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• Pressure mounts as No 10 spin doctor’s ex-colleague speaks
• Tessa Jowell says phone was hacked 28 times
• Prominent figures to sue Met for lack of warning

Andy Coulson, the No 10 communications chief, found himself in the direct line of fire in the News of the World phone hacking scandal tonight when a former colleague alleged that he issued direct orders to journalists to carry out the illegal practice.

As the former cabinet minister Tessa Jowell revealed that her phone had been targeted on 28 occasions, Coulson stood accused of presiding over a “culture of dark arts” which encouraged phone hacking.

The hacking scandal blew up again this week after the New York Times published a lengthy article including the claim that Coulson freely discussed the use of unlawful news-gathering techniques during his time as editor of the tabloid. Coulson resigned as editor of the News of the World after its royal reporter and a private investigator were jailed. He denies any knowledge of phone hacking.

Downing Street and Scotland Yard, which is facing criticism for failing to investigate the allegations properly, were facing pressure last night as:

• Tessa Jowell, the former culture secretary, told the Independent that her phone had been hacked into on 28 occasions.

• Lord Prescott, who is joining forces with three other public figures to sue police over a failure to warn them they had been targeted by the private investigator at the heart of the scandal, said he has evidence that Glenn Mulcaire targeted him on behalf of News International.

• Alan Johnson, the former home secretary, is to invoke his rights as a former cabinet minister to review official papers relating to the case from his time in office.

• Brian Paddick, a former deputy assistant commissioner with the Met who is seeking a judicial review of the alleged failure of his former force to tell him his name had been found on a list of public figures whose phones may have been targeted, called for Coulson to be interviewed by police.

The figures spoke out as a former News of the World journalist quoted by the New York Times repeated his claim tonight that he had been ordered by the former editor to hack phones. Sean Hoare told BBC Radio 4’s PM: “There is an expression called the culture of dark arts. You were given a remit: just get the story. Phone tapping hadn’t just existed on the News of the World … I have gone on the record in the New York Times and said I have stood by Andy and been requested to tap phones, OK, or hack into them. He was well aware the practice existed. To deny it is simply a lie.”

The government last night commented on Hoare’s admission that he was sacked from the title at a time when he was struggling with problems with drugs and alcohol. Alan Duncan, the international development minister, told Radio 4’s Any Questions: “What they are seizing on today are the words of someone who had an alcohol and drug problem who was sacked by the paper.”

No 10 is standing by Coulson. Sources close to him said that Hoare had contradicted himself in the interview.

But Labour piled pressure on the government and Scotland Yard in the wake of the New York Times investigation. Alan Johnson is to review government papers from his time in office in the wake of quotes in the New York Times article from unnamed detectives alleging that their investigation had been cut short because of Scotland Yard’s close relationship with the News of the World.

Johnson said that he considered summoning the police inspectorate because he felt “uncomfortable” with the investigation’s progress. He decided against this after “reassuring conversations” with senior officers at Scotland Yard.

The government, which has been rattled by the renewed focus on Coulson, last night blamed Labour for stoking the saga. Alan Duncan said: “The Labour party, in a concerted campaign through Lord Prescott and Alan Johnson, has piled in to attack Andy Coulson about something that happened years ago in order to try to attack the government. This was looked at by News International lawyers, by a parliamentary select committee, by the police and the CPS. All of them concluded there was no case to answer.”

Ed Miliband, the Labour leadership contender, said: “These are very serious allegations. If I was prime minister and Andy Coulson was working for me I would demand to know from Andy Coulson the truth. I don’t see how he can stay working in Downing Street unless he clears this up and says whether his former colleagues are telling the truth or not.”

The News of the World said: “The New York Times story contains no new evidence – it relies on unsubstantiated allegations from unnamed sources or claims from disgruntled former employees that should be treated with extreme scepticism given the reasons for their departures from this newspaper. We reject absolutely any suggestion there was a widespread culture of wrongdoing at the News of the World.”

