Nick Clegg: Democracy? What a great idea...

Politics is in deep trouble. The vast power of the Government has reduced Parliament to little more than a bizarre theme park – and voters have lost faith with a system that doesn't represent them. Reflecting on his first five months as Liberal Democrat leader, Nick Clegg reckons it's time for change

Five weeks ago, I held up a medal in Parliament. Hardly a big deal, you might think. But this little gesture was, in fact, in flagrant breach of a whole series of rules. The medal was a Long Service and Good Conduct Medal, awarded to a retired Gurkha soldier I had met that morning. He had given me the medal as a symbol of his anger and frustration at being denied the right to live in Britain, a country for which he had risked his life for more than 30 years. It was a potent symbol of that anger, and I wanted the Prime Minister to see it, and understand what a sacrifice it is for a soldier to give up a medal won through such hardship.

But the rules say props aren't allowed in the House of Commons. Wearing medals in Parliament is even more strictly forbidden than waving them about. So I had to smuggle the medal into the chamber in my pocket, and pull it out for only a second or two to avoid a reprimand from the Speaker.

This is the Alice in Wonderland world of Westminster. A place where MPs cannot address each other by name, but instead refer to each other by the names of their constituencies. A place where all MPs, even when they are at each other's throats, call each other "honourable", "right honourable" or "learned" – words that haven't been heard around the family dinner table or over a pint in 100 years.

It's a place where the House of Lords is called "the other place", which sounds like a line from a cheap horror movie. A place where we're not allowed to refer to the Queen except on ceremonial occasions. A place policed by magnificently dressed figures in white stockings with great black rosettes between their shoulders.

A place where MPs vote on their own pay and expenses. Where backbenchers can wait on the green benches for up to six hours, just to make a three-minute speech. Woe betide anyone who ventures to the loo: they're liable to lose the chance of speaking at all. There are different coloured carpets to tell you what part of the building you're in. Different people with different coloured badges are allowed on different parts of the river terrace according to what time of year it is. A place, in short, from another age.

Does this matter? Some say the rituals, the eccentricities, give our Parliament a special aura that is crucial in its asserting its primacy at the heart of our democracy. Surely pomp and ceremony is good, harmless fun? And it helps to pay the bills as tourists flock towards the "mother of all parliaments", merrily spending money at the Commons gift shop on Christmas decorations and Toby jugs in the shape of Margaret Thatcher.

If only. The reality is altogether more disconcerting. The amusing, if unfathomable peculiarities of our Parliament hide a crisis in the way we are governed. A crisis in which the public feel ever more alienated from, and angry towards, the political class. And a crisis in which Parliament itself is neutered by the all encompassing power of the centralised Whitehall state. No amount of whooping and yelling in the Commons can obscure Westminster's guilty secret: the rules of the game are totally stacked in favour of the Government, rendering Parliament largely impotent to hold ministers to account.

MPs can debate and holler all they like, but Downing Street will always get its way. In 11 years, there have been only three defeats for the Government in votes by MPs – a feat unknown across the rest of the democratic world. Ludicrously, one of those defeats was a gesture vote on whether we should all go home early.

That is the record of a system in crisis, in which the legislature dances to the tune of the executive. It is a spineless abdication of scrutiny and accountability at the heart of our Government. The mother of all Parliaments has become the eunuch of all Parliaments.

Parliament is so weak that there is nothing MPs can do to stop the Government from publishing a barrage of bad-news announcements in a single day to minimise damaging press coverage, as it regularly does. In fact, this "good-day-to-bury-bad-news" approach is used at the end of every Parliamentary term. Last July, the Government smuggled out 50 bad news items on the same day. These included the decision to sign Britain up to America's "Son of Star Wars" missile defence system. No debate, no accountability, just the arrogance of power unchecked.

Opposition parties are so weak it is impossible to scrutinise the Government properly. We don't control what gets debated; the Government does. The Liberal Democrats, for example – representing 23 per cent of the voters – are allowed to decide the content of just 1.5 per cent of the debates.

The imbalance of the system takes on an almost farcical turn on Budget day. The Budget is possibly the single most important government document produced every year, detailing more than £600bn of public spending. In many countries, the Budget is published hours or days in advance of the debate, to give the opposition time to analyse it. In Britain, the leader of the Opposition gets three seconds to digest it before he's expected to stand up and give a coherent analysis. No wonder most set-piece debates descend into schoolboy jeering.

And the weekly ritual of Prime Minister's Questions has become an ever-more incestuous affair as MPs play to a gallery full of enthralled journalists. The catcalls grow louder. The jeering reaches fever pitch. Grown men and women get whipped up into a state of red-faced excitement. And yet, ominously, fewer and fewer normal people are listening. The political classes read and watch the cottage industry of views spawned by the commentators. But Westminster politics has become a minority sport. Apathy, frustration and cynicism have won the day.

But people do still care. There's nothing more disingenuous than politicians claiming that the public doesn't care, that a culture of contentment has rendered people indifferent. I run "town

hall" meetings every couple of weeks in different parts of the country, where any member of the public can come along, and ask anything they want. I don't make a speech. I just answer questions for an hour as best I can. There are usually one or two people who are furious – either with the Government, with politicians, or with me. They shout, sometimes. But they shout because it's personal, because it matters, because it's part of their real life. The contrast with the contrived anger and noise in the House of Commons speaks volumes. It shows that people do care. They do care about the world they live in. They just don't care about party politics.

No wonder fewer and fewer people vote. In 2001, for the first time in our democratic history, more people didn't vote at all, than voted for the winning party. It happened again in 2005. 76 per cent of people say they think politicians don't tell the truth. A staggering 89 per cent think politicians put themselves or their parties ahead of constituents and the national interest.

