The head of children's services in the London borough where Baby P died after months of persistent injury and neglect was dismissed from her post yesterday as the government responded to a damning report into the council's failings.

On a day which saw two senior figures on Haringey council resign within hours of the report hitting ministers' desks, Ed Balls, the children's secretary, removed Sharon Shoesmith from control of the borough's children's department. He described the findings of the review as "devastating".

The report, commissioned at the conclusion of the Old Bailey trial into the toddler's death, found nine fundamental defects, which continue to put children in danger despite the intense public scrutiny since Baby P was killed in August last year. They included failure to identify children and young people at risk of immediate harm, lack of coordination between agencies and poor sharing of information.

George Meehan, the council's leader, and Liz Santry, its cabinet member for children and young people, resigned within hours of reading the conclusions. It is understood that Shoesmith offered to follow suit and was astonished to see Balls announce her immediate dismissal on live television in the early afternoon. It also emerged that five other council employees have been suspended over their handling of the case.

Balls said he was using powers under the 1996 Education Act to remove Shoesmith and install John Coughlin, director of children's services in Hampshire, in her place. "I have powers to intervene and remove someone who is not fit for office," he told journalists.

He added: "Most people would look at this report - look at the clear evidence of management failures - and say that this kind of failure should not be rewarded with compensation or payoffs. That's a matter for Haringey." The council acknowledged that Balls had the authority to remove Shoesmith from her role as director of children services, but the status of her employment contract with Haringey was still a matter for the council to resolve.

A spokesman said: "She has been suspended pending disciplinary proceedings, with two others: Cecilia Hitchen, deputy director, children and families; and Clive Preece, head of children in need and safeguarding services." Three other staff -Maria Ward, the social worker, Sylvia Henry, senior social worker and Gillie Christou, the team manager - had been removed from child protection duties pending further investigation."

The council would be required to report monthly to the government on progress in reforming the children's department, with a further review by Ofsted by the end of June. Balls said he would then decide whether "further sanction" was needed, including a possible compulsory contracting out of children's services to another provider.

Balls said the report by Ofsted, the Healthcare Commission and chief inspector of constabulary was "devastating and damning". On nearly every page, the document was littered with words such as "inadequate", "unacceptable", "poor" and "unreliable".

The failings included:

• Failure to identify children and young people at immediate risk of harm and to act on evidence;

• Agencies working in isolation from one another and without effective coordination;

• Poor gathering, recording and sharing of information;

• Inconsistent quality of frontline procedures and insufficient evidence of supervision by senior management;

• Inconsistent management oversight of the assistant director of children's services by the director of children's services and the chief executive;

• Insufficient challenge by the local Safeguarding Children Board to council members and frontline staff;

• Poor child protection plans.

Balls ordered the review after public outcry over the death of the 17-month-old boy, who suffered more than 50 injuries at the hands of his abusive mother, 27, her boyfriend, 32, and their lodger, Jason Owen, 36, despite 60 contacts with the authorities over eight months. They will be sentenced next year.

Balls said he was particularly worried by a finding of the inspectors that child protection staff failed to talk directly to children. He added: "Where children were not seen alone, it worries me greatly that the inspectors found little evidence of management follow-up to ensure children suspected of being abused were properly heard and able to speak up without fear."

Balls urged investigations into 38 other abuse cases to be reopened after Ofsted criticised the quality of previous reviews. They include three cases in Cornwall, three in Northamptonshire and deaths and serious injuries to children in Bristol, Derbyshire and Hampshire.

Ofsted will also carry out annual unannounced inspections in England.

There will be a fresh independent review of the Baby P case, with an executive summary published in March. But the full report will remain confidential and Balls refused to order a full public inquiry.

He accepted advice from Lord Laming, head of the inquiry into the death of the abuse victim Victoria Climbié in 2000, who said a public inquiry would set back progress on child protection made in many parts of England and divert effort from the actions needed to keep children safe in Haringey.

A naive and irresponsible politician, prone to distorting the facts, awarded a crucial role in his cabinet yesterday to a deeply flawed has-been who is neither honest nor trustworthy - or so you might have imagined had you relied on the character judgments that each had previously made of the other.

But all that nastiness belonged to another, long-vanished era, the prehistoric period geologists refer to as "last spring". Barack Obama's much-anticipated announcement that Hillary Clinton would be his secretary of state, by contrast, dwelt almost exclusively on the future. Which left only a few hundred lingering questions.

