Misgivings about the ideological nature of Osborne's cuts agenda could be dispelled by protecting the HMRC

The star chamber is in session. Any foot-draggers in the cabinet are due to be hauled before it if they fail to offer up 25% or even 40% cuts in time for the mass slaughter of the public sector next month. A wail of pleas for mercy has gone up to at least stop shortsighted purging that will end up costing the state more.

The recent cut in teenage pregnancy prevention programmes will add to future spending. Cuts in early mental health treatment will lead to more florid cases arriving in hospital. Cutting home care for the frail will send more into costly care homes. The arts can prove how every £1 the Arts Council spends generates another £2. Everywhere you turn, there are compelling arguments for upfront investment to save money later. But the Treasury is implacable, fingers in ears, sceptical about future savings that have a habit of vanishing into their departments. Myopia is part of Treasury DNA, pessimism about putative paybacks hardwired into its circuit board – now, more than ever.

But the Treasury should heed the voice in its own backyard, Revenue & Customs, which brings in the money, cash in hand, here and now: it could bring in enough to deal with the deficit. The World Bank estimates £70bn a year goes missing in Britain's shadow economy – and its last report found tax evasion rising.

On average a senior tax inspector on £50,000 brings in about £1.5m, while lower-level inspectors on £25,000 bring in £300,000 each – in all 10 times more than is recouped by Department for Work and Pensions fraud-chasers. Yet Revenue staff have already been cut by a third to 68,000. How can they now lose another 25%? Top brass is fighting hard to resist it, suggesting a state-financed "investment plan" to recover lost funds.

Revenue has been accused of going soft on using the law: the Association of Revenue and Customs union reports HMRC brought 200 cases last year, while the DWP brought 9,000 for considerably less lucrative benefit fraud. Three huge firms recently settled out of court, but critics said all three would have paid more if these cases had proceeded. Each handed over at least £1.25bn in unpaid tax: one had set aside nearly twice as much as a contingency. HMRC settled these cases at the door of the court as they had each already drained £12m from its diminished resources. Now they say only high-risk big businesses are targeted. Overt organised crime such as VAT carousel fraud and carbon-trading fraud have "hoovered up our resources", so most big evaders are under-scrutinised.

"There is a tipping point where without enough investigation, more of the fiddlers think they can fiddle more," senior officials warn Osborne. A culture of honesty soon evaporates without the constant threat of arrest. HMRC tells how a recent crackdown on doctors spread the word fast: 10% came forward and confessed to cheating. Now the HMRC says bluntly: "We need to send more people to jail so people recognise that it is not worth cheating." The honesty tipping-point comes when too many people know someone who is getting away with cheating: why pay if no one else does? Research shows the deterrent effect: every £1 detected deters another £1 in potential fraud.

HMRC says it needs resources for urgent scrutiny of the wealthy who are converting their income into capital to avoid the 50% income tax rate: City law partners are among the many awaiting investigation. The big four accountancy and consulting firms are still devising avoidance schemes, although they are required to register each new loophole. An honest rich man called a top tax inspector last month to report an approach by a big four firm offering a complex new capital gains tax wheeze involving "rescindable contracts".

A brisk official call sent the firm into a "flat spin"; it subsequently withdrew it. But the dangerous impression is that the taxman is always a plod behind, short of resources, depending on tip-offs and settling out of court to save money. The National Audit Office's report says "lack of funding" is preventing efficient debt recovery, with a 17m backlog of PAYE cases. Some £26.1bn is owed in back PAYE, according to tax expert Richard Murphy: "They haven't enough people to get on the phone and knock on the door to get the money in."

The Guardian's Tax Gap report showed the vast scale of corporation tax avoidance. Meanwhile, a meagre 100 HMRC inspectors do their best to police the entire country's employers for compliance with the minimum wage.

Britain is historically a nation of relatively compliant taxpayers, but that is changing. Lord Oakshott, the Lib Dem Treasury spokesman, told the Lords: "Tax-dodging in Britain is a deep-seated, pervasive, pernicious disease … Highly organised, aggressive, abusive tax avoidance which used to be a marginal and rather spivvy operation, that was frowned on by the main banks and shunned by top accountants and lawyers who were mainly concerned with reputational risk, has now mushroomed out of all recognition."

He questions why the government is willing to give the big four and City law firms state contracts while they earn fortunes helping to deplete the Treasury. Until its last year Labour turned a blind eye to tax havens and other dodges; can the coalition do better? The BBC's Robert Peston points out in his blog that the Conservative party is exceptionally beholden to donors from high finance and hedge funds. Sir Philip Green's bizarre appointment as an anti-waste tsar undermined the coalition's promise to "actively examine tax avoidance".

HMRC top brass fear George Osborne needs to prove he is cutting his own department as savagely as all others. But cutting any further on tax collection would show beyond doubt that government cuts are ideological and totemic, and not based on sound economics.

After the Institute for Fiscal Studies showed cuts falling hardest on the poor, the coalition could restore some credibility by ensuring at least that taxes are collected fairly from all, and not just paid by Leona Helmsley's "little people". Why not deny state contracts to the consultants who help the wealthy drain the Treasury? And strengthen HMRC so inspectors can put the fear of jail into tax-dodgers. Conservatives could find it easier than Labour to launch an unflinching moral assault on the greedy culture of evasion, avoidance, off-shoring and cheating that has become poisonously socially acceptable.

We have an anaemic recovery at best. And the housing market, where this crisis began, remains in terrible shape

Back in January, US vice-president Joe Biden offered up a huge hostage to fortune. Talking to fellow Democrats about the Obama plan for the economy, he promised: "You're going to see, come the spring, net increase in jobs every month." Yesterday figures showed that a net total of 54,000 workers lost their jobs in August, taking the official unemployment rate to 9.6%. A big dollop of gloomy news just in time for Labour Day weekend.

Not that you would have taken it as bad news, going by the immediate reaction. The Dow enjoyed a modest bounce, while Mr Obama described the non-farm payrolls report as "positive news". Which is true, if what you really mean by positive is "not as awful as it might have been". Oh sure, optimists can point out that the job losses were below analysts' estimates. And they can also take heart from the report's scaling down of job losses over June and July – so that a net total of 229,000 posts were lost, rather than the 352,000 previously reported. But consider this: over two and a half years after America's recession officially began in December 2007 (according to the National Bureau of Economic Research), the economy is still only limping along. By this stage, one would normally expect the US to be surging ahead, with companies producing much more, bosses taking on droves of recruits and even the housing market picking up. Instead, we have an anaemic recovery at best. And the housing market, where this crisis began, remains in terrible shape. Sales of new and existing homes are cratering, and the numbers of foreclosures and borrowers falling way behind on their repayments are as bad as they were last summer.

Some economists, such as Carmen Reinhart and Ken Rogoff, pointed out years ago that this downturn was always going to be worse than a normal recession, simply because banking crises are more crippling and have worse aftermaths. But the White House underestimated the scale of this crash – which is why Christina Romer, the outgoing chair of Mr Obama's council of economic advisers, admitted this week that she and her colleagues "failed to anticipate just how violent the recession would be".

Mr Obama promised yesterday that he would unveil "a broader package of ideas" next week. Let us hope they are more action than ideas. Before November's midterms, the president must bring in big measures to encourage job creation and stop the freefall in the housing market. That makes political as well as economic sense. Politicians tend not to win elections by pointing out that things are not as terrible as they might have been. If Mr Obama wants proof of that, he should ask Gordon Brown.

• Justin King and Michael Rake agree to join PM's advisory panel
• Group likely to influence debate over spending cuts

David Cameron has assembled an advisory committee of about a dozen business leaders, including Justin King, the chief executive of Sainsbury's; the ad man Sir Martin Sorrell and Sir Michael Rake, chairman of BT and easyJet.

The group is expected to meet four times a year to discuss the most pressing issues affecting business and the economy, including the deficit and strategies for growth, providing the members with a potentially influential role on where cuts will fall. The panel will also include the inventor Sir James Dyson and Helen Alexander, president of the CBI and former chief executive of the Economist Group.

The advisory panel will replace the Business Council for Britain that was handpicked by Gordon Brown, which included the Virgin founder Sir Richard Branson, Tesco's boss Sir Terry Leahy, Marks & Spencer's chairman Sir Stuart Rose and Tony Hayward, the soon-to-depart boss of BP. The so-called "star chamber' was one of Brown's first acts as prime minister and was designed to demonstrate the support he had from the business community.

Brown's council had a more formal structure, where individual members were asked to advise on specific parts of the economy, including transport and immigration, but it was widely regarded as ineffective. Letters were sent to members of the council in recent weeks telling them that it had been disbanded, after the first meeting scheduled under the new government was cancelled with little notice.

Cameron's advisory group is expected to be a looser organisation.

The formation of the panel, which will be announced in the coming weeks, is the latest evidence of the coalition government's eagerness to forge a close relationship with corporate Britain and to entrust industry leaders with senior policymaking roles, despite Cameron's pre-election pledge to "stand up to big business".

Cameron has already called in two senior business figures to play key roles over policy, both amid some controversy. Lord Browne, the former chief executive of BP, who quit the oil firm after being found to have lied in court in an attempt to protect his personal life, was in July named as the coalition's new Whitehall "super-director" charged with injecting business ethos into the heart of government.

He had already been appointed by the previous government to lead an inquiry into tuition fees and as part of his super-director role will help to hire business leaders to the beefed-up boards of every government department as non-executive directors. Others said to have been approached as non-execs include Sir Chris Gent, chairman of GlaxoSmithKline; Sir Nigel Rudd, chairman of BAA, and John Gildersleeve, chairman of the fashion chain New Look. Cameron has suggested politicians should take a lead from supermarket bosses in seeking out efficiencies.

Last month, the billionaire Topshop owner Sir Philip Green was appointed to lead a review of government spending but was criticised by unions for having avoided tax by making his Monaco-based wife the owner of his Arcadia fashion group.

One key appointment still to be made by the coalition, however, is that of trade minister, after the former Standard Chartered chairman and Labour trade minister Mervyn Davies turned down an offer to remain in the job, stating a wish to return to the private sector. The role is considered to be crucial amid government hopes that exports will lift the manufacturing sector and help to rebalance the economy.

Cameron last month underlined the importance given to developing trade relations with key markets when he led a large delegation to India, including John Varley of Barclays, Richard Olver, chairman of Bae; andrew Moss,t he chairmna of Aviva and Vodafone chief executive Vittorio Colao.

President Hamid Karzai's brother calls for US to guarantee deposits amid fears collapse would threaten police and army salaries

Officials in Afghanistan are resisting US pressure for a wide-ranging clean-up of Kabul Bank, which is mired in allegations of corruption that have engulfed some of the wealthiest and most powerful people in the country.

The stand-off came as the bank's third-biggest shareholder, Mahmoud Karzai – the elder brother of President Hamid Karzai – called for a US bailout of the stricken bank.