A Met police spokesperson responded to Johnson’s statement:. “In July 2009, the [Met Police Service] examined whether any new evidence had emerged in the media or elsewhere that justified reopening the investigation. The clear view, subsequently endorsed by the director of public prosecutions with leading counsels’ advice, was that there was no new evidence and consequently the investigation remains closed.”

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In the first of a three-part investigation, Rory Carroll reports from the gateway to America, at the centre of drug cartel violence that has claimed 28,000 lives

The events which have no name scythe through the valley like invisible reapers. They slice east to west, west to east, a homicidal pendulum. No one sees anything.

The pair of human heads left in a coolbox on the corner of the plaza? A mystery. The 18 houses burnt in a single night? An enigma. The doctor and his family who disappeared? A rumour.

This much residents do tell you: Juárez valley stretches along the Rio Bravo and used to grow cotton. It roasts by day, shivers by night. Lob a stone over the river and it lands in Texas.

Beyond that, conversation tends to dry up. Of the slaughter, of the reason this has become one of the deadliest places on the planet, residents have little to say. At most they refer to “the situation”, “the things happening” or, simply, “it”.

Manuel Robles, curator of the valley museum in the hamlet of San Agustín, can talk about dinosaur fossils and Apaches but not unfolding history. Pressed, he rubs rheumy eyes, gazes out the window and falls silent. Finally he says: “If I tell you, tomorrow I won’t be here. They’ll kill me.”

It’s as close as you get to an acknowledgment that this valley of a dozen villages and towns, once home to 20,000 people, has detached from Mexico and entered a realm beyond any map. There is no state here, no rule of law. There are killings and beheadings and burnings and no one sees anything.

The official explanation is that the Sinaloa cartel is challenging the homegrown Juárez cartel for a venerable gun and drug trafficking route to the United States. Just as Billy the Kid coveted this trail, so do modern outlaws.

It is perhaps the loneliest corner of what is termed Mexico’s drug war. More than 500 people are estimated to have died here in the past four years, a per capita toll far worse than Iraq or Afghanistan. Nationwide 28,000 have died.

As violence raked up and down the valley, exterminating entire families, an exodus began. By the time a church was torched and anonymous notes warned of an imminent bloodbath most were gone, leaving blackened, boarded-up ghost towns. Nature, at least, is thriving: weeds festoon carcasses of abandoned pick-up trucks.

The cemetery outside Guadalupe, the biggest town, is a scorched, desolate place with fresh mounds. “Four in the past week, all young ones,” says Ignacio Montes, 66, the gravedigger. A cloth hangs from his baseball cap.

He indicates a family plot: Omar Amaya, mayor, killed in 2006, aged 33; his father, Apolonio, also mayor, killed in 2007, aged 59; Omar’s sister Aglae, aged 29, and mother, Maria, aged 57, both killed in 2008.

“They go after the relatives, you see,” says Montes. During a burial in 2008 gunmen ambushed mourners, killing the dead man’s daughter and wounding his granddaughter. “It doesn’t stop,” says Montes. He recently found a 16-year-old boy’s battered body dumped on a grave.

Victor Luque, 53, is the acting mayor of Guadalupe. His predecessor was assassinated two months ago, the town’s fourth murdered mayor. Urbane, courteous and elegant in a white guayabera, Luque agrees to an interview.

What is going on in the valley? “I really don’t know.” Who is doing the killing? “I really don’t know.” Who is responsible for security? “I really don’t know.” How many people have fled? “I really don’t know.” The mantra almost becomes a joke. The mayor shrugs, smiles. He knows this exchange is ridiculous. He floats a metaphor. The “situation”, he says, is “a perfect storm”. There is a local expression: “Hasta que el viento tiene miedo”. Even the wind is afraid. In this town hall, with its black ribbons, bleached peach paintwork and near-empty offices, terror is in the heavy stillness.

Momentarily dropping the charade, Luque mentions he has no bodyguard. “What would be the point? If they decide to kill you then there would be two bodies instead of one.” Who would “they” be? The mayor smiles again. “I really don’t know.”

But someone knows a lot about the valley. During the Guardian’s tour there was barely another vehicle or soul in sight. Yet the next day the guide’s family received an anonymous phone call detailing our entire itinerary – who we met, what we discussed, even places where we slowed but did not stop – with precision.

