The main points from prime minister's questions on Wednesday, 26 March, from 1200 GMT:

Prime Minister Gordon Brown welcomed President Sarkozy and his wife to the UK. He said he would be discussing joint action on illegal immigration and measures to tackle global financial instability.

Conservative leader David Cameron also welcomed the Sarkozys to the UK.

Mr Cameron used all six of his questions to attack Mr Brown's record on the economy. He used a Treasury Select Committee report to criticise his handling of the Northern Rock crisis, accusing the government of "dithering" compared to the swift action taken by the US government over the collapse of Bear Stearns. Mr Cameron said the Bank of England should be in charge of bank rescues rather than the Financial Services Authority, which he said was short of expertise in key areas.

Mr Brown said the Financial Services Authority had done a good job. He said it could do more - but every regulator around the world was facing similar problems. He accused Mr Cameron of having "no basic grasp of arithmetic" - a quote from Tory supporting novelist Frederick Forsyth.

Mr Cameron said it was "pathetic" for Mr Brown to read out quotes from novelists. He challenged Mr Brown to name one other major country that was responding to the downturn by putting up taxes. He said every other country had put away money in the good times except Britain and he called on Mr Brown to take responsibility for this.

Mr Brown said the government was cutting the basic rate of income tax to 20p and was "injecting more money into the economy this year". He said Britain had the lowest rate of inflation of the major countries and had unemployment at half the rate of other EU countries.

"I just wish he knew something about economics when he came to this house to tell us what to do," said Mr Brown, adding that all Mr Cameron could offer was "slogans not substance". He said the Tories had learned nothing since the 1990s.

Lib Dem leader Nick Clegg also focused on the economy - calling on Mr Brown to take action to prevent banks repossessing homes "at will". He said the situation was as bad as under the Tories in the first two years of the 1990s.

He asked: "is complacency the only thing he has to offer to thousands of British families who are frightened of losing their homes?"

Mr Brown said the economic situation was nothing like that under the Tories in the early 1990s when interest rates reached 18% and home repossessions were much higher. He hailed Labour's record on economic stability and low interest rates.

Point-by-point: Question time

2. I am continuously amazed that the Prime Minister. When the Tory government led by Prime Minister Margaret Thatcher assumed power on 4th May 1979, one of its first actions was to abolish exchange controls which were gone completely in a few months time. The tax rates were also addressed in the very first budget and continued to be reduced throughout the 1980s as summarised in the added table to my Email below. This clearly shows that Prime Minister Gordon Brown was talking off the top of his head to suit his purposes in Parliament and got it flat wrong.

While reducing income taxes, the Thatcher government increased VAT from 8% to 15%. These moves have been criticised as moving from direct to indirect taxation where taxes like VAT are regressive, i.e., they tax those on less income greater. There is also some criticism that the increase if VAT hit business and was inflationary. Inflation started to come down as a result of the monetary policy shift to managing the money supply (M4) instead of interest rates. The initial result was higher interest rates that did impact economic activity.

This was the painful part of the inflation cure which, if left unchecked, would have toppled the UK over the brink into economic collapse, I believe. The switch in monetary policy to aggregate money supply management was most important. In effect this was decontrolling the price of money (interest rates) and controlling the supply of money so that excessive increases in money supply did not occur which was the foundation of inflation.

This had long been the position of the monetarist and was also implemented by the US Federal Reserve in October 1979 shortly after Paul Volcker became its Chairman. The US was heading in the same economic direction as the UK toward disaster, and this was the cure although painful. The UK has already been there and does not need to go there again as this government has created. Gordon Brown needs to be held publicly accountable for what he has done, otherwise he will go on making these false statements repeatedly and getting away with them. The general public of today does not know what happened almost 30 years ago and depends upon those in government to get it right and tell it like it is.

---------- Forwarded Message ----------

Subject: I am continuously amazed that the Prime Minister just makes up whatever he wants to say that has nothing to do with reality as he did today in PMQs.
Date: Wednesday 26 March 2008 14:02
From: Gary D Chance
To: news24@bbc.co.uk, camerond@parliament.uk

The Prime Minister said that the highest tax rates in this country occurred during the 1980s which was untrue. That was a time when they were being reduced by an effort that started in 1979 and took some time to turn this country around to prevent an economic collapse which would have occurred had not Margaret Thatcher become Prime Minister.

The top tax rate during the James Callahan years was some 90 or 95%. I can't recall exactly which. There was no incentive to generate wealth and earn money for it was taxed away. How many tax exiles where there then who lived abroad to avoid the incredible tax rates in the UK? They started returning to the UK after Margaret Thatcher's government brought tax rates down.

[Basic tax rate in 1979 was 33% which declined to 22% by 1999. Top tax on unearned income was 98% and 83% on earned income in 1979 which came down to 40% in 1999. Those who earned investment income had to pay a 15% surcharge bringing the top tax rate to 98%. At some point there was no incentive to earn any more money since it all went to the government.

Fiscal years	Lower rate	Basic rate	Higher rates
1978–79	25	33	40–83
1979–80	25	30	40–60
1980–81 to 1985–86	—	30	40–60
1986–87	—	29	40–60
1987–88	—	27	40–60
1988–89 to 1991–92	—	25	40
1992–93 to 1995–96	20	25	40
1996–97	20	24	40
1997–98 to 1998–99	20	23	40
1999–00	10	23	40

"In 1980, the lower rate was abolished; in 1984, the investment income surcharge was abolished; and through the mid-1980s, the basic rate of tax was reduced. In 1988, the top rate of tax was cut to 40% and the basic rate to 25%, producing a very simple regime with three effective rates — zero up to the tax allowance, 25% over a range that covered almost 95% of taxpayers and 40% for a small group of those with high incomes."]