The central bank on Tuesday ordered that the chairman and chief executive of Kabul Bank, who are both large shareholders in the bank, should step down from their positions and a government official be appointed to manage the bank.

But western officials with intimate knowledge of the financial drama said the US treasury wanted to see much stronger action. That would include bringing the bank into line with international norms, not least the appointment of a fully independent board capable of standing up to overmighty shareholders.

Such independence would risk bringing to light allegations that members of the country's business and political elite have, for years, apparently got away with using deposits of thousands of ordinary Afghans to fund lavish lifestyles. The bank's funds are said to have been used to invest in loss-making enterprises and, allegedly, the re-election campaign of President Karzai.

In the words of one foreign official, the US treasury is anxious to "rip the lid" off the cowboy capitalism that has been allowed to flourish at Kabul Bank.

But sources close to the negotiations say the central bank is under intense pressure to resist US demands.

"What [the US treasury is] asking for is not completely unreasonable, from a prudential regulatory perspective," said one official. "But there are lots of assets off the books. The hunch is that shareholders would like to continue to use bank assets how they want, rather than bring it into line with international best practice."

The central bank's spokesman could not be reached by phone today.

Earlier in the week Abdul Qadir Fitrat, the bank's governor, said the removal of Sher Khan Farnood as chairman and Khalilullah Frozi as chief executive had been a long-planned decision to bring to an end the situation where the two largest shareholders controlled all the operations.

But western officials and banking industry sources say the government was forced to clean up the bank's suspected dubious practices after infighting between the two men threatened the bank's future. The collapse of the institution that manages the salaries of the country's police and army would create havoc, as well as hitting the Afghan economy.

Mahmoud Karzai, a minority stakeholder with 7% of the shares, said he welcomed a full audit of the bank and that he was concerned about three problems that may have occurred under Farnood and Frozi: lending over the bank's limits, lending to shareholders and investing outside the country in "risky businesses".

When asked whether he thought anyone should go to jail if fraud is uncovered he said, "I don't think so because that would create chaos. Maybe there should be fines or something like that."

But he said he would never let the bank be taken over: "It's an independent bank owned by the shareholders and we will not allow the government or anyone else to take it over."

Karzai had earlier told the Boston Globe that "America should do something" and the US treasury should agree to guarantee the bank.

But when contacted by the Guardian he was anxious to sound a note of confidence, and said that with the bank's $400m in cash he did not think a bailout would be necessary. He said he only floated the idea of the US paying money because he held the American embassy and US newspapers responsible for starting the panic when they reported Kabul Bank had made $300m in losses, which he strongly denied.

But Karzai conceded that it had already suffered a bank run, with almost $160m withdrawn in the last two days alone – a huge amount considering Afghanistan's tiny banking sector. Despite efforts by Karzai and the finance minister to assure customers, the test will be whether the panic continues when banks open tomorrow. With so many of the bank's assets unlikely to be easily sold for cash a bailout could be huge, perhaps requiring $600m, in the estimate of one bank executive.

The financial scandal is a huge embarrassment for Afghanistan, with many leading figures linked to the unorthodox bank whose brazen business practices were allowed to flourish despite a modern banking law drawn up by foreign experts.

In a country that lacked any banking infrastructure in late 2001, the bank mushroomed into Afghanistan's largest financial institution by attracting depositors who had never had bank accounts before, allegedly in part by running a lottery system where account holders had the chance to win large prizes.

Sources claimed those deposits were then used to fund enterprises belonging to shareholders or their families, while investors wanting to set up legitimate businesses often got nowhere.

British boss of cloud computing firm at centre of takeover battle between Hewlett-Packard and Dell lands massive reward

The British boss of a little-known Silicon Valley data storage company, 3Par, is set to become one of the UK's wealthiest technology moguls, scooping a personal fortune of $96m (£65m) following a bid battle for the loss-making business between Hewlett-Packard and Dell.

David Scott, 3Par's chief executive, is the son of a Jamaican father and an English mother. The 48-year-old was born in the Caribbean but grew up in London and studied computer science at Bristol University.

After a titanic two-week takeover fight in which HP and Dell repeatedly out-bid each other to get their hands on the company, 3Par, which is based near San Francisco, today agreed to sell itself for $2.35bn to Hewlett-Packard. The sale price, $33 a share, is three times the amount at which 3Par's stock was changing hands on Wall Street before the battle began and is a sign of enthusiasm for so-called "cloud computing".

Scott, who has run the company since 2001, has a 4.6% stake in 3Par and will be the biggest individual winner from the deal. He said: "On behalf of the company, we're all on cloud nine."

The struggle for 3Par took Wall Street by surprise and left technology analysts open-mouthed. A hitherto obscure loss-making company, 3Par specialises in providing equipment that allows companies to store vast amounts of data remotely, reducing the need for bulky, expensive in-house server hardware. 3Par argues that the corporate world is in a long-term transition towards purchasing storage from third parties as a utility – on the same basis as electricity or gas supply.

Texas-based Dell initially struck a deal to buy 3Par for $1.13bn on 16 August. But a few days afterwards, HP trumped this offer and as a tit-for-tat auction broke out, the valuation attached to 3Par surged from $18 to $33.

For Scott, the buyout means a return to a former employer. He joined HP's British operation from university and worked for the computer firm as a systems engineer and a salesman for eight years before transferring to its Californian base in 1991. He left HP in 2001 to become boss of 3Par, founded just 21 months earlier.

Scott, who has an Iranian wife and a seven-year-old daughter, has positioned 3Par as environmentally friendly, stressing the energy consumption required to power and cool traditional servers. He has argued that using 3Par's technology could cut consumption by tens of millions of barrels of oil annually. But until last month, investors were unconvinced, with the shares languishing below $10.

"We spent a lot of time last year being the beast of the stock market," Scott told an industry blog last week. "Being the beauty feels a lot better."

Analysts praised the way Scott played off Dell and HP to secure an unlikely seeming premium price for the company.

"3Par have played it extremely well," said Toan Tran, a technology expert at research firm Morningstar. "They were right to get two players involved and they knew they were in a position of relative strength - there's not another independent storage provider doing quite what they do."

A sudden turnaround at Crocs proves the world never really fell out of love with its ugly plastic shoes

Crocs were dismissed as a fashion fad, a flash in the pan and as the ugliest shoes ever invented. But the brightly coloured plastic footwear once sported by celebrities including actors Nicole Kidman, Teri Hatcher and Jack Nicholson are back from the brink of business oblivion as their US manufacturer executes a remarkable financial revitalisation.

After racking up huge losses in 2008 and 2009, Colorado-based Crocs Inc became a Wall Street joke, with one investment manager comparing the firm a year ago to a zombie. But, in an abrupt turnaround, Crocs has seen its stock leap by 130% in eight months. The company recently delivered a $32m (£21m) quarterly profit following a 31% jump in sales to $228m, prompting its chief executive, John McCarvel, to crow: "We hope those who published our obituary a year ago will now take some time to give us our due."

Conceived as boating footwear by a group of American friends on a fishing trip, Crocs, made from a patented foam resin called Croslite, became a fashion phenomenon in 2006 and 2007 as devotees lauded the clog-like comfort. Global sales peaked at $847m in 2007 but boom abruptly turned to disaster as the firm's management was caught out by the global economic downturn.

"That initial style put them on the map. They moved quickly to expand it, not only in the US but around the world," says Jim Duffy, a sportswear analyst at stockbroker Stifel Nicolaus. "But at the same time, the economy slowed down. They had overdistributed the product, they'd become too heavily dependent on the one style and they had inventory management problems."

Crocs' shares crashed from a peak of $68 to barely $1 as the firm went from a $168m profit in 2007 to a $185m loss the next year. Setbacks piled up as the co-founder, George Boedecker, resigned shortly after being arrested for allegedly threatening to slit the throat of his sister's estranged husband – a charge that was later dropped.

Snobbery

Facing a struggle for survival, the firm changed its management and began a mammoth clean-up operation. Crocs slashed its workforce by more than 2,000 people, shut down factories in Canada and Brazil, and eliminated acres of warehousing space. The company became choosier about its distributors and began creating different product ranges for varying retailers – big box superstores, speciality shoe shops and own-brand kiosks.

Mitch Kummetz, an analyst at the investment firm Robert W Baird, says he believes consumers' appetite for Crocs never evaporated and that snobbish gloating about their demise was misplaced: "What hurt them most when things turned south was how mismanaged the business really was. I don't think demand ever fell back to the degree reflected in their stock price or operating results."

Back on track, Crocs has diversified its offering to 230 different styles, all based on its comfortable Croslite material but with a range of variations from sandals to walking shoes, boots and even high heels. The original rubbery clog, which accounted for almost a third of revenue in 2007, now generates just 16% of Crocs' sales.

"The brand today probably isn't as strong as it was a few years ago but this is a company here to stay, and the more they can diversify their business to a broader collection of shoes, the stronger they will be," says Kummetz.

Crocs still describes itself as all about comfort and its ambition seems undiminished – the firm says its mission is to be "the global leader in moulded footwear design and development". Its vice-president for marketing, Ken Chaplin, describes the company's strategy as "taking the comfort and convenience of the style that built Crocs' initial success and building on it to widen the range of wearing occasions."

Revolutionary

Crocs' shares were back up to $13 this week. In the business world, imitation is the sincerest form of flattery and copycat versions of Crocs have popped up in discount shops in Britain and elsewhere.

Cheryl Taylor, editor of the trade magazine Footwear Today, says Crocs have been highly influential: "They've introduced new materials in the footwear world that have been taken up elsewhere."

Not everybody is so sure. Meghan Cleary, AKA Miss Meghan, a self-styled US shoe expert and author of The Perfect Fit: What Your Shoes Say About You, describes Crocs as "a triumph of practicality over style on every level". Still, she says, Crocs are revolutionaries of sorts: "They basically created a new category of shoe.

"And the style of shoes, in terms of shape and silhouette, hasn't changed much since [ancient] Grecian times."

Burning issue

Can Crocs ever be stylish? The actor Al Pacino tried grey Crocs with a baggy suit and a black T-shirt. Iggy Pop, Sean "P Diddy" Combs and Adam Sandler have been spotted wearing them, as has Jack Nicholson, who has often been seen in a bright blue pair.

Prince William's girlfriend, Kate Middleton, once decked her dragon boat rowing team in red ones. Desperate Housewives actor Teri Hatcher and her daughter, Emerson Rose, have matching lime green ones, and Kerry Katona, Kate Winslet, Paris Hilton and Matt Damon all step out in them.

A fan website, littlerubbershoes.com, offers badges declaring "I love my Crocs".

But opposition is fierce. The Facebook group called I don't care how comfortable Crocs are, you look like a dumbass has 1.55 million members. And a Canadian blog, "I Hate Crocs dot com", has a jaunty video showing how they burn.

