Some global heating deniers claim the world is cooling, but here is the flaw in their claim.

SOLAR power has always had a reputation for being expensive, but not for much longer. In India, electricity from solar is now cheaper than that from diesel generators. The news - which will boost India's "Solar Mission" to install 20,000 megawatts of solar power by 2022 - could have implications for other developing nations too.

Recent figures from market analysts Bloomberg New Energy Finance (BNEF) show that the price of solar panels fell by almost 50 per cent in 2011. They are now just one-quarter of what they were in 2008. That makes them a cost-effective option for many people in developing countries.

A quarter of people in India do not have access to electricity, according to the International Energy Agency's 2011 World Energy Outlook report. Those who are connected to the national grid experience frequent blackouts. To cope, many homes and factories install diesel generators. But this comes at a cost. Not only does burning diesel produce carbon dioxide, contributing to climate change, the fumes produced have been linked to health problems from respiratory and heart disease to cancer.

Now the generators could be on their way out. In India, electricity from solar supplied to the grid has fallen to just 8.78 rupees per kilowatt-hour compared with 17 rupees for diesel. The drop has little to do with improvements in the notoriously poor efficiency of solar panels: industrial panels still only convert 15 to 18 per cent of the energy they receive into electricity. But they are now much cheaper to produce, so inefficiency is no longer a major sticking point.

It is all largely down to economies of scale, says Jenny Chase, head of solar analysis at BNEF. In 2011, enough solar panels were produced worldwide to generate 27 gigawatts, compared with 7.7 GW in 2009. Chase says solar power is now cheaper than diesel "anywhere as sunny as Spain". That means vast areas of Latin America, Africa and Asia could start adopting solar power. "We have been selling to Asia and the Middle East," says Björn Emde, European spokesman for Suntech, the world's largest producer of silicon panels. Over the next few years he expects to add South Africa and Nigeria to that list.

The one thing stopping households buying a solar panel is the initial cost, says Amit Kumar, director of energy-environment technology development at The Energy and Resources Institute in New Delhi, India. Buying a solar panel is more expensive than buying a diesel generator, but according to Chase's calculations solar becomes cheaper than diesel after seven years. The panels last 25 years.

Even in India, solar electricity remains twice as expensive as electricity from coal, but that may soon change. While the price drop in 2011 was exceptional, analysts agree that solar will keep getting cheaper. Suntech's in-house analysts predict that, by 2015, solar electricity will be as cheap as grid electricity in half of all countries. When that happens, expect to see solar panels wherever you go.

A record £400m was repaid from personal borrowings in December as consumers cut their debts, the Bank of England said on Tuesday.

The net repayment of unsecured loans was the largest since records began in 1993 as heightened concerns about the wider economy and jobs made consumers lose their appetite for borrowing.

Credit card borrowing was also flat for the third consecutive month, according to the latest Bank of England figures.

Mortgage approvals rose to a two-year high in December, but analysts said the housing market remains weak compared with long-term norms.

An extra 750,000 people will join the ranks of the long-term unemployed over the next four years due to deteriorating economic circumstances, according to new government forecasts.

The figures, lodged in the House of Commons library last week by the Department for Work and Pensions (DWP), show an increase of 32% from 2.4 million to 3.3 million in the number of people expected to be entered into the Work Programme – the government's flagship project for finding work for those who are typically out of work for longer than 9-12 months.

More than 100,000 prison leavers will now also be entered into the Work Programme for the first time but when this group excluded from the new total, the upward revision compared with 2010 DWP figures is 743,000.

The DWP has admitted that its revised figures are a response to the decline in the UK's economic fortunes reflected in the Office for Budget Responsibility forecasts in November when they dramatically slashed growth predictions for 2012 from 2.5% to just 0.7%.

The UK slipped into negative growth during the last quarter by 0.2% leading to fears of a double-dip recession and further hikes in unemployment.

A DWP spokesperson said the figures were also released in order to give fair warning to the charities and companies that administer the Work Programme, such as Ingeus-Deloitte, the security company G4S, and Action for Employment or A4e, as they struggle to fulfil the terms of current contracts and get people into jobs.

The main rise in entry to the Work Programme comes for those aged 18-24. The DWP now expects an 83% leap on last year's numbers and a further 71% rise for 2013/14.

The biggest increase in overall numbers is expected to come in 2013/14, when just over a three-quarters of a million extra people are expected to be looking for work under the Work Programme, 362,000 more than previously predicted.

In a statement, the DWP said: "The country faces a changing economic picture as shown by the latest economic and fiscal outlook from the Office for Budget Responsibility. It is only right that we revise our projections for people entering the Work Programme to reflect this."

The new figures also increase worries about the scarring effect that long term unemployment will have on the British labour market and, what politicians have termed, the "lost generation".

Chris Goulden, the head of research and policy at the Joseph Rowntree Foundation, said the figures were worrying, adding: "There's definitely a scarring effect, even for short periods of unemployment and the evidence is worse when you're younger. And protracted periods can start to affect your career later in life."

Paul Gregg, professor of economic and social policy at the University of Bath, who helped coin the phrase "unemployment scarring", was also concerned by the latest figures.

"We know that exposure to significant periods without work leads to long-term damage. We know that the costs of that to the individuals in higher future unemployment, lower wages, health-related problems is very large."

"This recession has been particularly focused on young people, and what is depressing at the moment is that we seem to be entering a second phase of the recession and it is still very much the case that all the pain is being borne by the young."

The revised estimates come as a National Audit report criticised the programme for being "over-optimistic" and said that the programme was only likely to help 25% of those out of work opposed to a government estimate of 40%.

The 32% increase in jobless people entering the Work Programme is likely to put further longer-term strain on the private companies and charity subcontractors that provide the back-to-work schemes, triggering fears that a number could go bust, and potentially putting the entire £5bn programme at risk.

The 18 major contractors face demanding targets – getting more than a third of the programme's projected 3.3 million clients into sustainable work by 2015-16 - in order to activate fees paid to them under the government's payment-by-results model.

Although contractors would receive increased upfront attachment fees of nearly £100m as a result of the higher volumes of work programme clients, the rising influx of new clients, coupled with the deteriorating job market, could force on them massive extra costs that could threaten their financial viability in the medium term.

Work Programme industry experts the Centre for Economic and Social Inclusion said: "The weaker labour market outlook means higher than anticipated Work Programme referrals and a much bigger challenge for Work Programme providers.

"In the short term, income from attachment fees will increase. But in the longer term job outcomes and sustainment payments are likely to be harder to gain than DWP would have expected a year ago." 

The figures also show a projected decrease in the numbers of long-term sick and disabled people entering the work programme.

This is believed to reflect the increasing numbers of incapacity benefit claimants who are found to be unable to work as a result of work capability assessments, as well as an explosion in those who are appealing against what they believe to be unfair decisions that they are fit for work.

There are good biofuels and bad biofuels: the trick is telling one from the other. That's particularly difficult when trying to take account of the natural forests and wetlands that can destroyed in the drive to grow some biofuel crops. But we're getting closer, it seems, and palm oil and soy beans now appear utterly unsupportable as a source of biodiesel.

The new data comes from a leak obtained by EurActiv from the European Commission. The EC is considering what level of carbon emissions each type of biofuel causes once burned, after everything - including "indirect land-use change" - is taken into account.

It is obvious that for a biofuel to be useful in cutting the emissions driving global warming it needs to have a smaller carbon footprint than regular fuel from crude oil. So I have added the numbers for crude oil and oil from the highly-polluting tar sands for reference in the table below. The leaked biofuel numbers are, I'm told similar to several recent studies, and therefore credible.

Here's the data (the units are grams of carbon dioxide per megajoule energy of energy).

So palm oil and soy bean biodiesel is just a touch less polluting than fuel from tar sands: that's pretty damning. Maize and sugar do better than crude oil but still cause significant carbon emissions.

