CHARTER WEBSITE
TO CLOSE ON 30 JUNE

By Mike Thomas, site moderator

Since the election we have been discussing with our supporters the future of www.charter2010.co.uk. Thank you to those of our users and readers who also made suggestions.

After some very serious thought, tempting though it is to continue, we have concluded that the task for which the website was intended – making sure the politicians and the civil servants planned for a hung parliament, and helping them to so do – has been completed.

Our profound thanks go to everyone for their interest, and especially to Jon, Tony, Vicky and the team at CuCo Creative, who have provided exemplary technical and journalistic support to the site.

Remarkable

The site will close on Wednesday 30 June, though we are planning to leave it on the internet (but not update it) so the material in it remains easily available until the end of the year; and then to archive it and various related correspondence and documentation so that academics and others may be able to study its development in the future.

It has been a remarkable nine months since the idea of Charter 2010 was conceived in the autumn of 2009. From the day we launched in January, to the formation of the coalition government, was the most tremendous roller-coaster of a ride.

But I think we can be very pleased that, with the collective wisdom of everyone who contributed, we "called it right" and had a significant influence on the thinking and, ultimately, the actions, of those who were at the centre of events.

Uncanny

While we had precious little direct attribution from the "commentariat" of the media, the ideas (and sometimes actual phrases and words) that appeared on the website had an uncanny habit of being repeated by journalists, columnists and leading politicians within days of their publication. We should remember that imitation is the sincerest form of flattery!

The next five years will show whether www.charter2010.co.uk played a part in the final "breaking of the mould". In the meantime: here’s to the new politics!

Best wishes from everyone at www.charter2010.co.uk

COALITION'S STOCK
RISES ON BACK
OF CRISIS BUDGET

The first major national opinion poll since George Osborne's emergency Budget has given the coalition government a timely boost.

The YouGov survey reveals not only broad acceptance of the Chancellor's austerity measures, but also support for the coalition's handling of the economy.

A majority of those questioned reckoned the coalition was making a better fist of the finances than either Labour or the Conservatives would have done on their own.

In fact, even 22 per cent of Conservative supporters - more than one in five - thought the Tories alone would not have been as good at protecting the poorest in society.

Approval rating up

Asked specifically about the Budget, 57 per cent thought Osborne had made the right calls for the country as a whole, with only 23 per cent disagreeing.

Exactly 50 per cent thought it a fair Budget - nearly twice as many as the 27 per cent who said the opposite. And the Government's overall approval rating rose from 41 per cent pre-Budget to 46 per cent now.

Significantly, out of nine key Budget measures put to voters by YouGov, only one was opposed by a majority - the increase in VAT to 20 per cent.

The three most popular proposals were the levy on banks, the ending of tax credits for families earning over £40,000, and the new £400-a-week ceiling on housing benefits.

Policy-by-policy

Here's what the YouGov respondents thought of it all, policy-by-policy (figures show approval in green, disapproval in red, "don't know" in black):

# Levy on banks to raise £2bn a year 86 / 4 / 11
# Stop tax credits if earning £40k-plus 82 / 10 / 8
# £400-a-week cap on housing benefit 78 / 10 / 12
# Capital gains tax up from 18pc to 28pc 72 / 10 / 18
# Freeze child benefit for three years 59 / 29 / 12
# Pay freeze for state workers earning £21k-plus 58 / 27 / 15
# Benefits increases to be reduced 53 / 23 / 24
# Retirement at 66 brought forward 44 / 39 / 17
# VAT up to 20pc from January 2011 34 / 54 / 12

YouGov also found that fewer people now believe the country is likely to tip back into recession.

However, 55 per cent expect the Budget to trigger higher unemployment - three times as many as those who don't - and more people now expect their own financial position to deteriorate in the next 12 months.

Asked how they would vote if an election were held tomorrow, 42 per cent said Conservative and 34 per cent Labour - both substantial increases on their vote share last month.

But the Liberal Democrats took a big hit, down six points at 17 per cent.

Like the YouGov poll, an ICM survey for the Sunday Telegraph showed that voters as a whole support the harsh spending cuts outlined by Osborne. Nearly all of his Budget measures won public support, with the rise in VAT the only exception.

The measures that received strong backing included reducing tax credits, which was supported by 80 per cent of people, more medical assessments for Disability Living Allowance (82 per cent), a levy on banks (78 per cent), increasing CGT (68 per cent) and reforming housing benefit (68 per cent).

Less popular measures but still favoured by the majority included freezing child benefit, supported by 51 per cent. Raising VAT was the only unpopular measure, with only 38 per cent backing it and 60 per cent against.

Sixty per cent agreed with cutting spending in all government departments, except for overseas aid and health, by a quarter, and 53 per cent agreed with freezing pay for all public sector workers earning over £21,000 a year.

The coalition seems to have won the argument over the need for deep and immediate cuts - but only just, said the Telegraph.

Some 52 per cent said they thought the tough measures were necessary because of the state of the public finances, while 43 per cent said they thought the Budget did not need to be so tough and that the Government was using it as an excuse to introduce measures that it had always wanted to.