Scottish shellfish firm is to move south to the warmer waters of Lyme Bay, where it aims to produce up to 10,000 tonnes a year

Plans for the largest offshore mussel farm in Europe, to be set up in Lyme Bay, were announced today.

The company behind the project hopes it will produce up to 10,000 tonnes of mussels a year – more than the entire annual production of Scotland, where much of the UK industry is based.

The project, using 15.4 square kilometres of seabed leased from the Crown Estate, will be on three sites in the bay. Offshore Shellfish (OSL), which is to begin a pilot project, hopes eventually to employ up to 30 people on the farm and to help to create three times that number of jobs in the transport, engineering and supply industries.

Most shellfish production in Scottish lochs on the west coast is on ropes and long lines. Some schemes, such as that in the river Exe in Devon, grow mussels on the riverbed.

John and Nicki Holmyard have sold their business on Loch Etive to finance their £5m investment. "This new business is a unique opportunity to produce mussels away from the coast, which will help diversify and develop the full potential of large-scale seafood production in the UK," John Holmyard said. "The mussels will be grown on ropes suspended above the seabed, which ensures they are free from grit. Being offshore, the farm will be well flushed with clean oceanic water that is rich in the plankton on which the mussels feed naturally."

Initially, production will be aimed at the export market. "We designed this as a large-scale development to enable us to provide the volumes required by European buyers," said Nicki Holmyard. "However, with low per-capita consumption of mussels in the UK, our long-term aim is to develop the market by encouraging greater domestic consumption of this highly nutritious and delicious seafood."

In Scotland, mussels take two to three years to grow, but this should be reduced to two in the warmer waters off the south coast, she said.

• ExxonMobil discussed politics of BP takeover with the White House
• BP's value had once dropped by more than $100bn, since 20 April

BP said today that it was a fortnight away from finally sealing the rogue well in the Gulf of Mexico – potentially triggering bids from rivals for a company whose market value has been dramatically eroded since the April blowout.

BP, which also announced that the clean-up bill has hit $8bn (£5bn), has been viewed as vulnerable to takeover since the Deepwater Horizon accident on 20 April.

But City experts said the leaking well needed to be finally capped – putting a lid on liabilities – before anyone would dare make a move. There have been successive reports that the cash-rich US firm ExxonMobil – the biggest non-government owned oil company in the world – has discussed the political implications of a BP takeover with the White House .

While Barack Obama is said to have raised no competition objections – although some assets would probably have to be sold – industry experts believe he must be concerned about job losses at a time of high US unemployment.

Any takeover offer would fit into a wave of merger and acquisition activity across other sectors of business and would inevitably lead to redundancies.

No new oil has flowed from BP's Macondo well in the Gulf since 15 July when a cap was inserted but BP said it hoped to seal it for good in mid-September.

The bill has steadily risen since the explosion, which triggered an environmental disaster in the region and the country's worst-ever oil spill. In the aftermath, the oil company was forced to abandon hopes of drilling in the Arctic due to its tarnished reputation while BP's chief executive, Tony Hayward, bowed to pressure to resign from the end of this month.

Since the processing of claims by people affected by the disaster was transferred to the Gulf Coast Claims Facility, led by Ken Feinberg under a deal with the White House, BP has paid out some $38.5m to 4,900 claimants. Before the transfer, it had made 127,000 payments, worth about $400m. Meanwhile, more than 28,000 people, more than 4,050 ships and dozens of aircraft are still involved in the country's biggest offshore clean-up operation.

BP's future was effectively put up for formal discussion in June when the normally-conservative investment bank, JP Morgan Cazenove put out a provocative research note on BP.

Fred Lucas, JP Morgan's London-based oil analyst, looked at whether Exxon was the right player to make an £88bn bid. The US group is the financially strongest oil company, he said, adding that it could make a cash and stock offer while spinning off $50bn (£33bn) of refining and marketing assets, resulting in a bid estimated at 473p a share.

Certainly BP is very cheap by historic standards. More than $100bn was wiped off BP's market value at one stage since the 20 April explosion.

The company has instructed Goldman Sachs and Blackstone to defend against any hostile takeover bids.

One City fund manager said last night that he expected Exxon, Chevron or possibly even a Chinese national oil corporation to make a move on BP but Fadel Gheit, veteran oil analyst with the Oppenheimer brokerage in New York, said he doubted the White House would endorse a takeover that would cost more US jobs.

"When Exxon took over Mobil (in 1998) 50,000 jobs were shed within three years. The real way these mergers are made to work is by cutting costs often by massive layoffs. What politician would support that when unemployment levels are already at their highest for 40 years? It makes a lot of sense on paper but the political realities make it unlikely."

Other analysts said a move by a Chinese company was unlikely be agreed in the US, where many of BP's assets are based. Washington vetoed the takeover of Unocal by the China National Offshore Oil Corporation in 2005.

Ed Balls slams new economic data as 'appalling' and calls for measures to boost jobs and growth

Phillip Inman

The Bank of England is expected to maintain historically low interest rates next Thursday after a week of poor economic data concluded with figures showing a sharp slowdown in Britain's services sector and a decline in construction orders.

Analysts said the bank's monetary policy committee (MPC) will keep base rates at 0.5% to support the UK's struggling economy and stop it slipping back into recession.

The closely watched purchasing managers' index for the services sector – which accounts for about 70% of the economy – dropped to 51.3 in August from 53.1 in July, leaving the index hovering just above the crucial 50 mid-point between growth and contraction.

The Labour leadership candidate Ed Balls said the figures were "appalling" and showed that the government should step in to support the economy rather than focus on cutting spending.

Figures from the Office for National Statistics revealed further gloom in the construction industry, which suffered a 14% fall in orders between spring and summer. The figures follow the Markit/CIPS construction purchasing managers' survey earlier this week, which pointed to a further loss of momentum in construction for a second month running.

Balls said: "Now is the time to build our way to economic recovery by boosting jobs and growth, not cancelling contracts at the expense of tens of thousands of private-sector jobs. Having more people in work and paying taxes is the best way to get the economy moving again, and will be better for the public finances and the deficit in the longer term."

Howard Archer, chief economist at IHS Global Insight, said the services index showed the sector was still growing, but the trajectory was down and it could soon be in recession: "Particularly disappointingly and worryingly, employment in the sector contracted for a second month running in August and at a sharply increased rate. Indeed, job losses in the sector were the largest since October 2009. This heightens concern over employment prospects, given that jobs in the public sector will be increasingly pared."

Figures for most areas of the economy show that businesses began preparing in June for a slowdown in sales. With the US economy slowing appreciably and the eurozone, apart from Germany, struggling to recover from the recession, UK export orders are expected to dip next year.

A rise in unemployment following a cull over the next four to five years of up to 750,000 public-sector jobs has also fuelled fears in the business community of a decline in consumer demand.

The survey of purchasing managers in the services sector found new business growing at its slowest rate for 14 months, while outstanding business contracted appreciably. Business expectations crept above the 15-month low seen in June.

Archer said expectations were lower following the cost-cutting measures in the June emergency budget, when the chancellor, George Osborne, signalled that he would seek cuts of up to 40% in public-sector budgets. Local authorities and Whitehall departments have already begun to lay off staff ahead of the comprehensive spending review in October.

Andrew Goodwin, senior economic adviser to the Ernst & Young Item Club, said: "But the clear message for next week's MPC meeting is that this is no time to be considering an increase in interest rates. Indeed, the recent survey results are more likely to ignite the debate about whether more quantitative easing is going to be required."

Crumbling flats provided gritty, urban backdrop for Clint Eastwood film and TV shows including The Bill and Spooks

Later this year when bulldozers begin to raze the sprawling Heygate housing estate in south London, few will mourn. The occasional remaining fan of early 70s Soviet-style brutalism may do so, perhaps, along with ex-residents who remember a thriving community amid the concrete towers and walkways. But their regret will be shared by another, more unlikely group: film and TV directors.

Over the past few years, the long-unloved sprawl of vast, mid-height blocks of flats, fringed by scruffy communal spaces has gained a new lease of life as one of the UK's most popular, if unlikely, filming locations. Since 2007, almost two shoots a month have taken place on the Heygate. The few remaining residents bumped into the likes of Clint Eastwood and Michael Caine, not to mention cast and crew members from TV series including Spooks, Hustle, Silent Witness and – on a near-weekly basis, according to locals – The Bill.

Over this period the combined filming fees for the estate have earned the local council, Southwark, more than £90,000, all of which is reinvested in community projects.

Film-makers are drawn to the Heygate for two reasons. The severe lines of the rectangular blocks of flats, edged in crumbling, concrete balconies, are telegenic shorthand for gritty, urban life. Additionally, the protracted redevelopment of the wider Elephant and Castle area has left the estate intact, despite being almost emptied of people. From a peak of about 700 residents, only about 50 remain.

"It's a huge advantage," said Andrew Pavord from Southwark's film office, which liaises with film and TV crews and arranges permits. He recalls a three-month shoot earlier this year for Attack the Block, a British-made comedy about a group of teenagers battling alien invaders. "This was mainly night shoots, with lots of special effects," said Walker. We were able to make sure they stayed in parts of the estate where people wouldn't be disturbed. It wouldn't have worked anywhere else."

The Heygate has hosted a "huge range" of productions in recent years, from major films and TV series, to pop videos and student productions, Pavord said. "We're a bit sad right now, as the latest X-Men film was thinking about filming on the Heygate, but now they're not. They wanted somewhere to look like 1960s New York. Bring in a few yellow taxis and it would have done the trick."

Another major recent shoot saw Caine return to his south London roots to make Harry Brown, a drama about a widower who takes on local drug gangs. Late last year, Clint Eastwood spent time on the estate, directing scenes for his upcoming thriller, Hereafter. ITV police series The Bill was at the Heygate "more or less constantly" until its recent demise, according to Pavord. Producers used it as one of several stand-ins for the programme's fictional Larkhall estate.

Completed in 1974, the Heygate's generously sized flats were initially popular with council tenants, but the estate gradually struggled with a reputation for violence and deprivation.

One of the curiosities of its recent renaissance is that with real crime declining as the estate emptied, it was sometimes the fictional version which caused concern. In July, police were called when hundreds of bullet casings were found on the Heygate. They turned out to be blanks fired for a scene in The Veteran, starring British actor Brian Cox. A similar false alarm occurred when locals were spooked by a fake riot staged for gang-related drama, Shank.

According to Chris Michaelides, former head of the Heygate's now-dissolved tenants and residents association, film-makers have done all they can to keep locals happy, offering financial compensation or alternative accommodation during night shoots, or employing them as extras.

"Before most people left we'd get a percentage of the filming fees. We'd use it to take the local kids to Legoland, or go to the seaside," Michaelides said.

