When George Osborne stood up to deliver his Budget a little over a week ago the Coalition government looked pretty steady and secure for a mid-term government. It seemed capable of weathering the storms surrounding its reforms of the National Health Service and even felt confident enough to propose a cut in the 50% Income Tax rate.

That seems a very long time ago now.

Today it is staring into an abyss. Just look at the collection of headlines Tim Montgomerie has gathered this morning on the Conservative Home website. These are the culmination of a week of political disasters for the government.
• Granny Tax
• Budget for the rich
• Selling access to the Prime Minister to big donors
• VAT on hot food
• Tanker drivers' strike

None of these needed to be such a major problem – apart from the donor scandal – but the government has made them into a problem and that is the issue and the real danger it faces. The electorate will tolerate a surprsingly broad range of policies it doesn't agree with if it feels the business of government is being well run. What it won't forgive is incompetence and that is precisely the swamp that the government has just steered into.

It needs to find a way out very quickly.

If it doesn't then the political landscape could change dramatically. Labour under Ed Miliband will suddenly look a much more attractive prospect, although I am surprised at the way it has allowed itself to be sucked so far into the Cornish Pasty nonsense when it has potentially better targets in the Budget and the donor scandal (although Labour too is vulnerable on the latter with the massive trade union funding it currently enjoys).

A boost to Labour is the obvious political consequence. Less obvious is the possibility that this will shorten the life of the Coalition. Nervous Liberal Democrats – and there are plenty of those at the moment – have been persuaded that the Coalition remains worthwhile for the good of the country as the government delivers sound economic management. That argument will sound rather hollow this morning as the government makes a mess of everything it touches. It will be much easier for anti-Coalition Lib Dems to put forward a case for detaching themselves from a failing, incompetent government.

The odds will be shortening on a break-up of the Coalition.

The scandals surrounding the funding of politics will probably never go away but we really don't need to make it quite so difficult.

We have been here so many times before that we are all probably rather weary of discussing the fraught relationship between politics and money. Yesterday's excessively partisan exchanges in the House of Commons do not give any reason to think that we won't be back here again soon. For all the shouting, accusation and counter-accusation across the green benches there was no willingness on the part of the major parties to offer any real sacrifices to ensure that we move away from this scandal-strewn path. Without scarifices – by which I mean a fundamental change in the way politicians raise and spend money – this problem will never be resolved.

The extent to which this latest farce has shocked people might be rather surprising but it forms part of a broader political context already well formed by last week's Budget: it is the common view of the Conservative Party as the representative of the rich, acting in their own narrow interests. The appearance of ultra-successful foreign exchange dealer Peter Cruddas sounding like a second hand car salesman lying to get a sale (at least that what the Prime Minister said he was doing) has appalled most people and confirmed their worst stereotypes of what the modern Conservative Party is about.

Mr Cruddas's dire performance for The Sunday Times will also do further damage to the reputation of the City of London. It would be nice to think that someone at the Financial Services Authority is wondering whether Mr Cruddas is really a 'fit and proper' person to be running an large financial institution if that is how he plys his trade. If the reform of political party funding makes it less reliant on large corporate donations and people like Mr Cruddas then the City will find itself in a better place.

Politics should pay its own way
There is no coherent case to be made for state funding of political parties. If we want large political parties we should be prepared to pay for them ourselves. If political parties were to be funded by the taxpayer it would institutionalise the current political parties and exclude new political movements and groups with fresh ideas. This would be very damaging to democracy in the longer term.

Funding parties that win representation to help them hold administrations to account is a different matter and something we should continue.

What needs reforming?
We have a decent agenda for reform – at least as a starting point – in the recommendations from Sir Christopher Kelly's committee on standards in public life. It could go further, however.

The need for a cap on donations seems self-evident but scares the parties witless. The only debate should be the level at which it should be set with the range being from £10,000 to £50,000 a year. Somewhere nearer the higher figure would fund a mid-ramking post in party HQs and might be a sensible way of looking at this. This cap should apply to all individual and corporate donations.

The trade unions and Labour, of course, believe this would be unfair on them but this is really living in the past. The Kelly committee recommended that the political levy should be switched to an opt-in basis, a long, long overdue reform. Can you imagine Labour arguing for opt-outs in preference to opt-ins when it comes to consumer protection legislation? No? I can't either. It is hyprocrisy to defend the opt-out for the trade union political levy.

