Category: Articles

I have received numerous comments condemning the BBC for paying Mr Ross such a large salary, and for broadcasting the uncouth remarks of the pair in their recent show. Like many others, I have spoken out against them, and was pleased to see the BBC take some belated disciplinary action. However, Mr Ross keeps his ridiculously generous contract. I do not think anyone working in the public sector and financed by taxpayers, as he is, should receive a seven figure salary, let alone £6 million a year. The BBC should be much more careful with licence payers money. Some big stars will still want to appear on it, as the BBC commands a large national audience and helps promotes the people who feature in its programmes. Many of these stars are still able to earn large sums from the private sector as well.

Several constituents have money tied up in the Isle of Man subsidiary caught up in the Icelandic crisis. The government and the FSA regulator needs to make more rapid progress in sorting out the tangled affairs of this institutions, so depositors can start to see some if not all of their money back. I am pushing the authorities to do more more quickly, to avoid too much of the money disappearing down a black hole of professional fees and other claims.

As I write the news is getting worse for small business. Many companies are now being squeezed by their banks, including by the banks that the government is buying shares in. There are rumours of big lay offs to come in the New Year, and plenty of signs that the downturn is sharp and upon us.

I have called for much lower interest rates to ease the pressures on borrowers. Others now have decided to join me, including the Chancellor. This is essential for depositors as well, to avoid more banks losing money they have lent to others, which in turn makes it difficult for them to pay the deposits back. I have made proposals that would allow more capital to be put into the banks at less cost to the taxpayer.

The government is going to find it is difficult owning nationalised banks, where many taxpayers will be alarmed if the losses become too large, whilst many borrowers will expect a more sensitive approach to their loans than form a commercial bank. I can see no reason why any nationalised bank should pay any bonus this year, given the state of the banks balance sheets and their need for taxpayer assistance. They should also be reducing the high pay at the top of their organisations, as again there is no reason why the taxpayer should e subsidising salaries of several hundred thousands, or even millions.

Government borrowing will go up in the recession, as tax revenues will be under pressure and more benefit bills will need to be paid. This makes it even more important the government is careful with the money, and gets best value for what it does spend. There is more comment and analysis of the credit crunch on www.johnredwood.com for those who would like it.

First, Gordon Brown smashed the Bank of England’s ability to understand the money markets by removing their duty to regulate the day to day activities of the commercial banks, and by removing their task of raising the public debt.

Second, he set up a so called independent Monetary Policy Committee. Every member of it was either appointed by the Chancellor, or by someone appointed by him. We have not been told how they were selected, and why some were renewed and some were not. The Committee was given an easier target to hit in December 2003 at a time when they should have been putting interest rates up. They were effectively told to cut rates recently as part of a concerted international move. In late October the Chancellor effectively instructed them to cut rates again, whilst intoning that they were still independent!

What he should do instead is write a new letter to the Governor. It should say:

Dear Governor,

I realise the conduct of money and banking policy has gone badly wrong in recent years. On reflection, I think the Bank does need to regulate the commercial banks and to handle government debt issue, so it is hands on in the money markets as it used to be. I therefore intend to restore these powers as soon as possible. I believe Parliament will welcome this move. We need a strong Bank which is close to the needs and misdeeds of commercial banks, so that it can correct and adjust more rapidly.

I would like to continue with a more independent Monetary Policy Committee. This will require a more independent approach to appointments and renewals. I am considering giving the Treasury Select Committee of the Commons a role in this process. However, recent events have also shown that there is merit in the US system where the Fed has a clear duty to consider output levels as well as inflation, and where it is required to work in a way which is compatible with the Administration’s policy. I will be consulting interested parties on how we can get this balance right. I have no wish to stifle the views of a genuinely independent MPC, but there may be occasions as when we agreed emergency rate cuts with other countries where the government does have to override. This should always be done in a transparent way, with reasons being given for the use of the reserve power.