Filming was also only permitted if the estate was not identified, Pavord added: "It can only be a backdrop, they can't call it the Heygate. By letting people film here, at least we have some measure of control. We turned down one film about drugs and they just used another estate somewhere else and called it the Heygate."

Overall, he said, the Heygate's new-found fame was a boon: "If you bump into a huge film crew every time you leave the house it can get a bit galling. But it works both ways. Everyone was very excited to have Clint Eastwood on the estate."

Supermarkets take pride in stocking local produce but distribution is 'complicated'

More than a century ago Thomas Rodda began to sell his cream at markets in Cornwall, travelling as far from his farm as his horse could manage. Today a tub of Rodda's Cornish clotted cream on sale at Tesco in Redruth, two miles from the creamery in Scorrier, has been driven at least 340 miles to get there.

Rodda's great great grandson, Nicholas Rodda, admitted today that his forefathers would have been "surprised" that the cream was sent up on a Tesco lorry to a distribution centre in Avonmouth, near Bristol, one day, only to be sent back to the far south-west of England the next.

"It does sound crazy but it does make sense," said Rodda, the managing director of a company that makes 80m dollops of clotted cream a year. "It's complicated."

The issue was highlighted this week by the curious case of Ginsters, based in Callington (population around 6,000) in south-east Cornwall.

Ginsters prides itself on its Cornish connections. It employs 700 people who help make about 3m pastries a week. It has grown steadily since the 1960s when the Ginster family converted their egg-packing plant into a small bakery.

One of Ginsters' favourite slogans is "Keeping it local." All of its beef is British and 65% comes from Jaspers, whose abattoir is five miles from Callington. Ginsters sources about 70% of its vegetables from Cornwall, many from Hay Farm at Antony, 18 miles away. A fifth of its flour is made using wheat from Cornwall.

Ginsters has a fleet of 150 vehicles based at sales offices around the country, delivering direct to service stations, convenience stores and small supermarkets. It uses Samworth Brothers trucks to get its pasties into some supermarket distribution systems.

But its pastries – some destined for the new Tesco next door – are taken by lorry to Avonmouth before being moved back to the supermarket's shelves, a round-trip of at least 250 miles.

Many Callington residents, small-scale food producers and campaigners against "food miles" express bafflement and frustration.

But it goes further. Ginsters sends consignments destined for other supermarkets by the same circuitous route. Pasties sold at the Co-operative store in Callington a mile from the factory have travelled to Portbury, near Bristol, and back – another round-trip of 250 miles.

Other producers who pride themselves on their local credentials also send their products on long journeys.

Cornish Country Larder makes St Endellion Cornish brie near Newquay, north Cornwall. It is sent to its depot in Taunton in Somerset and moved on to the Tesco distribution centre at Avonmouth before being transferred to where it has been ordered – including stores in Cornwall.

One route for Cornish sardines starts with them being landed at a port in south Cornwall before being driven inland to a processor on an industrial estate. They are moved up to a distribution centre outside the county before being sent back to stores in Cornwall.

When the Guardian bought sardines from a Tesco store, an assistant said they would have been landed about three days before they arrived on the fish counter. If they had come direct from port to shop it would have taken about 45 minutes.

Small pasty makers in Callington said they were amazed at the odyssey which Ginsters pasties were making.

"It seems an odd way of doing business," said Ann Arnold, of the Pasty Stop Bakery, where they make 300 pasties a day in a room above the shop. Their journey to market consists of carrying them down the narrow staircase. The journey is even shorter at the nearby Cornish Bakery, whose pasties make a trip of about a metre from the back room to the front counter.

Elaine Ead, the owner of the Chough Bakery in Padstow, north Cornwall, and a committee member of the Cornish Pasty Association, said she was frustrated by the sight of lorries trucking up and down the motorways. "We have to have a think about how food is produced and distributed," she said.

Tim Lang, the professor of food policy at City University London, who coined the phrase "food miles", said: "At one level it's completely absurd but it is alas the reality of modern logistics, which is based on cheap oil, the motorway system and mass production. If people don't like it they are going to have to be prepared to pay more for a more sustainable system of logistics."

Andrew Sims, policy director of the new economics foundation thinktank, said: "We do not pay the real environmental price for producing and transporting goods. It is economically inefficient and a market failure.

"To learn that Cornish goods are being taken on tours of Britain to end up being sold in branches of Tesco right next door to where they were made tells us that, for all the claims of being green, UK plc has a very long way to go to become environmentally efficient and responsible. It would be funny were it not for the sad waste of resources."

Tesco and the Co-operative insist their distribution systems are the most efficient and environmentally friendly ways of moving goods around.

A spokesman for the Co-operative Group defended regional depots. "If each individual supplier delivered directly to our stores, that would result in tens of thousands of extra vehicles on the road and not only significantly increase our carbon footprint but also add to traffic congestion."

Distribution centres were, said Tesco, the most efficient delivery network. "If it were more efficient to make seperate deliveries to local stores from national suppliers, we would do so. But with more than 2,000 stores in the UK and an average Tesco superstore carrying 40,000 different lines, a centralised distribution system is more practical and efficient," a spokesman said.

He added that the company had cut the number of lorry journeys by investing in technology and other measures.

Ginsters, which is praised for using local ingredients, is upset at the criticism. Spokesman Larry File said there would be "mayhem" if every producer tried to deliver to every store in the country.

Consumers would have to come to terms with very limited choice if producers delivered only locally, File said. "There would be no fresh fruit, no fresh vegetables out of season."

Back at the creamery, Nicholas Rodda said sending its products out on supermarket lorries meant it could get its products out of Cornwall. "We're so far from the marketplace. It's a tremendous logistical feat to get our cream to Scotland, Norfolk and Wales the following morning."

And, of course, back to Cornwall.

Pastry base

Ginsters prides itself on its Cornish connections. Based in Callington (population around 6,000) in south-east Cornwall, it employs 700 people who help make around 3m pastries a week. It has grown steadily since the 1960s when the Ginster family converted their egg-packing plant into a small bakery. Since 1977 Ginsters has been part of Samworth Brothers, the Melton Mowbray-based seller of pork pies, sandwiches and other goods, which has 7,000 employees in Leicestershire, Cornwall and Milton Keynes. Pork pies packaged under the Ginster label are made in Leicestershire. One of Ginsters' favourite slogans is "Keeping it local". All of its beef is British and 65% comes from Jaspers, whose abattoir is five miles from Callington. Ginsters sources around 70% of its vegetables from Cornwall, much of it from Hay farm in Antony, 18 miles away. A fifth of its flour is made using wheat from Cornwall. Ginsters has a fleet of 150 vehicles, delivering to service stations, convenience stores and small supermarkets. It uses Samworth Brothers trucks to get its pasties into some supermarket distribution systems. 

A rare positive surprise from the US jobs market and more bid talk helped the FTSE 100 end the week on a high note as worries about a dip back into global recession receded.

M&A chatter around various London-listed firms and news that the US economy shed far fewer jobs than expected in August helped the bluechip index add 57.1 points, or 1.1%, to 5428.2 - its highest close in three and a half months.

Aggreko, the temporary power supplier behind the football world cup, Vancouver winter olympics and Glastonbury festival, was the top riser on the back of positive broker comment and word in the market that it had become an attractive buyout target. The company declined to comment on reports that it may have caught the eye of of Swiss engineering group ABB but its shares still rose 79p, or 5.5%, to £15.15.

Software company Autonomy was also boosted by M&A talk and rose 59p, or 3.4%, to £17.75 and Cable & Wireless Worldwide continued to climb following rumours earlier this week that American giant AT&T is considering a bid for the business. The shares, which are set to drop out of the FTSE 100 in the latest reshuffle of the index next week, closed up 3.2p, or 4.5%, at 72.95p and rose more than 10% over the course of the week.

Manufacturer Weir Group, set to join the bluechip index in the quarterly rejig, ended up 35p, or 2.8%, at £13.06 after Evolution Securities raised its price target on the shares to £14.50 from £14.00.

In the absence of much company news, broker comment also moved a clutch of insurers. Collins Stewart altered its recommendations on several stocks in the sector. Among them, Amlin fell 4.6p, or 1.1%, to 414.8p after it was moved to a "sell" from "hold" recommendation, while a cut to "hold" from "buy" for Hiscox left it down 5.1p, or 1.4%, at 360.5p.

Elsewhere, Deutsche Bank made price target changes on a swathe of European telecoms companies. Among them, Vodafone rose 1.7p, or 1.1%, to 159p after analysts at the investment bank raised their price target on the shares to 200p from 190p.

Wm Morrison was headed the other way, however, ahead of new chief executive Dalton Philips presentation next week on where to take the business. The grocer ended down 1.7p, or 0.6%, at 289.3p, putting it among the day's biggest bluechip losers. Rival J Sainsbury lost 1.7p, or 0.5%, to 368.6p.

Among the midcaps, oil explorer Soco International was one of the biggest losers, down 40p, or 8.4%, at 436.6p after it disappointed investors with news that a well being drilled in Democratic Republic of Congo had been abandoned. Analysts at RBS, however, said the dip could provide a good buying opportunity. It said Soco's findings overall at the site provided "encouragement for the future".

Finally, Aqua Bounty, the company that has genetically engineered salmon to grow twice as fast as normal, leapt after its fish were deemed safe to eat by US regulators. It closed up 3.25p, or 26%, at 15.75p.

Tycoon released on bail while prosecutors track down 183 witnesses before Polly Peck hearing next month

Seventeen years after he fled Britain Asil Nadir finally swept into a British court today flanked by besuited private security guards and trailing a wake of lawyers and journalists.

The 69-year-old tycoon, who last week flew back to the UK from the breakaway Turkish Republic of Northern Cyprus, appeared at the Old Bailey accused of charges of theft from his Polly Peck empire.

Despite his desire for a speedy conclusion to his case, he was told by judge Mr Justice Bean that any trial will not go ahead until October next year.

Prosecution lawyers and Serious Fraud Office (SFO) investigators must now trace 183 witnesses, some of whom may have died since Nadir, facing allegations over the theft of £34m from Polly Peck, fled beyond the reach of extradition to his native Mediterranean island in May 1993.

The businessman and Conservative party donor, once listed 36th on the Sunday Times Rich List, has made clear he will be attempting to get any case against him overturned, claiming abuse of process.

In the meantime, he remains on conditional bail under curfew and, despite his lawyers' objections, electronically tagged.

A £250,000 bail security has been deposited with the City of London magistrates, and he must reside at his £20,000-a-month rented Mayfair home, where he is subject to a midnight to 6am curfew. He must report each week to Chelsea police station, and has already surrendered his Turkish and British passports.

Dressed in a dark suit, blue shirt and silver-grey tie with matching handkerchief in his breast pocket, he arrived outside the central criminal court in a chauffeur-driven silver Jaguar, accompanied by his wife, Nur, 26, and an entourage in two Mercedes and a black Range Rover.

