The bears are rampant. In the last two weeks even the sleepiest Stock Exchange operator has learnt that the way to make money now in the crumbling market is to sell short. The more the market falls the more the commentators struggle to catch up with events, and to cover their tracks where they have been too optimistic.

Even Parliament has caught up with the terrifying reality of plummeting assets and declining savings. A government sponsored enquiry recommended cutting the pay-outs from pension funds. The Trade Unions made their presence felt, both condemning any such move and asking for better state pensions.

As the bears prowled the government said it will suspend FRS 17, the accounting standard that would force early repair of damaged pension funds. It will lighten regulation of some savings funds. They plan a new drive to make investing easy for the many, after the slow take-up of Stakeholder pensions.

All this still leaves the real world in a quandary. Is the loss of value in pensions and insurance funds temporary? Can it be ignored? If markets fall further some funds will have such a big hole in their numbers they will need dramatic remedies. Both insurance and pension managers could be forced by events to sell shares at low values and buy bonds, as they seek to protect their declining reserves and reassure their regulators. None of that is good for the market.

Labour's long years in opposition taught it a hard lesson. Most people want the chance to own their own home, make provision for their own pension and save for the unexpected. Labour learnt that a rainbow coalition of the dispossessed was not enough to win elections. A party that wants to govern has to look after the majority who value their independence.

The government has been good at the talk. Wisely guided by focus groups they have told us that working is better than living on benefit, buying a home of your own is a good idea, and private pensions need to prosper.

Yet when you look at its actions, the government has been increasing dependency on the state. The Treasury has spread means tested benefits ever higher up the income scale.

It has taxed housing more heavily. Stamp duty has been pushed up to high levels at low thresholds to become one of the barriers to buying your first home.

Now we also face the danger of more people retiring without a decent pension. We got used to more and more people retiring on a pension provided by their employer, linked to their final salary. In the late 1990s the Stock market was riding high. As Labour took over trustees were meeting to discuss whether the company should pay less in, or whether the pensions should be increased, or both. It was a good problem to have.

A greedy Chancellor decided he wanted to join the party. Why not have some of that magic money from Stock market gains for his own purposes? A £ 5,000 million annual tax on these huge funds was only fair. The champagne in the city would still flow. When asked in the House of Commons about the wisdom of stealing people's savings, the government responded that it would be more than made up for by a rising Stock market. That now seems a long time ago.

When the tax was introduced, companies sold on around 20 times earnings. If the government knocks £5,000 million each year off those earnings, you would expect the market to fall by £100 billion to reflect the lower income in the hands of pension funds. Yet the Chancellor denied any responsibility for the market fall.

He did not stop there. The Chancellor saw that the most popular area of the market was telecoms. Why not pick a phone pocket or two himself? His brilliantly conceived auction of licences was a tax to stay in business on the large telephone companies. It raised a massive £22,500 million for the Exchequer. At least £70 billion of the fall in phone shares can be attributed to this super-tax.

Now there is the tax on jobs to worry about as well. National Insurance will go up by £8,600 million a year. That implies a further £65 billion fall in the market.

So what has happened? British equities have fallen by more than £450 billion from the market peak. Our model suggests around one half of this reflects the tax increases placed on British business.

The other half reflects the gathering world gloom, the influence of Wall Street and the low growth rates being recorded in the EU and the USA.

As a result only 4 out of 10 final salary pension funds are still open for new members. Many trustees are sitting round trying to make the numbers add up, asking themselves how much more money the company could afford to tip in, how much the members should be asked to contribute, and whether benefits have to be cut. Companies are not volunteering to set up new schemes.

We are discovering there is no free lunch. The government is ever ready to blame the corporate sector for untoward greed, yet the biggest corporate raider in the UK has been Gordon Brown. He makes all those fancy salaries, option packages and advisory frees look like quite small beer, as he rode off into the sunset clutching saddlebags full of telecoms licence fees, taxes on pensions, and National Insurance.

The UK is half congratulating itself that its Stock market so far has been free of corporate accounting scandals. If you want to see rash accounting in the UK the best place to look is the public sector. How come the £21,000 million of guaranteed debt and facilities made available to Network Rail is not put as a contingent liability on the government's accounts? How come all those Private Finance Initiative projects are only mentioned in the context of their annual cost to the taxpayer – what if they go wrong? Why do we regularly read the national and European Audit offices telling us of fraud and waste in public spending , yet no heads role, no action is taken to clean it all up effectively?

The UK government can no longer stand back and claim the Stock market is nothing to do with them. The Stock market represents the people's savings. This week when I asked Ruth Kelly Financial Secretary to the Treasury how much of the Stock market downturn was made in Britain, she blithely told me the real rate of return on equities has been 5% per annum since Labour came to power.

Now, there's Enron accounting or mis-selling for you. The Stock market has been falling for the last two and half years. It is back where it started under Labour five years ago. There's no way its returns have matched Ruth Kelly's fine words. It is time the government admitted that shareholders have had a rough ride so far. Cancelling the accounting standard and cutting pension fund benefits a bit is not enough. We need policies which reward savings rather than penalising them.