It is perhaps too early to go into who is to blame for the sharp move from excess credit to credit crunch, as we need to manage the situation day by day at the moment. However, I do hope the MPC is asking itself how it came to set rates that were too low for too long, leading to inflation rising to 150% above the target rate. I also hope it will ask itself urgently whether rates are now too high for the deflationary situation we find ourselves in.

For my part I do accept the public sector cannot spend our way out of this recession given the state of the national finances. I fully understand that if we seek to borrow too much the strain will be taken on sterling and the longer term rate of interest. These market pressures will constrain me in my judgements about spending.

Yours etc

At the same time as carrying out this necessary reform the Chancellor needs to take other action..

What could they do?

1. Cut interest rates. Convene an emergency meeting of the MPC if they want to persist with the fiction that they are in charge, and don’t let them out until they see sense and back Mr Blanchflower.

2. Revisit the banking share package. Tell Lloyds to raise its own money anyway it sees fit. The taxpayer should not finance the merger. Sort out with HBOS and RBS a package which is fairer and lighter on the taxpayer, making them raise more of their own capital and cash by cutting costs and expenses and conserving more of their own cashflow.

3. Start to get more control over public spending, and give us revised forecasts of public borrowing which are credible and show a wish to get on top of the government’s own growing debt mountain.

4. Sort out the statements of the UK authorities. They should be sober rather than apocalyptic, and should concentrate on what is being done to tackle the problems of banking liquidity and capital, overborrowing and government indebtedness.

5. Produce new forecasts of the economy so we have a better idea of what the authorities really think about the length and depth of the recession they are now calling.

6. Work with the banks to get maximum benefit from the £400 billion plus package of loans, guarantees and money market assistance. The money needs to be supplied however it does most good to get banking markets working again, with proper security for taxpayers.

7. Deliver on the promise to pay all government bills within 10 days.

The magnitude of the UK debt problem is large but it could be manageable. UK households have borrowed around 100% of National Income. UK companies have been more restrained, borrowing maybe half National Income. The government owes somewhere between half and more than 100% of National Income depending on whether you include pension debts in the government total. If we take as a very rough figure total borrowings and liabilities of say £3.7 trillion, the interest burden is still manageable. At 5% interest it works out at around one eighth of income, and at 10% at a quarter. Lower interest rates enforced in the market would clearly ease the pressures.

The danger for the government is that the interest burden on state borrowing will rise too quickly. This downturn began because the authorities decided they needed to reduce the total amount of private sector borrowing. The authorities decided to tighten the squeeze by demanding banks hold more capital for a given level of lending. It would be odd to end up simply transferring the excessive borrowings from private to public sectors.

In the Budget the government forecast £43 billion of public borrowing this year. Most forecasters now expect this to be around £65 billion, given the extra commitments added and the decline in tax revenues.

We need to add to this the £37 billion they plan to spend on buying banks shares. We also need to add the £18 billion they are borrowing to finance the cash and guarantees they have given to Abbey Santander to get them to take the deposit liabilities of Bradford and Bingley. The government has put an extra £3 billion capital into Northern Rock.

This adds up to a huge £123 billion of extra borrowing this year. That’s £2050 each for every man woman and child in the country.

Starting borrowing requirement £43b

Extra spending and reduced revenue in year £22b

Bank shares purchase £37b

Bradford and Bingley £18b

Northern Rock extra capital £3b

This is too much, and represent too big a risk for the taxpayer. The government needs to cut this, in order to maintain the country’s credit rating and what is left of the value of our currency.

I am asked if we can spend our way out of a recession? I write against a silly political background, where the left are trying to annex Keynes again, as if he were a left wing figure whose views had been buried by Conservative monetarists and deregulators. The truth is very different.

Margaret Thatcher kept her copy of the 1944 White Paper on employment, which incorporated some of Keynes’s perceptions. She used it in one of her big party conference speeches. Conservative economists working since Keynes have usually drawn on his insights as well as the views of others. It was a Labour Prime Minister, James Callaghan, who officially incorporated monetarist thinking into UK government economic policy making, when he recognised that more public borrowing in an inflationary era would make matters worse.

