I hope members of the cabinet’s economic war council were hard at work long before I dictated this blog. The second round of bank rescue measures announced on Monday were pretty thin gruel. True, tax-payers’ potential liabilities were massively escalated, but the Government could not explain much of the details of how the scheme will work in freeing up credit.

Even without the details it was pretty clear the wrong decision had again been taken. Insuring against toxic bonds is a very different operation from trying to bring them all together in a bad bank, as it is so politely called.

It was in mid-December that MPs on both sides of the chamber were calling for the establishment of a bad bank and for the details to be worked out in double quick time.

That must be today’s job for the economic war cabinet, gathering amidst another set of horrendous economic figures yesterday. The pound has fallen this week by 4.5% against the Euro, 5.8% against the Yen and 6.1% against the Dollar – a fall of 34% since November 2007. We don’t hear much now, thankfully, from those cheerful souls boasting falling Sterling will boost exports.

National debt is on line to rise from a little over 500 billion pounds to 800 billion by the beginning of the next Parliament. That figure could simply double if the guarantees the Government has made with tax-payer’s money arrive as bills and the loans against assets turn out to be less than the bargain us tax payers hope for.

So two dread announcements are now pending. The next unemployment figures, out today, will erase the last stretch of credibility attached to the Government’s roadmap to recovery contained in the pre-budget report.

At the same time we can expect Standard and Poor will give its judgement on the credit worthiness of the British Government. When that is announced, not only will the economic war cabinet need to hold onto its hard hats, we too should don ours, as the fall out of economic debris will greet us at every turn.

Mega crises sort the men out from the political boys. Michael Oakshot in his famous lecture on political education drew distinction between practical and technical knowledge. He talks of how “the boys might acquire the technical knowledge, but only the men would combine this with practical knowledge of affairs”. Over the past week I couldn’t but recall Oakshot’s famous words. The economic crisis is just beginning. Maybe a few more people now are accepting as I did at the beginning that it would be surprising if the recession/slump becomes as severe as I fear that our political institutions will remain intact. I suggested there might have to be a National Government. Three members of that National Government are beginning to identify themselves. Vince Cable, obviously. Peter Mandelson, who is thriving in current circumstances and must be kicking himself at not having a seat in the Commons. And the return of Kenneth Clarke, who has been through this twice before will quickly emerge in the views of politicians (he’s already there with voters) as one of those who might form this new Government.

Nearly full marks for Alan Johnson for publishing The NHS Constitution . As this is hopefully the beginning of the debate rather than its end, here are three ideas. What should be the role of constitutions, or as I argue contracts in our lives. First, we need similar constitutions/ contracts across most of our public life now as a way of allowing decent citizens to know what is expected of all of us. I’ve tried to pilot this idea in schools where the pupils themselves where the pupils themselves have come up with some pretty remarkable findings (see Neighbours from Hell). Any new contracts and going to be fairly rough and ready at first and the aim ought to be to get them, after much public discussion, revised quickly. It is a bit disappointing therefore that the new document talks of a revision in ten years!

The document sadly does not face up to two crunch issues. A main reason why health and equalities remain so stubbornly the same is differences in lifestyles. Of course it is so much more difficult for the poor to have a good diet. But many poor families manage and in so doing put most of us to shame. So under the section – your responsibilities – shouldn’t the first one be offering help to move to better diet and more exercise? The document simply talks about our having some personal responsibility here. I always find that action is far more likely if concrete steps are suggested.

The big hole in the document however concerns the bad behaviour against which too many staff suffer. The constitution doesn’t bite the bullet. We need to begin a public debate on whether a quickly revised constitution should clearly state that the courts will have powers, say after the second serious offence against staff, to exclude an individual’s NHS provision. Full Stop. The constitution pussyfoots around the issue. What do the public think though? Particularly as last year alone over 11500 NHS staff were subject to verbal or physical attacks.

