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Not only is there little chance of taxpayers seeing payment from the sale of Northern Rock to Virgin, they may also incur further costs, a National Audit Office (NAO) report reveals.

The details in the report confirm every criticism Left Foot Forward laid down at the time of the deal, which took place on January 1st this year.

The Tories’ insistence to rush this deal has resulted in a real ‘botched privatisation’.

Regarding the £150m hole in the sale proceeds in the form of a bond with a coupon, the NAO confirms our fears that the taxpayer may never receive a payment: the lower bound on the NAO valuation of interest is zero (we kid you not!).

Secondly, they ambitiously put a lower bound on the £150 million that the bond represents at just £50 million (that’s hopeful if the payments are zero!).

Left Foot Forward reported last November that Osborne planned to cover this £150m hole with capital notes:

“Capital notes are essentially a form of loan that puts the lender in a riskier position, than if they were, let’s say, to lend the money directly to Virgin Consortium.

“The government has had to engage in this ‘vendor financing’ – a trick pulled by the Glazers when they bought Manchester United - because Virgin clearly can’t find a private investor to back the deal.”

Most worrying is the information on the £250 million asset strip of Northern Rock’s own money Virgin used to pay the government.

• Exposed: Richard Branson the cuddly union-buster 20 Dec 2011

• The £150 million hole in Osborne’s Virgin/Northern Rock deal 22 Nov 2011

• NAO report reveals how Branson “Glazered” taxpayer on Northern Rock 18 May 2012

• How we were all Glazered by Virgin’s purchase of Northern Rock 24 Nov 2011

• Re-mutualising Northern Rock “would be a good move” 1 Feb 2012

Here’s how Richard Branson did it:

“Short-term debt finance of £253 million provided by two banks and repaid using cash extracted from Northern Rock plc.”

This cash was extracted in the following way:

“By transferring one of its subsidiary companies to Northern Rock plc, Virgin Money was able to free-up cash to repay the short-term debt finance. This internal transfer of assets swapped £253 million of cash in Northern Rock plc for £330 million of shares in the subsidiary.

“The balance of £77 million due from Northern Rock plc could then be used to fund the payment to the Treasury of the deferred elements of the agreed sale price.”

Shuffling the deck! Gosh that Branson is a smart chap! The question we asked was why couldn’t the Treasury have done this?

This was the NAO white-wash answer:

“As a stand-alone business, Northern Rock plc was not profitable and the Treasury could not extract any capital in the form of cash before a sale. Combining Northern Rock plc with Virgin Money’s profitable operations enabled cash to be released after the sale.”

Furthermore, according to the NAO it did not cost the Taxpayer anything because:

“It is not possible to separate the value paid by Virgin Money for this cash from the price paid for the business as a whole.”

How did they work that out?

“Virgin Money told us that it paid full value for the cash released from Northern Rock plc which it used to part-fund the purchase.”

We would rather not take Branson’s word for it, because there is plenty of evidence in the NAO report showing the Treasury could have taken out Northern Rock’s excess capital itself.

For example, the competing bid was from NBNK Investments who thought the Treasury were able to extract money, and was helpfully telling the Treasury how much the taxpayer should extract. (We estimated the excess capital at around £600 million and the Treasury should have extracted it all, no matter how nicely NBNK suggested a number!).

This is how the NAO described the competing NBNK final bid:

“The NBNK bid was valued by UKFI at £829 million to £846 million. The valuation included an assumption by NBNK that the Treasury could extract £142 million to £159 million from Northern Rock plc before any sale. Such an extraction of capital would have required FSA approval.”

And what would the FSA have said? Well in Appendix 3.18 we see why they agreed in relation to Virgin’s asset strip:

” The FSA decided that less capital was required than had been the case for Northern Rock plc on a stand-alone basis.”

So that was a low hurdle to clear.

So the asset strip of the excess capital by the Treasury is still an open question. Despite Branson being able to do it, and NBNK believing the Treasury could do it, is it still credible to believe that the Treasury could not have done it?

And there is a cost to the taxpayer. We thought the cost of this botched privatisation would be to reduce the price of book valuation to 0.66.