The better news comes from the second generation fuels (2G), particularly when the are "non-land using", i.e. when they use only waste such as straw. Factories doing this are setting up now in, for example, Italy. The "land-using" fuels are made from non-food crops, such as jatropha, but that can bring its own problems, as I saw for myself in Tanzania.

The EU's scheme for certifying biofuels as sustainable requires them to emit 35% less CO2 than regular fuel, increasing to 60% by 2018, making palm oil, soy bean, rapeseed and sunflower looking all but dead.

Palm oil biodiesel also received another blow on Friday, with the US Environmental Protection Agency suggesting it fails to meet the US requirement of emitting at least 20% less carbon than diesel from crude oil.

Robbie Blake, biofuels campaigner, at Friends of the Earth Europe, told me: "It's getting quite indisputable that the use of soy or palm oil to fuel our cars is even dirtier than conventional fossil fuels. Forests in Asia and South America are being destroyed by the expansion of plantations to meet the European market. It's a delusion for politicians to think that biodiesel will solve climate change."

The European Union's target for 10% of all transport fuels to be biofuels by 2020 has been described as "unethical" because the production of some types violates human rights and damages the environment. But the same researchers described do nothing to find alternative to the fossil fuels that currently power transport as "immoral".

So the difficult task of distinguishing good and bad biofuels remains essential, as does the research of even more promising technologies, such as algae and seaweed.

For once, Tawakul Karman's busy entourage of tour organisers and interpreters is nowhere to be seen, as she waits in a quiet corner of a London hotel for our photographer to take her portrait. She may have won an international award for it but peace is a rare thing in the sprightly Arab's life.

Facing another early-morning start after a non-stop day of television interviews and speeches, I wouldn't blame her if she slumped on the banisters of the mezzanine and let out a big yawn.

Instead, she smiles as she notices the unremarkable background music coming from the lobby downstairs, and begins to clap her hands enthusiastically to the beat.

After the many arrests and attempted murders she has faced while leading the revolution in her impoverished homeland of Yemen, clearly Ms Karman has learnt to find energy and joy in even the smallest of life's pleasures – even muzak.

Her supporters were dancing with far more abandon last month after she received the Nobel Peace Prize in Oslo. Alongside two other women, Liberia's Ellen Johnson Sirleaf and Leymah Gbowee, Ms Karman received the medal for her "non-violent struggle for the safety of women and for women's rights to full participation in peace-building work".

Coming from a country whose treatment of its female population has been almost as harsh as that of its neighbour, the arch-oppressor Saudi Arabia, that would have been an achievement in itself. But she was also celebrated for becoming the first Arab woman to be given the honour, and – at 32 – its youngest recipient.

More significantly, it came just a fortnight after Ms Karman's campaign of non-violent demonstrations finally led to the belated resignation of Yemen's widely hated dictator, President Ali Abdullah Saleh, after 33 years of rule.

By the time the Arab Spring began to sweep across the Middle East from Tunisia in December 2010, the journalist-turned-activist had already been holding weekly demonstrations in the Yemeni capital, Sanaa, for almost four years.

"Before the revolution, our demonstrations and sit-ins were about calling for freedom of expression, for releasing detainees, and for human rights and anti-corruption – fair demands," she tells me .

At first her call for change appeared forlorn, and she says many people thought she would just get "bored", come to think it was futile, and stop.

"Nothing happened. Saleh didn't respond to any of our demands. He did the opposite; human rights became worse and worse, corruption became worse and worse. So what was the solution? When the Tunisian people made their revolution, we said yes, this is what we should do. We want to down the regime."

This upgrading of demands was made last February, and Saleh's response was swift. Though her protests were peaceful, government forces responded with gunfire. Hundreds have been killed and thousands injured, and she admits she is "surprised" she is still alive.

"There were many attempts to kill me," she confirms – not least of which when a woman was caught in a crowd with a knife, apparently ready to stab her.

"But I also believe it's one life, and we have to die when we carry an issue, when we struggle. I don't want to die just when I sleep in the street, in my bed. You have to die with your dignity and your freedom."

There had been precious little of that in Yemen before this woman with a beaming smile and an inspirational voice set up her camp in Change Square, Sanaa's equivalent of the now famous Tahrir Square in Cairo.

But freedom is far from secure yet. Protests are continuing, and protesters are still dying.

With Egyptian protesters back in Tahrir, doubts growing over the chances of Libya's National Transitional Council delivering on its promises, demonstrations in Tunisia against Islamist extremism, and the Arab League's efforts to stem killings in Syria faltering, it's a familiar situation across the Middle East.

A year on from the fall of Zine el- Abidine Ben Ali in Tunisia, Yemen is far from alone in finding it hard to turn a revolution into solid democracy.

To ensure the uprisings are not quashed after so much has been achieved, Ms Karman believes the West needs to step up its help.

The centrepiece of her visit to Britain, arranged by the Council for Arab-British Understanding last month, was a meeting with the Foreign Secretary, William Hague, to plead for the UK to freeze Saleh's assets. She claims they amount to an astonishing $50bn.

Her argument is simple: those funds belong to Yemen's people, not to Saleh its former President. If the money were handed over, Yemen would not need to go begging for international aid from countries like Britain.

A still more serious concern for her is that Saleh, who arrived in the US yesterday for medical treatment, will use the money to carry on exerting power over Yemen. "He wants to make fire between Sunni and Shia," she says, adamant he will encourage sectarian conflict to bring about civil war so that he can later ride back into power as a supposed saviour.

Saleh's continued influence is hard to ignore. Presidential elections take place next month , but the UN-backed Gulf Co-operation Council agreement which saw him step down – and granted him immunity from prosecution – dictates that only his Vice-President, Abd Rabbuh Mansur al-Hadi, can stand in the presidential elections.

Add in the blunt compromise which means each ministry will be run jointly by the opposition and Saleh-loyalists, and Ms Karman believes the inevitable outcome will be governmental paralysis, a stalemate that will only lead to Yemen tearing itself apart again.

So does she think Mr Hague will take heed of her demands?

"I think that he will do things. I trust people. I gave him the message and I am now waiting for the response."

It is an answer given more in hope than expectation, and so far little has been done to reward that faith. But Mr Hague was left in no doubt about the strength of her feelings.

The interpreter booked for her visit to Britain – whose skills went largely unused, as Ms Karman had been modest about her level of English – said he saw "moments of pain with Hague, who was really unable to answer some of her questions".

 

As well as its links to Yemen's bullying neighbour, Saudi Arabia, Britain's policy towards her country has long been complicated by al-Qa'ida's foothold in Yemen, with the UK supporting Saleh's fight against the Islamist militants.

But Ms Karman used her appearance in Westminster to apologise for this, and to assure "this greatest parliament, this greatest people", that the Yemeni people did not welcome terrorists.

Not everyone in Yemen is convinced by her leadership, or her sudden rush of jet-setting diplomacy. Some have claimed she is more interested in promoting herself than helping her country.

But seeing her exhausting dedication to Yemen's cause – about which she will try to convince anyone she meets – there does not seem to be much credence in that argument.

That Yemen's liberation is being led by a woman is remarkable, given the poor standards of women's rights. Ms Karman was heavily abused when she adopted a headscarf instead of the face-obscuring niqab. The country has no law against marital rape, and some girls are married off as young as eight years old.

There was never any chance of Ms Karman's husband ruling over her, however. "My first condition when we decided to marry was he must not deny me from working, and he promised," she says firmly.

And what of the part women have played more widely in the Arab Spring? "Women and men help each other to make this revolution, but women were leading the revolution. And it's a social revolution with a political revolution.

"I encourage all women in every country that she must have her rights and she has to struggle for that. She has to convince people. She can't give up, she must do all she can."