At some stage the Government, I believe, will have to come back to the bad band idea. While the toxic assets have been repackaged to the nth degree the banks by now must have some idea of the extent of their vulnerability on this score. So I return to an idea I put forward in a Telegraph article dated 13th December. Before another penny of tax-payers’ money is given over to the banking system, the Prime Minister and Chancellor ought to lock Britain’s senior bankers in a room saying they are not being allowed out until they write down the size of their bank’s toxic debt and there be no takeaway Indian food until the exercise is complete.

Because the Government is not doing this, the Chancellor now cannot say the size of tax-payer liability from the measures he has announced this afternoon. Getting the bad debt parked on the side is likely to be the best way of freeing up credit.

Two other moves would help. The “short selling ban” should be re-imposed and the FSA ought also to list the extent to which pension funds have been allowing their shares to be used in this way. What has been the net loss to those funds of allowing short sellers to devalue pension assets in this way? Pensioners have a right to know.

At the same time, the Government should make plain that it is opening up discussions with Parliament on how best to bring to account those people who are most responsible for pushing the country towards the edge of an economic precipice. So far Parliament has looked irrelevant to this fast-evolving crisis. The Government needs to act quickly to prevent an economic catastrophe and, why it might sensible to listen to what MPs have to say, the Commons does not have an executive role to play. But it could have this deliberative role in helping to bring the culprits to book and suggest how some of their ill-gotten gains might be used to offset the escalating national debt amounting from the Government’s rescue packages.

More than a page of history will be turned tomorrow. The President-Elect will become President Obama proper. Naturally British political leaders have been rushing to pick up his coat tails. But his message from yesterday is as clear as it could be. Change is coming to America because the people are going to be the agents of change. Wow, in one smart move he begins to manage any disappointment with the new President. More importantly he brings the nation together to forge that change. It is not Obama but the American people themselves who, in Tony Blair’s touching phrase, “will feel the hand of history on their shoulders”.

There are a number of firsts with this morning’s post. It arrived early. It also bought a card announcing what will be in some weeks’ time a couple’s second child. The card is a reproduction of the mother’s last scan showing a very healthy child in her womb. The scans, which have been instigated to alert parents to handicapped children, thereby opening the door for an abortion, might, in the longer run, paradoxically have a totally different effect on the pro-life/pro-choice debate in this country. While this is the first time that I have had an expected birth announced in this way, I am struck by the number of young people in schools whose own lifebook begins with pictures of them in their mother’s womb. While only some of the young people link up their womb-life with the abortion debate, these scans will, I believe, over the longer term change people’s attitude to what is an acceptable time limit beyond which abortion should not take place.

Abortion was touched on in a public discussion I was involved in last evening. I gave an example of how irrational many of the contributors to the abortion debate are when parliament discusses the issue. We did so last year and I couldn’t but compare the attitudes of my colleagues to GM foods and GM embryos. I would guess that, on a free vote, a significant majority of Labour MPs would register against GM foods. And yet I could not but contrast the horror that is expressed in our GM debates in the commons from the Labour benches on the prospect of having, say, genetically-modified potatoes compared with the non-debate and the voting last year for genetically-modified embryos, which was carried easily. This extraordinary example of where that part of the political brain deciding issues of GM crops is totally divorced from presumably another part of the political brain deciding GM embryos will soon be a thing of the past as those scanning photographs spread a new sediment across our political debate.

The Government very bravely announces today a third runway for Heathrow while making it plain that they are not so brave to allow the Commons to vote on the issue. The Tories might well mess up this aspect of the Government’s intent by offering us a vote at the end of a day’s proceeding when they decide the issue to be discussed. I hope when that opportunity arises we will have a radical alternative on offer. It is surely madness to expand a country’s major airport, with even more planes, and thereby terrorist targets, flying over the capital city. Surely the next radical Prime Minister will announce when the last flight will leave Heathrow and link this with building up an airport in the Thames Estuary or the Bristol Channel. The Government is confident it can build up a Japanese-type bullet train network to get us from London to Manchester in 40 minutes, surely the first such line could be built bringing passengers for either the West or the East and delivering them in London in less than half an hour. I wonder what the odds bookmakers are offering against that third runway ever being built?