The appointment, first mooted in the press nearly three weeks ago, had been variously greeted as ingenious, admirable, baffling, and highly ill-advised. But with its confirmation yesterday - on the day they appeared together for the first time since Obama's election victory - the extraordinary implications began to sink in: Obama's top representative abroad will be a woman with whom he clashed bitterly for months.

An opponent and a backer of the invasion of Iraq must work together to end the war there. And Obama's much-publicised plan to talk to leaders of countries hostile to America will now, presumably, be spearheaded by someone who condemned the idea as downright dangerous.

Clinton and two other hawkish appointees announced yesterday - Robert Gates, who will continue as defence secretary, and the retired Marine commander James Jones, Obama's new national security adviser - have reportedly all embraced the radical change in direction. "I have known Hillary Clinton as a friend, a colleague, a source of counsel, and a tough campaign opponent," Obama said, outlining her role in what he described as a "new beginning" in American leadership abroad.

Clinton would "command respect in every capital," he promised. Obama's victory, Clinton said, reflected the view that "our security, our values, and our interests cannot be protected and advanced by force alone nor, indeed, by Americans". It is standard procedure, of course, for emnities arising during the primaries to be transformed. But clashes are rarely as vicious as Obama versus Clinton was. Then there's the complicating factor of Bill Clinton, who has agreed to allay the Obama transition team's concerns by making public, among other things, the names of more than 200,000 donors to his foundation and library.

The cynical interpretation of Obama's decision is that it neutralises a rival Clinton powerbase in the Senate. Another view is he prizes practical experience and independence of mind in his appointees, and is confident of imposing ideological direction on them.

"This is fun for the press to try to stir up whatever quotes were generated in the campaign," Obama said. "No, I understand. And you're having fun, and there's nothing wrong with that."

One of the most compelling rivalries in modern political history, he seemed to be saying, was now nothing but fond memories. And maybe he is right.

The government will announce further stringent welfare reforms today which would force lone parents with children aged one or more to prepare themselves for work or face benefit sanctions.

The proposals, likely to provoke a confrontation in tomorrow's Queen's speech, represent a further extension of the government's responsibilities agenda. Ministers already faced a backlash over aspects of the planned welfare reform bill as lobbyists argued plans to tighten sanctions and give private contractors a bigger role in job placement, should be shelved in view of the recession.

But James Purnell, the work and pensions secretary, will defy critics when he publishes a review prepared by the academic Paul Gregg that will propose all lone parents with children as young as one should be required to make themselves ready for work.

The government proposed in a green paper in July to make it a requirement for lone parents with children aged seven or more to seek work, proposals that had already led to a backlash. It is estimated there are 600,000 lone parents with children aged under seven.

Gregg is to propose a new category of benefit claimants - the progression to work group - who he says should face clearer state requirements to make themselves ready for work.

The Department for Work and Pensions said this group would include lone parents with children as young as one, partners of people on benefits with children under seven and incapacity benefit claimants deemed to be capable of work.

This group, before they are actually ready to actively seek work, would be expected to address debt, confidence or health problems, as well as taking on work and skills training. Young mothers might also be required to make inquiries about access to childcare in their locality.

"Sanctions would only apply to those who refuse to take steps to be job-ready that have been jointly agreed with their personal advisers in Job Centres", said a DWP official.

From 2010 many of these advisers would be employed by the private sector or charities.

The Gregg review stemmed from concerns in the DWP that the current path to benefit entitlement was not clear. Ministers favoured the example of Scandinavia, especially Denmark, where almost everyone is expected to do something in return for receiving unemployment benefit.

The government's previous proposals have already been attacked by Richard Tilt, chairman of the independent social security advisory committee, and by the leftwing pressure group Compass which has argued "it is wrong to profit from the sick and the unemployed".

Christopher Galley, the 26-year-old civil servant at the centre of the Damian Green affair, regularly leaked documents to the Tory frontbencher for nearly two years because he believed they would be "used in a responsible manner in the public interest", his lawyer said last night.

Galley's solicitor, Neil O'May, insisted the information involved was of the "lowest level" and attacked the nature of the police investigation, which included the Home Office official being held for 17 hours after a dawn raid on his home by anti-terrorist officers two weeks ago.