OSBORNE'S AUSTERITY
BUDGET: IS IT JUST
WHAT WE EXPECTED?

VAT up to 20 per cent from January, welfare payments squeezed, public spending slashed - those are the headline-grabbers in George Osborne's austerity Budget.

The average UK household will be about £400 a year worse off once the full effects are felt, with the poorest losing £200 and the richest £1,800 - though those on the lowest incomes will be hit harder in percentage terms.

Vowing to balance the books within five years, the Chancellor aims to tighten the nation's belt to the tune of £40bn per annum. The welfare shake-up alone is calculated to save £11.5bn a year by 2014/15; Osborne expects the VAT hike to be worth even more at £13bn a year.

However, we won't know until the autumn precisely how government departments propose to achieve the average 25 per cent savings expected of them.

Press opinion today is sharply divided between those applauding Osborne's commitment and courage, and those accusing him of gambling recklessly and unfairly with the fragile recovery.

While the debate rages, Charter 2010 checks the pledges contained in last month's historic Coalition Agreement (coloured text) against the main details of the Chancellor's proposals...

"We need immediate action to tackle the deficit in a fair and responsible way and get the public finances back on track"
Osborne announced a £40bn package of emergency tax increases, welfare cuts and Whitehall spending restraints designed to slash the budget deficit by the end of the Parliament. The Budget measures are designed to turn a structural deficit in current spending of 4.8 per cent of GDP into a surplus of 0.3 per cent within four years. Fair and responsible? Depends which newspaper you happen to read - see our round-up below.

"We will significantly accelerate the reduction of the deficit over the course of a Parliament, with the main burden of deficit reduction borne by reduced spending rather than increased taxes"
Osborne's declared ratio of spending cuts to tax rises works out at 77/23. Public sector net borrowing is calculated to fall steadily from a peak of £149bn this year to as little as £20bn in 2015/16.

"We will introduce arrangements that will protect those on low incomes from the effect of public sector pay constraint and other spending constraints"
Public sector workers earning over £21,000 face a two-year pay freeze. Those earning less than £21,000 will get a flat-rate £250 rise in both years.

"We will introduce a banking levy and seek a detailed agreement on implementation"
From next January a levy will apply to the balance sheets of UK banks and building societies and the UK operations of foreign banks. Smaller banks will not have to pay. The levy is expected to raise just over £2bn a year on average over the course of the Parliament.

"We will reform the corporate tax system by simplifying reliefs and allowances, and tackling avoidance, in order to reduce headline rates"
Corporation Tax will be cut next year to 27 per cent, and thereafter by one per cent annually until it reaches 24 per cent. The small companies' tax rate will be cut to 20 per cent.

"We will freeze council tax in England for at least one year, and seek to freeze it for a further year, in partnership with local authorities"
Council tax is to be frozen for 2011/12 financial year - a potential saving of £35 per household - but the freeze will be delivered only in areas where councils rein in their spending plans.

"We will hold a full Spending Review reporting this autumn, following a fully consultative process involving all tiers of government and the private sector"
This has been confirmed. With all departments apart from health and foreign aid facing average cutbacks of 25 per cent, painful announcements are expected in October when the cuts are detailed.

"We will reduce spending on the Child Trust Fund and tax credits for higher earners"
Tax credits for families earning over £40,000 will be reduced next year. But low income families will get more Child Tax Credit - the amount per child will rise by £150 above the rate of inflation next year. Child benefits to be frozen for three years.

"We will take Sure Start back to its original purpose of early intervention, and increase its focus on the neediest families"
From next April the Sure Start maternity grant will be restricted to the first child.

"The Government believes that we need to encourage responsibility and fairness in the welfare system"
The housing benefit ceiling is to be lowered so that the maximum weekly payment is £400 for properties with four or more bedrooms. Some unemployed will see their housing benefits cut from April 2013. Lone parents will be expected to look for work as soon as their youngest child starts school.

"We will restore the earnings link for the basic state pension from April 2011, with a "triple guarantee" that pensions are raised by the higher of earnings, prices or 2.5 per cent"
Confirmed. The yardstick will be the Retail Prices Index as opposed to the Consumer Price Index, which tends to be lower and which will be used to calibrate other benefits, tax credits and public service pensions.

"We will commit to establishing an independent commission to review the long-term affordability of public sector pensions, while protecting accrued rights"
Former Labour Work and Pensions Secretary John Hutton is to review public sector pensions, ahead of the autumn spending review.

"We will phase out the default retirement age and hold a review to set the date at which the state pension age starts to rise to 66, although it will not be sooner than 2016 for men and 2020 for women"
The Chancellor said the Government aims to "accelerate" the increase in state pension age to 66 - a "call for evidence" will be made later this week.

"We will increase the personal allowance for income tax to help lower and middle income earners. We will announce in the first Budget a substantial increase in the personal allowance from April 2011"
The personal income tax allowance will go up by £1,000 to £7,475 from April 2011; this is said to be worth £200 a year to a basic rate taxpayer and will take an estimated 880,000 people out of the tax system altogether. The change is the first step towards the Liberal Democrats' call for the first £10,000 of earnings to be tax-free.