The Churches’ Conservation Trust is forty years old this year. Set up as a joint exercise between the State and the Anglican Church, and financed from tax payers and the church commissioners, the Trust now is the custodian of the some of the finest examples of British architecture over the last 1000 years.

It is impossible to understand England without understanding its history, and its history cannot be fully understood without the role churches have played in building up our society.

I chaired the Trust for a time and Loyd Grossman, the current chairman, outlined planned for events which will make the 80th birthday party an even greater landmark. Details of the CCT can be gained from their website on: www.visitchurches.org.uk

Three’s not a crowd

I have always been a natural optimist about Israel’s future. Just as I have been a supporter of that country’s independence for as long as I can remember. But how much longer can Israel have an independent future?

I was struck by how many Jewish friends now believe that, metaphorically speaking, Israel will be driven into the sea at some stage, and perhaps quite soon. Whether the Americans would allow that scenario to take place is of course another question. That Israel’s friends, Jew and non-Jew alike, have such forebodings makes politics rather than war that much more important.

Throughout its short history, Israel has always been successful in facing only one immediate threat. It is now in the position – through dragging its negotiating feet – in not only having the beginnings ofan armed enemy in Gaza, but for that armed enemy to be gaining supplies from Israel’s, and our, enemy, the Government of Iran.

If I were Israel, I would pretty quickly give the West Bank sovereignty so its government could put a stop to new Jewish settlements. I would hope also that its electorate would be Palestinian and Jewish alike.

In Gaza, at the last election, when Hamas won control, it was far from clear that the ruling party wanted to move to the wretched Iranian model. Western Diplomats, in true style, rebuffed those first tentative moves the ruling party made to the outside world.

So what now?

Friends have to get over to Israel how late the hour is even if it is to survive in the short run. As a supporter of Israel, I have always been amazed at how modest the Palestinian demands are. One only has to look over the history of Israel’s establishment to realise the exploitation of Arab-land. Only in accepting the validity of the West Bank as a member of a three-state solution, can Israel hope to safeguard its continued existence.

Last week’s National Institute of Economic and Social Research finding makes grim reading. For the last quarter the economy declined by 1.5%. Should this rate continue for a whole year (nevermind escalating) the fall in national income in this recession will be greater than in 1931 which is now regarded as a depression or slump.

What Governments can do in the face of such a large economic decline is limited. The one thing they can do is to try and manage expectations so that a recession does not become a slump. To do this the Government has to act quickly, for any intervention to be large enough, and for it to be well targeted. There has to be big question marks over the Government’s strategy so far.

What can make the depression worse is to take the wrong measures. The general hue and cry is that interest rates should be cut further. I do not believe that last week’s bank rate cut will make any difference at all in the one key area where there should be most concern. This is getting credit from banks to businesses that need working capital to survive. Cuts in bank rate will not achieve this goal. New measures by the Government are urgent.

What is worrying about bank rate cuts is that officialdom does not see raising the savings ratio as part of our longer term recovery.

Government, firms and individuals have been spending too much on tick. Instead of discouraging savers by cutting rates the Government should be encouraging them so that banks have greater rather than smaller deposits. This then helps us solve the bank liquidity problem. We also need longer term as a nation to save more.

Two other measures which would help would be to insist the banks declare their toxic assets. Maybe the Government ought temporarily to suspend the banks’ capital adequacy rules which the FSA just recently tightened now the horse has bolted.

Increasing savings coming into banks, making them declare the size of their toxic debt and allow them to extend credit beyond the FSA moves would do more than any other set of proposals to lessen the severity of the economic downturn.

The media has reported Alan Milburn’s task as increasing mobility of young people from working class backgrounds into the professions. I hope Alan is taking no such limited view of his role. Most working class parents in my constituency do not see their sons and daughters becoming doctors or architects or the like. What most of them are anxious about is for their sons and daughters to gain skills to keep their children employable throughout their working lives. The biggest failure of the 1944 Act was not to implement the proposals for technical schools. The new academy programme in Birkenhead and elsewhere offers the chance to rectify this sixty-year failing. But the outlook isn’t good. Only 1400 pupils began the government’s new diploma scheme this year. Getting effective technical education into schools through the diploma scheme would do more to advance social mobility than any other move the Government could think up in a month of Sundays.