As the Middle Eastern fight for democracy struggles for momentum in its second year, it is a message the whole region should take heed of.

A LIFE IN BRIEF

Born 7 February 1979 in Taiz, Yemen, the daughter of Abdel-Salam Karmana, a lawyer who served as Legal Affairs Minister in President Saleh's government before resigning in opposition to the regime. Her brother, Tariq, is a poet, and her sister, Safa, works for Al Jazeera. She has two daughters and a son with her husband, Muhammad Ismail al-Nihmi, whom she married in 1996.

 

Education Studied commerce at the University of Science and Technology in Sanaa before taking a Master's degree in political science from Sanaa University.

 

Career Established the campaign group Women Journalists Without Chains in 2005, and two years later began to hold protests calling for human rights reforms in Sanaa every Tuesday. Though a member of the Islamist party Islah, she supports secular government.

While many of us are working to ensure that the Occupy movement will have a lasting impact, it’s worthwhile to consider other countries where masses of people succeeded in nonviolently bringing about a high degree of democracy and economic justice. Sweden and Norway, for example, both experienced a major power shift in the 1930s after prolonged nonviolent struggle. They “fired” the top 1 percent of people who set the direction for society and created the basis for something different.

A march in Ådalen, Sweden, in 1931.

Both countries had a history of horrendous poverty. When the 1 percent was in charge, hundreds of thousands of people emigrated to avoid starvation. Under the leadership of the working class, however, both countries built robust and successful economies that nearly eliminated poverty, expanded free university education, abolished slums, provided excellent health care available to all as a matter of right and created a system of full employment. Unlike the Norwegians, the Swedes didn’t find oil, but that didn’t stop them from building what the latest CIA World Factbook calls “an enviable standard of living.”

Neither country is a utopia, as readers of the crime novels by Stieg Larsson, Kurt Wallender and Jo Nesbro will know. Critical left-wing authors such as these try to push Sweden and Norway to continue on the path toward more fully just societies. However, as an American activist who first encountered Norway as a student in 1959 and learned some of its language and culture, the achievements I found amazed me. I remember, for example, bicycling for hours through a small industrial city, looking in vain for substandard housing. Sometimes resisting the evidence of my eyes, I made up stories that “accounted for” the differences I saw: “small country,” “homogeneous,” “a value consensus.” I finally gave up imposing my frameworks on these countries and learned the real reason: their own histories.

Then I began to learn that the Swedes and Norwegians paid a price for their standards of living through nonviolent struggle. There was a time when Scandinavian workers didn’t expect that the electoral arena could deliver the change they believed in. They realized that, with the 1 percent in charge, electoral “democracy” was stacked against them, so nonviolent direct action was needed to exert the power for change.

In both countries, the troops were called out to defend the 1 percent; people died. Award-winning Swedish filmmaker Bo Widerberg told the Swedish story vividly in Ådalen 31, which depicts the strikers killed in 1931 and the sparking of a nationwide general strike. (You can read more about this case in an entry by Max Rennebohm in the Global Nonviolent Action Database.)

The Norwegians had a harder time organizing a cohesive people’s movement because Norway’s small population—about three million—was spread out over a territory the size of Britain. People were divided by mountains and fjords, and they spoke regional dialects in isolated valleys. In the nineteenth century, Norway was ruled by Denmark and then by Sweden; in the context of Europe Norwegians were the “country rubes,” of little consequence. Not until 1905 did Norway finally become independent.

When workers formed unions in the early 1900s, they generally turned to Marxism, organizing for revolution as well as immediate gains. They were overjoyed by the overthrow of the czar in Russia, and the Norwegian Labor Party joined the Communist International organized by Lenin. Labor didn’t stay long, however. One way in which most Norwegians parted ways with Leninist strategy was on the role of violence: Norwegians wanted to win their revolution through collective nonviolent struggle, along with establishing co-ops and using the electoral arena.

In the 1920s strikes increased in intensity. The town of Hammerfest formed a commune in 1921, led by workers councils; the army intervened to crush it. The workers’ response verged toward a national general strike. The employers, backed by the state, beat back that strike, but workers erupted again in the ironworkers’ strike of 1923–24.

The Norwegian 1 percent decided not to rely simply on the army; in 1926 they formed a social movement called the Patriotic League, recruiting mainly from the middle class. By the 1930s, the League included as many as 100,000 people for armed protection of strike breakers—this in a country of only 3 million!

The Labor Party, in the meantime, opened its membership to anyone, whether or not in a unionized workplace. Middle-class Marxists and some reformers joined the party. Many rural farm workers joined the Labor Party, as well as some small landholders. Labor leadership understood that in a protracted struggle, constant outreach and organizing was needed to a nonviolent campaign. In the midst of the growing polarization, Norway’s workers launched another wave of strikes and boycotts in 1928.

The Depression hit bottom in 1931. More people were jobless there than in any other Nordic country. Unlike in the U.S., the Norwegian union movement kept the people thrown out of work as members, even though they couldn’t pay dues. This decision paid off in mass mobilizations. When the employers’ federation locked employees out of the factories to try to force a reduction of wages, the workers fought back with massive demonstrations.

Many people then found that their mortgages were in jeopardy. (Sound familiar?) The Depression continued, and farmers were unable to keep up payment on their debts. As turbulence hit the rural sector, crowds gathered nonviolently to prevent the eviction of families from their farms. The Agrarian Party, which included larger farmers and had previously been allied with the Conservative Party, began to distance itself from the 1 percent; some could see that the ability of the few to rule the many was in doubt.

By 1935, Norway was on the brink. The Conservative-led government was losing legitimacy daily; the 1 percent became increasingly desperate as militancy grew among workers and farmers. A complete overthrow might be just a couple years away, radical workers thought. However, the misery of the poor became more urgent daily, and the Labor Party felt increasing pressure from its members to alleviate their suffering, which it could do only if it took charge of the government in a compromise agreement with the other side.

This it did. In a compromise that allowed owners to retain the right to own and manage their firms, Labor in 1935 took the reins of government in coalition with the Agrarian Party. They expanded the economy and started public works projects to head toward a policy of full employment that became the keystone of Norwegian economic policy. Labor’s success and the continued militancy of workers enabled steady inroads against the privileges of the 1 percent, to the point that majority ownership of all large firms was taken by the public interest. (There is an entry on this case as well at the Global Nonviolent Action Database.)

The 1 percent thereby lost its historic power to dominate the economy and society. Not until three decades later could the Conservatives return to a governing coalition, having by then accepted the new rules of the game, including a high degree of public ownership of the means of production, extremely progressive taxation, strong business regulation for the public good and the virtual abolition of poverty. When Conservatives eventually tried a fling with neoliberal policies, the economy generated a bubble and headed for disaster. (Sound familiar?)

Labor stepped in, seized the three largest banks, fired the top management, left the stockholders without a dime and refused to bail out any of the smaller banks. The well-purged Norwegian financial sector was not one of those countries that lurched into crisis in 2008; carefully regulated and much of it publicly owned, the sector was solid.

Although Norwegians may not tell you about this the first time you meet them, the fact remains that their society’s high level of freedom and broadly-shared prosperity began when workers and farmers, along with middle class allies, waged a nonviolent struggle that empowered the people to govern for the common good.

This work is licensed under a Creative Commons Attribution-Share Alike 3.0 United States License

George Lakey is Visiting Professor at Swarthmore College and a Quaker. He has led 1,500 workshops on five continents and led activist projects on local, national, and international levels. Among many other books and articles, he is author of “Strategizing for a Living Revolution” in David Solnit’s book Globalize Liberation (City Lights, 2004). His first arrest was for a civil rights sit-in and most recent was with Earth Quaker Action Team while protesting mountain top removal coal mining. E-mail: glakey1@swarthmore.edu

With my added emphasis:

What is it about bankers' pay that makes the hard-pressed majority feel that finance capitalism is a conspiracy against them? Could it be that, more than three years after the credit crunch of 2008, we feel that the unfair rewards in the sector that caused the crisis continue unabated? Could it be that the rewards now seem even more unfair because we, the taxpayers, put up the security to bail out the banks? Could it be that we feel that politicians, who mouthed slogans about fairness and how they would put an end to excessive pay, have played a cynical game? Could it be that the way banks pay their top people seems designed to confuse us, even when we, the taxpayers, are their shareholders.