Mexico’s agony is ritually explained as a turf war between drug cartels. Group A versus Group B versus Group C. A savage conflict, but the mayhem, according to authorities, is a sign of cartels’ desperation. Slowly but surely the state is prevailing thanks to brave soldiers and police. “My government is absolutely determined to continue fighting against criminality without quarter until we put a stop to this common enemy and obtain the Mexico we want,” President Felipe Calderón, who declared war against cartels in 2006, said in recent newspaper advertisements.

Juárez valley suggests otherwise. It is proof of profound failure, says Gustavo de la Rosa, the state human rights commissioner. “It is abandoned, a land without law.” One reason, he says, is a lack of political will. “There are few votes there so politicians ignore it. The place has gone back to the 1880s.”

In fact the state is present in the form of the army, which has cameras and checkpoints with sandbags on the only road in and out. The soldiers’ presence, however, prompts the question: why did they watch thousands of residents flee – convoys of furniture-packed trucks – and do nothing. “What’s the point of them?” says José Sereseres, 84, a lone soul in a cowboy hat on the main street of Caseta village.

If there is a pattern to the slaughter it is that Sinaloa is exterminating suspected Juárez cartel members and their relatives. Rocio Gallegas, an editor at Juárez’s main newspaper, El Diario, says the security forces must have intelligence about what is happening. “It’s not possible that they don’t know.”

Authorities did catch José Rudolfo Escajeda, the Juárez cartel’s valley enforcer, but a Sinaloa commander, nicknamed Quitapuercos – pig killer – is believed to remain free. It suggests, say some, that the army is tacitly backing Sinaloa.

A similar pattern emerges in Juárez city. On the surface things looks normal. Shops and schools are open, there is rush-hour traffic and fast-food restaurants are packed at lunchtime. The scythe, however, is busy. More than 6,000 have been murdered since 2008, a shocking total for a city of just 1.3 million. Last month was the bloodiest yet: 363 dead, according to El Diario’s count.

It is less immediately obvious than in the valley, but the city is ebbing away. Many offices and houses are empty and have “for sale” signs outside. About 10,670 businesses – 40% of the total – have shut. A study by the city’s university found that 116,000 houses have been abandoned and 230,000 people have left.

Juárez is the main gateway between Mexico and the US. Railways and roads converge here, as do smugglers. “Poor Mexico, so far from God, so close to the United States,” the dictator Porfirio Diaz observed in the 19th century. With the US the world’s biggest market for illegal drugs the quip still holds.

Just as in the valley, security forces in the city are an oxymoron. Their absence breeds insecurity, their presence breeds insecurity. They prey on the population, kidnapping and extorting in cahoots with criminal gangs, according to multiple complaints filed to the human rights commission. In an opinion poll published last week 39% of people cited official corruption as the main driver of violence. Narco-trafficking – despite government claims and media echoes – was cited by a mere 14.6%.

It is a disturbing finding. Here in the broiling desert heat the boundary between warring criminal groups and the state, a comforting delineation within the drug war, blurs and shimmers. Soldiers and police – and elected officials – fight with, as well as against criminal gangs. “Our security forces are infiltrated and there are links between criminal groups and certain politicians,” says De La Rosa, the human rights commissioner. “The way they work is to strengthen each other and the phenomenon is getting worse. There are some politicians who flaunt their connections.”

A large man with a rumpled shirt, snowy beard and hair pulled into a ponytail, the commissioner resembles a hippy Santa Claus but is a tough, shrewd operator. He investigates human rights abuses with a small team of young assistants; one of the few state agencies credited with working as it should.

For protection De La Rosa sleeps across the border in El Paso and travels to Juárez every day with 12 bodyguards. In between fielding phone calls on the latest atrocities and rumours he coaxes testimony from frightened families.

He is an outspoken critic of a government strategy that, he says, allows crooked politicians and financiers to go free. “There are untouchables.”

When thousands of army troops deployed in 2008 the violence briefly abated. A well-placed source from city hall, a sophisticated, cultured man, smiles at the memory. “It was a cleaning. And it worked.” What he means is death squads took out mid-ranking narcos, including crooked police.