Of course in one sense you can only overcome a recession by more spending. A recession is insufficient demand chasing too many goods and services , leading to job losses, falling prices and cuts in output. The issue is not whether we need more demand or not, but how you bring that about. Confidence is a precious flower, and can be easily damaged if governments take the wrong decisions.

The priority is to encourage more private sector demand, because it is private sector demand which is falling sharply. You do that by cutting interest rates substantially. I have been calling for cuts to head off recession for many months. The authorities are far too slow, persisting wrongly in thinking inflation is next year’s problem when recession is next year’s problem. Lower interest rates feed through immediately to borrowers whose rates are linked to MLR, and later will benefit others as money markets start to function better.

We need more confidence and cash in the system. That is why the Conservative leadership has backed the banking package in its entirety, to give it the best possible chance of succeeding. Until there is more confidence there will be insufficient private sector demand. The gap will be too large for an overborrowed public sector to be able to fill, even if the government took the risk of expanding public borrowing even more than they are already doing.

If the government presses ahead with borrowing £37 billion for bank capital its scope for further borrowing to undertake counter cyclical works will be even more limited. I think they should spend some time amending the package, to get as much of the new banking capital from private sources as possible. This would leave them with a little more flexibility.

As it is, we are facing a huge overrun on borrowing compared with budget. The downturn itself and other policy changes announced so far have probably boosted borrowing by £20 billion this year, on top of the £37 billion for the banks. This means a borrowing requirement forecast at £43 billion could exceed £100 billion. Government needs to keep confidence in its own powers to raise money. These figures are large. Given the delay in trying to get new larger capital projects off the shelf and into action, and given the high borrowing requirement, I do not see a lot of scope for the government on its own to spend us out of recession on this year’s budget. It has to find other ways of allowing the private sector to pick up.

Most of us have to accept we are going to lose from this financial crisis.
Here in the UK the financial losses are going to be large. All homeowners are going to lose a substantial part of the capital value of their home. Some homeowners will lose their home, as they give up the struggle to pay the mortgage. Anyone with shares held directly, or through an investment fund or through a pension fund has already lost a lot. People owning businesses will find it more difficult to make a good living in the year ahead, and the value of their business will fall.

The issue for the authorities is simply this. How big a crash do they want? The Central banks triggered all this, by first allowing an overexpansion of credit and debt, and then deciding they wanted to bring the borrowing party to an end. Some of the banks lent too much to the wrong people on a large scale. Now we need to know how much they want to cut total debt by?

Meanwhile the UK is having one of its idiotic arguments about whether we need more or less regulation, as if this were the issue. I know of no serious commentator on money, credit and the economy who thinks the authorities should wash their hands of responsibility for controlling total money and credit in the system. The issue is not whether to do it, but how to do it. Clearly the method chosen in the last ten years did not work. Credit was not properly controlled on the way up, and is now imploding dangerously.Large amounts of new mortgage regulation did not regulate the main things that matter – how much credit is lent in total, and how much to each individual in relation to the home value and income.

Concerted interest rate cuts on a big scale would help a recovery . It would also take some of the pressure off borrowers. To those that say this in unfair on savers, I say it is necessary for savers protection. As the Icelandic banks have shown, it does not help to offer savers a good rate of interest if the borrowers that pay the interest to the banks can’t afford it and the bank runs out of money to pay the savers.

On Wednesday 8th October at a little after noon the Prime Minister announced a 50 basis point cut in UK interest rates to the Commons. He told us the Governor of the Bank had decided it. The decision came a day before the Monetary Policy Committee had completed its usual monthly processes to settle their view of interest rates. The statement did not say rates were being cut in order to hit the inflation target, but to take part in concerted action around the world to help with the banking crisis. I agreed with the need to take urgent action to cut rates, and am glad the authorities did it.

