Today all eyes are focused on the threat of war. Economic issues are secondary. That's inevitable and right. Life is more important than money. But there's an important economic dimension to today's geopolitical crisis. And it's part of a longer story. First came the collapse of the dot coms and other technology stocks. Next came the tragedy and trauma of 11 September 2001. Then came business scandals - Enron, WorldCom and many more. So shares have plunged, with knock on effects for pensions, savings and the financial institutions. Now the shadow of war hangs over the world economy. The cost of war itself is a heavy burden for the US and UK. But if it drags on, goes wrong, oil prices could rocket and confidence altogether shrivel away. The risk of global recession is staring us in the face. Some analysts are even starting to warn of the risk of an economic 'ice age' where markets stagnate and growth disappears. They speak of the risk of a system failure. We already have seen the most sustained downturn in the world's share markets for half a century. In the last week the Footsie 100 fell to half of its level on New Year's Eve 1999. With the falls in shares has come misery for shareholders - not super rich folk with brokers - but ordinary people whose savings were in equity ISAs, their pensions in equity funds, their mortgages in equity based endowments. And even bricks and mortar, even they only provide an uncertain refuge. Many experts are worried that house prices are now unsustainable, rocking the other traditional pillar of British people's financial security. The 21st century, for so long a symbol of a bright future and a new beginning, has turned out to be a frightening place of insecurity and instability. Everything we thought was solid - pensions, insurance, blue-chip stocks, house values, the very relationships between the world's economic powers - seems to be crumbling or under threat. It is the polar opposite of the dotcom, pre 9/11 days when value was based on promise alone. Today value can only depend on solid, proven things - cash, assets, sales, profits - delivery. In business, the response is to batten down the hatches - to survive - to cut costs - and to return to economic first principles. And in politics? In politics what does this mean? In my view it also needs a return to political first principals. It's a time for honesty. It's a time for fairness. It's a time for wisdom. Politicians need to be clear and transparent about the situation their citizens face. It's a time for acknowledging harsh realities. It is a chance to show that government - through fair taxation and wise public spending - can provide the stability and security that are so lacking in so many areas of our lives. So, is this what we're getting from the British Government and the British Chancellor? Is Gordon Brown being honest with the British people? Instead he appears to be in denial, clinging to over optimistic forecasts, unable to accept the new realities. Perhaps the reluctance to face reality is because while the Chancellor likes to blame the world for Britain's problems. he's missing the fact that Britain has a few problems all of our own. The Harsh Economic Reality These are the facts. Gross imbalances, driven by the overvaluation of the pound during the last five years, compounded by the Chancellors love of red tape and tax complications, have left manufacturing in the deepest recession since 1981, the longest recession since 1945. In the last 18 months we have seen a faster collapse in British investment than in France, Italy, the USA and Japan. Worse, in fact, than in any major economy… with one exception - Iceland. Now that's what I call an economic freeze! The biggest fall in British investment since records began. Brown says "investment may be down, but our economic growth is higher". Well, it's true, booming house prices and rising personal borrowing have sustained growth for a while. But you can't borrow your way forever. British business has been doing badly under Brown, Worse than our competitors. If we are to sustain the investment so badly needed in Health and Education, Britain needs to start earning its way. These are big problems. If Brown refuses even to admit them, there is no hope he will solve them. But there are solutions. Just as we led and won the argument that you get what you pay for, that hospitals and schools needed real investment not phoney figures, now we need to show the way to earning that investment. We need to be brave enough to do what the best businesses are doing - to take simple, straightforward, but courageous action to address these very obvious issues. Cutting red tape. Making taxes simpler, and fairer. Tackling the problems of housing boom and bust. A referendum on Britain's membership of the Euro. Our Alternative Budget, published at the end of February, makes immediate proposals on each of these. But not only is our economy suffering from imbalances, under-investment and slow productivity growth. The public finances are also a cause for worry. Because business has been blighted, there's now a serious risk Britain isn't earning the money to pay for Brown's spending plans. The truth is Brown's figures are now so unreliable, Treasury spin so out of control, That probably even Gordon has no idea how far his figures can be relied on. There are serious doubts over the trend growth rate, doubts about corporation tax, doubts about receipts from indirect taxes, and dubious Enron style off balance sheet financing. Here honesty is vital. Lack of full disclosure in business is a scandal…. In governments it seems to be a habit. So we make a specific proposal to clean up the budget act. A new requirement