This is a moment of huge significance for British politics. The disclosures over MPs’ expenses have turned a general lack of respect for politicians, which some put down to the decline of deference, into open contempt. We may have thought MPs were merely incompetent; now we know many are no better than fraudsters, thieves and benefit cheats.

Until the details of home flipping, non-existent mortgages, moat cleaning and £8,000 plasma TV sets emerged, public anger was rightly directed at the bankers who got us into the slump. No longer. When the all-party Commons Treasury committee last week condemned the bonus culture of banks, the reaction in the country was to guffaw contemptuously. MPs have lost the right to make moral judgments. The public has long resigned itself to its taxes being squandered because the sums were so big and difficult to quantify. But the detail in these expenses claims has exposed the utter grasping venality of MPs.

During what almost amounted to a public flogging of the MPs on the BBC’s Question Time panel last week, one member of the audience cried out: “Do you think you are better than us?” The trouble is too many of our politicians do think that and also believe they are above the law. The same applies to the House of Lords. For the first time since Cromwell, two peers, Lord Taylor and Lord Truscott, face suspension for serious wrongdoings exposed by this newspaper.

When a crisis in politics coincides with a crisis in finance we should be concerned. Japan went through a similar occurrence about 20 years ago, when a deep downturn coincided with a series of political corruption scandals. The Japanese lost faith in politicians and in their economy and the result was a lost decade of stagnation. Italian politics, too, has dipped in and out of the gutter for decades, its status as the economic sick man of Europe being one of the consequences. So everybody has an interest in rebuilding faith in British politics. Merely hoping that memories will fade is not good enough. On June 4 we will see the first anti-politician elections in modern British history, which are likely to result in normally unelectable oddballs winning seats.

Much damage has been done but there are steps the Commons can take to ease its plight. First, Michael Martin, the Speaker and defender of the corrupt system of allowances, has to go immediately. He is a stubborn symbol of resistance to change. Instead of trying to lead the Commons out of this crisis, Mr Martin has displayed the “bunker mentality” that John Stonborough, his former media adviser, tells us has been characteristic of his time in office.

Second, any MP who has been shown to have overclaimed on expenses should be deselected. That includes members of the cabinet and shadow cabinet. Mistakes, errors of judgment, accountancy shortcomings or oversights should be no excuse, as they would be no excuse in a court of law. In worst cases offenders should face criminal prosecutions to show that no MP is above the law.

Third, we need a transparent system of expenses and allowances for MPs and peers, pending fundamental reform of both Houses and a reduction in the number of representatives. The Scottish system, with all claims detailed online and MSPs not recompensed for mortgage payments, is a start. David Cameron’s insistence on full disclosure for shadow cabinet members is a welcome step. Much more will be needed. The reputation of parliament is at its lowest ebb for generations. If they get this wrong it may never recover.