I have long argued there can be no such thing as a truly independent Bank or Monetary Policy Committee in a democracy. Parliament – or Congress and President – can leave an “independent” body free to do these things as long as they like. However, this freedom will only be extended for as long as the “independent” body does it job well and the system still pleases the people and elected politicians. Once there are worries, concerns or doubts, it is likely the elected officials will reassert their direct power, or change the system. The US system has always required the Fed to support the economic policy of the Administration. Mr Darling has reminded us that the Bank of England too has another duty as well as curbing inflation.

You could argue that the lack of independence of the MPC was obvious as long ago as December 2003, when the government changed the inflation target from RPI to CPI and from 2.5% to 2%. This in effect encouraged the MPC to set lower interest rates, as the CPI was going up much less quickly than the RPI. You can argue that the lack of transparency over who gets reappointed to the MPC and who does not was another weakness in its structure. Surely no sensible person after yesterday can say the MPC is independent?

I do not mourn the passing of the “independent” phase of the MPC. This is the body which kept rates too low in 2003-6. Its main aim was to keep inflation down to 2%. It has shot up to two and a half times that. It failed in the good years to be tough enough. It failed to control prices as advertised.

Now we are on the threshold of bad years it has been too tough. Its actions in keeping rates high as we peer towards recession will increase the number of people who lose their jobs and their businesses during the downswing. Once again the MPC seemed to be driving by looking into the rear view mirror, to capture the inflation it has already allowed, rather than looking through the windscreen to see the crunch ahead.

Let us hope we now can have a more intelligent debate about how to control money in a democracy. It is a great pity that the “independent” MPC did not succeed in curbing excess money and credit growth in the good years. We need new people or a stronger system that will control inflation next time round, when the extent of public debt will lead some to hanker for more inflation to reduce the liabilities. In the meantime we need an MPC and Bank fully committed to countering deflation.

I am urging the government to take more action to head off the worst of the downturn. If interest rates stay too high, if banks are starved of cash, the rest of us will feel the pinch. It will mean expensive overdrafts, reduced or cancelled bank facilities, more pressure on small businesses, and far less turnover in the shops, hotels, restaurants and other service businesses in our area.

A recession starts when a Central Bank puts up interest rates and signals less credit is to b e available. This one began with higher interest rates and money difficulties hitting the mortgage banks. House prices have now dropped by at least 12.5%, and new housebuilding has been severely affected. Car prices are now falling, house sales and purchases are well down and people are feeling the pinch in their daily budgets. It is going to be an uncomfortable few months ahead. Let us hope the government’s huge package for the banks will stabilise them as a beginning. Then we need all the power of the state to be directed to limiting the damage for all the other businesses that will be feeling the cold winds of winter.

We are now entering the second phase of the Credit Crunch, the time when the crisis has a direct impact on the rest of the economy. The first phase was a problem for the bankers and brokers. The second phase is a problem for all of us.

In the early days of the Crunch there was some pleasure by many in the US and the UK to see rich financiers finding their share options and bonuses wiped out. The years of plenty and easy money for bankers had produced plenty of jealousy and anger outside their privileged banking halls. The feeling that the bankers should be made to pay was still there when the Bush administration came up with its $700 billion package to buy distressed debt from the banks.

The political establishment who wants to “bail out” the banks argues correctly that crisis on Wall Street will also hit Main Street. They try to persuade their electors that they must spend all this money, otherwise the banks will be unable to lend sufficient to American borrowers to run their businesses, buy their homes and carry out their normal transactions. The public seeks guarantees that any bail out will not leach public money into shareholders dividends or bankers pay.