And hidden in the back of the report the NAO agrees; point 3.20 notes the cost to the tax payer:

If full value is ascribed to the cash freed-up, the adjusted multiple of book value paid for Northern Rock plc’s other assets falls slightly from 0.76-0.86 to 0.66-0.80.” (The top of the range assumes the bond pays more than the NAO expects!).

But being right is no comfort when you see some guys pay the taxpayer just £700-odd million to trouser a £500 million pristine bank with a gift of £600 million of excess capital.

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Ed Cox is the director of IPPR North, IPPR’s dedicated think tank for the north of England

Replacing Regional Development Agencies with a more-aspirational Regional Growth Fund has not produced any evidential improvements for communities, a National Audit Office report (pdf) has shown. Yet another Conservative shake-up has proved to be a waste of resources and taxpayers’ money.

As Figure 7 shows, last week’s NAO report on the Regional Growth Fund highlighted the fact that only 41,000 jobs are likely to be created by the first £1.4bn tranche of spending – well short of the 330,000 jobs the Department for Business, Innovation and Skills claims it will create.

Figure 7:

For a scheme hailed by the government as the answer to suffering regions prayers, the fund actually appears to be as effective (and maybe not even that) as the Regional Development Agencies it replaced.

The NAO report includes a revealing chart showing comparisons between the average cost per job with similar programmes in recent decades, including those run by the abolished Regional Development Agencies with the average cost per job coming out at £33,000 for the RGF, compared to £28,000 for the RDAs.

What’s more, the range of expected costs per job varies considerably between projects under the RGF, from under £4,000 per job to over £200,000 in some cases.

Some would argue that such costs are to be expected given that the programme was focused on creating jobs in some of the most challenging places. But equally, government was clear that the primary focus of the programme was delivering the greatest number of private sector jobs in the fastest possible time in those areas most vulnerable to public sector job losses, irrespective of local growth strategies.

To quote one key protagonist when the scheme was announced:

“A job is a job.”

The relative failure of the scheme lies in a combination of factors. Civil servants were overwhelmed with applications and Vince Cable has admitted that additional administrators have had to be brought in to cope with assessment and implementation after complaints that it was taking too long even for successful projects to get off the ground.

In such conditions it is easy to see how mistakes could be made with too much speed and not enough haste.

• Spending watchdog slams Regional Growth Fund waste 11 May 2012

• Regional Growth Fund leaves regional economies in the cold 3 Nov 2011

• What is Vince Cable? 26 Aug 2011

But more importantly, the RGF plans were not connected to local growth strategies. In round two, small amounts of Regional Growth Fund have been delegated to Liverpool and Greater Manchester as part of their ‘city deals’ but there is a strong case that (if there are to be further rounds) all future RGF should be allocated this way.

Local Enterprise Partnerships (LEPs) are far better placed to understand the opportunities and needs of local businesses and are far more likely to tie investments into emerging local growth strategies too. At the very least, LEPs should have a greater contribution to RGF decision-making for any future RGF investment.

Balancing administrative and economic logic is a problem that won’t go away. There can be no perfect fit and so in such conditions, stability and continuity is probably the top priority. But just as this NAO report reveals problems with RGF, so too there are similar challenges concerning transport funds and inward investment.

It is becoming increasingly clear that LEPs are too small to go it alone in building some of the key foundations of economic growth and centralised solutions are not working either. The nature and form of LEP collaboration is a topic that requires urgent attention.

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Chris Keates is the General Secretary of the NASUWT

Next time someone says that there’s no alternative to the cuts, no money for tackling child poverty or climate change, that we cannot afford to make sure that every child in developing countries goes to school, remind them about the Robin Hood Tax.

The vast wealth locked up in the financial sector, used only for gambling on the stock market or for paying out bonuses that dwarf anything ordinary people see in their wage packets, needs to be put to good use.

And a Robin Hood Tax would be a great way to do it.

Despite their differences over austerity and growth, even two such different political leaders as Germany’s Angela Merkel and the newly elected French Socialist President François Hollande can see the benefit of such a tax.

Unlike our own prime minister – who seems unable to distinguish between the interests of City fat cats and the British people – Chancellor Merkel and President Hollande are resisting the opposition from the financiers of their own financial centres in Frankfurt and Paris.

Next Wednesday, the leaders of the EU will gather in Brussels for an informal summit and a discussion about how to get the European economy growing again. The financial transactions tax (which is what people who attend informal summits call the Robin Hood Tax) will be a key part of the agenda.