"We will seek ways of taxing non-business capital gains at rates similar or close to those applied to income, with generous exemptions for entrepreneurial business activities"
Capital Gains Tax was raised at midnight from 18 per cent to 28 per cent for higher rate taxpayers; this is substantially less than the 40 per cent predicted or feared in some quarters. The tax-free limit is held at £10,100. The "entrepreneurs' relief" rate of ten per cent on the first £2 million of gains will be extended to first £5 million.

"The increase in employer National Insurance thresholds proposed by the Conservatives will go ahead in order to stop the planned jobs tax"
From April 2011, the threshold at which employers start to pay NI will rise by the rate of inflation plus £21 per week.


What the papers say...

The staunchly Conservative Daily Telegraph gives a "brave, clever and well-targeted" Budget its almost unqualified approval, praising Osborne for acting with "authority and intelligence" but warning of challenging times ahead when details of departmental spending cuts are announced this autumn.

That note of caution is echoed by The Times, which also believes the new bank levy could blunt Britain's competitive edge. That apart, it commends Osborne's proposals as "the best of fiscal conservatism combined with no small measure of social justice - he has proved himself a Chancellor with the mettle and judgment for the battles to come".

The left-leaning Guardian is far less enthusiastic, describing the austerity measures as "unnecessary both in their timing and their size". The paper fears the proposals contained in Osborne's "gambler's Budget" will seriously undermine the recovery and sharply increase the prospect of a double-dip recession.

"Meanwhile the financiers who caused more of this mess than the Labour government ever did will get away with a small rise in capital gains tax," it adds.

The Financial Times agrees that the Chancellor is gambling on the Office for Budget Responsibility's growth forecasts being accurate. That said, it hails the stated ambition to all but eliminate a £150bn deficit in five years as "commendably bold", though the overall package is "harsher on the poor than was necessary".

That word "gamble" crops up again in The Independent, which suggests Osborne is relying on a far-from-certain private sector rebound to underpin his proposals. Delving into the detail, the Indy likes the bank levy, the new rules on CGT and the £1,000 increase in personal tax allowances, but criticises the VAT hike as "regressive" and likely to hit the poor hardest.

The fiercely Tory Sun gives the Budget its unalloyed support, saying Osborne "showed courage and vision as he cut debt and confronted the benefit addiction that has dragged Britain down. We need an attitude of 'what can I do?' instead of 'what can I claim?' "

Brutal, cruel, heartless, loathsome - so says the loyally Labour Daily Mirror. "Thousands will be thrown out of work. Public services will be wrecked. Benefits will be slashed," it continues. "The VAT increase will put up prices and capsize consumer confidence.

"And it is ordinary families who will bear the brunt. While the well-off will feel the mildest discomfort, the millions who make up the backbone of this nation face disaster."

No such hostility from the true-blue Daily Express, which says the Chancellor's measures "deserve the support of all who believe in sound money and self-reliance". The paper lauds him in particular for gearing the tax burden so that "the group who will lose out least are hardworking people on modest incomes".

The Daily Mail regrets the "clobbering" of the middle classes and criticises the coalition for ringfencing NHS spending, but concludes that Osborne's debut Budget is "judiciously pitched by ensuring the genuinely disadvantaged are protected and the rich not favoured". Without pain there will be no recovery, the paper says.

HOW CLOSELY WILL
CHANCELLOR STICK
TO THE SCRIPT?

After all the hypothesis and speculation, how will the public react to the reality of Chancellor George Osborne's emergency Budget?

Politicians from both coalition parties have been at pains to minimise the shock factor by bracing us for the worst with a series of gloom-laden forecasts and announcements.

The popular message has been "this is Labour's mess, not ours, but we can clear it up". Neither Osborne nor David Cameron has been slow to play this card.

Yesterday Nick Clegg warmed to the theme with a round-robin letter to supporters, urging them to understand why an unavoidably "controversial" and "difficult" Budget is pivotal to economic recovery.

'Fair and responsible'

Analysts and observers will be listening and watching keenly to establish how closely - or not - Osborne's speech follows the official Coalition Agreement line on deficit reduction.

That document, fanfared loudly within days of the coalition being formed last month, promised "immediate action to tackle the deficit in a fair and responsible way, ensure that taxpayers’ money is spent responsibly, and get the public finances back on track".

Here again are ten of its main points:

# The Government believes that it is the most vulnerable who are most at risk from the debt crisis.

# We will significantly accelerate the reduction of the structural deficit, with the main burden of deficit reduction borne by reduced spending rather than increased taxes.

# We will introduce arrangements that will protect those on low incomes from the effect of public sector pay constraint and other spending constraints.

# We will protect jobs by stopping the proposed jobs tax.

# We will set out a plan for deficit reduction in an emergency Budget. We have created an independent Office for Budget Responsibility to make new forecasts of growth and borrowing.