The revised version of the American bailout plan attempted to deal with these very reasonable concerns. It offered the US taxpayer a stake in banks that sell their loans to the government. It provided for controls over executive pay. It implied a new level of state control over US banking we have not seen before, on the very reasonable argument that if the taxpayer has to pay so much money then they deserve a say and a stake in the future business of any participating bank. The danger is that the terms may become too unattractive to banks, and knowledge that a bank has to participate in the scheme may not be as good for confidence as the Administration hopes. There are no easy answers.

There can be no doubt that the banking system is in trouble. Given the run of news on both sides of the Atlantic you would need to have avoided all media programmes and newspapers for a year not to understand that. There can be no doubt that weak banks unable to lend much will undermine the general economy. US and UK voters are beginning to accept that. The issue should be, what combination of actions by the banks, the rest of the private sector, the Central Banks and governments can get the banking markets working again sufficiently to avoid deep recession? That may include some spending of public money, but it may revolve rather more around the spending of private money to recapitalise the banks and around actions by the Regulators to move their rules into a shape which help fight deflation rather than inflation.

The sad truth is that even if you did want the taxpayer to take on the banking black hole and fill it with taxpayers money, it is too big to do that comfortably. Governments have been part of the problem. They have borrowed too much, and certainly in the UK have themselves used the modern off balance sheet techniques of finance which they are now criticising others for doing. Both the US and the UK governments have to accept there are limits to how much money they can borrow and commit to sorting out banks, otherwise the credit worthiness of government will become the issue. Governments must keep people believing in their financial management, so government guarantees when offered are things of value and mean something. The banking crisis will only be resolved when banks believe each other major bank has adequate capital, and a sensibly structured balance sheet. What we need is a debate about what kind of a package will have most chance of success, rather than a debate about whether there is any need for action.

One day I saw the Bradford and Bingley share price was falling faster than usual. The next day I read they were thinking of nationalising it. On the third day I heard they were nationalising the mortgage side of the business.

As an MP I was yet again sidelined by the long Parliamentary recess. There was no chance to debate or question the government. I wanted an opportunity to speak up to try to keep more of the jobs and the business than the government proposal allowed. As a taxpayer I was alarmed. How can we afford yet another portfolio of mortgages on top of Northern Rock? As someone who wants the UK economy to do well how could we afford to see another mortgage bank effectively driven out of offering new mortgage business?

During the fast moving story we were not told what the problem with B and B was. Many companies experience falling share prices, but that does not mean they have to be nationalised. A bank can carry on trading with little confidence in its shares and a low share price, if people remain happy with it as a deposit taking institution, as people did with B and B. If B and B needed more share capital it could seek new shareholders or ask existing ones to put up some more. If it was short of cash it could ask the Bank of England as lender of last Resort to lend it some, failing other sources of borrowing in the market. It could sell assets or seek a deal with another larger bank or a more cash rich institution.

Why should the taxpayer have to end up with a near £50 billion mortgage portfolio on top of the huge Northern Rock one? Why is government better able to manage this than the private sector? Are there any limits to how much debt the government wants to own? On my figures the government has now taken on a massive £1500 billion of debts and unfunded liabilities for taxpayers. Is there no limit? How do they plan to pay all this back? Whilst they claim to have protected the taxpayers with the Bradford mortgages, unlike the Northern Rock ones, there remain liabilities on the taxpayer as result of this deal.

Why do we need another mortgage bank unable to lend anything to anyone at a time when there are too few mortgages? Our mortgage market is starved of new loans already. Under EU rules the nationalised mortgage makers cannot compete to lend more money. Northern Rock is effectively in wind up. Why can’t we try to save the jobs of the mortgage workforce of Bradford and Bingley by looking for a private sector solution which would allow them to carry on advancing new mortgages?

The state of the mortgage market is now dire. Gross mortgage lending fell to £19.2 billion in August, the lowest level since 2002. Net lending slumped 95% to a mere £143 million. Those figures disguise the misery of many would be first time buyers who cannot now borrow to obtain their first home. They reveal a growing difficulty for people wanting to remortgage to obtain a suitable deal. That means job losses at the banks and Building Societies who do not need so many staff to process the loans. It also means redundancies amongst the estate agents, surveyors, carpet and furniture stores and makers and all the other people who earn their living from house purchase and sale. It is also devastating news for the building industry. Many new home sites are being mothballed, and others taken down to a snail’s pace of development as builders struggle to adjust to the sharp drop off in demand.