The campaign has never been officially admitted. “But the cleaning stopped after a few months,” rued the official. “That was a mistake.” The authorities did not anticipate how quickly criminal gangs would rebound and co-opt security forces, he said.

Police have replaced the army on the streets. They are seen as ineffectual at best, predatory and murderous at worst. Business owners who spoke on condition of anonymity accused officers of treating the city as booty. “If you don’t pay, you risk disappearing, that’s the game,” said one car showroom manager.

Despite shake-ups, municipal and state police are still regarded as loyal to the homegrown cartel, a tradition going back decades. Federal police, outsiders brought in for the drug war, have become linked with the Sinaloa interlopers. Last month 250 officers roughed up and arrested their own commanders, accusing them of siding with narco-traffickers. A mutiny of the honest, say optimists; a row over “cuota”, the levy the force charges on civilians, say others.

Arrest statistics fuel suspicions of favouritism. Of 81,128 drug-related arrests until the end of July some 24% were from Sinaloa, the oldest and mightiest cartel. The motive, apart from pay-offs, supposedly would be to end turf wars by promoting one cartel’s hegemony. Calderon indignantly denies favouritism, but the nature of violence in Juárez suggests local commanders – with or without approval from Mexico City – have cut deals with Sinaloa.

The Juárez cartel, fearing extinction, has lashed back at the black-uniformed “federales” who allegedly back their rivals. An urban guerrilla onslaught has killed about 40 officers since April. The campaign includes drive-by shootings, kidnappings, car bombs – and a surreal request to the FBI to investigate their Mexican counterparts.

On a particularly hot morning last week a patch of asphalt on Bulevar Ampliacion Cuatro Siglos revealed a new cartel tactic: it started with a bloodied, naked foot, continued with chunks of leg, then a trunk, then arms, hands and finally, 200 metres further, a head on the bonnet of a black Nissan. The quartered remains of federal police officer Hector Mendoza Guevara, aged 25. There was a placard: “This is what happens to those who help Chapo.” Joaquin “El Chapo” Guzman is the boss of Sinaloa.

Any police force would be shaken by the sight, but the grisly tableau’s arrangement seemed designed to instill terror in young officers from parts of southern Mexico where superstition and belief in sorcery are common. Those at the scene were ashen. “Get away! Fuck off!” one screamed at onlookers.

In Juárez good news passes for this: the federales are so busy trying to stay alive that they recently suspended their extortion rackets, according to business owners. The force spokesman declined interview requests for this article.

With killings averaging about a dozen a day, and businesses fleeing, the city edges ever closer to the Hobbesian dystopia of the valley 50 miles east. Each day brings fresh horrors. Two men stabbed and left to die face-down in a dump. Six people incinerated in a van. Two cyclists gunned down on the street. A child shot on the family porch. That was just one day. Before lunch.

“It amuses me when various experts in the US or Mexican government, or in the media, try to explain what’s going on,” said Charles Bowden, a veteran chronicler of the border and author of Murder City: Ciudad Juárez and the Global Economy’s New Killing Fields. “The thing about Juárez is you can’t see a pattern to the violence anymore. Killings are everywhere. They cross all class lines. You can’t make sense of it.”

There are an estimated 500 gangs in the city, many drawn from slums where parents work in sweatshop factories that pay $40 (£26) a week. Some gangs are independent, some work for the cartels, some work for the police and some have no idea whom they work for. They just take orders over the phone from unknown bosses.

Few murders are investigated let alone solved. Even when suspects are arrested and paraded before TV cameras they are, according to numerous media investigations, often freed days later for want of evidence, prison space or judicial will. “It’s like a war in which no one remembers how it started. No one controls the killing now, it’s got a life of its own,” said Bowden.

Unable to staunch the flow of blood, Calderón has sought to redefine it, claiming that 90% of those killed are involved in narco-trafficking. A general urged the media to report each death not as another murder victim but “one less criminal”. Given so few homicides are properly investigated it is unclear how the president, general or anyone can know such things.