And Britain, once again, will be on the sidelines, lecturing the rest of Europe, regardless of the fact we’re back in recession, while despite all its woes, the eurozone isn’t.

• Report rebuts “disproportionate, inconsistent and disingenuous” attacks on FTT 13 Mar 2012

• Robin Hood Tax gains momentum – on the continent 3 Jan 2012

• Osborne starts to panic about the chance of a Robin Hood Tax 9 Nov 2011

• On the Financial Transaction Tax, why is Osborne on the side of the one per cent? 2 Nov 2011

• Miliband and Balls need to be more vocal in support of the Robin Hood Tax 17 Oct 2011

It is time we joined the mainstream and started talking seriously about how we can make sure our bloated finance sector pays its fair share; how we can rebalance the economy so our best and brightest students go into careers that make more than money; and how we can fulfil our commitments to education for all in Africa and beyond.

A Robin Hood Tax would be a tiny tax on the vast wealth of our financial sector; by taxing the few, we could do so much more for the many.

For more information, visit www.robinhoodtax.org.uk.

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William Bain MP (Labour, Glasgow North East) is a shadow Scotland Office minister

After the longest Parliamentary session since the Second World War, and a collective battering for the coalition parties at the polls, a relaunch of the government’s economic agenda was expected among the traditional pomp and circumstance of the Queen’s Speech.

If this was the point of the State Opening of Parliament, the Queen might have been saved the trip. David Cameron and Nick Clegg are still not listening.

Voters in Scotland, England and Wales joined millions of others across France, Greece and Germany in recent polls in delivering a collective no to mass unemployment and destruction of living standards.

They have ditched the king of bling Nicolas Sarkozy, the Conservative New Democracy movement in Greece, and the architect of euro-austerity Angela Merkel and the CDU in Germany, handing the party its worst results in North-Rhine Westphalia, the country’s most populous state, since 1945.

The reasons for this are unsurprising. The OECD predicts demand in the eurozone is set to fall by 0.2% this year, at a time when the different policies on jobs and growth being followed by President Obama in the US are leading to an increase in US economic demand of 1.9% in 2012.

Nearly 25 million people in the European Union cannot find a job.

In Greece, even the middle classes are finding it hard to survive given pay cuts of up to 30%, and suicide rates are surging. Austerity literally kills.

Given that ordinary people face the biggest drop in living standards since the 1920s in the longest slump since the Long Recession of the 1870s, the State Opening should have been the moment for a change of course.

Instead it simply confirms that the Liberal Democrats are propping up a radical right-wing administration whose aim is to use the aftermath of the 2008 financial crisis to slash the role of the state in society, further concentrate power in the hands of the wealthy, and use the law and the fear of unemployment to drive down wage levels, and smash rights at work.

Like mediaeval doctors with a single-minded obsession to bleed the patient with leeches whatever the illness, the proponents of austerity believe the answer to self-defeating cuts in public spending leading to a hollowing out of demand is further austerity. In the 1930s, only the outbreak of the Second World War led to different economic policies, but across Europe, the cry for an alternative now is growing louder.

• Krugman: “Keynesians have been completely right, Austerians utterly wrong” 26 Apr 2012

• Some families have only £2 per person per day for food – 5 Mar 2012

• Osborne’s austerity obsession is betraying young people 16 Feb 2012

• George Osborne is the downgraded chancellor of a deflationary government 8 Dec 2011

• Krugman: Coalition is “bleeding” Britain dry 1 Dec 2011

In the UK, the TUC has estimated that 6.3million people are looking for a full-time job, but cannot find one. Real wages for people in the lowest 10% of the income scale are falling twice as fast as those for the highest 10% of earners - the biggest real terms decline since the 1970s - as the overall inflation rate masks big rises in the costs of food and clothing.

The Resolution Foundation showed that by 2020 ordinary people will be no better off than they were in 2001, while the top 1% skyrocket away from the rest of the country in terms of financial clout.

Nearly a third (32%) of adults in the very poorest households are struggling to afford essentials, compared to 18% of those on low to middle incomes and 6% of higher income households.