All of those. The fuss over the bonus awarded to Stephen Hester, boss of RBS, a nationalised bank, has been running all week on the basis that it was conveniently just under a round £1m. David Cameron, one moment has been saying it was nothing to do with him, the next moment claiming credit for having cut it to 60 per cent of what it could have been. As we report today, Mr Hester's bonus turns out to have been a highly coloured decoy designed to draw outrage away from the main story, which is that the total sum he can hope to collect from his three years in charge of the bank, already heading towards £39m, could reach £50m in a couple of years more if the share price performs well.

That we have been distracted by a tiny detail in a show of monstrous greed is bound to leave us feeling once again bamboozled.

As Paul Vallely argues on the previous page, something has changed in people's perception of fairness, and it is simply impossible for Mr Cameron and Nick Clegg, his accessory in inequity, to maintain that we are "all in this together" when such vast riches are lavished on a public employee at the same time as capping the benefits of the poorest.

Now, The Independent on Sunday is not anti-capitalist. In many ways, we see the distorted pay of bankers as the product of market failure. It is set by a small group engaged in anti-competitive behaviour who manage to persuade weak politicians that their knowledge is so specialist that its price must be high. We realise that turning a leading international bank round is a hard and complex task and that there are few people who have the skills needed to do it well. We accept the argument that the taxpayer should be prepared to pay talented executives well for restoring the bank's value so that we may secure a return on our investment when it comes to be sold back to the private sector. We further accept that their pay should have a performance-related element tied to the share price, which is the main objective measure of their success.

But we simply do not accept that Mr Hester is the only person who could secure the taxpayers' interest, or that anyone needs to be paid so much to give them sufficient incentive to do the job well. For the market to allocate wages like this in the private sector is evidence of restrictive practice and what even Mr Cameron calls "crony capitalism". For the Government to agree to wages on this scale in a publicly owned company is craven folly.

The Prime Minister's only defence is that Mr Hester was hired and his terms agreed, under some cultural voodoo known as "arm's-length" arrangements, by the Labour government. Ed Miliband was then a member of the cabinet that approved the deal, too cowed by the mystique of the City of London to ask simple questions, such as: "Do you know whose money this is?"

But Mr Cameron is the one who now has the questions to answer. He has sought in recent weeks to anticipate the banks' bonus season by drivelling on about responsible capitalism and how the Government is going to take tough action on unfair rewards at the top by giving shareholders more power and insisting on transparency. How hollow those words sound today. At RBS, he is the shareholders' representative, and far from asserting his power he has gone along with everything to which the banks' executives have helped themselves. As for transparency, it has taken several days for the full obscene scale of Mr Hester's pay to be brought into the light of day.

As a nation, we are tired of being taken for fools, and Mr Cameron will have to pay a terrible price if he does not ensure that we get better value for the money we sank into our nationalised banks.

The coalition needs to stop the gimmicks and the phoney war over bankers' bonuses and create a viable economic strategy

Here are some facts.

The UK's economy is stagnating and we could be heading for the first double-dip recession since 1975. In the last quarter the economy shrunk by 0.2 per cent, putting annual growth at 0.9 per cent. And although the official numbers are nearly always wrong and may well be revised, the auguries are not good.

Unemployment is at a 17-year high; one million youngsters are out of work, and the Bank of England predicts that the private sector is contemplating more job cuts across just about every industry from banking to haulage.

Still more worrying is the sharp collapse in manufacturing output – down 0.9 per cent, the steepest fall since the start of the recession in 2008. This is the most disappointing news of all as the hope had always been that private companies – and the revival of manufacturing and exports in particular – would pick up the slack from those jobs being lost in the public sector.

So what are the politicians doing? Out to lunch as far as one can tell. Nick Clegg seemed to be the only one with a spine last week, calling for an immediate increase in the tax threshold to £10,000 to reduce the burden for low to middle income Britain. Otherwise our political masters have been either wasting time prattling about Sir Fred Goodwin's gong, or gallivanting around Europe annoying our neighbours. Labour's front bench was equally spineless, spouting off the predictable blame-game stuff while David Cameron made a bad error in showing off his Euro-bashing credentials again.

Why Cameron chose Davos to tick off his fellow European heads of state about the perilous state of their countries is beyond me; it's neither friendly nor helpful at such a fragile time. That he may be right is beside the point, and, if he's not careful, they'll bring back passport control. Instead, the Prime Minister might have been better served had he suggested how the Continent might work together to improve growth and productivity, for that's the only way out of this crisis.

It was this time last year that the Chancellor, George Osborne, also speaking at Davos, urged the UK's captains of industry to start spending the £65bn or so they have squirrelled away for a rainy day. But the UK's industrialists haven't listened to him, and there is more, not less, cash on deposit. New investment in capital and plant is at rock bottom while a lot of British money is flooding overseas, mainly to tax havens if the chaps I've been talking to in Jersey are right.

Why aren't they investing? That's what Cameron and Osborne should be asking. It's too easy to criticise the EU for its punitive workplace regulations when ministers are doing absolutely nothing about reforming our own labour rules. A question of do what I say not what I do, perhaps?

All the industrialists I speak to say they are being clobbered by soaring energy costs and stifling regulations, whether it be new green taxes or tax on R&D investment. More pertinent is the cost of employment for small businesses. There's been nothing to encourage the UK's 4.6 million SMEs to employ more: if each one took on one extra worker, unemployment could be slashed.

We're still in a deleveraging recession, not a destocking one as in previous recessions, so different tactics are needed. Tim Morgan of Tullett Prebon made a good point when he said last week that neither the Government nor Opposition has come clean with the public on one key point – that "every traditional economic policy lever has been tried, and has failed".

We've had low interest rates, devaluation, stimulus and quantitative easing in spades. He's also right to say that relaxing the deficit-reduction plan to spend more will upset the markets, but doing so to cut taxes and boost growth might work. And tax cuts, particularly for low- to middle-income earners, would boost growth and pay for itself.

That's why we need a plan for growth, one which doesn't mean abandoning the deficit-reduction strategy. But if the country does go into a double dip, then spending and welfare payments will go up again and tax revenues will go down. Then it won't be long before the UK's triple-A rating goes down with it.

Part of the problem is that the coalition appears to believe that it has a genuine growth policy. It doesn't. We have a parody of a policy that has been masquerading as one, along with gimmicks like the Mary Portas review to save the high street.

Now is the time for big ideas. The Government should stop the phoney war with the banks over bonuses: if it doesn't approve of Stephen Hester's pay package at Royal Bank of Scotland then it should be renegotiated, not debated through the newspapers. A contract is a contract and should be respected – or changed.

Instead, Cameron and Osborne should get their gloves off over the real issue : lending to SMEs. Then we need bold tax incentives for companies to take on the young via more apprenticeships, tax breaks for R&D, tax cuts for the squeezed middle and serious resources – time as well as money – should be invested in education to ensure we have the best and the brightest.

Osborne has worn his hairshirt well; now it's time to see the true colours underneath. A Plan G would be start.

The Government's austerity package remains "the right thing to do", the head of the International Monetary Fund said today in a boost for Chancellor George Osborne.

Christine Lagarde gave her firm backing to maintaining the deficit-cutting measures, despite the threat of recession and economic forecasts being revise downwards.