Miguel Morales has no doubt he would have been classified as a criminal. The 24-year-old, who would only speak under a pseudonym, was, after all, a thief and a junkie and haunted street corners where gangs peddled drugs. As his fixes progressed from pills to cocaine to heroin his body weight shrivelled to 50kg, a spectre. One of Juárez’s estimated 80,000 addicts, his death – he had numerous scrapes with gangs and police – would have caused not a blip. He recounts all this in a matter-of-fact tone at a rehabilitation centre which has become his home.

Then his eyes blaze. “My story would have been buried with me.” What angers him is not the prospect of dying so much as dying anonymous, forgotten. “Everyone has a story.” This is his. Morales was from a middle class home but, shy and awkward, with a clumsy body and goggle eyes, jealous of a brother’s effortless success, he started smoking cannabis at 14 to get through weekends. He progressed to harder drugs, dropped out of business college, lived rough, begged, stole, got high. Somehow he found a way back and now, clean, lives in the rehab centre. He mops the floors and gives talks to new arrivals. “It’s not much of a story is it?” he smiles. “But I’m glad I can tell it.”

In numbers: Four years of bloodshed

28,000+

Number murdered since Felipe Calderón launched his crackdown on cartels in 2006

84,000

Number of weapons confiscated

$400m+

Amount of suspected drugs money confiscated

963

Number of clashes between security forces and drug gangs (nearly one a day)

50,000+

Troops and federal police involved in the operation

$13bn

Estimated annual profit made by Mexican drug traffickers

90%

Proportion of cocaine consumed in the US that comes from Mexico

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State of emergency declared after earthquake with magnitude of 7.0 strikes 19 miles west of Christchurch

A powerful 7.0 magnitude earthquake struck New Zealand’s South Island last night, causing widespread damage to buildings, although there were few injuries.

Christchurch mayor Bob Parker declared a state of emergency four hours after tremors rocked the region, warning that continuing aftershocks could cause masonry to fall from damaged buildings.

The quake hit 19 miles west of the city, on the south of the island, at 4.35am local time. Residents reported collapsed buildings and bridges, as well as power cuts. Christchurch, which has a population of around 400,000 people, was then rocked with a series of sharp aftershocks.

No deaths have been reported so far but doctors at Christchurch Hospital said they had treated two men with serious injuries. One was hit by a falling chimney and was in intensive care, while a second was seriously hurt after being cut by glass, a hospital spokeswoman said. Other minor injuries have also been reported.

“There is considerable damage in the central city,” police inspector Mike Coleman told New Zealand’s National Radio.

Police Inspector Alf Stewart told the station that some people had been arrested for looting. “We have some reports of people smashing [shop] windows and trying to grab some property that is not theirs … we’ve got police on the streets and we’re dealing with that,” he said.

Colleen Simpson, a Christchurch resident, said panicked neighbours ran into the streets in their pyjamas. She said some buildings had collapsed, there was no power and the mobile telephone network had failed. “There is a row of shops completely demolished right in front of me,” she told the Stuff news website.

Another person from Christchurch, Kevin O’Hanlon, said the jolt was extremely powerful. “I was awake to go to work and then just heard this massive noise and ‘boom’,” he said. “It was like the house got hit. It just started shaking. I’ve never felt anything like it.”

Bruce Russell, 50, said that although he lives in Lyttelton, a port town to the south of Christchurch, which is on firmer volcanic ground, the earthquake had been “very alarming”.

“We were woken up at 4.30am and it swayed like a ship at sea,” he said. “It was very alarming. We have no power, which is a problem across [Christchurch]. We’re listening to reports on a wind-up radio. It’s still very frightening.”

Russell said he had not experienced an earthquake on this scale before. There have been local reports that some people many have been trapped in damaged houses.

Video footage showed some cars crushed by heaps of fallen bricks. Authorities were advising residents to stay inside until given the all-clear.

Residents have been asked not to flush toilets because of potential damage to the city’s sewerage system which could lead to contamination. Christchurch airport was also closed as a precaution while runways were safety checked.