In the pit of my stomach I feel a deep unease about the Government’s strategy to counter what is euphemistically called a recession. I suppose the main cause of my anxiety is what might best be described as the Government’s inability to appreciate that there is a psychological side in economic activity, and this side is never more important when an economy may be going into deep recession. One way of describing this would be for the public being caught in a mighty huge panic. The key test of Government is preventing the panic becoming the major driver of the recession.

This side of market behaviour was pretty rampant during the boom years when people were desperate not to be gazumped when buying a new home. I saw it at its worst under the last Labour Government, when the Government then tried subsidising the prices of major items to dampen down inflationary expectations.

I argued that the programme should be as generous as possible, and that it should be generous enough that most of the money would not be drawn on. The inflationary expectation would have been cut at the root.

What in fact happened was the programme was half hearted, inflation ripped through the economy and tax-payers were left with a nice hefty bill for the subsidy programme.

The first evening when news of Northern Rock broke, and after witnessing people queuing to take out their savings, I thought we were at similar point where panic could take root. I was amazed that it took from the Thursday evening until the following Monday evening before the Government gave the guarantee over deposits, allowing the 24 hour media to broadcast peoples’ growing apprehension.

During no move since has the Government been able to get itself ahead of the curve, and thereby perhaps influence the course of events. The latest example is over VAT.

It was a fatuous move from the very beginning. And when we had a chance in Parliament sometime before Christmas to debate it I voted against, making a plea that the billions being borrowed to finance the VAT cut should be channelled into new forms of credit for viable businesses who might otherwise go under in the credit crunch.

Weeks and weeks later the Government still hasn’t announced how it can throw extra lifelines to viable companies who are being denied a working capital from the banks. Giving the banks more assets for capitalisation is almost as pointless as the VAT cut. The Government now has a small clutch of nationalised banks. Why isn’t it using them to get credit out to viable firms?

This failure alone will result in unemployment higher that it need otherwise be. Indeed the Chancellor has revised his incredibly optimistic take on an economic downturn which will be on the rebound by the middle of next year.

The Pre-Budget Report listed the expected levels of claimant unemployment by the end of 2009-10. Partly because the crisis is so serious, but also because the Government has been pitifully slow in responding (only looking quick-footed in comparison with the Tories) my fear is that the unemployment level predicted for the end of 2010 will be met, at that very point next year when the Government had confidently predicted the beginnings of recovery.

And yet the pressure is on in the media, and no doubt in Whitehall, for the Bank of England to cut further interest rates. Again the move will be worse than fatuous. It will harm even further savers.

It is quite clear that the bank rate lever is no longer connected to those parts of the economy which most need help i.e. firms requiring credit. Further cuts in bank rate will reduce the income of pensioners dependent to some extent in supplementing their income by savings interest. Why do politicians make so much fuss about the urgent need for Keynesian reflation while joining in the chorus to cut the income of the vast majority of pensioners? It doesn’t make sense to me.

Andrew Adonis is one of the most gifted ministers in this Government and his ability to think strategically in the long-term is a great prize for the Brown Government. Can he be right in putting so much energy into building a new rail network? For more years than I can remember I have been a commuter between Euston and Birkenhead while major reconstruction to the line has been taking place. For years now the defence of the crap service Virgin have given us is that this huge capital upgrade is underway. This was supposed to have been completed in the middle of December. As I write there has not been a proper service today and as I came back from Birkenhead on the 7 a.m. train on Tuesday morning it was diverted all round Klondike and didn’t get into London until 10.30 – a good hour and a half late. Given the appalling manner in which this capital investment programme in the railways has been implemented, does anyone now believe we have the expertise for such a major investment along Andrew’s lines? Why is it that the French and the Germans have brought up the standard of our water and gas industries but have kept well clear of the rail franchises? Isn’t this perhaps the one area of the British economy which we could have done with a bit of foreign ownership expertise and discipline?