Hold a referendum on the day of the next general election. Ask the voters how they want to elect the new second chamber, how they want to elect MPs and how they want political parties to be funded.

Accept that these are matters that should be decided directly by voters. This is one of those few issues where MPs cannot be relied upon to put their voters’ interests first, because MPs already have a vested interest in the system that elected them.

Just as MPs have given up, grudgingly and belatedly, their power to set their own pay and to vet their own expenses, so they must now cede their power to the voters to decide how they are elected.

In the last 10 years the House of Commons has decided how the voters should elect the European Parliament, the Scottish Parliament, the Welsh and Northern Ireland Assemblies and the Mayor of London.

The House of Commons has the power to take these decisions because it has sovereignty over these other parliaments and assemblies. But it doesn’t have sovereignty over itself. Only the voters have that.

However, it is not enough to give the voters a chance to answer a question asked by politicians. The real power often lies in deciding what question should be asked. Painful as it may be to politicians, this power must be ceded to the voters as well.

That is why I want a two-stage referendum. In the first referendum, to be held on May 6 2010, voters will be asked whether they want to set up a citizens’ inquiry on how they should elect the Lords, how they should elect MPs and how parties should be funded.

The citizens’ inquiry will have the task of coming back within two years with proposals to put to a second referendum, on May 3 2012, and Parliament will then be expected to pass the results of that second referendum into law.

Many politicians will try to dismiss this proposal as ‘wacky’, ‘bizarre’, ‘unworkable’, ‘bonkers’, but that will be a naked defence of their own power. They must accept that, as players, they cannot write the rules of their own game.

The fact is that New Zealand and British Columbia have both carried out a similar process to this with an independent inquiry and a two-stage referendum and voters in both cases were happy with the result.

In one case the inquiry was completely independent, made up of people not affiliated to any party. In the other case it was a citizens’ inquiry composed of a jury of voters chose randomly, but advised and assisted by the civil service.

I have no idea what voting systems they would choose. I think it very likely they will retain the constituency link, an important part of the British system.

I also think it likely that they will reject first-past-the-post, a system that has contributed to many of the problems of our democracy, from low voter turnout to MPs’ expenses with MPs in ‘safe’ seats three times more likely to be implicated in the expenses scandal than marginal MPs.

On party funding, I believe they will propose state funding of political parties – we are the only party in western Europe that doesn’t yet have it – and will ban large individual donations.

However, the important thing is that they must decide. They elect us. They surely must also decide how they elect us.