Despite tsunami fears by residents, the Pacific Tsunami Warning Centre said “no destructive widespread tsunami threat existed, based on historical earthqake and tsunami data”.

New Zealand lies above an area of the Earth’s crust where two tectonic plates collide and the country records more than 14,000 earthquakes a year – but only about 150 are usually felt. Schoolchildren in the country regularly undertake earthquake drills.

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Exclusive: Education secretary had claimed that more than 700 ‘free schools’ could be established due to high demand

Michael Gove, the education secretary, will next week be forced to announce a dramatic scaling back of the Tories’ landmark plans to create a new generation of schools run by parents and voluntary groups.

Labour tonight accused the education secretary of presiding over a “chaotic shambles” after it emerged that as few as 20 free schools are on track to open in September 2011. In June Gove hinted that 700 could be established.

Ed Balls, the shadow education secretary, said: “This is another embarrassment for the education secretary’s flawed, unfair and unpopular school reforms. Michael Gove took over a successful department which has helped to deliver record improvements in school standards over more than a decade, but in just a few months he has managed to turn it into a chaotic shambles.”

Gove said in June that he had been inundated with expressions of interest from establish a new tier of free schools. “More than 700 expressions of interest in opening new free schools have been received by the charitable group the New Schools Network,” he told MPs.

The announcement next week will echo Gove’s claim in the summer that more than 1,000 schools had applied to become academies. In the end just 32 are opening this term.

The reduced number was a blow to Gove, who rushed through legislation to allow existing schools to obtain academy status by the start of the academic year. The free schools are due to start opening in a year’s time.

One senior Tory said: “Michael clearly massively underestimated the challenge he had decided to undertake.”

Cameron regards schools reform as one of the key elements in his plans to create a “big society” in which power is devolved to the grassroots.

Gove is relaxed on the grounds that it normally takes between three to five years to establish a new school. While relatively few free schools will open next year, many more are in the pipeline and will open in due course.

A source close to Gove said: “Under the last government only a couple of parent-promoted schools were created over 13 years. Now, within just four months … there are teachers, parents and community groups who have prepared high quality proposals for free schools starting as early as 2011. There are a significant number of proposals in the pipeline and an announcement will shortly be made about those at the front of the queue who are planning to open next year.”

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Iran’s president urges Palestinians to continue armed resistance against Israel at al-Quds Day rally

Iran’s president, Mahmoud Ahmadinejad, today launched an angry attack on “doomed” US-brokered Middle East peace talks and urged the Palestinians to continue armed resistance to Israel.

Ahmadinejad used the annual al-Quds (Jerusalem) Day rally in Tehran to scorn the Obama administration’s efforts in launching the first Arab-Israeli negotiations in nearly two years.

“What do they want to negotiate about? Who are they representing? What are they going to talk about?” the hardline Iranian leader said of the Palestinian negotiating team in Washington.

“Who gave them the right to sell a piece of Palestinian land? The people of Palestine and the people of the region will not allow them to sell even an inch of Palestinian soil to the enemy. The negotiations are stillborn and doomed.”

Iran supports Hamas, the Islamist Palestinian movement that controls the Gaza Strip and opposes talks by Mahmoud Abbas, the western-backed PLO leader who is based in the West Bank. Its armed wing claimed responsibility for killing four Israeli settlers near Hebron on Tuesday. Hamas, Islamic Jihad and other groups have vowed to carry out more attacks.

“The fate of Palestine is determined in Palestine and through the resistance of the Palestinian people, rather than in Washington, Paris and London,” Ahmadinejad said in his live TV broadcast.

Iran’s al-Quds Day event was founded in 1979 to mark the solidarity of the Islamic revolution with the Palestinians, and is held on the last Friday of the Muslim holy fasting month of Ramadan.

Iranian state media reported that millions of people turned out in Tehran and elsewhere for al-Quds rallies. But the regime took pre-emptive measures to silence opposition supporters who have managed to exploit previous official holidays to show their defiance. The few foreign journalists based in Iran operate under severe restrictions.