He smiled for the phalanx of photographers before entering the building and making his way to the glass-fronted dock of court nine.

During the hour-long hearing he spoke only twice, to confirm his name and then to thank the judge as he was released from the dock. With the press benches and public gallery packed, he sat with arms folded and occasionally glanced at his wife, who was sitting in the public gallery.

This was a preliminary hearing in the long-running case, which began when he was charged with 66 counts of theft and false accounting following the collapse of his business empire in 1991.

Given the length of time that Nadir has been in exile, it has not yet been decided exactly what charges he will face. Apart from the number of witnesses, lawyers must also examine a 482-page statement from earlier proceedings.

Suggesting it could take three or four months of work, Philip Shears, QC, for the SFO said: "There is a massive amount of work taking place at the moment to identify those witnesses, make contact with them and establish who may have died. And that is work of some weeks."

But Nadir's barrister, William Clegg QC, argued for a "much tighter timetable", and asked that the exact charges and papers relating to them be served by the prosecution within 28 days. "Mr Nadir is very anxious to have this case heard as soon as possible," he said. "We are anxious, on his behalf, that the crown should not be given more time than is strictly necessary."

Rejecting Nadir's request as "wholly unrealistic", the judge gave the prosecution until 3 December. "The facts of this case, as is very well known, are that in 1993 when a trial was pending Mr Nadir fled the country by air to the non-extraditable destination of the Turkish Republic of Northern Cyprus," he said. "Seventeen years later he has decided to return to this country.

"The 17-year delay is not the fault of the prosecution, it is the fault of Mr Nadir".

It emerged during the hearing that some defence papers were missing. "We have none of the papers of the original trial," Clegg told the court. "Solicitors are only required to keep papers for six months after conclusion of the case." He added: "At this moment in time Mr Nadir has some papers. As to how complete they are, we do not know."

A hearing to check the progress of the case is scheduled for 15 October, followed by the first formal hearing in December. The abuse of process argument is expected to be heard in March 2011 and if that fails the trial is scheduled for October that year.

Nadir returned to the UK on 26 August after being given a guarantee that he would be allowed bail while fighting the allegations.

The non-farm payroll figures were hailed as good news. But they weren't that good

It is a sign of how low expectations for the US economy have fallen that today's jobs report was seen by Wall Street as good news.

True, the 54,000 drop in non-farm payrolls was about half what had been expected. True, there was an increase in private sector jobs growth once the distortions caused by temporary hiring for the census were stripped out. True, the revisions to past data were also positive.

But that's the extent of the good news. By US standards, this is proving an anaemic recovery. As Barack Obama and his advisers are well aware, it is not nearly strong enough to make a dent in America's unemployment rate, which crept up to 9.6% last month. For that to happen, private sector employment would need to be rising by 250,000 a month rather than the 67,000 registered in August.

Most of those jobs will have to be created by the US service sector which, as in the UK, makes up the lion's share of the economy. Here, the latest evidence is not that encouraging either. The non-manufacturing ISM report, released 90 minutes after the payroll data, showed a hefty drop in service sector activity last month, with the drop from 54.3 to 51.5 getting close to the reading of 50 that denotes falling output.

Again, this is nowhere near as strong as the White House would be hoping 18 months into a recovery, particularly given rock-bottom interest rates, a fiscal stimulus worth nigh-on $800bn and massive money creation from the Federal Reserve.

So while today's jobs report almost certainly means that a fresh bout of quantitative easing from the Fed will remain on the back burner, don't rule out an attempt by Obama to get a new stimulus package through Congress before the November mid-term elections. The White House fears that Democrats will be punished for the state of the economy, and that a stronger Republican presence on Capitol Hill will make it a struggle for the president to get his legislation through. It is right on both counts.

Former Labour MP Chris Mullin's diaries offer juicy insights into Gordon Brown's intemperance and paranoia

•I shall get round to reading Tony Blair's book simply because, like Everest, it is there. In the meantime I suspect I've been getting more pleasure out of the second volume of Chris Mullin's diaries, Decline And Fall. Like Blair, Mullin – a former minister and then backbench MP who quit at the election – was both appalled by and admiring of Gordon Brown.

There's a terrible story from June 2008 when Brown goes to the Chinese embassy to sign the condolence book for earthquake victims, then learns that David Cameron is outside, waiting his turn. The PM flies into a rage, stalks back to his car, ignoring the Tory leader, pummels the headrest in front of him, making his protection officer's head bounce back and forth, while raving about treachery and demanding "Who did this to me?" He blames a conspiracy of the Tories, the Chinese and the Foreign Office.

Did he imagine that any voter was going to say, "I'd have gone for Labour, but that Gordon Brown risked being upstaged by David Cameron over the Chinese earthquake victims, and to me that says it all … "? Woeful tiredness leading to grotesque misjudgment.

On another occasion, Brown is alerted, in detail and at length, by Treasury officials who tell him that British "prosperity" is floating on a sea of unsustainable debt. He brushes them aside, with consequences with which we are now familiar. Yet, as Mullin points out, many world leaders and finance ministers willingly acknowledge that Brown's decision to shore up the banks here may have saved the global economic system from collapse. In his own words, he really did "save the world".

Actually we in the media usually get it wrong. After the Gillian Duffy affair in Rochdale, it was universally predicted that Brown's intemperance had lost the election. On the day, Rochdale was a Labour gain.

•Ryanair is in danger of becoming an endless source of heart-warming comedy. Their latest gag was to make a music student, Francesca Rijks, buy at check-in a separate seat for her violin. They demanded £190, but by the time Ms Rijks and her father agreed to pay, it was too late to get on the plane. Not a cello or a double bass, but a violin!

What madcap wheeze will Ryanair delight us with next? "You're not taking that copy of Tony Blair's A Journey on board? It's more than 700 pages! You'll need a separate seat." That would be hilarious. Truly, to this airline, there really is no such thing as bad publicity.

•My son and I went to Lord's last Saturday for what turned out to be a superlative day's cricket. We saw Trott and Broad finish the greatest ever 8th wicket partnership in any Test match anywhere, then watched the fall of 14 Pakistan wickets. Or did we? As news of the betting allegations unfolded, one began to have doubts. Was much more cheating going on? Will we ever know? It did tend to tarnish the day in memory.

There was a curious, almost surreal moment. The seats next to us emptied after lunch but the occupants had left eight pints of beer on the concrete in front of them. The people in the next row forward had left six. With beer at £4.45 a pint, that represented more than 60 quid, on top of the £75 per ticket. For hours the beers sat there, until some other customers, realising that these were better seats, moved in to grab them. But they brought their own beer. A mini-Mary Celeste.

•Reader Ian Richardson sends a picture of a tin of sardines he bought at Tesco. The back reads: "Allergy warning. Contains fish."

•Great urban walks, No 78, Victoria Line platform at King's Cross St Pancras to East Midlands train terminal, St Pancras. Distance: 2 miles approx. Time: 1 hour (or feels like it.)

Start with an easy climb from the track to signs for the Regents Canal. Then join a long couloir lined with bare glacier-like tiling and slate outcrops. Watch the faces of those coming towards you, finishing their descent, weary but glad to be near the end of their trek. The Piccadilly line turn-off tells you that you are roughly a third of the way to your goal, spurred on by news of line closures, signal failures, emergency engineering works on other routes. Rows of gigantic wheeled suitcases lurk like boulders, waiting to trip you and hurl you off the path.

Then the long, debilitating ascent up to the booking hall cwm, a seething mass of humanity, all in long lines as if roped together.

Next, another couloir winds forever – but keep heart! – inexorably up to the longest climb, and suddenly you are within reach of your goal! St Pancras station, surely one of the finest vistas known to man: a glorious riot of shops selling flowers, books, perfume, brand-name fashion and patisserie. By now you will be summoning your last resources of courage, stamina and oxygen.

Just a few hundred yards more, past the Eurostar terminus on your left, past the food stalls where smiling natives will sell you crayfish and rocket sandwiches – and finally the last gruelling ascent to your destination, a gleaming, glowing line of indicators showing delays on all lines through Luton. But by now it's too late – you're far too tired to go to Nottingham, so you might as well start the long journey home

I really don't understand why the refurbishment of the whole station complex needed to add nearly a quarter of an hour to everyone's journey times.

Tandem, the London-listed toys and bikes company, had been bracing for a potentially damaging Toy Story market flood, but today it has reassured investors that its own wares are still selling well and that it actually expects to exceed expectations for the whole year.

Strong demand for cycles has boosted its optimism and Tandem, whose products include Falcon bikes, Dr Who skateboards and Ben 10 scooters, said revenues held steady in the six months to July 31 at £19m.

Its trading statement highlighted revenue from the Dawes cycle business, which showed "exceptional growth, well ahead of market performance" and Tandem noted "increasing demand" for bicycles", particularly the flagship brands of Claud Butler and Dawes.

In spite of a catalogue of challenges, including US dollar volatility and increases in freight and raw material prices, Tandem expects profit before tax for the half year to be ahead of last year. For the year as a whole, which runs to January 31, the company expects results to be "well ahead of market expectations."

It brought relief to shareholders on the Toy Story front, commenting:

"Despite the fears that Toy Story merchandise would saturate the market for Autumn/Winter 2010 following the movie release, revenue from our licensed properties, including Ben 10 wheeled toys, is likely to exceed our earlier expectation."

The shares are up almost 10%, or 11p, at 128p in late trading.

The White House's latest play: too late substantively, maybe just barely not too late politically

To utterly no one's surprise, the August jobs report is bleak. Just more than 50,000 jobs were lost overall, but that was mostly because of the foreseen end of temporary employment by the Census Bureau. Private companies added 67,000. June and July figures were also revised up, but it's all not nearly enough to drive the unemployment rate down.

It went up by 0.1%, to 9.6%, an increase that is actually less indicative of the number of employed than of the fact that more Americans started looking for jobs again in August. That more people were looking might be a good sign for somewhere down the road, but not for the immediate future – in other words, for the election period.

Bill Galston of the Brookings Institution, a former Clinton domestic policy adviser, was quoted in the Washington Post this morning stating the political reality bluntly: "Substantively," he said, "there is nothing [the Obama team] could do between now and election day that would have any measurable effect on the economy. Nothing."

That is true. So they are trying at least now to do something symbolic. News broke in the Post yesterday of White House plans for a new stimulus bill. Wait, did I say stimulus? No, it's not stimulus. It's not called that anyway. And it's not spending. Probably.

It's all tax decreases. An extension of a research credit for new-technology businesses that would amount to $100m and a payroll-tax holiday for all small businesses that totes up to $300m. There is some talk that they might try to salt some infrastructure spending in there, but everyone knows that's going nowhere, so it would be politically counterproductive even to mention it.