Figures released on Wednesday showed the economy shrank by 0.2% in the final quarter of last year - slightly more than anticipated and fuelling Labour calls for a change of course.

The IMF has dropped its forecasts for UK growth to just 0.6% for this year, down from 1.6%, and 2% in 2013, down from 2.4%.

Remarks by its chief economist Olivier Blanchard that the UK might have to consider slowing the speed of cuts if growth proved to be "dismal" were seized on by shadow chancellor Ed Balls as backing for Labour's demands for a change of direction, including a tax cut stimulus.

But asked if she thought that was something the IMF would be happy to see, Ms Lagarde told BBC Radio 4's The World at One: "Our sense is that under the present circumstances the policy that is in place is the right one, and we have said that very explicitly.

"Under the current circumstances, the policy in place that consists of letting the automatic stabilisers move without readjusting and tightening the principles is the right thing to do."

The IMF was "very consistent" about that backing, she said, backing Mr Blanchard's analysis.

"If you ask a top-class academic 'what if?' then of course he has to envisage. But as it stands, under the circumstances and with the automatic stabilisers playing out as they do, this is fine."

Pointing to the 2013 forecast, she added: "Under current circumstances and with the policies that have been designed as they have been, we see a progression of growth.

"That's what's intended and that's what's good."

Spanish unemployment broke through the 5-million barrier on Friday as the new government of Mariano Rajoy began to quietly beg the European Union to ease up on deficit targets that are sending the country hurtling back into recession.

Spain, which already boasted Europe's worst unemployment rate, recorded 350,000 people losing their jobs in the last quarter of 2011.

That rate now stands at 22.8% of the population and is set to worsen as Rajoy's conservative People's party government pursues a €40bn (£33bn) budget adjustment, most of it in spending cuts, to meet the EU's deficit target of 4.4% this year.

With a record 5.3 million unemployed, Spain faces a spiral of decline. The IMF has already predicted that the economy will shrink by 1.7% this year, with a further decline in 2013.

While Rajoy, who met German chancellor Angel Merkel in Berlin on Thursday, publicly maintains his target of reducing the deficit to 4.4% from more than 8% last year, his ministers are letting it be known that they want the EU to ease up on deficit targets which require severe adjustments.

Rajoy himself has pointed out that the EU's target for 2011 supposed not only that last year's deficit would be 6%, but also that growth this year would reach 2.3%.

"We need growth predictions from Brussels and that is when we will start negotiating with them on Spain's stability programme," the finance minister, Luis de Guindos said.

Almost 1.5m Spanish households now have no wage earner, with 3.5 million people joining the dole queue over the past four-and-a-half years. Southern Andalucia has a 31% unemployment rate, while 35% of immigrants and 39% of under-25s are jobless.

"Harsh adjustment policies not only fail to solve the problem, they can make it worse," warned Cándido Méndez of the General Workers' Union.

Further evidence that public austerity programmes were damaging the wider economy came from figures on company closures.

Around 35,000 companies folded in the second half of the year – a third of all those to have shut since Spain's economy ran into trouble at the end of 2008.

Much of the spending cuts have to come from regional governments, who provide basic services such as health, education and social services.

Spain's pharmaceutical companies said regional governments were now taking 525 days to pay bills for medicines provided to hospitals, with €6.3bn outstanding.

Meanwhile, the chairman of the Caixa savings bank, Isidre Fainé, predicted further gloom in the housing market, in which up to 700,000 new-build homes remain unsold after a housing bubble burst several years ago.

He predicted that house prices, which have dropped around 30% since their peak, could fall to 50% or 60% of their top value before recovering.

This stunning time-lapse video of the northern lights was filmed over Birtavarre in Troms, north Norway. The northern lights, or aurora borealis, are caused by electrically charged solar particles reaching Earth. The phenomenon was stronger than usual this week - even visible in the British Isles - due to a large ejection of solar particles on Sunday

Source: Youtube/Per Ørjan Bertelsen

The threat posed to the British economy from the eurozone crisis was underlined on Wednesday when Portugal saw its borrowing costs soar to a record high amid market fears that the bailed-out country will not be able to break free of its financial crisis in the near future.

The yield, or interest rate, on three-year bonds reached 19.4%, while the rate on 10-year bonds was 14.6%, figures that compare with British rates of less than 2%.

Portugal needed a €78bn (£65bn) rescue package last year as its high debt load and feeble growth pushed it towards bankruptcy.

A three-year programme of austerity measures and economic reforms is aimed at restoring investor confidence in the country, but a deepening recession, with a 3.1% contraction forecast for this year, is undermining the faith of the markets in Portugal.

The worsening crisis in the eurozone has hit the British economy, and analysts fear that the contagion from Greece may spread throughout the eurozone and drag Britain and the rest of the world into a prolonged recession.

Antonio Barroso, an analyst with Eurasia group, said in a note that the recent downgrade and Greece's troubles "are increasing the perception that Portugal might not be able to avoid a default".

However, given Portugal's commitment to restoring fiscal health, he said: "It is likely that the government might have an easier time negotiating a new rescue package than Greece."

Portugal's government has repeatedly rejected speculation it that might try to renegotiate its bailout deal.

Arduous, long and uneven. That was how Sir Mervyn King described the UK's recovery from the deepest recession since the second world war, and he wasn't exaggerating. The 0.2% contraction of the economy in the final three months of 2011 was a dismal performance, even allowing for the crisis in the eurozone and makes a second recession in three years a real threat.

Here's how things stand. Activity in 2011 grew at 0.9%, less than half its rate of expansion in 2010. After slumping by more than 7% in the 2008 and 2009, the UK has managed to recoup only half the lost output and is now going backwards once more. Growth in the fourth quarter of 2011 may well have been boosted by a late surge in consumer spending in the week before Christmas, leaving the risk that the high streets will be empty in the first three months of 2012 when the credit card bills have to be paid off.

Politically, Ed Balls has been vindicated. The shadow chancellor has been warning for the past year that the economy could not withstand the government's shock treatment and has been urging George Osborne to heed the advice of the International Monetary Fund and ease up on the pace of austerity. Attacking the government for Labour in the current circumstances should be like shooting fish in a barrel.

That is not what the opinion polls suggest, however. On the contrary, the chancellor is getting an easy ride considering that he inherited an economy that was growing at more than 1% a quarter in the spring of 2010 and has been losing momentum ever since. Voters still seem to find Osborne's simple narrative – Britain was on its uppers in 2010 and would be like Greece without severe budgetary restraint – more convincing than Labour's more nuanced message.

What Balls and Ed Miliband are saying is twofold: while there should be a slower pace of deficit reduction in order to boost growth, Labour can make no promises about what it will do after the next election. Over the last couple of weeks, the second part of that message has tended to drown out the first: Wednesday's GDP figures give the opposition the chance to redress the balance.

Potentially even more dangerous for Osborne could be the reaction of the financial markets and the credit rating agencies. For the past 18 years, the chancellor has been something of a pin-up boy, with praise for the way he has tackled the legacy of the last slump. But the assumption has always been that deficit reduction will be accompanied by robust growth. Austerity without growth will result in a higher deficit, and it may not be too long before the credit rating agencies start to reflect that. There have already been some murmurings of disquiet and these will grow if the economy does contract again in the first quarter of 2012, thus fulfilling the official definition of a double dip recession.

The chances of that look reasonably high. It is not just that the eurozone remains fragile, it is that there is no immediate respite in prospect for the economy's domestic problems. It is true, as King noted in his speech on Tuesday night, that inflation is coming down but there will still be a gap this year between wage increases and price increases. The squeeze on real incomes was the real reason for the slowdown in activity last year, and that has now been overlain by weaker exports and government retrenchment.