Mehdi Karroubi, one of the two reformist candidates defeated by Ahmadinejad in last summer’s presidential race, was prevented from joining the Tehran rally. Karroubi’s website reported that Revolutionary Guardsmen and basij militiamen had surrounded his home while supporters of Ayatollah Ali Khamenei, Iran’s supreme leader, smashed windows and beat up one of his guards.

Mir-Hossein Mousavi, leader of the defeated Green movement – who claims his victory was “stolen” by Ahmadinejad – condemned the attack. He said it proved the government’s “enmity against Israel is an excuse” for attacking opposition leaders. “Karroubi and figures like him and other freedom-seekers are the real enemies of authoritarians,” he said.

Iran’s opposition has not managed to hold any big demonstrations in recent months. Last February, it cancelled plans for a rally on the anniversary of the 1979 revolution. Since the election, the authorities have detained thousands and tried scores on charges of fomenting unrest, with more than 80 sentenced to prison and 10 to death.

The chief of staff of the Iranian armed forces, Hassan Firouzabadi, warned meanwhile that Iran would retaliate against Israel’s nuclear facility if Israel attacked its nuclear activities.

“Our developed weapons can hit any part of the Zionist regime [Israel] … We hope not to be forced to attack their nuclear facility,” Firouzabadi told the semi-official Mehr news agency.

Iran denies it intends to build nuclear weapons but is under UN sanctions to force it to stop enriching uranium.

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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Cricket council rebuts conspiracy charge as players accused of spot-betting scam are interviewed by police under caution

The International Cricket Council today defended its decision to charge three Pakistan cricketers under its anti-corruption code.

The three men, accused of an alleged betting scam, were today formally interviewed by police under caution and later released without police charges.

Mohammad Amir, Mohammad Asif and Test captain Salman Butt were interviewed separately at Kilburn police station in north London.

Afterwards, their lawyer, Elizabeth Robertson, said they had attended voluntarily and at no time were they under arrest. She said the men would continue to co-operate fully with police and the ICC, which has charged them under its anti-corruption code and provisionally banned them from playing in any match.

Despite the ICC charges, police have yet to decide whether there is enough evidence to charge the players with conspiracy to commit fraud. The council’s anti-corruption and security unit is conducting its own, parallel investigation.

ICC investigators will not question the players until they receive permission from the police. They are finalising an “information sharing protocol” to pool evidence.

The police seized money and mobile phones from the players last Sunday and are investigating any possible link between bank notes found in their possession and the money handed to a middle-man as part of the sting by the News of the World, which made the allegations.

Before any prosecution, Scotland Yard would have to prove that any money they received from Mazhar Majeed was taken in return for deliberately bowling no-balls. The players have told friends they are prepared to tell detectives they did receive payments from Majeed, but this was entirely proper because he was their agent.

Majeed, who was arrested last weekend by police over the News of the World allegations, and by customs over money-laundering allegations, is responsible for organising the three players’ sponsorship deals.

At least one of them did not have a UK bank account. Majeed has represented members of Pakistan’s test side in this role for several years.

Last night, the ICC moved to suspend the trio provisionally after charging them with “various offences” under its code of conduct. Sir Ronnie Flanagan, the recently appointed chairman of the anti-corruption unit, and Haroon Lorgat, the ICC chief executive, insisted the offences were not “the tip of the iceberg”. But Lorgat conceded that the sport faced its worst crisis since the Hansie Cronje match-fixing affair a decade ago.

Pakistan high commissioner Wajid Hasan this morning accused the ICC of “playing to the public gallery” by suspending the three cricketers.

He said: “I have heard the press briefing by two ICC Representatives today. I have also learnt that ICC has taken Amir’s name off from the list of players of the year. What happened to the general principle of law – innocent until proven guilty?

“After the shocking, arbitrary and high-handed suspension of the three cricketers through the ICC’s uncalled-for action, nothing is coming to me as a surprise. My apprehensions that there is a rat in the whole affair are being strengthened.”

He said the ICC had “no authority” to intervene and has previously claimed the players were “set up” by the News of the World, which is expected to publish further revelations on Sunday. On the same day, England will face Pakistan in the first of two Twenty20 matches in Cardiff.