It is a natural aspiration for many families to want their children to do better than they have - this is the first generation since the 1970s that will do worse than their parents if the Tory-dominated coalition continues unabashed with its campaign of radical redistribution of wealth from poor to rich, stagnant incomes, and continuing slump.

What would an alternative programme for jobs and growth from the left involve now?

Firstly, increase demand by creating jobs, building homes, and increasing the purchasing power of wages. The benefits bill has continued to rise by £10bn given unemployment is rising above 2.6million, and tax revenues have undershot the OBR’s forecasts by a massive £15bn.

A jobs programme now, funded by a tax on bank bonuses, in building 2,500 homes in Scotland as a start would employ 10,000 young people north of the border, and boost the Scottish construction sector which saw a 4.3% drop in output in the first three quarters of 2011.

Cutting taxes for ordinary people by cutting VAT to 17.5%, putting £480 back into household budgets, and reversing tax credit cuts, withdrawals, and freezes, which are penalising the low-paid and part-time workers, a disproportionate number of whom are women.

Second, change the banking system. Bank lending to SMEs has fallen in five successive quarters. Businesses face a short-fall in capital of £190bn over the next decade at a time when £700bn in private sector finance could be put to greater productive use in economic investment.

As the Big Innovation Centre and the IPPR have argued, new thinking in methods of lending, and a new range of state-supported banks, with a UK National Investment Bank, and regional banks based on the German model, would lever in long-term finance to support new industries like the renewables sector, and stimulate the creative sector, retail and manufacturing.

Third, deal with inequality. The top 3% of the population, including top directors in FTSE registered companies, have increased their wealth by half in the last couple of years despite the recession, while 250,000 people in Scotland alone face in-work poverty.

More and more people understand that this wrecks long-term growth. Taking action on top pay, while introducing a living wage, are key. We discovered from the IPPR last week that top FTSE companies could pay a living wage of £7.20 an hour (or £8.30 an hour in London) at an extra cost of less than 1% of wage bills. Stronger collective bargaining has helped cut income inequality in countries such as the Netherlands.

Fourth, Germany should use its economic power to increase demand in the eurozone. A system of eurobonds would help reflate the weaker economies in the eurozone, given a collective budget deficit in the eurozone last year of just 4.1%. After its recent rout, the Merkel government is likely to make some leftwards moves to tempt public sector workers with pay rises ahead of the federal elections in September 2013.

This too would increase overall economic activity by boosting demand for exports from other Eurozone countries.

Keynes said in the 1930s:

“Madmen in authority, who hear voices in the air, are distilling their frenzy from some academic scribbler of a few years back.”

George Osborne and the European right are embracing a new monetarism inspired by Milton Friedman and the Chicago School of economics from the 1970s to bolster their disastrous austerity policies. Spain has gone from a budget surplus and relatively low debt in 2008 to utter calamity via austerity with over half of young Spaniards out of work.

Imposing austerity in already depressed economies without any credible plans for growth is a monumental error in faith-based economics from Europe’s right. It falls to the British left to develop a convincing and popular alternative to end this unnecessary recession and the social disaster left in its wake.

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As with last month’s release, today’s labour market statistics present good headline numbers that camouflage an underlying picture of weakness.

Unemployment, on the broad International Labour Organization measure, fell by 45,000 on the quarter to 8.2%. This good news was repeated in the narrower (and timelier) claimant count series, where unemployment fell by 13,700 in April. Employment rose by 105,000 on the quarter and the employment rate increased to 70.5%.

However, the increase in employment, and the corresponding fall in unemployment, was entirely driven by part-time work:

• The number of people in full-time work fell by 13,000 whilst the number working part-time increased by 118,000 - over the past year the number of people in full-time work has fallen by 55,000 whilst the number in part-time work has increased by 150,000;

• The number of people working part-time who say they want but can’t find full-time work rose by 73,000 to a record high of 1,418,000 - the number of people working temporary contracts who want a permanent position rose by 14,000 to 616,000;

• More than two million people are now ‘under-employed’ alongside the 2.6 million out of work;

• In other words whilst the labour market is showing signs of stabilising and whilst unemployment is starting fall, the ‘recovery’ is being driven by part-time and often precarious work; and

• Whilst unemployment is falling, under-employment is rising.

