type of jobs they should be prepared to take. Others in society think there should be stiffer requirements, as they have to go to work and do not feel they have the option to stay at home.

Politicians think bankers are paid too much. They argue it is not fair that bankers get such large basic salaries and often large bonuses on top, simply for doing their job. Yet Labour wrote contracts for the top people at RBS which were generous by normal standards, and the Coalition accepted it needed to honour these commitments. This action resulted in the bonus row this year for the CEO of what remains a loss making bank, dependent on txpayer support. They do not seem to take the view that footballers are paid too much, even though some football Clubs end up bankrupt thanks in part to the very high salary bill.

The danger of fairness policies is they can end up requiring yet more tax revenue to pay more out in benefits and subsidies to those people and policies which the fairness judges think are worthy of such help. We have talked many times on this site about some of those decisions that get in the way of economic recovery or industrial revival. Whilst I agree fairness is important, in current circumstances I think successful recovery is even more so as it can deliver the jobs that fairness and solvency require. The best way to narrow income differentials is to raise the levels at the bottom, and that requires more to go to work.