The government has long said it wants house prices lower so homes can be more affordable. It has long explained that in its view if we built more homes we could make them more affordable. Current circumstances shows us just how wrong the government’s analysis has been. Today we have rapidly falling house prices, when very few new homes being built, the opposite of the government’s prediction. It should teach them that crucial to affordable housing is the availability of mortgages. You can have more “affordable” houses, that is to say lower prices, yet find that people cannot raise the money to buy them. The problem of rising house prices was not mainly one of too few homes, but one of too many generous mortgages driving the prices sky high.

This looks like another very poor decision for British taxpayers, and another bad blow for the mortgage and housing market. Fewer new mortgages means a bigger house price fall, which in turn means more losses on existing mortgage books. The taxpayer is in for more bad news.

What a mess! The financial sector is in meltdown. House prices are falling. People are losing their jobs. Labour MPs are wrangling over who should be Leader.

Spare us the lectures to be united at a time of national crisis, Prime Minister. Weak leaders make speeches about loyalty, and the need for discipline. Strong leaders listen to intelligent criticism or ideas about better ways of handling problems. Strong leaders unite enough followers by doing and saying the right things about the issues. Weak leaders create division by boring everyone with platitudes and silly spin.

We are still prisoners of Labour spin. It is amazing just how long a shelf life New Labour’s simple minded misconstruction of 1990s politics has enjoyed.

In the 1990s the New Labs told the media that a divided party could not govern, and was not electable. They told us the Major government would fall because it was divided.

They also told us an anti EU party could not be elected, and said the Tories problems came from being divided over the EU and for being too anti the EU.

Both these soundbites were wrong.

The Thatcher government was deeply divided, between wets and dries. Their arguments regularly appeared in the press, but it did not stop them winning 3 elections in a row. There were regular threats to Margaret Thatcher’s leadership, with Michael Heseltine wanting the job. The Thatcher governments wrestled with the big issues of the day – Trade Union power, poorly performing nationalised industries, high unemployment – and found contentious but lasting solutions.

The Blair government was deeply divided at the top. The press was full of stories of rows and splits between Blair and Brown, but it did not stop them winning 3 elections in a row. There were pressures for a leadership change, with Brown seeking promotion. The huge political goodwill and the powerful position they enjoyed was frittered away. They failed to control the credit bubble or to run the national finances well.

Governing parties are usually divided, and some healthy debate about the way ahead can be helpful, as long as the Leader communicates a strong sense of direction at the same time as allowing the public debates about it.

The polling throughout the Conservative years showed that Euroscepticism was always more popular than Euroenthusiasm. Indeed, at the nadir of Conservative polling fortunes it was only our Euroscepticism that was popular. Under William Hague we won the European election where we were able to express our scepticism.

The Conservative government fell for one main reason – it adopted the European Exchange Rate Mechanism on the advice of the other two parties and the CBI, and it proved to be a very damaging economic policy. In that sense it was Europe that destroyed the Conservative party in the 1990s – because it was too European, not because it was too sceptical.

If the Labour government falls, it will fall for one main reason – the poor economic policy it has followed, and the way it has made the Credit Crunch worse in the UK.
Its enthusiasm for all EU bureaucracy is a further irritant. Far from helping an unpopular government, its love of the Lisbon treaty and its refusal to honour its promise of a referendum has made it worse.

I am fed up with all the interviewers challenging Labour rebels with the nonsense that they are making the problem worse by daring to want a debate and a change of leadership. They are not the problem. The problem is the government and its policies. The interviewers should start asking the rebels instead, what they would do to make things better. That’s what the public wants to know.