Galley's appearance came as Ken Jones, the president of the Association of Chief Police Officers, defended the Metropolitan police action in arresting Green, a shadow Home Office spokesman, saying that no person, regardless of their station, should be given the opportunity to influence an inquiry in their favour.

David Cameron is expected to ask two Conservative heavyweights, Ken Clarke and Michael Howard, to lead his party's assault on Gordon Brown and the Commons Speaker over Green's arrest when MPs return to Westminster tomorrow.

O'May, who acted for Lord Levy during the "cash for honours" affair, sat alongside Galley at yesterday's press conference and said his client was unable to speak because he was still on bail and under police investigation: "If ever there is a case of 'don't shoot the messenger', this is it," said O'May. He added that Galley had been open and cooperative and had volunteered the whereabouts of his computer, mobile phone and the documents the police needed for their inquiries.

O'May said Galley first met Green in the Commons in 2006. "He was in contact with Mr Green over the following two years, including further meetings with him. As a result, Mr Galley gave Damian Green MP information which was important for the public to know in an open and democratic parliamentary system."

He confirmed the systematic nature of the leaks, which it has been claimed amounted to more than 20 documents, by admitting they had been "close to regular" over the past two years.

O'May tried to play down their significance, saying Galley had first met Green because of his concerns over immigration and the documents amounted to "embarrassment material". He stressed that Galley had not been charged under the Official Secrets Act. "It's not really state secrets, national security, terrorism, financial jeopardy, loss, gain or otherwise - nothing remotely like that," he said.

O'May would not comment on whether or not inducements had been offered to Galley, or on reports that his client had stood as a Tory candidate and then been interviewed by Green for a Commons job before joining the Home Office.

He did however dismiss speculation that Galley had been involved in a police plot after his arrest to set up Green, describing the allegation as a "malicious rumour and wholly untrue".

Cameron and his circle believe the arrest of Green marks a defining moment of what they describe as "state heavy-handedness". But they want to act cautiously in order to be seen as a government in waiting and because they do not want to lose sight of their main prey: Gordon Brown.

Conservative plans are to be finalised at a special meeting of the backbench 1922 committee. Clarke is expected to play a leading role in challenging the Speaker, Michael Martin, and the prime minister. Howard is also expected to be on hand, though he has less cross-party appeal.

Their attack is expected to:

• Challenge the Speaker, who will make a statement, to explain how the Commons authorities allowed police to enter the Palace of Westminster and search Green's office. The Tories are suggesting that the Commons authorities may have been misled by the police, who reportedly said their action had been approved by the Director of Public Prosecutions, Keir Starmer. Starmer said he was informed just before the arrest took place.

• Maintain the pressure on Gordon Brown by asking the famous Watergate question: who knew what when? The Tories believe that home secretary Jacqui Smith, made a grave mistake in telling her officials she did not want to know about any police action against Green.

Amid cabinet concerns at the conduct of the police, Downing Street indicated that there may be grounds for an inquiry once the investigation is over. "There may well be a time when it is right to look at any specific issues arising from this case," said a spokesman for Brown. "But we can't do that without knowing what the facts of this case or in a way that might undermine the operational independence of the police."

Jack Straw, the justice secretary, indicated that he was surprised by the arrest of Green and search of his homes and properties. He said: "Everybody who has been made aware of these unfolding events of course is surprised by the nature of the raid, and I certainly understand the concern of my parliamentary colleagues."

Many shoppers found yesterday that the price at the till was less than the one on the label, as the cut in VAT came into effect.

Alistair Darling announced last week that standard value added tax would be cut from 17.5% to 15% for 13 months, to raise consumer confidence. The reduction would cost the government £12.5bn in lost revenue and retailers £200m as they reprice items.

Shops that have decided to pass on the reduction to consumers have two weeks to bring labels into line with the prices they charge. Tesco and Sainsbury's dropped their prices over the weekend, before the official cut. DSG International, which owns Currys and PC World, cut its prices hours after the chancellor ended his speech.

Other businesses introduced the rate yesterday. "Most retailers, particularly major retailers, are passing the VAT cut on to customers," said a spokesman for the British Retail Consortium.