King would have known what the GDP figures were before making Tuesday night's speech, and he was clearly softening up the public for another dose of quantitative easing from the Bank next month. The amount of money creation by Threadneedle Street since 2009 already stands at £275bn: expect a further £75bn to be sanctioned by the Bank's monetary policy committee in a fortnight's time. With the economy in its current enfeebled state, there are some in the City who think the total could hit £500bn before the Bank is done.

Is the government purposefully hiding this figure from us?

How big is the UK national debt? My guess is that you don’t know. Most people are unaware.

Bloggers don’t know: this chap thinks we bailed out the banks by “borrowing from the banks”.

Celebrities haven’t a clue – here’s the team of Have I Got News For You, featuring rock musician Noddy Holder, getting into an awful tangle:

Noddy Holder: But who do we owe this money to?

Alexander Armstrong: Well, the future, I suppose, don’t we? Our children.

Noddy Holder: We owe it to the future?

Paul Merton: We don’t have to pay it back then do we?

Noddy Holder: No!

Paul Merton: Let the future come to us!

But worse of all, politicians don’t know. Just watch this footage of MPs trying to guess the size of the National Debt (from about 7:30 minutes in). At the time, Alan Johnson was shadow chancellor. For politicians not to know the size of the National Debt is unforgivable. They deserve whipping with their own entrails. But I’ll offer an excuse for HIGNFY regulars, bloggers and bemused citizens.

The reason nobody knows how big the National Debt is because it is so hard to find out.

Under Labour the figures were a mess. Projections of National Debt growth were concealed to avoid alarming the public. In December 2009, Alistair Darling was asked by the Treasury Select Committee why the interest payment forecasts were never published. He couldn’t answer. Both Michael Fallon MP (Conservative, Sevenoaks) and John McFall MP (Labour, West Dunbartonshire) excoriated Darling for his inability to answer.

What is the answer?

It would be nice to be able to tell confused individuals such as MPs, bloggers and HIGNFY regulars what the National Debt comes to. But where to look?

The Treasury, Bank of England, the Office of National Statistics (ONS) and the Debt Management Office all fail to present the total National Debt in a simple format. Instead we have to trawl through the websites of these institutions to come up with a total figure.

The Debt Management Office sorts out government borrowing. When the government wants to borrow a few billion quid, the chancellor rings up the DMO and asks them to issue bonds (known as gilts, because they used to be beautiful paper certificates with a shiny gold-leaf border) that are bought by pension and insurance funds plus foreign countries. Explore the DMO website and you’ll eventually discover the figure for Gilts in Issue, which today stands at £1,102.17bn.

These gilts are, in laymen’s terms, the IOUs the government has issued. One day the government will have to buy back all of these IOUs.

We also borrow money through the National Savings & Investment scheme. Set up by Lord Palmerston in 1861, NS&I is a cheap way for the government to borrow. £103bn is lodged at NS&I, so we can add that to the gilt debt.

But the government owns assets too, such as gold, foreign currency reserves and bonds, so we should subtract that from the amount owing. After all, if we have assets as valuable as our debts then we wouldn’t think of ourselves as being in debt at all. On the asset side we will only count liquid assets, such as foreign cash and gold, rather than illiquid ones. Illiquid assets include things such as the British Library or the M1 motorway, and we are not ever going to sell assets like those, so they don’t really count. Other illiquid assets include lending to businesses.

The result is the Public Sector Net Debt: this is the figure to use. The ONS has the figure – and it is… £940.1bn as of July 2011. Note that this figure excludes some of the cost of bailing out the banks.

Before we come to the bank issue – there’s one quirk which baffles pretty much everyone.

During the credit crunch the Bank of England printed money – the so-called quantitative easing. Precisely £200bn was electronically created by the Bank of England, and it used this money to buy gilts. So today the Bank of England owns £200bn of UK gilts. But the Treasury owns the Bank of England – so in what sense does the British taxpayer really owe that money?

I’ve heard it said that we should not count this money as part of the National Debt for this very reason. As Noddy Holder said: “We owe it to ourselves”.

In fact, when we redeem gilts held by the Bank of England, the money we pay will be destroyed (a process known as “unwinding” the quantitative easing). Which means the taxpayer won’t get that money back. So, yes, we are liable for the gilts owned by the Bank of England, just as surely as if we owed the money to a private organisation.

Does the Bank of England explain that anywhere on their website? No they don’t. Neither do the DMO nor ONS. I had to talk to a senior wonk to confirm that it is indeed the case. He admitted most people wouldn’t have the faintest idea.

So what about the bank bail-outs?

Remember the untold billions we poured into banks such as RBS, Northern Rock and Lloyds TSB at the height of the financial crisis? Now, you might think that the money we borrowed to bail out the banks would show up in the National Debt figures. After all, they are partly to blame for the mess we are in.

But no! The Public Sector Net Debt figure excludes the banking crisis, as though it never happened. The reason for this is that the banking crisis was messy. We don’t know how much the banks are worth. We don’t know what their potential liabilities are. So the ONS draws a big line around the whole mess and deals with it separately.

On rare occasions the ONS does try to put a figure on the cost of bailing out the banks. The ONS claims that if we add in the banks we may have to add roughly between £1,000bn to £1,500bn to the National Debt. This gives a total figure of “unadjusted measure of Public Sector Net Debt Public Sector Net Debt” of about £2,000bn to £2,500bn.

But the “unadjusted” National Debt figure is misleading. For accounting reasons, the main assets of the banks – mortgages and corporate bonds – are not counted. Only the debts. So the “unadjusted” figure is lopsided. In truth, the assets of the banks almost precisely match liabilities. In the real world the direct cost to the taxpayer of bailing out the banks will be between zero to minus £50bn. We might even make a profit, if the market is favourable when we sell the nation’s shares in the banks.

Because of these uncertainties, we’ll stick with our original Public Sector Net Debt figure of £940.1bn, known as PSND ex (as it “excludes” the cost of financial intervention).

Actually, PSND ex does include some of the cash costs of the bank bailouts, such as the £12.4bn we spent on RBS and Lloyds, £1.4bn injection into Northern Rock and £2.7bn depositor compensation for Bradford & Bingley. For more detail on the composition of PSND ex see page 8 of the Office of National Statistics, Statistical Bulletin: Public sector finances, March 2010.

Even more debt to add

There are other debts that the taxpayer owes, which it seems only honest to include in our total National Debt, on top of gilts and NS&I. These are:

• PFI debts
• State pensions
• Public sector pensions
• Network Rail debt

Let’s start with Private Finance Initiative debts. When Labour wanted to spend on NHS hospitals and new school buildings neither Tony or Gordon wanted to raise taxes to pay for this largesse. Taxpayers hate tax rises. And they didn’t want to borrow the money directly – as that too would have looked bad. So they used PFI deals.

PFI is simply a way to borrow indirectly. The building contractor spends the money to build a hospital and the government signs a fixed contact, lasting decades, to pay the contractor to use the building. It is borrowing by another name. For that reason it seems only honest to include PFI as part of the National Debt.

PFI is hard to calculate, as deals are still being done. An official recent figure is £35bn.

Now we need to take a look the money owed to future pensioners. It sometimes gets asked why these would ever be included. We don’t include, for, example, future policeman’s salaries. Why worry about pension payments falling many years from now? The answer is that the money for these pension payments has already been raised in tax, and instead of saved for the purpose it was intended, has been spent.

By contrast, in Japan, money raised through tax for pensions is squirreled away in the Government Pension Investment Fund. That’s $1,400bn managed to pay for future pensions. In Ireland too there is the National Pension Reserve Fund with €24.4bn in it.

The UK has no such fund. State pension liabilities add on £2,700bn. Then there are the pensions for former and present public sector workers. So how much do we owe for those? Pensions analyst Towers Watson calculates the figure using methodology used in the private sector.

The Towers Watson figure is £1,176bn.

