We’ve been bleating about getting ripped off for years yet when one player, Tesco, albeit propelled into action by cross border competition, starts a price war, the airwaves are full of alarm from producer groups and their allies. Once again consumers are ignored - that prices are about to fall sharply, helping out low wage Irish families, is swamped by forecasts of damage to the food industry.

Let’s keep perspective

• If the Groceries Order wasn’t removed this long awaited price war would have been impossible as suppliers protected prices. After 18 years of phoney competition it has taken four years and a recession to reach this tipping point.
• Irish food middlemen and processors can’t be artificially protected by Government intervention. When the other team has the ball you don’t complain to the ref, you compete. Otherwise we end up paying subsidies to businesses through higher prices and our most vulnerable citizens pay most.
• Dunnes, operating an unreformed 1980’s distribution model where suppliers deliver to individual shops will be sold. Cause they’re Irish will have nothing to do with it. Dunnes made huge margins and didn’t do enough to compete.
• Competition law is there to tackle market abuse and beats clandestine lobbying by vested interest groups hands down. So let’s leave Tesco to the laws we’ve passed through the Oireachtas and not to some stitch up.

Recovery
Evidence is mounting, the latest being from Central Bankers, that the global economy is stabilising and that the key US economy may begin to pull out of recession as early as this summer. Three stories of recovery now seem likely;

•  A saucer-shaped recovery in places most affected by the credit bubble including many OECD countries like the US and UK.
• A v-shaped recovery in fast growing non-OECD countries like China, India and the developing world. Other low debt countries like Germany likely to come back quickly.
• Big problems still remain in black spots most heavily exposed, that includes Ireland, Spain, Greece, Latvia, Estonia and Eastern Europe. 

 So what does this mean for you? 

Time to lock into long term fixed rates. As expectations of inflation reappear especially in Germany the ECB will begin to raise interest rates. It’s a hard decision to make when variable mortgages are so cheap and are effectively cushioning you from the vicious bite from increased taxes on your income but if you can manage it I believe you’ll be dining out on your action for years to come especially if you can get ten year rates at 5% or so.

Not conventional thinking, but I reckon that the speed of inflation is going to surprise. Already oil is creeping towards €60 a barrel despite the downturn. That means a changed world as prices rise beginning with food later this year and oil next year. So how can you take advantage rather than just sit and take the hit?

• Anything you can do now to invest in energy efficiency even something as simple as attic insulation or cavity wall injection will pay back quicker than you expect.
• Downsize to a compact car with much better mpg
• Switch some of your pension or savings to energy funds and those that invest in natural resources like food, metal, oil & gas and green energy.
• Take some cash from your deposit savings and buy some gold.
• Move home closer to work or public transport

Heart lifting, an ace in the hole, at last! A bunch of scientists and engineers have fashioned a big idea to make Ireland energy independent in a few short years, exploiting Ireland’s unique topography that: 

Wind resources

Like all good ideas it’s really pretty simple. Instead of using wind turbines in scattered parts of the country to generate electricity, Ireland’s powerful wind resource instead drives turbines that pump sea water into high elevation gorges that are a unique legacy from the ice age. Already two ideal sites have been identified but more are possible. These shallow gorges are blocked up and filled with sea water. The resultant flow produces hydro-power, a reliable and sustainable source of energy that doesn’t suffer from the intermittency of wind power. 

Today a public discussion is being launched. Much yet needs to be fleshed out in further study but the potential is sitting there. Investment in the new energy reservoirs can be matched by finance from the EU and sovereign wealth funds but an integrated national plan is needed. The State has to face down the ESB and deliver the much promised new electricity grid as the current piecemeal grid is way out of date and incapable of carrying the load.  

Meanwhile signs are the global economy is stabilising especially in the US where the housing market is showing signs of life. It’s not growth yet but it could be in a few months. In Ireland, while the April tax receipts are lousy, they are not deteriorating below the previous months, giving us a base from which to plan. All this means, we’re at the bottom, at last. 