A group of 20 retailers including M&S, Next and Sir Philip Green's Arcadia, said last week they would pass on the reduction. M&S has not reduced advertised prices but customers get the reduced price at tills. At Asda, price labels on shelves are being changed but reduced VAT will be automatically calculated at checkouts. Discount store Aldi has already rounded down prices of 350 non-food items (there is no VAT on food) and 500 "special buys". While gas and electricity are on an unchanged 5% rate, telecoms services are on standard VAT. BT spent the weekend changing its billing systems so customers would benefit from yesterday.

Its basic broadband was £7.95 for the first three months and is now £7.78; its top of the range broadband was £23.99 a month and is now £23.48. The head of BT's consumer business, John Petter, said: "We have had a bit of a hectic weekend. It makes for slightly jagged price points so ... we will probably at some stage tidy up our prices just to get a sensible price point customers can add up in their heads."

Virgin Media cut its call charges yesterday and hopes to introduce the new rate across all services soon. Any customer inadvertently overcharged would get a rebate in subsequent bills.

BT's public payphones have also been changed. Although the minimum remains 40p, callers get more time, as do mobile customers with top-up cards. Vodafone and Orange have added 25p-worth of calls to their £10 top-up vouchers. Customers who pay by monthly contract will see VAT fall on their next bill.

The price of petrol will not drop. A spokesman for the AA said that, based on the weekend's average price, the most recent available, VAT at the new rate accounted for 13.62p of the price of a litre - 1.69p less than it did at 17.5%. But the government is also raising fuel duty by 2p a litre, so customers lose overall, with an extra £200,000 a day to the Treasury.

One filling station began offering fuel with no VAT. Chris Woodruff, who runs the Jet station in Darsham, Suffolk, claimed his was the cheapest in the country, at 79.9p a litre for petrol and diesel at 93.9p a litre, for the first 10,000 litres sold: "We're practically giving it away. It'll probably cost us £1,000 in lost profits, but we wanted to make a point. In rural Suffolk, we don't have a network of public transport, so whenever the government puts up fuel duty it hits hard."

Last night the Turner prize, next step TV stardom? Mark Leckey was named winner of Britain's most important contemporary art prize and said he now wants his own variety programme: "Like the Two Ronnies. But with art."

Leckey, Birkenhead-born and a part-time professor of film studies at Frankfurt's Städelschule, was presented with the prize and £25,000 cheque by the singer Nick Cave during a ceremony at Tate Britain broadcast live on Channel 4.

The centrepiece of his Turner prize exhibition was Cinema-in-the-Round, a witty meditation on the nature of film in popular culture, taking in everything from Garfield the cat to Homer Simpson and James Cameron's Titanic.

For a prize that has thrived on outraged headlines about unmade beds and lights being turned on and off, the most controversial thing about this year's prize was its lack of controversy.

The most that could be mustered was half-hearted tut-tutting over an exhibit featuring a naked mannequin on the toilet. Many critics complained the exhibition was too dry, too academic and, worst of all, too dull.

There was also a feeling that the work was hard to get, something Leckey contested. "Who can't understand it? I don't understand who can't understand it. Critics are middle brow and they want stuff that looks like art and maybe my stuff doesn't look like art," he said.

He accused the press of being too interested in Damien Hirst and Banksy. "They [the press] come to the Turner prize and expect to be shocked, but the world I live in isn't like that," he said.

Leckey said he was now going to squirrel the money away, because of the credit crunch, but he wants a TV channel to knock at his door. "I want to make a TV series, I want to do a variety show on arts with music and performance," he said.

Stephen Deuchar, the director of Tate Britain and chairman of the judges, said Leckey was at the height of his powers: "He's brilliantly inventive, witty and idiosyncratic."

About 60,000 people have visited the exhibition over the last two months, although none of the shortlisted artists was well known to the general public. Leckey was the only man on a list which also included Goshka Macuga, Cathy Wilkes and Runa Islam. On top of the honour, money and party, getting the prize will significantly raise Leckey's profile as he joins a list of previous winners that includes names such as Steve McQueen, Hirst, Rachel Whiteread and Antony Gormley.

If the cards left by the public were anything to go by, Leckey was the people's winner. The 44-year-old London-based artist is a magpie who rifles at will through popular culture to create his own works.

One of Leckey's works in the exhibition is Made in 'Eaven in which he appears to have recreated Jeff Koons' work Rabbit. It also appears to be in Leckey's flat.