# We will make modest cuts of £6bn to non-frontline services in 2010/11.

# We will hold a full spending review reporting this autumn.

# We will reduce spending on the Child Trust Fund and tax credits for higher earners.

# We will create strong financial discipline at all levels of government and place an obligation on public servants to manage taxpayers’ money wisely.

# We will reduce the number and cost of quangos.

Some of the above are already "ticked boxes", of course. Others are works in progress. And then there are the unknown quantities - until lunchtime today, at least.

SHARPER CUTS HOLD
THE KEY TO GROWTH,
SAYS TOP ECONOMIST

# On the eve of Chancellor George Osborne's emergency Budget, the top man at the Institute of Directors says the Government can engineer an "expansionary fiscal contraction" if it moves shrewdly and swiftly on the deficit...

A radical Budget skewed heavily towards spending cuts rather than tax increases can help Britain weather the "perfect fiscal storm" looming over the country, claims Institute of Directors boss Graeme Leach.

Leach, the IoD's chief economist and director of policy, is urging Chancellor George Osborne to "move much further and faster than financial markets expect" when he announces his emergency measures on Tuesday.

He argues that, contrary to popular perception, fiscal contraction can actually be expansionary if backed up by appropriate monetary policy.

"The received wisdom could be very wrong," writes Leach in the latest edition of the IoD's quarterly journal, The Big Picture.

'Widespread evidence'

"A standard Keynesian model would show a fiscal consolidation having two macroeconomic effects - a decline in the deficit and an economic slowdown. But experience shows that fiscal consolidations are not always accompanied by a slowdown. There is widespread evidence of expansionary effects."

Leach argues that by slashing public spending now and mapping out lower taxation for the future, the Chancellor will boost consumer confidence immediately - thereby accelerating recovery.

Lower public spending not only cuts the deficit but also reduces risk premia on long-term interest rates, he adds - thereby encouraging business investment.

"The combined effects of higher consumption and investment work to offset the contractionary fiscal tightening," he writes.

Seven-point plan

Leach commends a seven-point plan to the Chancellor:

# 1. Base deficit reduction on spending cuts rather than tax rises. Osborne should "at the very least" stick to the Tory manifesto proposal to strike an 80/20 balance between expenditure reduction and tax hikes, says Leach - "tax-based adjustments typically fail to correct fiscal imbalances and simultaneously undermine GDP growth".

# 2. Don't dither or delay - impose faster and deeper cuts than the markets expect. "Most consumers and companies expect tax increases in the Budget. If the Chancellor surprises them with few or no tax increases and the adjustment falling on lower spending, future confidence and expectations might revive significantly."

# 3. Make the cuts permanent, thereby lowering perceptions of the future tax burden. "If the spending reduction (and associated reduction in expectations of future taxation) is only perceived as temporary, the gain to permanent income expectations and current consumption will be reduced."

# 4. Identify measures that are both credible and sustainable. "If the plan is not viewed as such, the gains from a shift in private sector expectations may be lost. A strong commitment is required from the coalition."

# 5. Boost expectations by pre-announcing future tax reductions, funded by more immediate spending cuts. "Why not set out the public spending envelope and state explicitly that if this is achieved, corporation or income tax will be reduced by so much, and when?"

# 6. Nothing - well, almost nothing - is sacred. "The only area of public spending that should be ringfenced is investment in infrastructure on transport, energy and telecommunications, which all too often acts as the trigger for private sector investment in these areas. It would be counter-productive not to ringfence it."

# 7. Balance fiscal contraction with monetary policy stimulus. "A fiscal consolidation would easily be expansionary if backed up by an accommodating monetary policy (further expansion in quantitative easing). In 1981 the Conservatives tightened fiscal policy at the bottom of the recession and simultaneously reduced interest rates by two per cent; economic recovery began shortly after."

'Substantial threat'

Leach lists several contributory factors in the "perfect fiscal storm" brewing over the UK. Among them are sovereign debt risk, depressed growth forecasts and the rising costs of an ageing population.

He also cites potentially negative perceptions of Westminster: How strong is the coalition's resolve? How long will it last? And will the mooted electoral reform herald more fiscally lax governments, lacking the authority to drive through tough measures?

"We would argue that both individually and in aggregate these risks pose a substantial threat to economic recovery in the UK," writes Leach. "Maintaining the status quo does not appear to be a sensible option."

PUTTING THE LATEST
POLLS IN PERSPECTIVE

By Andrew Cooper (co-founder and strategic director, Populus)

By the end of the election campaign, most voters expected a hung parliament: 47 per cent in the final pre-election Populus poll for The Times, compared with 26 per cent who expected a Conservative majority and 14 per cent who expected a Labour majority.

A year earlier only 19 per cent had thought we would end up with a hung parliament after the election.

The polls also suggested that many voters wanted a hung parliament. A Populus poll towards the end of the campaign found more saying they hoped for that outcome (39 per cent) than for either a Conservative majority (30 per cent) or a Labour majority (20 per cent).