It is also an anacronism, harking back to an era when the relationship between trade unionism, socialism and the Labour Party was much closer than it is in the modern era. The trade unions will benefit from having a greater distance between themselves and the Labour Party as there are many people who need trade union representation who no longer join because of the links to the Labour Party. With core Labour support around one-third of the voting population (that equates to barely a fifth of the adult population as a whole) the trade unions are inhibiting their ability to represent much larger numbers of people.

We should also link the Kelly agenda to other much needed political reforms. Abolition of the House of Lords and the ending of all honours for poltical service would be a good start. We have suffered over a century of open abuse of these two avenues of political patronage and it is now time to call a halt to both. No modern democracy can defend an appointed legislative body anyway.

It is not just about how they raise money but also about how they spend it
It is clear that if we go down the route suggested by Kelly that we will end up with political parties operating from a much smaller revenue base. Perhaps we should help them adjust to that world.

Kelly proposes some modest limits on spending outside elections which do not go far enough.

Party political broadcasts should be abolished. I have never been clear on why they were introduced in the first place: why should one form of media be obliged to carry political propoganda when others aren't? Getting rid of PPBs would instantly save the parties huge sums of money. With the advent of the leaders' debates and the influence of social media in politics PPBs have long since served whatever purpose their instigators thought they were serving.

A similar leftover from another era is the election addresses that the Post Office is obliged to deliver for every Parliamentary candidate. In the digital era these are far less relevant than they might once have been and you do have to question why a public service should have to deliver election literature. If a candidate does not have enough support and organisation to get their message to the electors in their constituency then they do not deserve to win.

These measures would be a good start to cutting the cost of party politics but you can already hear the vested interests protesting at such radical suggestions.

Will we have better politics as a result?
We will certainlly have cleaner politics which will be a big step forward.

We will also have less expensive politics with far less money spent at the centre. This, in turn, will be a huge boost to local campaigning. MPs love rattling on about the importance of the constituency link, local issues and so on but almost all are elected or defeated on national swings which have got progressively more uniform over the last 50 years. Cutting the millions spent on national campaigning could reinvigorate local campaigning and might be just the boost that politics will need as it tries to recover from another deep, self-inflicted wound.

What is there not to like in George Osborne's third Budget? Just look at the tables of winners and losers in the newspapers this morning and there are many, many more categories of people benefiting from the measures he announced than losing out. Yet, the headlines are largely negative. Why?

The simple answer to this apparent contradiction is that the politics of the Budget were all wrong.

The Chancellor appeared more confident when he was at the dispatch box yesterday afternoon than when he delivered his previous Budgets and big public spending statements. This was clearly a Budget he believed in as he started to make some of the tax changes he obviously wanted to do in earlier years but felt constrained by both the politics of the coaltion and the dire economic background from doing. One of those was to attack the 50% income tax rate introduced by the last Labour government as a temporary measure in the depth of the crisis.

Mr Osborne made a good case in purely fiscal terms for reducing this rate but he ignored the politics. It was never going to play well in the current climate and made an easy target for Labour. Ed Miliband got it right when he asked what happened to the "we're all in this together" policy of the last two years. I thought he rather overdid it with his childish challenge to the government to put their hands up if they personally benefit, although judging by the newspapers this morning I seem to be in a minority on that. We know how much ministers earn so there was no need to undermine an otherwise sound repsonse with a descent into pantomime.

If it really is the case that so few people are paying the 50% as the Chancellor claimed then why bother reducing it when the political damage was always going to be potentially severe? It was a serious error of judgement on his part.

In making this mistake, he rather overshadowed the great strides this government is making in lifting the low paid out of Income Tax altogether. This is a policy that unites the coalition parties and is very hard for Labour to attack - indeed, I would expect them to support it. It should have been the centrepiece of the Budget and he wasted it.

I know that Mr Osborne will point to the new higher rates of Stamp Duty on properties over £2m and the raft of promised anti-avoidance measures as proof that it wasn't a Budget for the rich but I am not sure many people are going to be easily convinced on that point. His passage about clamping down on tax avoidance was the most emotion I have ever heard Mr Osborne rustle up in a speech so maybe there will be more to it than initially meets the eye.