This is a legitimate figure to be added on to our growing debt mountain. “Members of public sector pension schemes have a bigger claim on future taxpayers than the investors holding government bonds do,” explains John Ball, head of defined benefit pension consulting at Towers Watson. Ball adds: “The Government has been borrowing off its own employees by promising them pensions in the future in return for work carried out in the past.”

Last up: Network Rail. This is a government owned body, but its debt is not included in official figures (not yet anyway, though there is a move to change this). Since taxpayers are liable for the money owed by Network Rail it seems honest to include Network Rail debt in our total pile of debt. A final £25bn.

Now we have a total figure for the real National Debt.

• Public Sector Net Debt:                       £940.1bn
• PFI liabilities                                       £35bn
• National Savings & Investments         £103bn
• Public sector pensions                        £2,700bn
• State pensions                                   £1,176bn
• Network Rail debt                              £25bn

Total                                                    £4,979.1bn

That’s the figure to quote as our National Debt: £4,979.1bn. It is still growing. By November it will have shot past five trillion pounds.

Who do we owe this money to?

Finally, we might want to ask whom does the taxpayer owe all this money to. That depends on the debt. The state pension debt is owed to current and future recipients of the state pension; the PFI debt is owed to private sector firms, Network Rail to a consortium of banks, NS&I to depositors.

Gilts are bit different: this ONS data tell us who holds our gilts.

As for the red segment - debt owned by overseas entities - it would be nice to know if we owe it to China, Peru or North Korea. The answer is the taxpayer will never know. Nor will the government.

The Debt Management Office does not have access to gilt ownership data. And, as the DMO press officer Steve Whiting said to me, most of the deals are done through nominees anyway, so we wouldn’t have a clear picture even if the ownership data were publicly available.

“We have no idea who holds what” he said. The ONS gathers the information in the chart above using surveys and examining publicly published reports by major institutions. The chart above might, therefore, be inaccurate.

We should be told

The National Debt is a matter of vital importance to our country. We’ll soon be spending twice as much on the interest on the National Debt as we spend on defence. These figures ought to be front-page news.

They are not, partly because neither the Treasury nor the Office for National Statistics has made an effort to explain the problem in a clear manner. The closest attempt I can see is this report by David Hobbs of the ONS. Even he pleads for “greater transparency”. Naturally his figures, as they are part of a report written in 2010, are out of date.

Until we get the facts presented in a straightforward manner, ordinary citizens won’t know whether to panic or stay calm.

Even worse – nor will our politicians.

Thinktank says rich will prosper but 'squeezed middle' will not regain pre-recession earning power for eight years

Millions of ordinary families are unlikely to see their earnings return to pre-recession levels until at least 2020, a report from a leading thinktank has warned. But it predicts that the income of the wealthy will continue to rise over the same period.

The study, which focuses on the state of the "squeezed middle" and is produced by the independent Resolution Foundation, looks at the situation of 10 million adults, who crucially do not rely heavily on means-tested support from the state, and their 5.2 million children.

A report by the foundation last year led to Ed Miliband's championing of the squeezed middle, a part of Britain that the foundation says remains a key political battleground. It says that households without children earn between £12,000 and £29,000 a year to be part of the squeezed middle; homes with children, between £16,000 and £41,000.

On Monday Labour's welfare spokesman, Liam Byrne, will debate the report's implications with Liberal Democrat MP David Laws at the foundation's London offices.

The two have not met since the former Treasury secretary Byrne's infamous note in 2010 to his successor, Laws, which read: "There's no money left." Since then, the UK's economic woes have deepened and the foundation paints a "gloomy picture on incomes for the next decade".

Byrne told the Guardian that Britain risks replicating the US's "lost decade" where the middle class has fallen so far behind the rich that "Time magazine recently wrote its obituary". Byrne said the report underlined the fact that "the government's economic strategy is doing nothing for jobs, which is why wages are stagnating and welfare reforms are doing nothing for working people. The result is inequality between the middle and the top. Working people do not have a government working on their side."

Taking the Office for Budget Responsibility's latest forecasts, the researchers show that if growth remained sluggish for the next eight years the average annual disposable income of people in this crucial electoral battleground, representing a third of the population, would be £20,200 in 2020 – around £1,700 less than in 2007.

It would take growth rates not seen for almost a decade to let incomes in the squeezed middle return to pre-recession levels by 2020.

While such strong, persistent growth might ensure ordinary families recover lost ground, the real winners would be the top half of the country's earners, whose real disposable income would rise by almost 10% by 2020. Even under the slow growth scenario envisaged by the foundation, the top half of society would see incomes rise by 4%.

The report's author, Matthew Whittaker, said there was a "growing inequality of earnings" at the heart of the long-term squeeze. "Members of the squeezed middle did not share in the spoils of economic growth in the pre-recession years, with wages at the median and below stagnating. Gains instead flowed primarily to higher income households and, more particularly, to those at the very top of the distribution.

"If this trend continues once growth returns it may not be just those on low and middle incomes finding themselves left behind in the next decade, but rather the majority of society."

Part of the reason for the disparity in future spending power according to the report is that the incomes of the lower middle class rise more slowly than the rich, with their spending power eroded by fast-rising fuel and food costs. If low- to middle-income households faced the same price rises as higher earners since 2003 in the types of goods they typically buy they would be better off by £427 in 2011.

The report says the squeezed middle also has to cope with a prolonged wage squeeze – with real wages falling 4.2% over the last year – and warns that the most significant cuts to tax credits have yet to kick in. It says that the major recipients of tax credits are facing a further loss of income of nearly half a billion pounds from this April.

According to the report's calculation, this will see 2 million households worse off by £305 in 2012.

Whittaker pointed out that as the coalition's cuts have hit women harder than men, lower to middle-income families are likely to be "hurt twice". There are also dire figures for young people in rented accommodation and for young property owners who had already borrowed too much to get on the housing ladder, leaving themselves dangerously exposed if interest rates rise.

The proportion renting and aged under 35 has soared from 28% to 47% in the last six years alone.

In the same period the number of homes owned by under-35 members of the squeezed middle fell from almost a third from 770,000 to 562,000.

Those with mortgages may be benefiting from record low interest rates, but with one in five signing up to a 100% mortgage before the recession, a quarter of families still spend between 25% and 50% of their income on their mortgage.

Gordon Brown's administration realised too late to do anything about the widening gap. A treasury paper in 2009, obtained by the Guardian, identifies a "squeezed middle" facing stagnant or falling wages since 2004 – believed to be the first official reference to the phenomenon.

To solve this, Brown's Treasury argued in 2009 for removing "low level regulatory burdens" on the industries such as retail and hotels where "squeezed Britain" works. It also suggests finding ways to get 10 hours more per week per household by 2020 by finding ways of making work more family friendly. It controversially called for "the tax and benefit system to transfer £2bn more each year".

Whittaker said the foundation's analysis "shows rising pressure from pretty much all sides".

He added: "continued low interest rates and the start of a fall in inflation offer only limited respite. This will be far outweighed by further deep cuts to tax credits due this April which will come as a shock on top of the continued wage squeeze."

A spokesman for the Treasury said: "The government has taken decisive action to tackle the deficit, which has helped to keep interest rates low for businesses and families. We recognise that people are feeling squeezed and the government is doing what it can to help, reducing fuel duty so taxes on fuel are 6p lower than they would have been, freezing council tax and implementing an increase in the personal allowance in April, taking over 800,000 of the lowest paid out of tax."

Rarely have politicians and business leaders met at Davos against such a gloomy backdrop. The World Economic Forum (WEF) helped to set the tone this month when it issued a chilling dystopian vision of mass youth unemployment, wholly inadequate elderly care provision and widening global inequality. WEF's global risks 2012 report suggested fresh economic turmoil and social upheaval could wipe out gains produced by globalisation. Nationalism, populism and protectionism threatened to take root, it warned.