What do you think the "brain drain" was all about? There was no point in the best earning money in this country reflecting their talent and ability when the government taxed it all away. I've noted recently in the news that the "brain drain" is increasing.

Export controls on currency inhibited investment abroad and international activity. I seem to recall that there was a tax ["premium"] of about 40 to 50% on funds removed from this country so that this investment alternative was stifled. The idea was to prevent capital flight, but why was capital flying elsewhere? That was another exorbitant taxation that Margaret Thatcher's government brought to an end.

Capital raising for medium and small businesses was almost nonexistent. There was virtually no corporate bond market. All that existed in the 1970s was an equity market for large companies, and they had to raise capital through rights issues [to existing shareholders]. The fixed interest market was limited to Gilts. The only recourse for enterprise activity debt financing was through borrowing from the banks and private placements for larger companies.

There was no opportunity to generate and earn wealth because it was mostly confined and squelched by lack of opportunity from limited capital markets and taxation by the government. That was a Labour government in power before the Tories were elected to government in 1979, and it did nothing to change the "stagflation" it had created and sustained.

It took a massive effort to turn the UK ship of state to rejuvenate the economy and reduce inflation through monetary and fiscal policies the latter of which relied upon tax cuts to put money back into the hands of the private sector for spending decisions instead of the government making those decisions.

I find it outrageously beyond belief that Gordon Brown would stand up in the Commons and make such a statement which he must clearly know after his decade as Chancellor was false. He owes the country an apology.

The Tories created a solid economic foundation through eighteen years of government with some very tough problems that needed to be solved which caused a necessary and unavoidable pain to the people of this country. It was those people who had experienced the terrible pain of the early 1980s who returned Margaret Thatcher's government to power in May 1983 to keep the policies going and ensure that this country flourished for all.

This is exactly what happened overall until this Labour government took over in May 1997 and began spending like a drunken sailor borrowing imprudently and taxing by stealth until all the gains of the18 years of a Tory government have been lost. The big problem now is that there is no reserve or resiliency in the economy from which to draw which means that the economic decline will be long and hard.

Gordon Brown has created this situation with his misguided policies such as taxing pension fund dividend income so that institutional investors changed their asset allocation decision away from equities to areas where tax free income could be earned. The necessary and effective balance in the capital markets was shifted to the detriment of everyone which ultimately had a profoundly negative economic impact.

David Cameron was precisely correct with this riposte regarding the "maths" criticism when he pointed out that one Chancellor and one Prime Minister add up to . . . ["economic incompetence"].

Once a disaster like this is triggered, there is nothing that can be done to correct it since it has been created from over a decade by government mismanagement. Why did Gordon Brown sell the Bank of England's gold? It was a short sighted decision to get a couple billion into the Treasury. Who now has any confidence in the paper printed by the Bank of England?

As David Cameron also pointed out, no effort was made to pay down the borrowings to ensure fiscal stability and integrity especially after all that the Tory governments had done for 18 years to put the UK into a position of strength. Instead, this Labour government has become a borrow and spend government in its effort to maintain power. What's going to happen to the government's fiscal policy if interest rates do not come down?

There has to be a way to point out the reality for each and every statement like this from the government especially when it occurs at PMQs. It sounds very much like Hillary Clinton's account of her arrival in Bosnia where she claimed that she came under the risk of sniper fire and ran to her car. Yesterday, we saw in the news videos about what really happened on that arrival date in 1996 with her daughter by her side, greeting the honour guard and listening to a child's poem. Where were the snipers? Was there a heckler in the crowd?

Someone really needs to remind the British public what the economic conditions were really like in the 1970s with this country facing collapse. It took a Herculean effort and time to build credibility for changes to start with the belief that the policy changes really meant something and that the "Iron Lady" would make certain that they held. People had to believe that they were not a short-term political decisions made to keep power which had characterised the past.

It was not until October/November 1981 before inflation and interest rates actually peaked and began their downward trend of the next two decades. That was a profound achievement which was accompanied by the fiscal policy changes from reducing taxation in this country so that people could earn and keep their earnings making their own spending decisions.

It was necessary to convince the institutional investors of which I was one that the policies would be sustained so that investments could flow into the only source of debt financing which existed at that time: UK Gilts. The investor had to be convinced that inflation was coming down, and it was time to by fixed interest securities. In 1982 the UK long-dated Gilts were the highest returning assets in the world as an asset category with a total return (capital appreciation and interest together) of 50%.

One of the penions funds for which I was responsible in the UK that the time was able to cease coporate and employee contributions due to the extraordinary increase in its assets which were 50% invested in long-dated UK Gilts. Equities did quite well too.

This was a company that was been connected with the then decimated automotive industry whose employees had been cut in half from about 4500 to some 2200 with some plant closings. It needed the kind of corporate cash flow assistance that occurred from this pension fund decision which was directly related to the decisions made by the Tory government at that time.

Those decisions remained firm and dependable which provided credibility for the government's policies and inspired confidence in the country at large as interest rates and inflation began a long term downward trend. It is critically important to make certain that this government and especially its current Prime Minister who was formerly its Chancellor does not twist the record out of shape as regards to what really happened. No one needs a MiniTruth.

It is critically important not to repeat the mistakes of the past once again, but, sadly, those mistakes have been created anew and are now threatening this country with long term serious problems from a potential depression.