• Headline unemployment fall is good news, but underlying picture remains grim 18 Apr 2012

• Latest labour market stats are encouraging, but we should remain cautious 14 Mar 2012

• Employment figures mask the rise in under-employment 15 Feb 2012

• “The PM is wrong: the labour market is very weak” 18 Jan 2012

• Unemployment: Plan A isn’t working 14 Dec 2011

This underlying weakness is feeding through into extremely weak wage growth. Headline unemployment has been falling and employment rising for two months and normally one would expect a tightening labour market to lead to a faster pace of wage growth. In fact the opposite is happening – wage growth has been slowing since July last year.

As Chart 1 makes clear, the large fall in inflation since it peaked in the autumn has not relieved the pressure on real wages.

Chart 1:

Real wage falls slowed towards the end of 2011 but have reaccelerated since January 2012. Continuing falls in real wages will put the recovery at risk.

Whilst the headline figures today are obviously to be welcomed it would be a mistake to hail a successful recovery in the labour market. As long as real wages are falling living standards will remain under pressure. A recovery driven by part-time work and accompanied by falling living standards won’t feel like a recovery to most people.

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With the British and eurozone economies stagnating, the election of an anti-austerity President in France, and political and economic turmoil in Greece, Ed Balls and Peter Mandelson have cast past differences aside to join together this morning to propose a growth plan for Europe – with Britain taking the lead.

In a joint op-ed in today’s Guardian, the pair set out three main planks to kickstart the eurozone, namely:

1. A new political settlement

An ECB “willing explicitly to stand in the way of sovereign contagion from the periphery”; an active European stability mechanism to “meaningfully support short-term sovereign liquidity and the recapitalising of the European banking system”; and a system of collective economic decision-making among eurozone countries that ensures everyone plays by the rules.

2. Boosting public investment in the demand that will help drive growth

A “serious capital lift” for the European Investment Bank is desirable, to help provide fresh sources of infrastructure investment; infrastructure bonds, which “help to counter a failing private appetite for large-scale project finance”; and the recycling of unused structural funds into new programmes and investment projects that “help the weaker eurozone states to connect better with the large markets of northern Europe”.

3. Structural reforms to drive growth to make struggling eurozone countries more competitive

Raising economic participation rates, making it easier for businesses to grow and take on workers, improving competition in some product markets, and improving European economies’ skills bases.

• Will President Hollande be able to turn France – and the Euro Area – around? 8 May 2012

• Krugman: “Keynesians have been completely right, Austerians utterly wrong” 26 Apr 2012

• Mandelson: Time to “stand up, win the argument, act decisively and lead” on the euro 20 Sep 2011

The former European Commissioner and the current shadow chancellor call for Britain to be “at the centre” of the debate, “influencing the debate on the future of Europe, not locked out of the room where the big decisions will inevitably be taken on issues that directly affect our economic interests“.

They conclude:

“We would not simply be doing our European neighbours a favour by making the case for sustainable growth and playing our part in a revived European economy. We would be securing our own economic future.”

Elsewhere, serious attention is now being paid to the consequences of a Greek withdrawal from the euro, which the FT today describes as “no longer fanciful”, that:

“After 70 per cent of voters in elections on May 6 supported parties that rejected the terms under which €174bn of international bailout loans were offered to Athens, many investors now see a fissure in the 17-member eurozone as increasingly likely.”

And

“European governments are furiously thinking through the various scenarios, while still urging Athens to stick to its agreements on austerity and reform.”

The six questions today’s Financial Times ponders are:

1. Is Greece serious about quitting the eurozone?

2. Is Europe ready to jettison one of its own?

3. What would exit from the eurozone entail?

4. What economic effects will Greece suffer?

5. Is Greek business ready for an exit?

6. Can the eurozone contain the contagion?

Whatever Greece decides (or has decided for it), whatever happens in the eurozone, will impact us; as Balls and Mandelson say, it is in our interest for the eurozone economies to grow, the failure of the eurozone will result in further gloom and even less growth over here – eurosceptics should beware what they wish for.

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The government’s flagship Regional Growth Fund has today been slammed by the National Audit Office for falling short of creating the number of new jobs ministers predicted.

The government spending watchdog estimates that an additional 41,000 jobs will be created over the next seven years as a result of the RGF – a long way short of the 330,000 jobs BIS claims will be created, as Chart 1 shows.

