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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.

City am today reminds us that mortgage rates are rising. The Bank of England can and does keep short term official rates on hold, but the rates people actually pay are going up. Savers are expecting better returns, so borrowers have to pay more to cover the costs of deposit taking. Meanwhile smaller and medium sized companies have long been paying way over the very low base rate.

Listening today to criticisms of the governemnt’s aim to get the UK railway system to a similar level of efficiency as contiental systems by reducing some 30% of cost, I was struck by people telling me our system is dearer becausee it is privatised. I seem to remember passanger numbers and freight volumes rising strongly, and subsidies falling, when it was fully privatised. Then costs and subsidies rose swiftly again ocne the main part of the railway, the track and signals were renationalised. The old nationalised monopoloy had a poor record with falling use, safety problems and high levels of subsidy.

            The government believes that competition drives innovation, lower prices and better service. They run a Competition Authority to encourage and enforce  more of it. They are even trying to introduce it gently into public service areas that have not enjoyed much of  it, like water and healthcare.

               When it comes to banking, an area where we are meant to be world leaders, we have precious little competition. We have four main banks. Two of those have substantial taxpayer shareholdings, and have received collosal amounts of taxpayers money to keep them going. British industry and wider business spends much of their time complaining that these banks do not give them the service they need, the loans they require or the prices they can afford.  The banks have been heavily regulated, but not in a way which stopped two of them getting into financial difficulty. Today they are heavily regulated in a way which limits their ability to lend more to fuel a faster economic recovery.

                  The banking industry needs a substantial dose of competition. That would raise its service levels, get it back into friendlier contact with the wider business community, and lead to innovative offers. There is considerable thought going on in Parliament about just how this can be done.

                  I am not going to repeat the details of my proposed split up of RBS that has appeared on this site before. We could create say three sound competing banks out of RBS and sell them to the private sector. Dr Cable has emerged as a supporter of an RBS break-up, though he wants a different version from mine. There is one additional advantage from this scheme that I have not mentioned before before. The new banks need not take with them any of the accumulated tax losses. From the first day they make an overall profit they would then contribute tax revenue to the government, a welcome improvement on the current position where the weak banks  are unlikely to pay tax for several years.

                    Andrea Leadsom is proposing that each UK clearing bank be required to establish full bank account portability. Everyone’s bank account under this scheme would rest with the current bank in a way which allowed the whole account with all its Direct Debits , income and spending arrangements to stay in place and to be transferred as a working whole to a new bank when you wish to switch. Such a system of bank account portability would tackle one of the main reasons why many people today do not move their accounts, because they fear all the complications of having to set up everything again from scratch.

                    Several of us are proposing that the barriers for entry into banking be lowered. Some who have looked into the possibility of setting up a new small bank have been put off by the very high costs imposed by regulators before they can get started. If you have to construct a unique banking model at great expense, have to hire staff and Directors and establish premises before you can gain a licence it is a large barrier to entry which only the very rich and persistent will overcome. It appears to be too difficult and too costly to get a banking licence in the UK, protecting the incumbents more than is desirable.

                  Yesterday the UK fell into seventh place behind Brazil in the list of the world’s largest economies. We used to be fourth behind the USA, Japan and Germany. China has already risen  to second place and now Brazil is on the climb.

                   In a way its good news. There are many more people in China, Brazil and India. As they become richer, so we should expect them to overtake medium sized western countries. The world has been an unfair place for many years. It is good if some of  the world’s lower income countries prosper. As they get richer so their citizens have better lifestyles. They expand the world market for more sophisticated goods and services. We should be able to serve those new consumers. We should be pleased for them.

                   There is, however, a darker side to this story for the west. As the emerging market economies get better at competing, their energy, hunger and hard work can take business away from western factories and offices. They can take jobs from us, or they can help force down wages in the west as their super competitive prices attract world demand.

                     The US has experienced a long period of no real wage growth in factories and general  services as the rest of the world has challenged and started to catch up. Now the Europeans are discovering that they too have been paying themselves at levels which are difficult to sustain against the competitive onslaught.

                      The problems for western politicians is acute. The very global market which is doing so much to advance living standards in the emerging world may start to lower the living standards of many in the western world. That same world market will create many more high end consumers, which in turn enables the brightest, best and most commercial in the west to earn far larger sums out of the much enlarged market. What is good for a top football team or a recording star may be bad for a car plant operative or a telephone service employee.