Of the losing artists, who will each receive £5,000, there had been strong support for video artist Islam. Among her works on display is First Day of Spring, featuring rickshaw-wallahs paid by the artist to just sit and stare, something they do with impressive ease. The outsiders were always going to be Macuga and Wilkes. Macuga had raided the Tate archives to create works which explored the relationship of the artist lovers Paul Nash and Eileen Agar. Wilkes created a work called I Give You All My Money, made up of naked mannequins, a supermarket till, and all manner of arranged detritus including dirty cups, horseshoes and roof tiling.

It was the kind of work that would have irritated the former culture minister, Kim Howells, who six years ago labelled the Turner prize "conceptual bullshit". Prince Charles agreed and wrote a congratulatory letter praising his "refreshing common sense" adding: "It has contaminated the art establishment for so long."

But there was little to get people as worked up as they have in previous years. Laura Cumming in the Observer complained: "This year feels bloodless, academic and quiet."

The director of the Tate, Nicholas Serota, last night said there always seemed to be a year of controversy and then a year "when the critics said it was dull, the show should be retired and we should all go home. This show is as strong as any I've seen."

Certainly there was never going to be a repeat of 2001, when some critics could hardly breathe because of their annoyance at Martin Creed winning for a light that went on and off.

Confirmation that the US is in recession shook Wall Street yesterday, ending the Dow Jones industrial average's five-day winning streak, as it suffered its second-worst daily percentage drop this year.

The Dow fell 679.95 points, a drop of 7.7%, to end at 8,149.09 as signs of a deepening economic slump around the world erased much of last week's sharp gains, with banks and retailers among Wall Street's biggest casualties.

Shareholders balked at an announcement by the National Bureau of Economic Research (NBER) that the US economy entered recession in December last year.

The White House commented on the news that a downturn has officially begun on President George Bush's watch without ever actually using the word "recession," a term he and his aides have repeatedly avoided. Instead, spokesman Tony Fratto remarked upon the fact that the NBER "determines the start and end dates of business cycles".

"What's important is what is being done about it," Fratto said. "The most important things we can do for the economy right now are to return the financial and credit markets to normal, and to continue to make progress in housing."

Many economists believe the current downturn will be the most severe since the 1981-82 recession. The country is being battered by the most severe financial crisis since the 1930s as banks struggle to deal with billions of dollars in loan losses. Ben Bernanke, the chairman of the Federal Reserve, said yesterday that further interest rate cuts were "feasible", paving the way for a lending rate lower than the current 1%.

Answering audience questions after a speech to business leaders in Austin, Texas, Bernanke said more constraints on risk-taking by large financial institutions were needed to ease the problem of banks being "too big to fail".

Limiting the risk-taking of institutions to feasible levels would mean "we don't privatise the profits and socialise the losses", Bernanke said, adding: "We need a better system for resolving failing institutions." This may include similar mechanisms to deal with problems at companies outside the banking sector.

The NBER's business cycle-dating committee announcement that the US was in recession, ending 73 months of economic expansion, gave Bernanke and his colleagues more bad news to digest when rates are discussed on December 15. The committee, which defines recession as "a significant decline in activity spread across the economy", is considered an official arbiter of the economic cycle. It said the downturn began last December.

"The committee determined that the decline in economic activity in 2008 met the standard for a recession," said the privately-owned group. The decision on the recession means that during the eight years that Bush has been in office, the US has seen two recessions. The first lasted from March-November 2001.

The current recession has already lasted longer than the 10-month average for recessions since the second world war.

The Dow fell yesterday morning before the NBER statement, after factory output data for November showed the weakest activity since 1982.

Initial optimism about a strong start to the shopping season also appeared to evaporate as retail stocks were hammered, amid concerns that heavily discounted sales would hit profits. Black Friday, the traditional start of the holiday shopping season when retailers make their biggest sales of the year and move into "the black", saw strong sales according to initial estimates, but heavy discounts are expected to hit retailers' profits.

The S&P 500 and Nasdaq indices were off by more than 6%.

Market-watchers said the Dow would have struggled to retain recent gains because hedge funds are still dumping assets to pay investors who are withdrawing funds, and to settle bank loans. "I don't know of a single investment strategist who thinks we are at the beginning of a bull market. It looks like it will be a long recession," said Brian Gendreau, of ING Investment Management in New York.