Chart 1:

The NAO is also critical of the fund’s value for money, finding:

“The cost per net additional job supported by the fund varies from under £4,000 to over £200,000.”

The study examines the RGF’s first two bidding rounds, which have seen £1.4 billion distributed to 176 projects.

Damningly, however, it finds value for money was not “optimised” because:

“…a significant proportion of the fund was allocated to projects that offered relatively few jobs for the public money invested.

“Over 90% of the net additional jobs could have been delivered for 75% of the cost, with the cost of each job then being £26,000. Applying tighter controls over the value for money offered by individual bids would improve the fund’s overall cost-effectiveness.”

Chair of the public accounts committee, Labour’s Margaret Hodge MP, said it was “truly shocking” some new jobs were costing up to £200,000 to create, adding:

“Stronger controls over the value for money of individual bids are urgently needed to prevent any more money being wasted.”

Responding to the report, business secretary Vince Cable said:

“We have already put in place some of the NAO’s recommendations such as making more administrative resources available, which means projects are being processed even faster.”

The RGF was launched amid much fanfare by deputy prime minister Nick Clegg two years ago after ministers rashly dismantled Labour’s regional development agencies (RDAs), which had a proven track record in both creating new jobs and providing a sound return on investment.

• RGF’s foot-dragging and half-measures leave regional economies in the cold 3 Nov 2011

• Cable should concentrate on promoting growth not Goa 26 Aug 2011

• Huge demand for Regional Growth Fund shows desperate need for business credit 3 Aug 2011

• Round two for the Regional Growth Fund – but is the cupboard now bare? 2 Jul 2011

• Coalition’s regional growth fund sweetener leaves a bitter taste 12 Apr 2011

A report by PwC back in 2009 found that for every £1 spent by the RDAs a return of £4.50 could be expected. The report also found that, from 2002 to 2007, the nine RDAs together created or safeguarded 472,900 jobs.

However, the regional growth fund – worth only a third of what the RDAs spent on regeneration – has been heavily oversubscribed and many areas have missed out as a result. The first round saw just 50 projects out of the 464 bids submitted receiving any money; furthermore, there have been long delays in green-lighting projects, especially damaging against a backdrop of economic stagnation.

Stung by criticism, the chancellor announced a third bidding round in last December’s autumn statement – a suggestion first made by shadow chancellor Ed Balls. The deadline closes next month.

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Amongst the flagship growth-boosting measures in today’s Queen’s Speech is the Enterprise and Regulatory Reform Bill covering competition, employment disputes, director’s pay.

The Bill, claim the government, will reform the employment tribunal system “by providing more options for the early resolution of disputes” – i.e. making it easier for bosses to sack workers at will, which, as Left Foot Forward has long pointed out, is not only wrong in principle but won’t actually reduce unemployment and kickstart the economy:

• Osborne’s dogmatic return to Thatcher-era employment law 10 Apr 2012

• Osborne’s solution to unemployment? Make it easier to unemploy people 7 Mar 2012

• If Liz Truss wants to be more like Germany, she should boost workers’ rights 20 Feb 2012

• Cable falls in line with Beecroft’s anti-worker voodoo economics 23 Nov 2011

• Relaxing worker protection to boost employment belongs to the last century 16 Nov 2011

• Raab’s attacks on workers’ rights are – surprise – based on no evidence 16 Nov 2011

• Reducing job security won’t decrease unemployment 4 Oct 2011

• Gideon’s grotesque attempt to blame workers’ rights for unemployment 3 Oct 2011

• Osborne wants a future where bosses can hire and fire at will 12 May 2011

As Declan Gaffney showed on these pages last year, there are two big problems with the assumption deregulation will reduce unemployment:

The first is that the UK labour market is already one of the least regulated among comparable nations. This immediately makes predictions of any significant employment effects from further deregulation implausible.

The second is that nations with much higher levels of regulation have been at least matching and in some respects exceeding employment performance in the UK and other low regulation countries for some time.

Meanwhile the exemplary low regulation economy, the United States, has registered an abysmal employment performance at least since the turn of this century. The idea of lower regulation as a route to employment growth is therefore a particularly hard sell these days.