These aren't bad ideas. Many liberals agree that a payroll-tax holiday, in particular, is useful and stimulative and can help foster hiring. What I don't understand is, why has it taken this long?

Even putting aside the substantive problems of the economy, it has been politically clear for some time now that, in addition to the economy, taxes were going to be an issue this fall, too – namely, the question of what to do about the Bush tax cuts, which are up for renewal.

Obama wants to keep the cuts for 98% of Americans but end the cuts for households above $250,000. The Republicans, of course, will turn this into a socialistic tax increase on all Americans, or at the very least, he's coming for your money next. Democrats, surprise surprise, are afraid.

So, the Democrats have needed a way to argue two things. First, we do have ideas about helping the economy that don't involve more massive federal spending (which has worked, but on which they've completely lost the PR argument). Two, that we have tax cuts that we like.

This new White House proposal can counter what will be the Republican push this fall. But I think it could have countered that push a lot more strongly if it had been unveiled in May, or even February. Republicans in congress would have been put in the position of having to decide whether to vote against tax cuts.

It would have called their bluff. If they opposed tax cuts, they were hypocrites. If they supported them, then Obama gained the PR victory of making them accede to one of his plans. It would have been win-win for Democrats politically, besides which, a big payroll-tax holiday passed back then might have had an impact on the economy by now.

It's too late for substance. It just barely might not be too late, politically. But things didn't have to come to this on either front.

With the opening of the Taj Cape Town, will the city prove the broken windows theory of urban decay?

The broken windows theory of urban decay first appeared in the magazine The Atlantic in 1982. Social scientists James Q Wilson and George L Kelling proposed that little problems, such as broken windows, can soon become big ones – squatting, vandalism and violent crime.

It's been a seductive idea ever since: that fixing windows, picking up litter and scrubbing graffiti are snowflakes that can trigger an avalanche of regeneration, returning middle classes and Starbucks all round.

In South Africa's great cities, the fight is on. Johannesburg has developments in unfashionable areas, such as the boutique shops of 44 Stanley Avenue and the creative hub Arts on Main. I recently witnessed the opening of 12 Decades, the city's first "art hotel" in a renovated building deep in the urban underbelly. Each room takes a decade of Johannesburg's history as its theme; one has apartheid legislation printed in the toilet bowl.

A decade ago Cape Town city centre was seen by many as a no-go area: daylight muggings, boarded-up buildings and parking attendants on the make. More than a few windows have been repaired since then, and last weekend there was more evidence of renaissance: the opening of a five-star hotel.

The Taj Cape Town is a sister of the Taj Mahal Palace hotel in Mumbai, recently reopened after the 2008 terrorist attacks. It brings Indian decor and "refined Indian hospitality", and a spin-off of London's Bombay Brasserie, to a once unfriendly corner of the Mother City.

As in the US, city centres tend to be more dynamic, beautifully ugly and historically evocative than the safe but bland suburbs. The 177-room Taj Cape Town has plenty of ghosts, as it occupies the former premises of the South African Reserve Bank (1932) and Temple Chambers (1896), combined with a newly constructed tower.

Adapting old buildings is one short cut to character. Much of the original banking hall is intact, with its carved clock, sash windows and grand chandelier. Up high are the two balconies where minstrels entertained customers as they queued to make their deposits or withdrawals.

In the roof is a curved skylight made with scientific precision: in 1929 the architect James Morris bullied the astronomer royal into measuring the position of shadows month by month so he could maximise the amount of direct sunlight in the hall.

This was a gilded age, after all, up to a point. There are four columns that were originally meant to be made of marble imported from Sweden, but after a court case and an outcry from taxpayers, the architect settled for cheaper Portuguese Styros marble in cream and brown.

I was among American, Australian, European and Indian journalists invited to the hotel's grand opening last weekend. We had been promised an appearance by Jacob Zuma, who had been over the road at St George's Cathedral, but the president was a no-show, possibly fearful that cutting ribbons at luxury hotels would jar with striking nurses and teachers.

From a marquee, we walked up a red carpet, through the old bank's giant bronze gates and local Paarl granite facade. The crowd of faces was mainly white or Indian with a small black minority. There was a speech from Ratan Tata, the Indian tycoon whose Tata Group owns the Taj hotels, about India's affinity with South Africa and references to Gandhi and Mandela.

I stood with American and Indian journalists, musing on the significance of this Indian initiative. "There's a sense in the US that our best days are behind us," said the American. "The 20th century was the American century, but now we're in the Asian century with China and India. It looks fairly inevitable."

Among the guests was Andrew Boraine, chief executive of the Cape Town Partnership, which has led the renewal campaign. He took us on a guided tour of the immediate neighbourhood, one of the most historically rich in South Africa.

People have been living in this region for at least 70,000 years – it's one of the oldest areas of human settlement on the planet. At least two millennia ago, the Khoisan and Khoikhoi people would bring their livestock to what they called Camissa (place of sweet water).

The sun rose and the sun set and nothing changed, making it easy to pretend they were alone in the universe. Then one day the aliens came.

The Dutch East India Company set up a refreshment station and began taxing the indigenious people. And so centuries of conflict over water and land began here.

The company set up a lodge where it is believed that up to 9,000 slaves, convicts and mentally ill people were held between 1679 and 1811. The building later became the Cultural History Museum, which in apartheid terms meant white cultural history. Black culture was put in the Natural History Museum.

Just a few minutes' walk away is a public artwork that commemorates the day in 1989 when police fired a water cannon with purple dye at pro-democracy protesters so they could identify and arrest them. One demonstrator leapt on to the vehicle and seized the cannon, turning it on to the police and National Party headquarters. Later a piece of graffiti declared: "The purple shall govern."

Parliament, the 350-year-old Company's Garden, the National Gallery, the South African Museum and numerous other sites are all within walking distance. I ambled around St George's, where Desmond Tutu once rallied the faithful against apartheid, and thought myself back in England amid the carved pews, stained glass and stone effigies.

The memorials on the wall speak of brief lives: "Remember now thy creator in the days of thy youth. In memory of Adriaan Carl Johannes Bouwer, aged 16, Sunday school teacher, whose life of good promise was cut short by a fatal fall on Table Mountain, September 27th 1883, on the eve of the cathedral confirmation, September 29th. Hold up my goings in thy paths, that my footsteps slip not, Psalm 17:5."

Another reads: "In memory of Montague Treby Molesworth, lieutenant in the Royal Navy, who died on board HMS Cleopatra March 25th 1844, of spear wounds received on the 23rd in an unforeseen and general attack made by the natives of the west coast of Madagascar on the unarmed crew of the Pinnace under his command while actively engaged in weighing the anchor of their ship ...

"In this barbrous outrage, the work of two minutes, and result of a defeated attempt at theft, seven out of 13 brave men lost their lives with their gallant officer. Thus was his bright career arrested ere 24 summers had dawned upon him, yet in that brief space, he had proved himself by his prowess and presence of mind in the moment of danger all a British sailor should be."

The Taj Cape Town hotel is on Wale Street, Cape Town, South Africa.

The GOP posture as fiscal hawks, but the reality of cutting taxes and repealing healthcare would blow out the budget

"I'm not afraid to tell you there's no money left. In fact, we're broke. Our debt is now on track to the exceed size of our entire economy in the next two years." So declared house Republican leader John Boehner last week, making the case that Americans should trust his party when it comes to "bringing down the deficits that threaten our economy".
 
The party that added $4tn to the national debt under the Bush administration has relentlessly hammered President Obama for the growth of the deficit under his watch. Republicans have made deficit reduction a central thrust of their post-Bush persona, invoking it to weaken or kill even the most uncontroversial initiatives such as extending unemployment benefits or helping small businesses during a troubled economy.
 
And the GOP is now boasting its largest lead of 10 points in the congressional ballot, eyeing major gains in the November elections. So, what would Republicans do for the deficit if, as is looking increasingly likely, they regain power in one or both chambers of congress?

So far, we know of two major, concrete items on their agenda: extending the Bush tax cuts for the rich and repealing healthcare reform.
 
President Obama and Democratic leaders intend to let the Bush tax cuts for the top 2-3% of income earners expire, as scheduled, at the end of this year. Republicans have made it a top priority to extend them, which would add $678bn to the 10-year deficit (while producing minimal economic growth).
 
Their justification? "Why did [tax cuts] all of a sudden become something that we, quote, 'pay for'?" wondered senate Republican leader Mitch McConnell, suggesting that government revenues aren't relevant to the budget.
 
Next on the GOP list is scrapping Obama's healthcare reform effort – the bill will slash the federal deficit by hundreds of billions of dollars, according to the nonpartisan Congressional Budget Office. The GOP proposal to repeal it would, as the CBO found just last week, add $455bn to the deficit.
 
"We all know that it's going to increase the deficit," McConnell said of the Affordable Care Act, informing us that congressional scorekeepers are irrelevant when they impede the Republican agenda.
 
Newsweek ran the numbers, and Obama's deficit over a decade amounts to $3.784tn, while the GOP deficit – even if you scrap from it Obama's stimulus package, which Republicans portray as a failure and budget-buster – comes to $4.155tn.
 
And consider the ambitious "roadmap" put forth by congressman Paul Ryan, the top Republican on the budget committee, who has been showered with praise in the mainstream press for being a courageous fiscal hawk. The nonpartisan Tax Policy Center found that if you consider his large tax cuts for the rich, the plan doesn't balance the budget. In fact, it dramatically increases the deficit.
 
Republicans lost a lot of credibility after spending Bill Clinton's surplus into a $1.4tn deficit during the Bush years, and their insistence that they've changed belies their actual policy proposals. Instead, their cynical messaging strategy has served the dual purpose of weakening President Obama's credibility while creating a pretext to block the Democrats' agenda.
 
That Republicans have got away with this remarkable about-face says as much about Democrats' failures as it does about them. Indeed, the deficit has risen under Obama's watch, but the prime causes of that are not increased spending but the recession, the Bush tax cuts and the wars in Afghanistan and Iraq.
 
The most notable thing about self-styled fiscal hawks (including in the Democratic party) is how seamlessly their budget concerns disappear when it comes to providing tax cuts for the rich. Nor do they entertain other serious ways (that don't hurt the less fortunate) to reduce deficits: for instance, cutting the military budget, which is larger than the rest of the world's combined. Or ending the Bush wars, which have already cost over $1tn.
 
Democrats have themselves to blame for not fighting back effectively, but as far as Republicans go, the numbers show it's not the words of John Boehner guiding their agenda; it's still the words of Dick Cheney who, as vice president, famously declared: "Deficits don't matter." A more candid statement might have been: "Deficits don't matter when it's Republicans who are racking them up."

There was some good news today for those fearing the worst for the US economy. The monthly Department of Labor report showed far fewer jobs being shed in August than had been predicted. Most economists found grounds for optimism

Fears that the world's largest economy is spiralling back into recession eased today as it emerged that the US shed half as many jobs as feared in August. Here is what the economists made of the non-farm payrolls data.