Strategy

The timing of a strategy for an energy independent Ireland couldn’t come at a better time. Not only does it give the Government and opposition parties, especially Fine Gael, something positive about which they can agree, but it comes in conjunction with the recent International Energy Agency report on the world endowment of oil. Despite the worst economic year since the 1930s oil prices still sit at fifty bucks a barrel. A return to growth, where oil demand in non-OECD countries is rising eight times faster than in the developed OECD, will see the IEA forecast of an oil crunch bearing down on us come true quickly: 

A green Brian Linehan could leave a worthy legacy behind at the Dept of Finance if he grasps the opportunity and delivers an envelope of incentives and reforms to make this happen. The time to move beyond doom and gloom is upon us. Now has anybody else got another breakthrough idea?

You’re not alone, most business owners are in breach of bank covenants on business debt and on mortgages funded by business cash flows on property portfolios privately owned. But not everyone has the skill to complete the complex renegotiation necessary to get back on an even keel with an array of baying lenders. If you need help contact Eddie with;

•  A Summary of your debts, costs and assigned assets. Include values and rents
•  Your most recent management accounts capturing current cash flow
•  Covering story of where you are today with your banks.

One in five workers in the private sector will be unemployed by the end of next year. Game over. This Government is toast.

The ESRI forecast of a 17% unemployment rate doesn’t translate into the true rate of job losses in the private sector which is bearing the brunt of the onslaught. The rate of projected unemployment in the public sector is zero. It’s time we started using the correct words:

• Unemployment is being privatised.
• Recession in no longer the right word. This is a catastrophe.
• Blaming it on international events isn’t just wrong, it’s a lie told by liars.

By Christmas, job losses in Britain will be 7.7%, France 9.9%, Germany 8.9% and the European average will be 10%. Ireland will be shooting past 13% on its way to 17% by the end of next year but coming off an unemployment base of 4%. That’s why the right word is catastrophe.

• Government is also the wrong word.

Government assumes power rests with it. But what we’ve seen instead has been a damage limitation exercise, much of it driven by wishful thinking and propaganda, by a puppet administration, until the April budget. At the cliff edge, action was forced upon it and Minister Linehan finally acted. But even then this puppet , for that’s what it is, hasn’t squared up to its masters in the ruling classes – the public sector unions. True, the scene was set in the budget by intentions to benchmark Government pay to other countries, but nothing material was done to address the big spending areas.

The ESRI forecast is damning. Already the tax revenue forecasts are wrong. There isn’t room to tax pay packets much further without sinking the economy. While widening the tax base to property and carbon will help, spending still has to be slashed. But the puppet Government dallies in talks with public sector union chiefs. It’s laughable to think that these union bosses put themselves about as protecting the unemployed but embark on policies that worsen the public finances and threaten our ability to support social welfare. The truth is that public sector pay has to come down sharply. It’s no longer a case of reverse benchmarking ie protecting pay at 20% over the odds nor is it a case of paying the public sector more than competitor countries. Based on the ESRI forecast it is now the case that we may not be able to afford public sector pay cheques at all next year.

The math is that simple. How can we pay unemployment benefits to nearly a half a million private sector workers and finance our national debt but leave the public sector pay and pensions bill unadjusted at €20 billion, that’s 60% of all our tax revenues. Don’t they get it?

Ireland’s desperate need to boost competitiveness to bolster exports and increase taxes to pay for public services now depends entirely on the public sector taking the hard road. The only route out of this siege is by cuts in pay. The longer the public sector engages in the politics of denial and flexing it’s power over this moribund intermediary we call Government, the worse it’s going to get for all of us.

Already encircled in a vice grip of events and miscalculations, the upcoming local and European elections will be like Stalingrad for Fianna Fail. Heaven help them because nothing else will.

Still down in the dumps after getting shafted in the Budget? Here’s some cheerier news.

Although we’re far from out of the woods yet, the darkest days look behind us as light is finally beginning to peep through the global economy, especially at the epicentre of the banking collapse - the US economy - vital to the interests of export-sensitive Ireland. Sure, there are still lots of minuses but at least now we’re seeing the positives finally beginning to gather some fragile momentum. So let’s start with the minuses:

Minuses

• Much like in Ireland, US house prices are likely to fall another 10% to 15% before hitting the bottom. Result – more negative equity
• Unemployment continues to rise but the pace is slowing 10% to a little over 600,000 per month. Result- less workers spending money
• Loan losses, defaults, bankruptcies and repossessions continue to rise. Result- more loan write-offs, bailouts and misery
• Retail sales are weaker than expected and industrial production is feeble. Result diminished sales, more saving less spending