Is there a 'Granny tax'?
There seems to be alot of nonsense flying around about the impact of phasing out the age related Income Tax allowances. One thing this isn't is a tax on grannies and most of the people I have heard interviewed on the topic haven't the faintest idea what it is about, who it will affect and how.

If we are moving towards having a core personal Income Tax allowance of £10,000 for everyone then having an age-related allowance a couple of hundred pounds higher than that for those in a narrow income band (it cuts off if you earn over £24,000 a year) is a pointless anomaly. I really can't see what the problem is with treating the income of older people in the same way as everybody else now we have a better starting point for paying Income Tax.

This whole fuss over a modest change highlights yet again the two big mistakes that have been made with regard to pensions and older people in recent generations.

The first is the enormous damage done to the incentives to save for retirement and to fund it properly, especially by Gordon Brown when he was Chancellor. We need to look very hard at ways of incentivising higher saving for old age.

The second is the unsustainable state retirement age. We are, at last, moving this in the right direction but we need to get it to 70 within the next 15 to 20 years. It was very encouraging to hear that the government now proposes to keep the state retirement age under review as longevity rises but we need to sort out the legacy of having ignored our longer, healthlier lives for generations.

The mistake Mr Osborne made was muttering about the equalisation of personal allowances being a minor techncial change when he should have presented them as a small part of building a new vision for a longer economically active and productive working life.

Economically it does little
There was a feeling that the Budget was rounded and self-contained, fiscally well balanced and techncially sound and it probably was all of those things. One thing it didn't do, however, was offer any new thinking in broader economic terms. There was, for instance, only a passing reference to the rebalancing of the economy so that it isn't so dependent on financial services. It also offered little in the way of ideas for replacing the huge number of public sector jobs that are going to be cut in the next couple of years. There was some rather fragmented help for one or two sectors, talk of enterprise zones and a threat that Michael Heseltine might dust down his bus and take another tour of economically depressed regions as he did in the late 1980s. This doesn't add up to a coherent economic strategy.

Perhaps underlying this weakness is just a sense of relief that we seem to be avoiding – narrowly – a double-dip recession, although not by quite the margin that some of the Chancellor's rather optimistic growth forecasts suggest. It did leave a feeling that the Budget was economically rather limp.

Political gamble
Overall, it seems that the Budget is a big political gamble. Mr Osborne was going to have to do something with the 50% Income Tax band at some stage because he couldn't ignore the Tory right for much longer. Maybe he has taken the view that he should do it now so that it can be ticked off as an issue, take the flak and hope that by the time he gets to his 2015 pre-election Budget the economy will have picked up so much that most people will feel better off and he may even have room for a modest giveaway.

The 'granny tax' nonsense could turn out to be quite hard to deal with. As I said, this shouldn't have been done apologetically and that has put the government on the back foot. If it doesn't regain the initiative on this it could prove very damaging with a demographic group that has the highest propensity to vote.

The next public expenditure statement and the 2013 Budget will also have to work alot harder to convince people that the government really does know what its underlying economic strategy is and can tell us what success – at least in its terms – is going to look like.

Solvency 2 has become a moving target and getting that target in their sights is costing insurers a fortune. That was the unequivocal message delivered to the All Party Parliamentary Group on Insurance & Financial Services yesterday.

As the group chairman, Jonathan Evans, observed in setting the scene at the beginning of the meeting, Solvency 2 has suddenly become a political issue following the Prime Minister's intervention over the threat by the Prudential to relocate to Hong Kong, a threat the company reiterated yesterday when reporting its results. This is a serious and understandable threat in the face of the proposed treatment of non-EU (especially US) risks, a point that was emphasised by Sean McGovern, director of North America and general counsel of Lloyd's, speaking to the group yesterday. The 85 syndicates currently operating at Lloyd's have almost half of their business in the US and Canada, he said, and many will have to consider moving to non-EU domiciles such as a Bermuda if the regulations are not amended.