Lorgat insisted that the proper processes had been followed and denied Hasan’s claims.” I certainly wouldn’t subscribe to the view that there is some sort of conspiracy around Pakistan cricket.

“This particular incident with the three players is unrelated to the challenge that we’ve got in keeping Pakistan involved as a full member of the International Cricket Council,” he said. The country has been unable to play at home since a terrorist attack on the Sri Lanka team bus in Lahore last year.

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

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

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

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

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

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

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

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

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

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New system finds underpayments through PAYE, with workers who moved jobs or accepted benefits most likely to suffer

Tax bills demanding up to £5,000 in extra payments will drop on the doormats of around a million people before next April after a new computer system found widespread underpayments by employers through the PAYE system.

Employees who moved jobs or accepted company cars or cash benefits from their employer were the most likely to be caught by the new system.

It aims to reconcile information held on different systems inside HM Revenue and Customs.

The tax authority found millions of taxpayers regularly paid more or less tax than they should after it switched on a new system to trawl through 40m tax records. Around two million people will discover they are owed money by the tax authority, although they will be owed much smaller amounts.

Repayments will total £1.8bn compared to extra tax bills of £2bn, leaving HMRC £200m better off.

Officials said tonight that an initial review of 600,000 tax records found 44,500 taxpayers had paid the wrong tax in the previous year.

They said 15,000 would be told to pay extra tax while another 30,000 would receive refunds.

A spokesman said the tax authority was confident the sample could be used to show the effect on 40m PAYE taxpayers.

Around 80% of bills will be less than £2,000 and will be clawed back through the PAYE system, while larger payments will be recovered separately. The spokesman added: “The vast majority of the 40 million people who pay through PAYE deductions are correctly taxed, but because circumstances change during the year there will always be a minority who have paid either too much or too little.”

However, HMRC’s new system has already come under fire from tax advisers who claim it led to thousands of people receiving the wrong tax code and inflated bills. The Chartered Institute of Taxation said earlier this year that many people received the wrong information.

It accused HMRC of using out-of-date information to support the claims it made for extra tax.

It said: “Many [taxpayers] are being given wrong information, and unless they spot it and tell HMRC, their employer will receive the wrong information too, and they could get a nasty shock when they open their April pay packet and see it is as much as a hundred pounds lighter than they are expecting.”

The HMRC spokesman said taxpayers could dispute extra tax charges by claiming on a ESC19 form that they had supplied information in good faith and retrospective bills should be dropped.

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In his only live TV interview since his memoirs were published, he tried to convince the audience of his motivations for the Iraq war

Tony Blair tried to bury his “toxic legacy” last night by flying to Ireland to appear on The Late Late Show.

In his only live TV interview since his memoirs were published, he tried to convince the audience that he acted against the one million people who marched in opposition to the war in Iraq in 2003 because he simply couldn’t take decisions “based on those that shout most”.

Blair was greeted by about 50 protesters at the RTE studios – although they were easily outnumbered by the number of squealing teenagers who had gathered for another set of guests on the show – The X Factor twins Jedward.

During the interview, he was asked how he felt that morning drinking his coffee in Downing Street, with a million protesters outside.

“Look it’s not them that give you pause for thought. You should have pause for thought all the way through. In the end you have to decide this way or that, there is, unfortunately no third way.”

“Yes I had to listen to people who were opposed but there were also people in favour of the decision I took including, incidentially many many Iraqis.”

He denied he had “blood on his hands” and said he didn’t believe he was a “war criminal” showing a flash of exasperation when asked to explain why people thought that he was.

Interviewer Ryan Tubridy sought the advice of Jon Snow ahead of the interview but was warned it would be difficult to extract anything ‘revelatory’ out of Tony Blair.

It is believed Blair chose Ireland for his only live interview since his memoirs because he felt he would get a better hearing because of the peace he secured in Northern Ireland.

“When we finally got the whole lot together literally weeks before I left office in 2007 and there was Martin McGuinness sitting with Ian Paisley and it was such a strange and extaordinary sight and it was one of the few times in politics I felt really proud actually.”

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