Rob Carnell at ING, London

The payrolls survey indicated that instead of 10,000 private sector jobs being lost in August (as in the ADP), instead 67,000 private sector jobs were created. Together with the 121,000 public sector jobs being created (far fewer job losses at state and local government level that we have become used to), gives the better-than-expected headline number we got.

The household survey released in parallel to the payrolls numbers also came in strongly, with a rise of 290,000 following the 159,000 decline in July. Some 550,000 more people entered the labour force in August. But only slightly more than half of these found jobs, while the numbers of unemployed also rose by 261,000, taking the unemployment rate to 9.6%, and a hair's breadth from 9.6%.

Double-dip fears will dissipate on the back of this result, though we suspect that the US labour market is not out of the woods yet. Employment growth is still insufficient to stabilise the unemployment rate. We also suspect that employment growth will struggle to attain the 140,000+ growth it will need in order to prevent unemployment from going up. The Fed will eventually have to act again. Just not for a while yet.

Benjamin Williamson, Centre for Economics and Business Research, London

The monthly fall reflected a large contraction in temporary government employment only partially offset by a better-than-predicted increase in the number of private sector jobs.

Private sector employment has now risen by 763,000 since its most recent low in December 2009. As expected there were a large number of public sector job losses in August (121,000) as 114,000 temporary workers hired for the decennial census were let go. The labour market distortion created by the census is likely to come to an end over the coming months as just 82,000 workers remain employed for this purpose, compared with peak employment of 564,000 in May.

Coincidentally, workers in the US will be enjoying an extended break this weekend with Labor day falling, as it does every year, on the first Monday of September. When investors return from holiday they should take note of how the recent rise in productivity has improved the profitability of US companies. We expect a rise in cash surpluses to lead to an investment surge in the US over the next couple of years, while interest rates remain low and the public deficit is given a stay of execution until after the 2013 elections.

Kim Rupert, managing director of global fixed income analysis, Action Economics, San Francisco

We also saw a rebound in household employment and in the civilian labour force. Nevertheless the unemployment rate inched up a little but – 9.6% – that was pretty much the consensus, however.

Bonds are going to watch what stocks might do today. We've seen some pretty hefty asset allocation trades out of bonds and into stocks. I think if stocks get a sense that maybe the situation isn't as dire as presumed they might see a little bit more upside into the long weekend. That may weigh on Treasuries.

We also have supply next week, and that might be an extra incentive to cheapen up the Treasury market a little. Although ahead of the long weekend we might not see huge moves sustained.

Michelle Meyer, senior US economist, Bank Of America Merrill Lynch, New York, New York

Overall this was a better-than-expected report and the drop in the unemployment rate indicates more people entering the labour force. Although wages are still soft, they are starting to improve. On a larger scale, we still think this is clearly a soft labour market, especially given the 8.5 million jobs that were lost during recession. This leaves the Fed on hold for now. While the economy is still soft, at least it is expanding. Unless the Fed sees a double-dip recession or deflation as a risk, it will be in wait-and-see mode and we do not expect Fed hikes until 2012. The stock market should be happy about this report, while this does not bode well for bonds.

Alan Lancz, president, Alan B Lancz & Associates, Toledo, Ohio

The stock market was in rally mode anyway as far as sustaining its lower trading range and coming back from an oversold condition. There's nothing in these numbers that would scare the bulls, and you can see some rays of light that would be a catalyst for some buyers. The numbers are better than consensus, and an improvement in the hourly wage is positive and an uptick as far as hours worked. Those are usually positive signs, and as those increase, eventually the jobs numbers will improve. You see the light at the end of the tunnel, and in prior reports, you definitely didn't see that.

Mohamed El-Erian, co-chief investment officer, Pacific Investment Management Company, Newport Beach, California

A mixed report that was better than expected. The report points to some areas of dynamism but, unfortunately, in the context of continued headwinds to a sustained fall in the rate of un- and under-employment.

Nigel Gault, chief US economist, IHS Global Insight, Lexington, Massachusetts

If you look at it in absolute terms, it's not very good. But relative to expectations, it's clearly better than expected and it suggests we're still growing. We're not growing very fast, but it doesn't suggest the situation is continuing to deteriorate.

The other good thing you can see there is an increase in average hourly earnings, three-tenths of 1%. That's a good increase, so even though hours worked didn't go up, spending power will have gone up because the earnings were higher.

So overall it's not a great report, but it's a bit better than expected and it does not indicate that we're into some sort of headlong plunge into a double-dip.

Robert Dye, senior economist, PNC Financial Services Group, Pittsburgh

It still showed a decline, which is a net drag on the economy, but it actually came in a little bit better than we thought. The good news in this report is that private sector employment was up 67,000 for the month so that was a little bit stronger than expectations. There were positive revisions for June and July: we saw a net positive revision of 130,000 jobs for those two months. Earnings were up for the month and hours were flat.

You have to take these earnings reports relative to expectations, so all in all this will be reviewed as a favourable report showing that the private sector is stabilising and once we get past the drag from the census – and I think we are close to being past the drag from the census – that we will start to see some positive numbers for the totals in the months ahead.

Fabian Eliasson, vice-president, currency sales, Mizuho Corporate Bank, New York

It was a complete surprise on the upside, and even the revisions were much better. But just as trading on the bad US data recently was overdone, I think sentiment on this week's positive reports is also going to be overdone. I think we're still looking at a quite slow and painful recovery. You have a lot of people unemployed, so it's a long way back to normal. In the big picture, 67,000 new jobs isn't too much. This report might mitigate some talk of double-dip recession, but I think everything is still pointed to a slow recovery.

Phil Orlando, chief equity market strategist, Federated Investors, New York

This was a much better-than-expected report. Not only were the August numbers pretty good but the July numbers were also revised up, that is to say better. The only number here, and I don't have the detail, is the loss of manufacturing jobs in August, which I can't explain. Every other indicator that we've been looking at suggested manufacturing was starting to come back. Maybe there is a bit of a lag there, but I'm inclined to think that is a blip and that that number will come back in the fall.

This past fortnight, the data has started to firm. We felt given the expiration of the housing credit and the peak of the census cycle, we would hit an economic soft patch over the summer but things would start to firm over the August/September time frame. As if on cue, numbers have started to get a little better, and this is another big number in that direction.

Lawrence Glazer, managing partner of Mayflower Advisors In Boston

The private sector is fairly lean at this point and is positioned relatively well. In the Treasury market, you are seeing a continuation of the last couple of days, which is yields moving up. The question now is: when investors digest this data and when volume returns on Tuesday, will you see a continued reversal out of Treasuries and into equities?

Cort Gwon, director of trading strategies and research, FBN Securities, New York

It was better than expected, and the revisions were also good. I hope that means this represents the bottom, in terms of the labour market. It's a very good number; we were expecting a drop of 100,000 to 120,000. Obviously one month doesn't make a trend, but hopefully this means the next couple of months will show continued growth.

Kathy Lien, director of currency research, GFT, New York

These are very nice numbers for the labour market. Not only do we get an upside surprise in overall payrolls but we also get upward revisions and a surprise in private payrolls. This will offer short-term relief to currency and equity markets by reducing stress on the Federal Reserve to add more stimulus. It means for the time being that some of the fears of weakness in the US economy may be misplaced as the data shows the labour market is not as bad as feared.

About 54,000 jobs lost, far fewer than the 100,000 expected, easing fears of a second US recession

Barack Obama pledged to bring forward a raft of fresh measures to boost American jobs growth after the White House received a fillip from better-than-expected employment figures for August.

Seeking to put pressure on Congress to provide an additional stimulus for the struggling US economy, Obama said he was looking at tax breaks to encourage businesses to hire labour, as well as infrastructure programmes, investment in green energy and an extension of middle-class tax cuts.

"I will be addressing a broader package of ideas next week," he told reporters in the White House Rose Garden after the eagerly-awaited non farm payrolls for August showed a drop of 54,000, half the drop that Wall Street had been fearing.

The fall in payrolls was the result of 114,000 workers hired temporarily for the US census being laid off, with private jobs registering a 67,000 gain.

"We are confident that we are moving in the right direction. But we want to keep this recovery moving stronger and accelerate the job growth that is needed so desperately all across the country," Obama said.

However, the data will probably do little to take the political heat off Obama over his handling of the economy, or improve the Democratic Party's chances in November's mid-term congressional elections. Job creation last month was insufficient to keep up with growth in the US labour market, with the result that the unemployment rate edged up from 9.5% to 9.6%.

Meanwhile, there were warning signs of a slowdown in the service sector, which accounts for three-quarters of the output of the US economy. The non-manufacturing Institute for Supply Management (ISM) recorded a drop in the index from 54.3 to 51.5, the lowest reading for seven months. Any reading above 50 indicates that output is expanding.

Analysts said the jobs data would provide breathing space for the Federal Reserve, which has been considering extending quantitative easing. "It (the jobs report) is inconsistent with fears that a sharp slowdown in the economy is under way. This report, together with other recent data, will convince the Fed to refrain from launching a new asset purchase program at this month's meeting," said Dean Maki, chief US economist at Barclays Capital in New York.

There's no need to accept the slashers' unambitious prescription of anaemic growth and high unemployment after a crisis

The government has made great rhetorical efforts to scare us into accepting cuts. Underneath the rhetoric, the argument rests on the idea of fiscal sustainability. Yet the question of what level of debt is in fact sustainable is never openly addressed. The reason, most probably, is that we can afford a lot more than the government wants to admit.

Government debt is not like household debt: the government borrows from us through our savings and pensions, and when it has to pay us back it can simply refinance by borrowing again from the next generation of savers. Since investors – including our pension funds – always want to hold some government bonds, we always need some government debt. Right now, in their pursuit of safe assets, the bond markets are demanding more, not less, government debt: interest rates have been going down in the large economies, including the US and Japan as well as the UK. If the government were really listening to the bond markets they would be increasing government borrowing, not cutting.

The question is whether this debt is sustainable. Sustainability means keeping the ratio of debt to GDP stable in the longer term. If GDP is £1,000bn and the government's total stock of debt is £600bn, then the debt ratio is 60%; the fiscal deficit is the extra borrowing that the government makes in a year – so it adds to the stock of debt.

Those who argue against rapid cuts, such as economist Paul Krugman and the Financial Times's Martin Wolf, want to cut the deficit later when the economy is stronger. They recognise that such a policy would lead to a higher debt ratio. Their argument is that it doesn't matter – and that the benefits to employment and growth now are substantial.

Yet the government and their cheerleaders, such as historian Niall Ferguson and economist Kenneth Rogoff, argue that higher debt ratios are unsustainable. They consider higher unemployment and lower growth a price worth paying.