The world is calling for a bold vision of economic justice to counter dislocation and austerity. But since the global economic crisis reasserted its icy grip after a brief Keynesian impasse, world leaders have failed to deliver one. The inability to articulate a narrative beyond a long, hard march out of economic malaise ultimately caused by politicians' and regulators' failure to adequately supervise the financial system is resulting in a widespread disillusionment with mainstream politics that threatens to undermine faith in democracy.

World leaders need to respond quickly, and business must play its role. A good place to start is talking up the idea that there are mechanisms beyond severe budget cuts to eliminate sovereign debt. There is money in the global financial system that, if accessed and used wisely, could go a long way to mop up deficits and reinvigorate the global economy.

That treasure trove is the $3.1tn of tax, equivalent to 5.1% of global GDP, which according to international campaign group Tax Justice Network is illegally evaded in 145 countries, covering 98.2% of the world's population. In December, Washington-based thinktank Global Financial Integrity confirmed the reality of vast sums of cash flowing freely through an unregulated financial system last month. Developing countries, it said, lost $903bn in illicit outflows during 2009 – a year when economic activity was severely constrained.

The majority of these flows are washed through tax havens. These secrecy jurisdictions act as cover from international tax authorities. Disturbingly, the obstacles placed by the global financial system that would allow individual countries to track down and repatriate this cash are prohibitively burdensome. This is why a new age of financial transparency and accountability is required. Five key reforms would lay the foundations for this:

1. The rapid introduction of multilateral automatic tax information exchange between tax agencies in every single jurisdiction. This would ensure money illegally held offshore was easily identified and accounted for.

2. The introduction of new levels of financial transparency requiring the public disclosure of the ultimate human beneficiaries of companies, trusts and foundations. This is needed to prevent the further subversion of countries' tax bases whether by high net worth individuals, businesses, corrupt politicians, criminals or terrorists. It is also required to restore faith in the rule of law and the democratic process as the current non-disclosure of beneficial ownership is corruption's best friend.

3. The global introduction of country-by-country reporting so that every company has to publicly state financial details relating to its turnover, profits, costs, employees and taxes in every jurisdiction it operates in where its revenues exceed $5m. It is astounding that in the 21st century, it is impossible for citizens in many resource-rich nations to establish whether their country has got a fair deal from its oil, gas or minerals.

4. Concerted international action needs to be taken to ensure the hundreds of billions of dollars lost to exchequers by companies artificially inflating their costs and deflating profits through intra-company transactions – known as transfer mispricing – is identified, contained and reduced.

5. The harmonisation and codification of money-laundering laws to a restrictive level. Even the City of London shows brazen disregard for rules to stop money laundering, according to a report last June by the UK's Financial Services Authority.

Together, these reforms would show that world leaders were acting in their citizens' best interests, and would go a long way to averting WEF's dystopian nightmare.

Britain's economic mix of a big banking sector and low level of benefits leaves the country vulnerable to sharply rising inequality unless it moves rapidly to a "fairer" system of redistributing tax burdens and social opportunities, according to an OECD report.

The thinktank, which last month warned that income inequality among working-age people had risen faster in Britain since the mid-1970s than in any other rich nation – said in a review of 30 years of data on economic crises that economies with big financial sectors amplified the chances of societies becoming more unequal.

The OECD said this effect would be mitigated by generous unemployment benefits, but this "social protection" was unavailable in Britain.

"Britain will see an increase in its inequality in this period unless it acts quickly to spread risks more fairly," said Isabelle Journard, senior economist with the thinktank.

In a series of chapters for the forthcoming publication Going for Growth, Journard outlined Britain's weaknesses. Almost one in five of people aged between 25 and 34 do not have five good GCSEs (or their equivalent), and academic performance is dramatically affected by parental performance, much more so than in other comparable rich nations.

Another issue, said Journard, was that 40% of women were in part-time employment – 15% higher than average among rich nations – which was "almost certainly" related to the fact the UK had some of the highest childcare costs, equivalent to more than 45% of the average wage.

The OECD called for education spending to be better targeted so the poor benefited more from proposed reforms. "The pupil premium is a good idea but we still feel that it could do more to benefit disadvantaged students," it said.

It also called for a shakeup of the way housing is taxed, questioning why house sales did not attract capital gains tax. "UK housing taxation appears to favour wealthier and older households relative to poorer and younger ones. We have seen from America, where this is a big driver of inequality because those who own homes are richer and they do not pay tax on the profit when they sell their homes. This would help to reduce inequality in the coming years," said Journard's colleague Romain Duval.

Duval said Britain's council tax regime was "highly regressive" and needed reform. "In England, the tax liability for properties over £320,000 is only twice the liability for properties of £70,000 and three times the liability for houses under £40,000. Low-income households are entitled to a council tax benefit. However, the takeup is only around 65%."

Duval said the OECD advocated a replacement with "a property tax based on current market values or a land tax".

Imposing austerity measures as countries slow towards recession is a fundamentally flawed response, said Mr Stiglitz, who won the Nobel prize in 2001 for his work on how markets work inefficiently.

"The answer, even though they see over and over again that austerity leads to collapse of the economy, the answer over and over [from politicians] is more austerity," said Mr Stiglitz to the Asian Financial Forum, a gathering of over 2,000 finance professionals, businessmen and government officials in Hong Kong.

"It reminds me of medieval medicine," he said. "It is like blood-letting, where you took blood out of a patient because the theory was that there were bad humours.

"And very often, when you took the blood out, the patient got sicker. The response then was more blood-letting until the patient very nearly died. What is happening in Europe is a mutual suicide pact," he said.

Keynesian economics, which require governments to help sustain demand, suggests that austerity measures should be imposed when an economy is booming, not waning.

Mr Stiglitz pointed out that 700,000 public sector jobs had been cut in the United States in the past four years, removing demand from the system as unemployment spikes. The UK is set to lose a similar number by 2017.

Instead, Mr Stiglitz argued the best economic medicine is infrastructure spending, especially on transport and energy projects. He pointed to China as one country that had successfully combatted financial crises with stimulus packages.

On Monday, George Osborne had told the same forum that the UK's fiscal austerity measures, which have been in place for a year and under which the economy has begun to tip into recession, were the only way to convince the market of the UK's economic credibility.

"When you have a high budget deficit, if you do not have a [disciplined fiscal] plan then you will not have sustainable growth because investors will be worried about investing in your country," the Chancellor said.

However Mr Stiglitz argued that austerity in the UK and elsewhere would not boost confidence. "There will not be a restoration of confidence as long as economies keep falling, and that will continue until [politicians] change economic course. And I do not think that is likely," he said.

Mr Stiglitz said economists are now not debating if the Euro will break up, but how and when it will happen.

"Among economists the discussion is about the best way to end the euro. It could be civilian upset that does it. Youth unemployment in Spain has been over 40pc since 2008. How much longer will they tolerate that? The policies of the new government are for more of the same medicine, except worse.

"The other way it may end is when the European Central Bank refuses to be the lender of last resort for some countries, precipitating a crisis. We can be sure that markets will be highly volatile and the end of the Euro will be a very severe disruption to the global economy," he said.

However, he compared the strictures of the single currency to the gold standard, and noted that countries which had abandoned the gold standard early had recovered more quickly.

"When the Euro was founded, most economists were skeptical," he said, noting that the single currency was a political project that had not satisfied the optimum conditions for a currency bloc. "They hoped they would be able to finish the project over time, but the politics was not strong enough," he said.

Mr Stiglitz also said that while he was critical of the ratings agencies, a decision to downgrade the European Financial Stability Fund (EFSF) on Monday was reasonable. "The EFSF was trying to leverage something out of nothing, and that was never going to work, and they were just saying that it wasn't going to work," he said.