Taking these points in turn, the UK has the third lowest level of employment protection of all OECD nations. It is ranked 7th in the world for labour market flexibility by the World Economic Forum. Chart 1 below shows where the UK fits in a sample of comparable wealthy nations. (Tories try to argue, absurdly, that the UK has a particularly high level of labour market regulation.)

Chart 1:

In the chart, these countries are colour-coded into three ‘families of nations’ using a standard classification based on geography and welfare state institutions. The point of grouping countries in this way is that we can compare employment performance with levels of employment protection.

The red columns, which generally show the highest levels of protection are continental Western European (CWE) nations; the blue countries with very low levels of protection are the English-speaking (Anglo) nations while the green Nordic countries are in an intermediate position, but closer to the CWE nations.

Because the United States has the lowest levels of protection, it is worth looking at how it compares with countries in the much more regulated CWE and Nordic groups. We show results for people of prime age (25 to 54) from 1991 to 2009. (The reason for concentrating on this age band is that its employment is less affected by educational participation and pensions policies.)

For men, prime age employment in the U.S. peaked at the end of the last century and then fell sharply. Although there was some recovery in mid-decade, employment remained far lower than in the late 1990s, before plummeting with the last recession. The CWE countries overtook the US at the turn of the century and the Nordic countries in 2005.

Points echoed by David Marsh and Robert Bischof in The Guardian recently:

These days we tend to talk about the divisions in Europe as one between net creditors and debtors. In reality this is just a sideshow.

There is a much more fundamental gulf, hinted at by Angela Merkel in her Davos speech: between countries with organised industrial training systems such as Germany, the Netherlands, Belgium, Scandinavia, Austria and Switzerland – all currently with jobless rates of between 3% and 7% – and those with much higher rates of unemployment, often in double digits, in peripheral Europe.

The issue pits Anglo-Saxon precepts of free market regulation against the Germanic “Rhineland” system of managed capitalism, with modern apprenticeship systems built on a long-term compact between labour and employers.

In the years before and immediately after the euro’s birth in 1999, the peripheral countries of the European monetary union (Emu) often followed Anglo-Saxon principles by liberalising parts of notoriously inflexible labour markets. “Hire and fire” became the motto.

Initially this seemed to work. But as debt market conditions worsened and growth stalled after the 2007-08 financial crisis, Emu’s periphery has been left seriously exposed by the failure to replace unproductive regulations with new mechanisms to generate jobs.

In the battle between rival systems, “Rhineland capitalism” appears to be winning hands down. In the two years since the global economic downturn in 2009, Germany has expanded employment by 1.8m, while the UK, US, France, Italy and Spain have shed 7m jobs.

In 2007, when most other countries were nearing the end of a boom driven by excess credit, Germany had the highest unemployment rate (8.7% of the workforce on a harmonised basis) of the group of seven leading industrialised countries. Yet in late 2011, according to OECD figures, German unemployment, at 5.2%, was the lowest in the G7 apart from Japan.

While the UK struggles with record youth unemployment, Germany’s youth unemployment rate is one third of the OECD average and one eighth of the rate in Spain.

The evidence is clear – but as it runs contrary to the Tory-led government’s laissez-faire ideology they’ll just ignore it, and it’s the rest of us who’ll pay the price.

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Will newly-elected French President François Hollande be able to turn France around, much less the entire Euro Area (EA)? Professor George Irvin investigates

At the moment, the EA is stagnating, unemployment is rising and the entire banking system is dangerously fragile – in Nouriel Roubini’s phrase, we are watching a slow motion train wreck. How far genuine change is possible depends essentially on three factors: the reaction of the financial markets; how Hollande manages the new relationship with Germany and, more generally, whether ‘austerity’ is ditched and the EA goes for growth.

How will financial markets react to a socialist government in France? The knee-jerk reaction is to invoke Mitterrand’s experience in 1981-3 when financial turbulence forced the social-democratic left to change course within two years and into ‘cohabitation’ within five.

What is easily forgotten is that Mitterrand’s policy failed largely because inflation rocketed to double figures in 1983, a phenomenon unlikely to be repeated today.

True, Hollande has committed himself to a number of policies which will prove difficult to deliver: Generating growth and reducing unemployment and ‘sanitising’ public finances – significantly reducing the budget deficit over the next five years.