However, most of those who thought a hung parliament would be the best outcome also said that they would rather see this result in a coalition between the Liberal Democrats and Labour (23 per cent) than one between the Lib Dems and the Conservatives – which is, of course, what we ended up with.

Satisfied

The arithmetic of public support for the coalition government formed on 12 May was not, therefore, as clear or straightforward as may have been implied by the fact - which they frequently cited - that between them the two parties had won almost 60 per cent of the popular vote.

Against this background the coalition is likely to feel quite satisfied with the post-election polls so far. Consistently nearly twice as many voters approve of the coalition government’s record to date as disapprove of it; the 45 per cent approval rate in the most recently published poll is well above the number of voters who favoured specifically a Conservative-Lib Dem coalition, and also significantly higher than the number saying they would vote Conservative if there was another General Election now, which averages 39 per cent in published polls this month.

Plainly, whether the popularity of the coalition is sustained in the short and medium term is going to depend greatly on the public perception of the measures taken to address the budget deficit.

Consensus

Before the General Election polls showed a very large consensus that "significant public spending cuts are inevitable, whoever forms the next government"; 84 per cent took this view in a Populus poll for The Times in April.

But YouGov found recently that less than half of the electorate (49 per cent) now thinks that "the way the Government is planning to cut spending to reduce the deficit is good for the economy" – and only 37 per cent feel that spending cuts are being done "fairly".

The same YouGov poll found that far more voters blame the previous Labour government (48 per cent) than the coalition (17 per cent) for the fact that spending cuts have to be made, but this is unlikely to provide any insulation for the Conservative-Lib Dem government from the bitter chill of public opinion if voters feel that the way they are implementing the (necessary) cuts is unfair.

In the run-up to the election the Conservative Party frequently used the refrain "we’re all in this together". If the feeling becomes widespread that the pain of spending cuts and tax rises is not being spread fairly – that some of us are more "in this" than others – the consequences in terms of public support for the Government will be dire.

TONY WRIGHT: AV OFFERS 
US NO REAL ALTERNATIVE

# It is rare for a backbench MP to retire with so many cross-party accolades ringing in their ears, but that has been the achievement of Tony Wright, former Labour Member of Parliament for Cannock Chase. If any single person has done most for parliamentary reform it is him, and we are lucky that his voice will continue to carry weight as visiting Professor in Government and Public Policy at University College London and a visiting fellow at IPPR. It should give many Liberal Democrats - and the Electoral Reform Society - cause for thought that he so stongly and coherently opposes the present rush to the Alternative Vote in the following article from The House Magazine...

"Now for the shabby deals." That was how the Daily Mail greeted the arrival of the new politics. The rest of us should be less churlish. It will not last, of course, at least in its present form. Once the government becomes seriously unpopular, as it undoubtedly will, the Liberal Democrats will decide that propping up an unpopular Conservative government is not good politics.

But that is for another day. It was fantasy to think that Labour and the Liberal Democrats, the two parties which went backwards at the election, could properly have stitched up a deal to exclude the party which had decisively advanced. It was also fantasy to declare, as some did, that the election result was a mandate for electoral reform, when the only party which came near to winning was the party which opposed reform.

What matters now is that there is an opportunity for getting some worthwhile political reform. Leave aside all the silly hyperbole about Great Reform Acts - the real constitutional revolution happened under the Blair government - and just get on with exploiting the reform opportunity that has presented itself. Those of us who have been arguing for a different kind of politics for a long time, and proposing measures to achieve it (as with the bill on fixed-term parliaments I introduced a decade ago), should welcome its arrival.

Fundamental

Its arrival will only be permanent rather than temporary if the electoral system is changed, which is why this is the fundamental reform. If we really do want to institutionalise the new politics, in which parties both compete and co-operate, then electoral reform is the prerequisite. I do not know if people do want this, and have no idea whether a referendum on the issue would produce a majority for reform, but it is as well to be clear what is at stake.

There is no perfect electoral system, and much depends on what we want an electoral system to do. My fear is that we are going to squander the only opportunity we are going to have to get radical reform. If there is to be a referendum, we should at least ensure that there is a chance to vote for real reform. If a referendum is lost, that's it for reform. If it is won, it is fantasy to think that this would be a precursor to more radical reform. We re going to get one shot at it, if we are lucky.

That is why I am mystified why the Liberal Democrats have settled for the Alternative Vote. especially as I understand that David Cameron offered a pre-referendum commission to come up with a reform option. The AV proposal was a device by Gordon Brown to stitch up the Liberal Democrats in the only way he could carry the Labour Party. It was the old politics, and should have been rejected by the new.

Disproportional

We have a chance now to devise a new tailor-made electoral system for Westminster, drawing on the experience not just of other countries but of the other systems already in place around the United Kingdom. It is unlikely that the Alternative Vote would emerge from this process as the preferred option. It was rejected by the Jenkins commission, and can have more perversely disproportional outcomes that the present system.

What AV does is to prop up the current system, not inaugurate a new one. It does this by propping up the single-member constituency. MPs like single-member constituencies because they are the single members. For a citizen (like me), it feels like a denial of political choice. We should recognise that the present system is broken and set about devising a new one to put to the people. That is what the new politics requires.