                      The cuts in living standards result from the increased competition from many  areas. They also come from unwinding the excessive debts and deficits individuals and some companies had built up as well as western governments. Living standards were sustained well beyond our joint earning capability up to 2007, and are now adjusting sharply in some cases.

                     In the extreme case of Greece they have decided on a 20% cut in their Minimum Wage to try and price their country back into European, let alone world markets. The UK and US has cut living standards in recent years by devaluation. US and UK citizens can now afford fewer imports for the same income. Spanish, Portuguese and Irish living standards are being adjusted sharply downwards by the cruel logic of the Euro, and by the ending of plentiful credit which had helped sustain demand, income and asset values.

               The global market is great for the Manchester Uniteds. They can expand their fan base mightily and charge good prices for their videos and merchandise. It is good for the high end bankers, fine wine merchants, smart lawyers, business advisers, estate agents selling London properties and the rest who know how to charm money out of the world’s new rich. It is proving tougher for some of the more traditional businesses who wake up to find the emerging countries do it faster, cheaper and on a huge scale. The UK lost much of its textile business to the East some years ago. It needs to watch out for other industries, as the emerging countries add cheaper energy, cheaper labour and control of some of the raw materials to their mix.

        The UK has developed several universities that regularly sit near  the top of  the world league tables.  Oxford, Cambridge, UCL, LSE and Imperial are world beaters. Others in the Russell Group maintain high standards.  The world’s talent still beats a path to their doors. This should be a strength for the UK. It is something we should welcome and foster.

         The UK has a bad habit of denigrating some of its most successful institutions and businesses, and failing to reinforce success. In an increasingly competitive world we need to get better at backing the best in our country, and expanding it on a global scale. The US has done a great job in backing Harvard, Yale, Princeton and other high flying American schools. We need to catch up.

          The big difference between the US elite and the UK elite is a question of money. The US government has offered very favourable tax breaks to encourage donations to their universities. The institutions themselves have followed intense and successful ex alumni and corporate programmes to encourage more giving. The leading Colleges have built large endowments, giving the universities flexibility to hire the best faculty members, to finance top level research, and to provide bursaries and scholarships to talented energetic young people without much income to support themselves. It has proved a heady mixture.

         They have added to their success by fostering strong links with venture capital and other investors. They come to the campus to assess the quality of research and to put money into developing the best ideas. The university and the faculty members can participate in the commercial success of their applications and their break throughs.

          Oxford and Cambridge are moving in the same direction, but they need to raise more money than they currently enjoy to match the US levels. The City of London and the great universities need to work ever more closely together.  Gone are the days when the best academics, the Nobel prize winners, would automatically wish to come to Oxbridge whatever the terms.  They look for higher salaries. They expect substantial money for laboratory facilities and suport staff in sciences. Even the humanities Professors now would like research assistants, and plenty of office accommodation and support for their teams.

          The arrival of many very hard working and intelligent Asians in the top US and UK universities is changing things again. For the moment it is a helpful development. It gives the Anglo Saxon institutions a more global feel, it increases the competition for places and money, and adds a new Asian perspective to studies and research. We should regard this as partly a transitional phase. The Chinese in particular will want to learn how we and the US run great universities. They will wish to transfer some of the talent and the organisational genius to their own institutions. They are on the look out for our best ideas and our best people.

             The UK needs to concentrate on promoting the policies that help our best catch up with the financial might of the leading Americans. It needs to develop more  joint working between the groves of Academe and the workshop of private equity. OFFA is not helpful in this connection, as we have discussed before. Nor is too much box ticking in research assessment. Some blue sky research requires risk taking. Some will flop. It is about judging people, more than trying to construct a perfect audit and  a set of questions which will infallibly come to the right answer over who should have the money.

            Listening to Oxford academics at an undergraduate College on Saturday night, they are understandably  preoccupied by seeking grants and finding sources of money to maintain their work. As largely independent institutions they cannot be exempt from some of the pressures of the fund raising marketplace. As world leaders they could hope for an answer at national and university level which provides more money overall to reinforce this UK success.

The departure of Steve Hilton as the PM’s Blue skies adviser will co-incide with the end of the first two years of the Coaltion government. The Sunday newspapers were speculating on whether this marks the end of the radical reform phase of the administration.