The depressing thing about the Labour rebels is not that they are showing some life at a time when the government is performing badly, but that they are not yet offering an alternative strategy that makes sense and might ameliorate the economic crisis. We need to have lower interest rates, control over public spending, an end to off balance sheet government financing, and a programme of private sector led works to build us the power stations, energy facilities and transport links we need.

The West has aroused the Russian bear through its contradictory actions over Kosovo and Georgia. Russia now sees the West as asserting its power too far, recognises the West is now overstretched in the east, and thinks the West is becoming too intrusive close to Russia’s borders.

I wish to stress that I like most Westerners condemn the invasion of Georgia and the military actions taken by Russia in the Georgian war. I also disagreed with some of the actions taken by the EU and the USA during the Yugoslav wars, which are an important part of the background to Russia’s attitudes today. The West is in danger of reaping what it has sown.

Now the bear has awoken we need to analyse carefully what are the legitimate and illegitimate aims of Russia, and how might it use its growing military and economic power? We need to think before we speak, and plan and act before we commit ourselves too deeply, beyond the range and strength of our power. Our freedom is at stake, endangered by the West’s weakness and folly.

The irony of the present situation will not be lost on the Russians. The West is paying Russia to re-arm, thanks to the failure of the UK, the US and other western governments to take the necessary action to cut dependence on imported oil and gas from parts of the world that are unstable or unfriendly. The more oil and gas we buy from Russia at these new higher prices, the more missiles they can finance and the more tanks they can manufacture. The first thing the West should do, if it wishes to strengthen its hand vis a vis Russia, is take urgent action to cut its dependence on imported fuel. There are many obvious things the UK could do to increase its supplies of domestic coal, oil, gas and non carbon electricity.

The second thing the West should do is think through its position more clearly on whether it should help defend all existing borders of states or not. It has been normal in the post 1945 world to attempt to defend existing states borders, buttressed by the UN. It required UN agreement and action to ratify changes in states borders. That changed with the recognition of Kosovo, opposed by Russia, a UN Security Council member with a veto.

This doctrine is also in conflict with another Western doctrine, the self determination of peoples. Under this doctrine, if a dominant majority in a substantial region of a larger country wish to secede and form their own state, they should be allowed to do so following referendum and legal process. This is, for example, the view of the Scottish Nationalists over how they should take control of their country, and the growing view of many English nationalists who want a vote on the independence of England from the UK and the EU. It is a view that the US set out as a war aim in the 1940s, seeking to liberate European countries from German control, and favoured by the US when supporting the removal of colonial powers from Africa. Czechoslovakia was allowed to split in two when the popular wishes were so clear.

In the modern complex world we live in there should be no reliance on one of these doctrines to the exclusion of the other. Sometimes they will be in conflict, and decisions need to be made. In practise each case has to be settled on its merits. The judgement will be better if it is supported by more countries, including all the important global and regional powers who can help maintain the peace around whichever decision is made. I incline more to favouring self determination, but accept there may be occasions when that cannot work. There have to be some limits to it to avoid a constant state of flux and an endless movement to ever smaller states.

So how should the West respond to Russia? Today the West needs to understand why Russia is so alarmed by NATO’s current stance, and to understand how there is no acceptable military option for the West to dominate in Georgia and to determine borders so close to Russia. In other words, we need to talk to Russia, and to discuss the issue of splinter regions from Georgia. We need to discuss the whole architecture of states around Russia’s western and southern border, to avoid committing NATO to maintain borders we cannot in practise enforce at an acceptable military cost, and to allay Russian fears to make Russian military action less likely. We need to see how big the disagreements are and to assess if any other state apart from Georgia is in danger of a Russian invasion. So far the West has not won over enough independent world opinion to strengthen its hand in negotiation with Russia.

At the same time we need to strengthen NATO and the Western economies, so we are less dependent on Russian fuel and more capable of acting if Russia pushes too far and uses her military in even more unacceptable ways.