# This article was first published in The House Magazine on 14 June 2010. For more about the magazine, click here

OSBORNE HANDS BACK
CITY 'POLICING' POWERS
TO BANK OF ENGLAND

George Osborne has promised the most dramatic change to the policing of Britain’s banks for a generation, scrapping the City regulator and returning all powers of scrutiny to the Bank of England.

Announcing a raft of reforms during his Mansion House speech on Wednesday, the Chancellor said the shake-up "learns the lessons of the greatest banking crisis in our lifetime".

He confirmed: "The Financial Services Authority will cease to exist in its current form. We will create a new prudential regulator, which will operate as a subsidiary of the Bank of England.”

Osborne believes the previous tripartite system of policing the City - split between the FSA, the Treasury and the Bank of England - was too unwieldy, encouraged indecision and exacerbated the banking crisis.

Subsidiary

"No one was controlling levels of debt, and when the crunch came no one knew who was in charge," he told his audience of senior bankers, insurers and brokers.

Osborne confirmed that the FSA would be broken up and the part that monitors financial institutions would continue as a "new prudential regulator", but operating as a full subsidiary of the Bank of England.

He said: “The experience of the crisis has shown that central banks need to be familiar with every aspect of the institutions they have to support. So they must also be responsible for day-to-day micro-prudential regulation as well.”

Welcomed

Mervyn King, Governor of the Bank of England, welcomed the initiative. "The Bank cannot effectively perform its role as lender of last resort without first-hand knowledge of the health of the banks to which it might provide support,” he said.

Under the new regime, the Bank of England will monitor the level of borrowings a bank has assumed relative to the assets that it owns and the quality of the assets on its balance sheet, and will be able to dictate how much capital a lender should hoard as a cash cushion for difficult times. It will also be able to block the takeover of a bank by another.

Hector Sants, chief executive of the FSA, will stay on to oversee the transition and will become one of three deputy governors of the Bank of England, taking specific responsibility for banking supervision.

Commission

Consumer finance, which includes credit cards, motor insurance and personal loans, will be regulated by a new body, the Consumer Protection and Markets Authority.

The Chancellor is also tasking a five-strong independent commission - chaired by Sir John Vickers, former head of the Office of Fair Trading - with looking into the potential break-up of the UK's biggest banks.

The commission will review whether casino-style investment banks should be split from deposit-taking institutions on the high street.

More details of the reforms are due to be announced in Parliament today (Thursday).

SIR GEORGE WELCOMES
BOOST FOR BACKBENCHES

A "stronger, more assertive, more self-confident House of Commons" - underpinned by greater powers for backbenchers - has been welcomed warmly by senior Tory Sir George Young.

The Conservative Leader of the House is delighted that the Government has brought forward the establishment of a backbench business committee.

The move - one of the key planks of the Wright Committee recommendations for parliamentary reform - will give rank-and-file MPs the time and power to schedule debates on the issues that matter to them and their constituents, says Sir George.

'Yah-boo politics'

"For decades MPs have had no control over what subjects are debated – and often it is in the government's interests to prevent politically tricky debates from taking place at all," he writes in The Guardian.

"MPs should see this as the start of something new – a chance to lift the tone and relevance of debate beyond the yah-boo politics that the public too often associates with Parliament.

"We are on the threshold of a new era in parliamentary politics. The House of Commons is regaining its authority. There is a different atmosphere in Westminster."

'Fearsome prospect'

Sir George notes two other "significant" changes for the better:

# Select committee chairmen being elected rather than appointed. "These committees will now have greater independence, legitimacy and authority than before – and will be a more fearsome prospect for ministers."

# More time for MPs to scrutinise legislation, instead of cutting off debates with guillotine motions. "This should dramatically improve the quality of Parliament's laws."

'Real scandal'

Sir George writes: "Strengthening Parliament will mean better government – and if both raise their game, the citizen is the winner.

"For years, the real scandal in British politics has been the impotence of the House of Commons. It has become too easy to push bills through without adequate scrutiny, and to see the House of Commons more as a rubber stamp than a proper check on executive authority.

"MPs need to sharpen their teeth – and be more bulldog, less poodle."

# Sir George Young's full article for The Guardian is available here

SHOULD BEATEN BROWN
HAVE HUNG ON SO LONG?

# At Charter 2010 we have taken a broadly positive view of the constitutional procedures that took place following the General Election and the role of the Cabinet Secretary. But it is important for people to realise that there is another view of this whole process, as described below by Daniel Johnson in Standpoint. Michael Gove was on the board on Standpoint, a magazine published by the Social Affairs Unit, and David Willetts and Oliver Letwin were contributors.

Historians looking back on the six days following the 2010 General Election may conclude that an attempt - only partially successful - was made to mount a very un-British coup.