The government always designed its period in office in two stages. In the first stage, they planned to put through substantial legislation to reform education, health and welfare. They conducted a wide ranging Strategic defence review. They set out a five year trajectory for public spending and taxes. They put their main tax increases into the first period, increasing VAT, living with most of the Labour increases in fuel duty, NI and Income Tax, and imposing higher CGT. They enacted their localism measures, changed planning offering more elected Mayors and police commissioners. They put in place the Green Deal, and started to rebuild the UK’s diplomatic links with the emerging world.

In the second stage they planned to manage the results of all these changes, tweaking the main welfare, local government, health and educational reforms, and adjusting the economic strategy at the margins. They probably hoped that one of the windfalls like the sale of RBS might come in and permit some modest tax cuts later.

It was never going to work out quite like that. The spending squeeze was always scheduled to get tougher in the second half. The first two years see £55.8 billion a year of increases. The last three years see just £37.9 billion a year of further cash increases by 2015 compared to 2012. That was always going to make the politics of the second half more difficult. The welfare reforms will come to a crescendo near the next election, as it takes most of the current Parliament to prepare the computer prgrammes and proceed with a working new system for benefit delivery. They will need to be well tested and well based for them to be well received in a more febrile pre election atmosphere. The Health reforms will take some time to bed down. The deficit reduction programme has so far fallen prey to slower growth leading to higher borrowing. This in turn leads people to demand a better series of measures to promote economic growth.

More importantly, a government has to manage what comes along. It cannot always set out a strategy and stick to it. The Coalition hoped that it could place Europe on the back burner. The two main parties have very different viewpoints on the topic. The Conservatives at the very least want powers back and do not wish to travel with the other EU members in the direction of EU integration and political union, whilst the Lib dems have always been a federalist party. Throughout the last two years the EU issues have kept bouncing onto TV and onto the political agenda, thanks to the Euro crisis and the continental EU wish to integrate more. Many Ministers are discovering that they cannot do what they wish to do in the UK, owing to the stranglehold EU law, the ECJ and the ECHR now has in so many areas. The frustrations the EU are causing are tipping more Conservatives into considering pulling out altogether.

The departure of Steve Hilton should not be taken by the government as a watershed, allowing them the luxury of no more serious reform. The economy is crying out for less regulation, for lower taxes on enterprise, for more working banks, for more realistic energy bills, for more competition in several areas. Ultimately the government will be judged by whether it has turned the economy round or not. It is requires more reform to bring about that task.

I have received around 20 emails from people wishing me to know they disagree strongly with the Health Bill. Apparently there was a campaign as I stated on the BBC that I had received very few emails on this topic from constituents. None of the latest have written from a Wokingham constituency address, so I am assuming they are all non constituents. If any constituent does wish me to consider objections to the Bill or wants me to take matters up with Mr Lansley, I remain as always very happy to do so and will reply personally to you as I always do. I would be grateful for you to include your address so I can see you are a constituent.

The remaining non constituency emails mainly confirm that there are opponents of the Bill, as we know from polls, media interviews and other communications. I have never denied that there are opponents to the legislation. I have always encouraged discussion and negotiations between Ministers and NHS executives and medical staff to seek to get this right and to work harmoniously together.

Let me begin by assuring any hostile readers that I, like Labour and the Lib Dems, dislike health inequalities. It does worry me that a man in Glasgow has an average life expectancy to 71, and a man in Chelsea can look forward to reaching 85.

My objection to that is similar to my objection to gross income inequalities. I do not defend gross differences of income between the highest and the lowest paid. My wish is to boost the spending power of the lower paid, but usually not to cut the pay of the higher paid. Similarly, with health inequalities, I would like to help give the Glaswegian a longer life, but have no wish to cut the life of the Chelsea resident. Both these things need to be done in ways which will work. In both cases government has to accept that there are limits to what government can achieve. A lot of it is down to individuals.

The socialist case of health inequalities has two flaws which need to be understood. They argue that the health inequalities are the product primarily of income differentials. The areas with more people on low or no incomes have much worse health, they say. They argue that these differentials are best tackled by pouring much more public money into the public services, especially the NHS, in the poorer areas.