The USA has been the world’s only superpower for a couple of decades. It has got lazy about using its power and enforcing its will. Only asymmetrical warfare and terrorist attacks have challenged it for years. Now US power is coming up against other important powers in China, Russia and the Middle East that it would be unwise to attack head on. Worse still, the US is in danger of creating too many different enemies and threats, fighting a live war in the Middle East, a cold war with Russia, and engaged in a superpower struggle of various kinds with China, primarily in the economic sphere in the first instance. There are flash points in all of these relationships in each border state near Russia that the US guarantees, in Taiwan, in Iran and Iraq. Even the world’s superpower has to be careful not to overstretch. It is dangerous to create so many opponents who might one day help each other against their common enemy. The US needs to ask itself what are its long term interests? How many of them can it pursue backed with effective military force? The EU needs to stop posturing as a major player when its words can be inflammatory and when it lacks the military capacity to enforce. I am not recommending it has military capacity I am recommending it should remember its limitations. The UK needs to look to its economy first – it is now so weak it cannot afford its current defence commitments properly, and is vulnerable thanks to the lack of a cogent energy policy. We need some strategy rather than more foreign policy spin.

If you want your country to be free, it needs to be both strong and wise. We are in danger of being neither.

We have been living through an old fashioned Sterling crisis. If we were still living in an era of fixed exchange rates, or managed ones, we would be deep in panic by now. The UK government would be borrowing abroad to buy pounds to try to stop the currency falling. The foreign money lenders would be demanding cuts in public borrowing and spending as part of a package of better economic management. Floating rates takes the immediate sting of such a crisis away from a Chancellor wishing to prolong his holidays away from London.

A little bit of devaluation, when you are running a big balance of payments deficit, is no bad thing. It helps your exporters become more competitive, so they can sell more. It puts people off buying a few luxury imports, so you spend less. The balance of payments start to correct. Just as Japan found a little bit of inflation was preferable to deflation, so a little bit of devaluation for the UK is fine in current circumstances.

The problem is, we are now getting a big bit of devaluation. There is a sense of carelessness, even of incompetence in the air, underwritten by the Chancellor’s foolishly pessimistic remarks from his Scottish holiday home. Overseas holders of sterling have got the message that the government does not seem to care about the value of the currency, and is taking none of the steps to run its own affairs prudently that you expect from a strong country wishing to have a strong currency.

This does now matter. It means we will have to pay more for many imports, including commodities like oil and wheat that are priced in dollars. We will all be worse off.

There is likely to be an immediate price to be paid for this imported inflation. The Bank of England will feel it has to keep interest rates higher for longer than it would otherwise. The Bank, if it were truly independent, would tell the government we need lower interest rates badly, but can only afford them if the government takes other action to reassure foreign holders of sterling, sufficient to stop the collapse of the pound.

What should the government do to stop the slide? It needs to reassert itself in a way which breeds confidence in its actions and in the UK economy as a whole. That means issuing some credible forecast of how bad the downturn is going to be, and changing what it says about the state of the UK’s economy. It means getting a grip on public spending and borrowing.

Floating exchange rates are usually a good thing. They allow adjustments to be made in easier ways than fixed rates allow. If a government thinks they give it carte blanche to spend and borrow as much as it likes it can get away with it for quite a long time, but there comes a reckoning. The first thing to go is the currency. That is now happening to the UK. Later it might become difficult or too costly for the government to carry on borrowing at the level required. They need to take corrective action now. That’s why we need the Chancellor full time in London, and we need Parliament back to put some pressure on them to take the necessary stabilising action. I am frustrated that I am not allowed to cross examine the government in Parliament on any of this, as they refuse to recall it to discuss the crisis.

The odd billion pounds for the residential property market is not going to turn it round – the sum is too small. Another billion on the deficit is a further increase in an already alarmingly large figure, and does not help restore confidence in the conduct of public finance.