On Thursday 6 May, the Conservatives won 306 seats compared to 258 for Labour and 57 for the Liberal Democrats. In Labour's worst debacle since the late Michael Foot's humiliation by Margaret Thatcher in 1983, the party polled two million fewer votes than the Tories and lost nearly 100 seats. Although the Conservatives were denied an overall majority, there could be no doubt that the Labour government had lost decisively.

The normal constitutional procedure in such circumstances had hitherto been for the incumbent, once he had satisfied himself of the impossibility of commanding a majority in the Commons, to offer his resignation to the Queen. The monarch would then invite the Leader of the Opposition, in this case David Cameron, to attempt to form either a minority or a coalition government. Yet, as the nation waited expectantly for Cameron to be summoned by the Queen to become her 12th Prime Minister, it became clear on Friday 7 May that Gordon Brown was stubbornly refusing to concede defeat. A small band of desperados sought to rewrite the unwritten constitution, overturning the damning verdict of the electorate on the government.

Diehards

Led by Lord Mandelson and Alastair Campbell - two of the most devious men in British politics - and the diehards of the Left led by Ed Balls, the putschists took over the reins of government, occupying Downing Street and refusing to concede defeat. They planned to cobble together a coalition of the two "progressive" parties who had lost the election, with the aim of excluding the clear victor. Their plot was to rewrite the rules of the electoral system in order to usurp the power that rightfully belonged to the Conservatives.

As it emerged that the plotters had been putting out feelers to Nick Clegg, the Liberal Democrat leader, behind the Tories' backs, a wave of revulsion swept the country, including any Labour members with a shred of decency left. It was an affront to democracy. The former Labour Cabinet minister John Reid warned that by trying to concoct a "coalition of the losers", Labour and the Liberals were risking "mutually assured destruction" at the hands of the electorate. David Blunkett indignantly declared that his colleagues were deaf to the message the voters were giving them.

None of this could shame the usurpers, who sought to sabotage the most distinctive mechanism of the British system: the inalienable right to throw the rascals out.

Machinations

To his eternal shame, Brown himself took part in these machinations and thereby put at risk the prestige of his office. Once the scale of his defeat at the ballot box had become clear, at the latest by the morning after polling day, Brown had the opportunity to leave Downing Street with more dignity than he had ever shown during the 13 years that he had lived there, first as Chancellor of the Exchequer and latterly as Prime Minister.

Instead, he waited until the following Monday to announce that he would step down as leader of the Labour Party, though not until a successor could be found. Even then, he clung to the trappings of prime ministerial office, refusing for another 24 hours to make the short journey to Buckingham Palace to tender his resignation, in the vain hope that his shadowy junta could conjure a government out of thin air to be the vehicle for a mythical "progressive majority" - itself a figment of the fevered imaginations of Guardian columnists.

When Brown finally admitted defeat, on the afternoon of Tuesday 11 May, he demanded an audience with the Queen, in order to resign immediately. After one of his abrupt mood swings, he had switched from inordinate delay to indecent haste.

Rebuffed

Now, however, the Palace apparently rebuffed his request. By this time talks between the Tories, whose team was led by William Hague, and the Liberal Democrats were at a crucial stage and the Queen did not want to take the risk of Britain's first coalition government since 1945 being strangled at birth. Brown, impatient to go, was made to wait a while until it became clear that a deal had been struck between Cameron and Clegg.

Meanwhile, Brown was left alone in his bunker, apart from the plotters who eventually crept out by the back door. According to a Guardian photographer who overheard the Prime Minister taking a phone call from his chief whip Nick Brown at 4pm, Gordon Brown said: "I've got to go to the Palace. The country expects me to do that. I have to go. The Queen expects me to go. I can't hold on any longer."

Was this said in front of the press for effect? In any event, it was an all-too-belated recognition of what had all along been his duty: to submit to the judgment of democracy.

Exasperated

However, Clegg was not yet done with Brown: even as the PM prepared to go to the Palace, the Lib Dem leader was still on the phone, trying to extract more concessions from Labour with which to haggle in his talks with Cameron, until an exasperated Brown was heard to say: "Whatever happens, I am going to the Palace."

The Prime Minister arrived at the Palace at 7.26pm. The Queen did not detain him for long; the nation gave a collective whoop of joy. It was as if a nightmare had come to an end, a depression had been lifted, a volcanic cloud had been blown away by a fresh breeze. The rainbow over Buckingham Palace symbolised the calm after the storm and, as the Cameron couple arrived in their silver Jaguar, the palpable sense of relief that the Queen's government would be properly carried on obscured the fact that the Conservative leader should by rights have been sent for five days earlier.

Hovering in the wings during the dying days of New Labour was the Cabinet Secretary, Sir Gus O'Donnell. It was he who choreographed the creation of the coalition government, from the unprecedented decision to postpone the Queen's Speech for three whole weeks, allowing ample breathing space, to the provision of the Cabinet Office for negotiations. Sir Gus and his Civil Service colleagues deliberately kept the Queen out of the picture until it had become inevitable that Cameron would form a coalition with the Lib Dems.