on the National Audit Office to do just that - audit the national accounts. Unbelievably, at present they only audit those parts of the Budget the Chancellor asks them to audit. Enron executives would have loved that! Government rightly requires businesses to be subject to audit, and the same rule must apply to Government budgets. We can't trust Governments to audit themselves… We certainly can't trust the Chancellor who invented double and triple counting. This then, is the great illusion of British politics we have to shatter. More giveaways in each Budget than Father Christmas. More take-aways than McDonalds. Gordon Brown the "prudent" chancellor? Looking at his record, he's been the lucky chancellor. And certainly the stealthy Chancellor. But luck and stealth don't make a great Chancellor. Public Spending Still, enough of the phoney Father Christmas. Let's turn from honesty in analysis to fairness in policy. Since the Election, the government have at last admitted that you can't have something for nothing. That you get what you pay for. That to improve health and education we needed to increase taxation, Sounds familiar? Well, of course, it's precisely what we said at the last three elections. So with Labour now accepting our arguments , We've won that battle. But this is not yet a Liberal Democrat Government. Far from it. Spend More Wisely They must be challenged on how they are spending that money. Our honesty at the last election, means that we are best placed to ask the tough questions. Does spending reflect the real needs of local communities? The communities you work so hard for and represent. Or does it just reflect the assumptions and priorities of the bureaucrat in Whitehall, centralised targets, too little understanding of the situation on the ground? The public services paper that we debated and agreed last September in Brighton showed how we'll deliver things differently. Put local people in charge of local services. Take Whitehall out of their lives. Set people free. Now our Alternative Budget shows how we'll spend more wisely. Increased pensions for all pensioners, funded by reallocating Labour's means-tested pensioner credit, a credit hundreds of thousands will find too difficult or too demeaning to claim. Nearly £2 billion more for the railways - funded by reallocating the so called Capital Modernisation Fund - The Chancellor's personal slush fund. To guarantee that April's National Insurance rise for the NHS stays with the NHS, We will turn national insurance into a permanent NHS Contribution. And free personal care, our first priority from the as yet unspent new resources for the NHS. Tax More Fairly But possibly our most radical proposals Are to tax more fairly. The government's welcome recognition of the need for extra investment has gone hand in hand with an ever more unfair tax system. It's scandalous that under a Labour government, in 2003, the poorest pay more of their income in tax, than the richest. That's right. The poor pay more. Here's the Government's own figures. The richest 20% pay, overall, just 35% in tax. The poorest 20% pay 40%. You'd expect that from a George Bush. But is this what Gordon Brown came into politics for? Well, today, lets tell Labour this. Their party, which set up the NHS to help the poor, may not remain true to its principles; but this party, which set up the old age pension to help the poor, we do stick to our principles. We will make taxes fair. Student fees are at the top of our list for change. By introducing first tuition, and then top-up fees, the government has introduced hugely unfair taxes on students and their families. A huge barrier to students from ordinary backgrounds who wish to go to a top-class university. We'd fund that investment differently, with progressive taxation. We're earmarking part of a new 50p rate on the super rich (on incomes over £100,000) to make sure that higher education is funded fairly. Making the investment, but raising it differently, in a more progressive way, so that universities remain open to all, based on merit - not ability to pay. We'll use the rest of the 50p rate to tackle a second unfair tax. Successive Conservative and Labour Governments have forced up council tax, a highly regressive tax, hitting hardest those who can least afford to pay it. Help is needed immediately. So using the rest of the funds from our 50p rate on the super rich, we'd immediately cut £100 off every Council Tax bill in the country. But Council Tax is not based on ability to pay, so even after this cut it will not be a fair tax. In the long run, it has to go. This £100 cut is only our first step to replacing the Council Tax altogether, with a fair system based on ability to pay - a local income tax. Lets spell it out We will cut, then axe, the Council Tax. Guaranteeing a Fairer Britain This is our agenda. An agenda based on honesty and fairness. For now, we've won the case for investment. But we will spend more wisely than Labour. And we will tax more fairly. Times of war and crisis are times when the powerful exert their power and ordinary citizens feel their powerlessness. But what are the Liberal Democrats for if not to stand up for the poor and the powerless? In the economic crisis that faces us, Just as in the international crisis that faces us, we must speak up for the qualities - fairness, wisdom, truth - to shape the 21st century we strive for. Whatever people know about us, whatever people say about us, let them be clear on three counts. They can trust us to stand up for fairer taxes They can trust us to put forward wise spending plans. And above all, they can trust us to tell the truth. 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