I have heard some politicians claim that people aren't voting because they're comfortable with the status quo, and that turnouts will rise again at some point when there's something really big at stake, or the contest is excitingly close. This is head-in-the-sand madness that misses the fundamental point. Public cynicism isn't code for contentment. It is a logical, coherent response to a politics which appears increasingly introverted, to a governing system which is grotesquely over-centralised, and to an electoral system which discards the value of millions of individual votes.

Under our lopsided voting system, elections are decided by about 8,000 voters in about 80 swing seats – and everyone else's views don't matter. The only person accountable for the NHS is the Secretary of State in Whitehall. Public petitions cannot be heard in Parliament. The Government goes about demanding that we hand over private information on an unprecedented scale, and then goes and loses it. The regime for MPs' pay and expenses looks like something from another world to employees who dutifully fill in claim forms every month with carefully itemised receipts. We must understand that cynicism has not come about spontaneously. It is a rational response to the deteriorating state of our democracy.

In 10 years' time we will look back at this moment and either see it as the beginning of a real, vital transformation in our politics, or a missed opportunity that killed off public faith in politics for a generation or more.

There are deep forces at work: social, cultural and political identities have become fluid as old political ideologies are replaced by a web of religious, ethnic and demographic distinctions between people that no longer fit into the rigid mould of two-party politics.

Traditional party politics is not well suited to the diversity and pluralism of the modern age. Mass-membership parties are gone, and they will not return. The old left/right divide has faded away. In its place are complex, difficult debates between liberal and authoritarian models of governance for which we as a nation are still struggling to find a clear language.

But the greatest danger – especially as the velocity of economic and social change creates a yearning for accountable, effective government – is the feeling that change is no longer possible. We have a political class that doesn't demonstrate any capacity or willingness for change: the pay and expenses crisis has brought this into sharp focus and change here only appears likely because of massive public and media pressure. The hungrier people are for a response from their politicians, the angrier they will become with the sclerosis of our political system.

So politics needs to change, and change fast. We need a new voting system, of course, that gives voice to every voter instead of just a lucky few in the key marginal seats. Our winner-takes-all first-past-the-post system made sense when politics was a simple choice of two starkly opposing parties, two clearly distinguished ideologies. But politics today is more fluid, just as society is more diverse. People want more choice, not less.

In 1951, only 2 per cent of voters chose a party other than the Conservative and Labour parties. By 2005, that figure had shot up to 32 per cent, and it will continue to rise. Pluralism is here to stay, however much the two establishment parties would like to think otherwise. And our electoral system must reflect, not suppress, that pluralism.

But electoral reform isn't enough. It is only a means to a wider end: the redistribution of power in our political system. That is why it's equally important to break the log-jam between the two main parties and agree a far-reaching reform of party funding. The relationship between money and politics is rotten, and it is hollowing out our whole political system. A clear limit on individual donations, strict spending limits, and a new system where individual voters can choose to have a small public donation of, say, £3 given to the political party of their choice at election time. These are the ingredients for a meaningful overhaul of the opaque, corrosive way British politics is funded.

I also believe we must move towards the creation of a new constitution for Britain. It should be drafted by a convention of citizens, not run by the usual great and good. The days of piecemeal, incremental reform to our political system are over. Wholesale reform embodied in a clear and simple statement of the relationship between the citizen and the state is now needed. In my view, that statement should not, as the Government proposes, make rights contingent on duties. It should make power contingent on accountability.

And it must provide protection for all citizens from the excessive intrusion of the state. Our privacy has never been under more threat, as the Government merrily deploys new technologies to monitor us. We need a new charter of privacy for the modern age to shield our private information, such as bank details, medical records and DNA profile from deliberate misuse or the incompetence of officialdom. The powers of the information commissioner must be transformed into a meaningful check on the powers of governments. The Freedom of Information Act must be extended and strengthened, not undermined, to give the public guaranteed access to information.

We must also deliver massive devolution of power to reverse the centralising excesses of Thatcher, Blair and Brown. Britain is now the most centralised country in Europe, except Malta – which has a population only slightly larger than Croydon. Labour and Conservatives alike see local government as a Whitehall delivery agency. But you can't run thousands of schools from an office in Whitehall, and you can't innovate effectively on a national scale.

Uniquely in the Western world, up to 80 per cent of all local government funding comes from central government. That must be reversed, so that the bulk of local spending is raised locally. I am proud to be the leader of the only party in British politics prepared to envisage a radical devolution of fiscal powers. Devolution is nothing without money. Gordon Brown and David Cameron must learn to put their money where their mouths are when they repeat the easy mantras about decentralisation.

And Parliament itself must be transformed. A fully elected House of Lords, of course. A cut in the number of MPs by a third. Powers for MPs to vet and, with sufficient cross-party majorities, sack ministers and senior officials. All legislation to include sunset clauses so that unnecessary laws do not persist. Fiscal and spending scrutiny should be massively increased. The Government's bloated £200m advertising budget, some of which is used shamelessly for propaganda purposes, should be cut for a start. We should have a three-day debate on the spending programme following the comprehensive spending review, with provision for amendment to proposals. Parliamentary committees should be given real powers to hold the executive to account, including the right to subpoena witnesses.

These are just some of the obvious ways in which we could change our political system, and do so quickly. It won't be easy. Overturning the vested interests that protect the status quo is always tricky. But I am certain that once it begins, and people see that change really is achievable, the tide will be unstoppable. People have been locked out of politics for too long. Cynicism and apathy have taken root. Self interest and a lack of imagination blinker the political class. But change is possible – and inescapable if we want to rediscover the democracy that once made this country great.