Baleful

Any possibility of a minority Tory government was pre-empted by Brown's baleful presence in Downing Street during that crucial weekend after the election. The fact that Cameron was not yet PM meant that he could not negotiate from a position of strength. Cameron and Clegg both co-operated in the preordained ritual that Sir Gus had, for the first time, set down in writing to regulate the transition of power. Having declared on the Friday morning that his preference was for a coalition, Cameron was then locked into these procedures.

Thus Britain had its first taste of the Continental-style coalition formation that the constitutional "experts" have decided should become the norm, once the electoral system has been brought into line with the European consensus. The peculiarities of the British constitution, such as its adversarial principle, are being systematically eliminated, despite the remarkable demonstration during the post-election interregnum of the inevitable consequences of proportional representation.

# The full text of Daniel Johnson's article - titled Talk is cheap: now it's time for action - is available here

CUT WITH CARE:
CHANCELLOR IS
WARNED AGAINST
STIFLING RECOVERY

Two of the media's foremost economic commentators have warned Chancellor George Osborne against overdoing spending cuts and tax rises at the expense of growth.

Both Guardian economics editor Larry Elliott and Anatole Kaletsky, writing in The Times, fear that full-on retrenchment will see Britain repeat other nations' self-damaging mistakes.

"The classic example of such counter-productive efforts at deficit reduction has been seen in Japan since 1990," writes Kaletsky.

"Japan today has the world’s highest public debt burden - largely because of misjudged and untimely efforts of successive governments to control their debts.

Stagnation

"Does this Japanese experience mean that the Chancellor should keep delaying public spending reductions? Not at all - radical spending cuts are needed to put Britain’s economy on a firmer footing for the long term.

"But the Government must prevent the necessary cutbacks in spending and borrowing from pushing the economy into a Japanese-style decade of stagnation. The more successful it proves in raising taxes and cutting its spending programmes, the greater will be the risk of another recession or serious economic slowdown."

Kaletsky says it is "simply bunk" for David Cameron and others to claim that reductions in public borrowing will support growth by boosting confidence.

Elliott in The Guardian is even more forthright, declaring "the lunatics are back in charge of the asylum" and accusing the Prime Minister of talking "dangerous nonsense".

Elliott refers to policies "that now threaten to repeat the mistakes of Japan in the 1990s, when every tentative recovery was snuffed out by over-hasty retrenchment.

Bizarre

"Around the world, cutting budget deficits has become the priority for policymakers fearful that rising debt levels will leave them at the mercy of capricious financial markets," he writes.

"Yet we now have the bizarre spectacle of China, Japan, the eurozone and Britain all set on reducing budget deficits while simultaneously pursuing export-led growth. This is a logical absurdity because somebody, somewhere has to be importing all the exports."

Delving deeper into history to support his case, Elliott recalls how in the 1930s US president Franklin D Roosevelt heeded advice to take the knife to his country's spending - and saw the economy promptly lurch back into recession.

"Bond markets are not freaking out about budget deficits in Britain, the US or Germany," he concludes. "But let's see how they react to a return to the mass unemployment, protectionism and political extremism of the 1930s."

# Charter 2010 will endeavour to reflect all shades of opinion on this vital debate in the run-up to Osborne's Budget speech on 22 June. See also our Latest News section for updates.

DON'T KNOCK IT! CUTS
CONSULTATION CAN BE
A VALUABLE EXERCISE

Chancellor George Osborne's decision to consult the public about spending cuts should be welcomed rather than ridiculed, says a leading political commentator.

Andreas Whittam Smith, who founded The Independent and continues to contribute regularly, believes the media is wrong to mock the initiative.

"I choose to read Mr Osborne's words as an expression of ambition," he wrote this week. "If the exercise truly is to 'shape the role of the state in the future', then it has constitutional significance, altering the Government's relationship with the citizen."

Understandable

However, Whittam Smith believes the exercise can only succeed if the public is given the facts in a digestible and understandable format.

"Unless the Government publishes the public accounts as a series of simple blocks of revenue and expenditure via the internet that people could use to construct their own ways of reaching the desired outcome, nothing will happen," he predicted.

"There must be online decision-making trees that allow users to see that if, say, such-and-such an activity is ringfenced, then these are the consequences for the rest of public spending, or for a particular category of it.

Impact

"For the electorate to be involved, it has to be shown how to play the game. Each item would need two numbers – one to capture the financial impact of any change, the second to indicate the employment consequences."

Whittam Smith welcomes the prospect of all Government departments publishing business plans and, via the internet, disclosing all new items of central government spending over £25,000.

"People are going to get the relevant information," he wrote. "So when, for instance, they are disappointed by cuts in particular lines of expenditure, they will be able to compare them with other spending commitments.

Valuable

"They can cause questions to be asked in Parliament. Perhaps they will only complain, but even this is valuable. They would at least test the Government's case."

Whittam Smith concluded: "Instead of mocking, the media should take the Government at its word. Call Mr Osborne's bluff, mount a consultation.

"For, through our newspapers and our programmes and our online websites, we can do this much more effectively than the Government despite its vast resources."

# Andreas Whittam Smith's article for The Independent can be read in full here