What are the supposed benefits of the cuts? Under Labour's plans the debt ratio might have reached 80%. Under the coalition's projected cuts, the debt ratio is expected to peak at 70% and then decline. So what do we save by avoiding a debt ratio of 80%?

In the pre-budget report, the Office for Budget Responsibility (OBR) estimated that interest on the debt would have reached £67bn in 2015, implying an average interest rate of 4.9%. That's a lot of money. But what this doesn't tell you is that if we want to keep the debt ratio constant, then that is the wrong number.

First, that figure is based on nominal interest, not real interest – paying it would reduce the real value of the debt, not keep it constant. In the OBR estimates the real interest rate is 2.1%, not 4.9%. So keeping the real value of the debt constant would cost not £67bn but £29bn. But even this is too much because it keeps the real debt constant while real GDP is growing – reducing the debt-to-GDP ratio.

How much would it cost to keep the debt ratio constant? That requires that the debt grows at the same rate as GDP. If the government pays none of the interest and just allows it to accumulate by refinancing, then the real debt grows at 2.1%. The OBR estimated real GDP growth in 2015 at 2.6%. This means that if the government pays nothing – with zero cost to the taxpayer – then GDP will grow faster than the debt, and the debt ratio will decline on its own. The debt stock will grow, but GDP will grow faster. Reducing the debt ratio would cost not £67bn, not even £29bn, but no pounds.

In the longer term, the ratings agency Standard & Poor's estimates both the interest rate and GDP growth at 4% (allowing for inflation). With these figures, if the government pays none of the interest then the stock of debt grows at the same rate as GDP – and the debt ratio stays constant. And this is true whether the debt ratio is 70%, 80%, or even 120%.

So once the deficit is brought down, it will cost the taxpayer nothing to keep the debt ratio constant.

It is true that in the longer term, when the economy is doing well, we will want to reduce the debt ratio. That would be textbook Keynesian counter-cyclical fiscal policy. But then we can reduce it at the rate we choose – there is no market imperative for haste.

Kenneth Rogoff has argued that we should not worry about the effects of cuts because "anaemic growth with sustained high unemployment is par for the course in post-financial-crisis recoveries". It may indeed be par for the course. But why should we accept it? Death from an infected toenail was par for the course before the discovery of antibiotics. Medical advances have now made it eminently avoidable. Keynesian fiscal policy is a great advance over the 19th century economics to which the likes of Rogoff and Niall Ferguson wish to condemn us. We should use it.

Markets were cheered this afternoon by much better-than-expected US non-farm payrolls data, which showed the economy lost just 54,000 jobst in August, half as many as feared.

Wall Street had been expecting a fall of 100,000. July's drop of 131,000 has also been revised to a drop of 54,000. Employment has been falling for three months now but the picture is now far less gloomy than previously thought.

The FTSE 100 index in London, which was trading up about 30 points before the figures were released in the US, climbed more than 67 points to 5437.88, a gain of 1.24%. US stock index futures rose as well.

The figures will calm nerves at a time when many fear the US economy could slide back into recession. Economic growth slowed sharply in the second quarter.

Outlook grim for construction sector after orders for private and public housing fell by almost 25% in second quarter of year

Britain's construction industry seems set for a bleak future after orders suffered a 14% fall between April and June.

The only area that recorded any growth in new orders was the private industrial sector, while orders for private and public housing plummeted by 24% and 23% respectively, according to the Office for National Statistics.

Infrastructure orders such as roadbuilding were down 22%, the biggest fall since 2004.

The latest construction survey from Markit/Chartered Institute for Purchasing and Supply was equally gloomy, showing growth slowing sharply in August, with housebuilding in decline.

The figures come after construction output soared 8.5% in the second quarter, the best performance since 1982. But that is unlikely to be sustained as public spending cuts are expected to hit the sector hard. Several building projects have already been put on hold or scrapped since the election.

Noble Francis, economics director at the Construction Products Association, said: "Today's figures clearly highlight that the increase in construction output during the second quarter does not represent a sustained recovery."

Alasdair Reisner, industry affairs director at the Civil Engineering Contractors Association, added: "This is a reality check for the industry. It's pretty grim out there."

Although the ONS stresses that the figures can be volatile, construction orders had held above £13bn for the previous three quarters before the sudden plunge to £11.6bn.

Government's chief environmental scientist says emissions have actually risen, rather than fallen, because of carbon in imported goods

• West blamed for rapid increase in China's CO₂

The UK's greenhouse gas emissions have risen in the past two decades rather than declined, because of the carbon "embedded" in imported goods, the government's chief environment scientist has said.

Speaking in a documentary to be broadcast on BBC Radio 4 next week, Professor Bob Watson said there was a need to be more open about the rises in emissions generated by-products made in places such as China but destined for the UK market.

Under the current system of counting emissions, greenhouse gases created during the manufacture of goods are counted in the country where they are made, not used.

As a result, the true extent of the emissions caused by the UK is masked as many goods consumed here, from electrical products to clothes, are manufactured abroad and imported to this country.

Prof Watson said: "At face value UK emissions look like they have decreased 15% or 16% since 1990.

"But if you take in carbon embedded in our imports, our emissions have gone up about 12%. We've got to be more open about this."

A spokesman for the Department of Energy and Climate Change (Decc) said: "Our position is that greenhouse gas emissions in the UK have been cut by 22% since 1990.

"While some emission reductions have resulted from the trend for manufacturing to move overseas, international rules state that emissions from manufacturing are counted by the country of production.

"Changing that would be very difficult. We don't have jurisdiction over emissions embedded in imports, they're difficult to calculate accurately and not easily verified."

He added the government believed the best way of getting an accurate account of global emissions was by reaching a global climate deal, building on last year's Copenhagen accord which he said included commitments by major manufacturers such as China.

The accord, in which countries put forward their pledges for national action on emissions, was the only agreement to come out of last year's UN climate talks - which were widely regarded as a failure.

• Fugitive tycoon returns to UK after 17 years
• Q&A: Asil Nadir trial
• How Polly Peck collapsed
• Profile: Asil Nadir

Asil Nadir, the fugitive business tycoon, has failed in his bid for a speedy trial after a judge said he must wait until October 2011 before he can contest charges of fraud resulting from the collapse of his Polly Peck empire.

Nadir, 69, also failed in his bid to limit his curfew and avoid electronic tagging while he stays in London waiting for the trial.

He looked relaxed in the dock at the Old Bailey after he arrived in a convoy of Mercedes and Jaguar cars outside the court and police watched over his arrival in a helicopter.

The Serious Fraud Office wants time to compile evidence against Nadir, who fled Britain in 1993, including tracing witnesses who gave statements ahead of the original trial.

He was remanded on conditional bail to another hearing on 15 October. His trial date was provisionally set at October, next year.

Polly Peck collapsed in 1991 with debts of £1.3bn amid claims of accounting irregularities and fraud.

Nadir was granted bail on 30 July on condition he return to the UK from the Turkish republic of Northern Cyprus which had no extradition agreement with Britain.

He flew back to England last week and is renting a house in Mayfair with his 26-year-old wife Nur.

The Serious Fraud Office pursued the case until Nadir, who founded the company, fled the UK in 1993 after he voiced fears that he would not receive a fair trial.

The trial is expected to cost at least £4m.

Legal experts have voiced fears that the trial could collapse once it becomes evident that too much time has elapsed since Polly Peck went bust. They have also warned that crucial documents may have been lost and that key personnel involved in the company may either have died or be unable to remember important events.

The FTSE 100 is up for the sixth day running this morning, shaking off a weaker-than-expected report on Britain's dominant services sector with traders looking instead to US unemployment data due at 1.30pm UK time.

The index is up 28 points, or 0.5%, at 5399 in late morning trading and gains are fairly broad-based with the top performers including temporary power supplier Aggreko, software group Autonomy, retailer Next and media company WPP.

Moves are muted though ahead of this month's closely watched - and notoriously hard-to-predict - US non-farm payrolls data. Economists polled by Reuters forecast on average a decline of 100,000 jobs overall in August, and a rise of 41,000 private sector jobs.

Most recent economic data from the US has surprised on the downside but manufacturing figures this week gave markets some respite.

Chris Redfern, senior dealer at cureency business Moneycorp comments:

"We expect that the US will report around 100,000 job losses in August, a third consecutive monthly decline after the 131,000 job losses reported in July and 221,00 in June. While Wall Street has seen a good start to the month, we could easily see the safe-haven dollar suffer today as the US economy shows further signs of deterioration. British importers should monitor the situation closely and look to take advantage of any positive reaction from the pound."

Louisiana coastguard confirms fire is out and all 13 workers are safe

None of the recent surveys yet suggest that the UK has slid back into recession following its strong performance in the second quarter of 2010

Recession alert! That's the obvious conclusion from this morning's news that activity in Britain's service sector has slipped to its lowest level since April last year.

There are two main reasons to be concerned by the monthly health check provided by Markit and the Chartered Institute for Purchasing and Supply. The first is that the September finding is not a one-off but a continuation of a downward trend that began this spring.

The second is that today's purchasing managers' index for services – which accounts for around three quarters of the economy's output – is consistent with all the other recent data. Both the manufacturing and the construction PMIs released earlier this week showed similar falls, while figures for both mortgage demand and house prices suggest that the property market is already experiencing a double dip.

Let's be clear, none of the PMIs yet suggest that the UK has slid back into recession following its strong performance in the second quarter of 2010. All three are still registering scores of above 50, the cut-off point between expanding output and contraction in activity. But they are all heading in that direction, and today's drop in the service sector PMI from 53.1 to a much worse than anticipated 51.3 points to very sluggish growth.

So why is this happening? Several factors are at play. Internationally, the outlook has been getting bleaker in recent months, particularly in the United States. After the precipitous drop in output during the winter of 2008-09 there was a synchronised global upturn in late 2009 and early 2010 as companies replenished run-down stocks. That process has come to an end, but there has been no follow-through from private sector demand.

Britain's growth spurt in the spring of this spring also owed a great deal to the last government's attempts to stimulate demand through public sector infrastructure programmes, job placement subsidies, the VAT holiday, cash for clunkers and active policies to prevent businesses going bust and to prevent homes being repossessed. Some of those programmes came to their scheduled end, others have been canned by the incoming coalition government.

George Osborne has, however, given an added twist to the downward spiral, both by taking money out of the economy this year and by his blood-curdling warnings that cuts of at least 25% in Whitehall spending will have to be announced in next month's comprehensive spending review in order to tackle Britain's deficit. Unsurprisingly, that has affected the investment decisions of companies and is likely to have a progressively bigger effect on consumer confidence as the cuts actually materialise.

All in all, the current state of the economy supports what Gordon Brown was saying during the election: namely that the Conservative plan to begin deficit reduction immediately was highly dangerous. The question for the chancellor is whether he is prepared to concede this point, before it is too late.

Underwater images of the removal procedure