Condoleezza Rice yesterday called on full Pakistani cooperation with the investigation into the Mumbai attacks, saying they represented a "critical moment" in the new civilian government's efforts to wrest control of Pakistan's security services.

The outgoing US secretary of state said she did not want to "jump to conclusions", but made it clear during a visit to London yesterday that she expected Islamabad would have to answer for the attacks which left nearly 200 people dead last week.

Rice, who is due to arrive in India tomorrow, urged its government to focus on the investigation of the attacks, and to avoid actions that might have "unintended consequences", such as troop manoeuvres.

The Indian government has claimed the attackers had trained in Pakistan, while the Indian press has claimed they were members of a Kashmiri extremist organisation based in Pakistan, Lashkar-e-Taiba. The Indian foreign ministry yesterday summoned the Pakistani high commissioner to call for "strong action" against the perpetrators.

Pakistan has denied any involvement, but has warned that it might have to transfer forces from its western tribal areas, where they are fighting Islamic extremist groups, to its eastern border with India if there were threatening moves by Indian troops.

The Indian authorities have been releasing parts of their case against Pakistan to the media. Yesterday Indian media reported intelligence sources as saying an email claiming responsibility for the attack had been traced to an internet address in Lahore.

There were signs yesterday that India was winning the diplomatic tussle. A western diplomatic source said India's claims that extremist elements in Pakistan were involved in last week's attack were being widely believed, and that Pakistan's warning that it would have to move troops away from the Afghan border was being interpreted as "a threat" to western interests.

Speaking to reporters in London yesterday, Rice directed most of her remarks to the newly elected government of President Asif Ali Zardari.

"President Zardari has said rightly that extremism in any form is a threat to Pakistan as well as India. So I fully expect the commitment of Pakistan to absolute transparency and wherever the leads go, to follow them up," Rice said.

The civilian government's control over Pakistan's Inter-Services Intelligence agency (ISI) came into question last week when the prime minister, Yousef Raza Gilani, announced he would dispatch the agency's new director general, Lieutenant General Ahmed Shuja Pasha, to India to discuss the attack, only for the offer to be withdrawn within hours. A more junior ISI representative was promised instead.

Most foreign observers believe at least some ISI officers still harbour sympathy for Islamic extremist groups and turn a blind eye to their terrorist activities.

Rice did not mention the ISI yesterday but made clear she believed the time had come for the Pakistan's government to make sure that different parts of its security apparatus were not pursuing separate agendas.

"Everyone knows that you don't have day one with a military government and day two with a civilian government," Rice said. "But this is a critical moment for Pakistan to bring all its institutions into a common strategy to defend Pakistan. And defending Pakistan means rooting out extremism, defending Pakistani interests means cooperating fully, defending Pakistani interests means investigating this so further attacks can be prevented."

Rice said she was flying to New Delhi tomorrow "to show solidarity" and offer help with the investigation and counter-terrorism measures. She would also be discouraging the escalation of the situation.

Britain's foreign secretary, David Miliband, said the attacks had put Pakistani-Indian relations, which had been improving since the election of a civilian government in Islamabad, to a severe test.

"Now these are under the greatest possible scrutiny and the greatest possible strain," Miliband said. "I think it is precisely at this moment of strain and scrutiny that we need very strong statesmanship and leadership so that it is joint action and cooperative action that will make the difference."

India's high commissioner in London said last night that the attacks were "probably" aimed at derailing peace talks between India and Pakistan, which had been given a boost by the election of a new democratic government in Islamabad.

Shiv Shankar Mukherjee, told Sky News that India had made no "aggressive moves" since the attack, but warned that the peace process between the two countries was "under pressure".

But he added that "over the last few months, we've been having a terrorist attack virtually every month in India. And we've leaned over backwards and have gone the extra mile ... to see that the dialogue succeeds, because there is no alternative, except peaceful dialogue to resolve our problems."

Dozens of Zimbabwean soldiers rioted in Harare yesterday, attacking banks after they were unable to withdraw their near worthless pay, in a further sign that Robert Mugabe may be losing control over the forces that have kept him in power.

The unarmed soldiers also looted shops and were backed by some civilians as they clashed with riot police who fired teargas to break up the protest. The drastic cash shortages are caused by the country's 231m percent inflation rate, which has led the government to restrict people to withdrawing the equivalent of just 18p a day - not enough to buy a loaf of bread.