Equally, his rejection of Angela Merkel’s ‘Stability Pact’ – the pact requires a legal commitment to budget balance on the part of signatories – appears to put him on a collision course with Germany.

• Vive Hollande! M. Normal wins the day 8 May 2012

Nevertheless, a number of factors suggest Hollande’s government may succeed. For one thing, it is increasingly obvious that deep expenditure cuts lead back to recession, making unemployment and public indebtedness worse – as we see in Greece, Portugal and Ireland and will soon see in Spain too.

The message is simple: in a recession, fiscal rectitude is achieved through state-led growth – it is higher national income that generates higher savings, not the other way around. Even the IMF appears to agree.

For another, the Treaty is deeply unpopular – and not just in Greece, Portugal and Ireland. In Italy, prime minister Mario Monti has made it clear he thinks it foolish and that jointly-backed eurobonds constitute a better solution; Belgium’s Guy Verhofstatd agrees and even European Commission President Jose Manuel Barroso appears to support this position; while new Spanish prime minister, Mariano Rajoy, has already warned Spain will not meet next year’s fiscal targets.

In demanding the Treaty be changed, Hollande will have the support not just of the EA periphery but of some of its major players and many of its economic experts. One should bear in mind poll indications for Italian Parliamentary elections to be held next spring suggest a centre-left coalition will emerge.

Whether the Germans and their right-wing Dutch and Austrian allies could long hold out against a majority of the larger EA economies is doubtful. Federal elections must be held in Germany before next September; the polls point to the SPD entering power, and the right-wing Free Democrats (FDP) being annihilated.

There is a new twist too. In anticipation of the changed political conjuncture, Hollande and Merkel have finally agreed on the details of a Euro Area transactions tax (a form of ‘Robin Hood’ tax). A 0.01% tax on all financial transactions – approved by European Parliament 10 days ago – would raise €120 billion per annum, providing the financial basis for launching a huge EA infrastructure investment programme.

Merkel knows she needs to avoid market panic if Hollande wins, and further details of the new growth plan can be expected this week. In short, Sunday’s election result is crucial not just for France but for reviving Europe’ economic and political fortunes. Watch this space.

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The economic argument in the UK can be boiled down to this: Are we in a government deficit crisis which, while its being reduced, is leading to a weakness in demand or, do we face a demand crisis which is making it harder to reduce the deficit.

Either way, while the deficit is a problem for the long-term health of the economy, so is unemployment.

And, according to NIESR’s report this morning, persistently weak demand is maintaining high unemployment, and may lead to a permanently higher rate of joblessness.

The National Institute of Economic and Social Research report says:

“The weakness in demand this year is expected to translate into a 0.3 per cent fall in the level of employment.

“This adds around ½ percentage point to the current unemployment rate, peaking at 8.9 per cent in the fourth quarter of 2012, and a slow decline starting from 2013.

“Although we do not report forecasts for the youth unemployment rate, we expect it to continue to rise throughout the rest of this year.

“In our forecast there is a permanent increase in the equilibrium unemployment rate as a consequence of the increase in long-term unemployment experienced in recent years.

“By 2016 it will gradually decline to 6.4 per cent, which is still almost 1 percentage point above the pre-crisis level.”

NIESR also find there may also be a structural loss in productivity:

“Productivity in the first quarter of this year is still 1½ per cent below the level prior to the onset of recession. In the 1980s and 1990s, productivity was 13 and 15 per cent higher, respectively, at the same point in time. We do not expect any convergence on past productivity perfomance over the next few years.”

• Cameron is pricing the young out of education and consigning them to the dole queue 14 Dec 2011

• Record NEET figures the result of Osborne’s ignorant, short-sight ideology 24 Nov 2011

• Stories from the economy, or: The prospects for young people, and other grim tales 17 Nov 2011

• Million young unemployed figure highlights enormity of the situation hitting our youth 16 Nov 2011

• IMF: Cutting the deficit too fast causes higher unemployment 19 Sep 2011

The coalition has taken the view that the deficit needs to be reduced as quickly as possible, while implementing measures to reduce unemployment while necessary.

However, unless joblessness takes higher priority, fewer of us will be working to support more people on unemployment benefit, and the end of the hard times will be further from sight. The government shouldn’t ignore one long-term problem for the sake of another.