As they believe in the connection between health and income, their wish to lower incomes in the successful areas implies they wish to narrow health inequalities by giving people in the richer areas worse health prospects, as well as taking their incomes down. Let us charitably assume this is an unwelcome or overlooked consequence of their thesis and policy. They have just tested their idea that large increases in NHS spending will cut health inequalities, and discovered that it did not work.

Everyone in the UK is guaranteed sufficient income by the state to ensure a basic standard of nutrition, heating and shelter. Some of the rich could be prone to lifestyle diseases from eating too much rich food, from drinking too much, and from taking too little exercise. Those on lower incomes may of necessity or choice have healthier lifestyles. They cannot afford the chauffeured car and the champagne reception that the super rich expect.

This is important, because doctors tell us that the main causes of health inequalities are lifestyle issues. They tell us that smoking is a prime cause of many terminal diseases. They warn that drinking too much alcohol is bad for us. They advise more exercise to keep fit. There are various dietary recommendations, but many of them centre around eating more cheaper foods, by avoiding the expensive highly prepared dishes in the supermarkets, and by cutting down on rich proteins.

For thirteen years the last government had as one of its aims cutting health inequalities. They put very large increases into the budgets of the NHS, and slanted much of their public spending towards the areas where life expectancy and incomes were lowest. None of this worked. Health inequalities got worse, not better.

We need an explanantion of why this did not work. We need to challenge the assumption that spending more on the NHS in disadvantaged areas will make people healthier. Many doctors will tell us that you need a lifestyle revolution to make people healthier. A larger NHS budget in poor areas relative to rich areas does not stop people smoking or drinking too much.

One of my concerns about the Health Bill now before Parliament is the inclusion of a clause that makes it an aim of the NHS to cut health inequalities. I have no problem with the aim, but I am not sure that the NHS, mainly an illness service, is the way to get those on low incomes to live longer.

Yesterday the 25 countries signed up to the fiscal pact Treaty. The Uk did not sign it. That sounds like a veto to me.

The veto had three good consequences. The first is this is now an intergovernmental Treaty, not an EU Treaty. They wanted an EU one and Mr Cameron exercised the veto. Their legal grounds for using the EU institutions are as a result insecure or non existent. The UK intends to push the legal issues further, as it has to do.

The second is it has helped force a referendum on this Treaty in Ireland, where the decision to hold one cited the fact that this is now a different legal arrangement from the EU treaties as one of the factors swaying them in favour of a referendum. This delays this Treaty coming into force. The delay gives time for France or others to demand a renegotiation or scrapping of the Treaty.

The third is it has started what will be a long process of the UK setting out an alternative course for the EU and for the UK’s relationship with it. Twelve countries agreed with the UK that the EU needed to deregulate to help growth and jobs, but were ignored by the Franco-German-Commission axis this time. It starts to build support for a different approach. Mr Cameron was right to explain in public that this latest summit has not done enough to promote growth, and has chosen the wrong policy mix for the situation.

Even Euro friendly commentators agree that the intergovernmental Treaty is unlikely to do much for the Eurozone. It is widely seen as a fig leaf for German public opinion. It is not widely wanted or liked by other weaker members of the Eurozone, and it is difficult to see how it delivers the desired goal of lower budget deficits, more cuts and higher taxes all at the same time.

None of this will cheer people who simply want to pull out tomorrow. As I constantly remind them, some people have wanted that for the last thirty years, but it has never happened. The pace of change is slow, but at least this time we are travelling in a better direction. It would have been wrong to have signed this Treaty. It would have been wrong not to seek a better set of freer market policies to try to stimulate growth and jobs. The UK has sought to explain that this latest Treaty is not the answer to Europe’s economic troubles. She now needs to press on with defining a new relationship with the EU that avoids more damage to us from the greater austerity zone they are creating.

I ask Mr Cameron’s strong critics what should he have done about this Treaty? Surely you agree it was better to refuse to sign it? Surely it was right to table alternative approaches for progress? Mr Cameron told you before the General Election he wanted powers back but did not want to pull out, so he has not cheated you. He voted with the whole Conservative party for a referendum on Lisbon prior to its ratification, as promised. He did not promise an In/Out referendum in the Manifesto as many of you wanted. His coalition partners want a lot more Europe, which stands in the way of the progress moderate Eurosceptics want, let alone what strong Eurosceptics want.