This is not just an issue for British insurers as several major European groups such as Aegon, Axa and Allianz have also raised the same issue and are putting pressure on the Brussells bureaucrats to think again. The trouble is a re-think will take time and will probably delay the introduction of the Solvency 2 regime still further, adding significantly to the already painful costs. It has already been delayed once – pushed back from January 2013 to January 2014 – but even this new deadline is starting to look optimistic. The next hurdle in the European Parliament (pictured) just before Easter looks daunting: there are over 400 amendments tabled to the detailed regulations required to activiate the regime and if these are not all dealt with then the implementaion date will start to come under pressure. This is before you throw in having to deal with the question of non-EU liabilities and the intense lobbying from the French mutual sector which is seeking significant exclusions from the new regime.

The costs are already causing huge concern, as Martin Shaw, chief executive of the Association of Financial Mutuals, told the group. At an estimated £2bn for implementaion alone this represents £10 per policy for every policyholder, a cost that cannot be justified, he argued, especially in the UK. "The UK's previous approach was based on successfully pursuing a more risk based approach than the rest of Europe...therefore UK consumers will see less benefit for their £10 per policy". It was, he said, "doing the same things in a more expensive way".

The consequences among mutuals could be more mergers, off-loading some books of business, a de-risking of investment portfolios, which could impact on the equity markets, and more sharing of costs, for example through the use of external actuaries.

Paul Clarke, Solvency 2 European leader for PricewaterhouseCoopers, the technical consultants to the group, attempted to put the cost into context, arguing that some of it would be "incurred anyway and will end up making businesses more efficient", citing Amlin as an example saying that processes had been improved and a refined reinsurance programme put in place as a result of the preparatory work done for Solvency 2.

While the UK regulators were generally praised for being supportive over Solvency 2, all the presenters agreed that the Financial Services Authority's proposals for non-executive directors was setting the bar too high. Mr McGovern said "they almost expect non-execs to train as quasi-actuaries" and this combined with the suggestion that even for smaller companies they should spend 35-45 days a year on board duties will "turn off potential non-execs".

Mr Evans said the All Party Group will be returning to the subject of Solvency 2 after the Easter recess when it hoped to hear from both the Association of British Insurers and the Prudential. Perhaps by then we might have a little bit more certainty on some of the detail and whether the revised target date of January 2014 remains realistic.

Norman St John Stevas (Lord St John of Fawsley), who died at the weekend, was responsible for the most significant post-war reform of the way Parliament works.

The introduction of the Select Committee system overshadows all other Parliamentary reforms since the Second World War. The only other changes that might claim to be viewed in the same league are the abolition of the university seats and the reduction in the number of hereditary peers – beyond those I am struggling such is the innate conservatism of our Parliamentarians.

This change came during his relatively brief (barely two years) as Leader of the House from 1979 to 1981 and it says alot for his ministerial and Parliamentary skills that he was able to deliver such an important change with (for our system) relative speed. It wasn't a great innovation in terms of parliamentary democracy as many western legislatures, such as the US Congress, had well-estbalished committee structures for holding government departments and their ministers to account but it was radical for the UK. Before the select committees the main opportunity for grilling ministers came during the departmental question times, hardly a great forum for tackling complex subjects.

It was a long-overdue reform but it still needed a champion and Norman St John Stevas relished that role. He didn't just have to overcome the snipping hostility of the Civil Service but also the self-interested scepticism of many backbenchers. This was still an era when many MPs expected to be able to retain extensive working interests in the City, as lawyers and as academics and the thought that these new committees might require them to attend Parliament in the mornings was not altogether a welcome one.

The select committees have grown progressively more influential over the last three decades and they have given ministers, regulators, the police and others many uncomfortable moments. They have helped shape and drive the polictical agenda in key areas for the insurance and financial services sector such as City regulation, the role of the banks, the cost of motor insurance and the furture of flood insurance.

Lord St John will be rightly remembered for many other things in the obituaries that will be published over the next few days but this remarkable legacy should stand above everthing else.

The latest newsletter on the activities of the All Party Parliamentary Group on Insurance & Financial Services is now avaialble and can be downloaded here APPG newsletter no 32

It reviews the work of the group on referral fees and whiplash claims and the implications of gender equality as well as previewing the forthcoming meetings on Solvency II.

If you wouldlike further information on the group's activities please go to the Programme page or contact Jonathan Swift.