The Associated Press reported that gunfire had broken out in the city centre but it was not clear who fired.

Though not large, yesterday's was the second such protest in a week and reflects a desperation within the military that will be of concern to Mugabe and his allies, who have relied on the army to suppress political opposition. Ordinary soldiers, often hungry and unable to feed their families, have grown disillusioned. If significant numbers were to turn against Mugabe, it could swiftly bring an end to his rule. The president's grip is in any case greatly weakened as Zimbabwe's collapse continues without respite.

The authorities in Harare yesterday cut off water supplies to the city because there are not enough chemicals to treat the water in the midst of a cholera outbreak.

The health ministry yesterday said cholera has now spread to all but one of Zimbabwe's 10 provinces, as sanitation systems break down across the country. The World Health Organisation says about 425 people have died, but medical charities say the real figure is at least double that among the 11,000 reported cases.

The UN estimates that 5 million people, about half Zimbabwe's population, will need food aid in the coming weeks.

The opposition leader, Morgan Tsvangirai, yesterday urged foreign governments to end the "man-made" humanitarian crisis, "as it has reached catastrophic levels".

But there is unlikely to be any significant foreign aid until Mugabe agrees to implement the political deal reached in mid-September that required him to give up many of his powers to Tsvangirai, who was to be appointed prime minister.

Mugabe has so far blocked its implementation by insisting that his Zanu-PF party should control all the key ministries, particularly those responsible for the security forces and finance.

The most senior UN official in the country has warned that Zimbabwe could become a failed state similar to Somalia if the power-sharing deal fails.

Agostinho Zacarias told a delegation led by the former UN secretary general Kofi Annan that Mugabe was more interested in protecting his power and legacy than rescuing Zimbabwe from disaster.

"When asked by Mr Annan what would be the future of Zimbabwe were no political agreement reached, Mr Zacarias replied that it would become a 'Somalia', a failed state," said a report by Annan's delegation. "When asked what President Mugabe wants, Mr Zacarias explained that his interest is that of protecting his legacy and that of his political party."

Mugabe's regime remains defiant. Yesterday it said it would not abide by a Southern African Development Community ruling that the seizure of white owned farms were illegal under international law.

"They are daydreaming because we are not going to reverse the land reform exercise," Didymus Mutasa, the security minister, told the Herald newspaper.

From a distance, the five burly men hacking away at a patio in Slough yesterday might have looked like ordinary labourers. If they hoped that muddy boots and woolly hats allowed them to pass as builders doing a hard day's work, however, they were wrong.

These were the first convicted UK criminals forced to wear controversial "vests of shame" - bright orange bibs designed as public reminders that offenders cleaning graffiti or laying pavements are being punished and not paid.

Every labourer helping to lay a new patio at Slough's West Wing arts centre, the community service programme chosen to launch the scheme, was wearing a fluorescent orange vest emblazoned with the words Community Payback.

"They're not medieval. It's not to do with the stocks. It's not to do with shaming," said the justice secretary, Jack Straw. "The shame the offender feels is the shame and humiliation of having committed the offence and then going to court and having a criminal record. What this is about is enabling the public to see that justice is being done. The more we can get across to the public that community punishments are effective and tough, the fewer people the courts will find it essential to send to prison," he said. They had ordered 10,000 vests at a cost of £22,000, he said, after research revealed that the public believes offenders should be identified.

A Ministry of Justice press officer asked one offender, a reluctant-looking postal worker, to talk to reporters. "They're not going to name you or anything," she said. "They won't show your face."

The 36-year-old explained he was completing 80 hours of unpaid work for refusing to give a breath sample to police after running through a red light. He had also been given a three-year driving ban.

As for the jacket, he said: "Without a uniform, people can't identify who you are. I'm very comfortable. It's better than going to prison." Nearby, fellow offenders giggled at his apparent humiliation.

"It basically says: that person's a criminal," said one, shaking his head. "It's not enough to do the work. I've got to show everyone why I'm doing it. It's not something I want my kids to see."

Harry Fletcher, assistant general secretary of the probation officers' union Napa, said: "There have already been a number of attacks. The use of high-visibility vests seems certain to increase the risk."

Risk of vigilante attack was low at yesterday's launch, however, in an enclosed yard away from public view. "I'm not embarrassed," said another offender. "No-one's going to see us here, are they?"