Pluses

• Housing affordability is at historic highs, just like here, thanks to lower borrowing costs. Result; Increased incentive to buy in large numbers as the price bottom nears.
• Manufacturing orders are rising, consumer expectations strengthen, and US trade imbalance is narrowing. Result; Confidence is improving albeit slowly.
• Interbank lending, where the heart attack started, is now stable for three months. Result; the credit crunch is thawing a little.
• Weathervanes like General Electric, JP Morgan and Google have surprised with strong first quarters. Result; some corporate earnings are already improving and investors are returning.
• Some big companies are once again able to raise capital in debt markets. Result; Less risk perceived in corporate debt markets, a vital lifeline to big employers.
• Sensing some real evidence of stabilisation, stock markets have recorded several weeks of gains. Result; While fears of a sharp reversal in May remain high, the absolute floor could yet prove to be March 6th, allowing pension funds and investments to begin the long road to repair.
• Chinese retail sales boomed in the first three months keeping China’s growth above 6%. Result; Chinese consumer demand has defied results elsewhere.
• Despite falling exports Europe’s muscular German economy is recording improved business and consumer confidence.

Result; The world’s third largest exporter seems to be unfazed.

After many months of turmoil the overall position now looks to be stabilising. Even the most pessimistic forecasters are downgrading the risk of depression as expectations are now growing that the US will pull out of recession within the next 3 to 8 months. Of course it’s not written in stone but Obama wasn’t playing small town politics with the US economy when the American President recently said that green shoots are appearing and it wasn’t just from the shamrocks Brian Cowen gave him.

Unquestionably the US, European and UK economies upon which Ireland relies to kick start an export-led recovery, will each record negative growth this year but the signs are growing that we may be over the worst. That means 2009 may go down in history as both the year the recession hit its worst point and the year the recovery began.

So, expectations that Ireland will flat line next year but begin to grow again in 2011,may not be unreasonable. The speed of the Irish recovery may yet surprise critics especially if Government finally hit the last tackle bag – wasteful public spending and the Euro weakens a little against the Dollar and Sterling to aid our competitiveness.

Time to light those votive candles and pray that the recovery will be sustained and not simply the first leg in a W-shaped bust, boom, bust story. 

If Carlsberg did pensions it would hard pressed to better the Irish public sector. Last week, the Government supercharged public sector pensions, reinforcing the common perception of its timidity in the face of powerful public sector unions. In the run up to the budget, public sector workers close to retirement and queuing up to go early, fearful of rumoured tax on retirement lump sums, couldn’t believe their luck. Instead the Government boosted the unique pension package much further than is generally understood by enhancing early pensions and lump sums. The enhanced pension is immediately payable to over 50's together with 10% of the lump sum with the balance delayed until normal retirement age is reached. Our analysis shows that the result is a massive giveaway to public sector unions in an early retirement scheme exclusive to its constituents. We price the Governments largesse, measuring the enhanced benefits in the only accurate way - by reference to commercial market prices.

Before the budget a 50 year old earning a hundred grand a year with thirty years of service whose normal retirement age is 60 could exit with lump of €92,475 and a pension escalating in line with salary grade increases beginning at €23,400. In the open market a worker in the private sector would need to accumulate €1,121,951 in a pension fund to enjoy the same benefits. This is the commercial cost calculated on the day of the budget by reference to the cost of buying pensions. But by changing the rules that normally apply, the post-budget pension, in this example jumps 1.6 times to €37,500 escalating per year and the open market cost to a whopping €1,744,280. Even allowing for postponing most of tax free cash until normal retirement age under the new scheme, this is an increase of €622,328. In simple terms the saving in the difference between salary and pension by commuting the worker to a retiree earlier than normal is costing us all 6.2 times of his salary. Quite how this is value for money for taxpayers defies logic and smacks of a sleight of hand.

Notes: The Value as a Private Pension Fund includes tax free cash lump sums and is based on commercial prices on budget day. The example is based on a male normal retirement age 60, salary €100k p.a. The outcome is pro rata for lower salaries.

Multiplied across the numbers now expected to apply for the scheme the legacy may be to burden future taxpayers with billions more in pension costs.

The Government hopes to save the difference between current salary and pension payments but as our report shows, much like extending a mortgage term, the saving is a sham. In return for an immediate gain in cash flow, the long term cost to taxpayers is excessive. Once again the Government has fumbled the real issue which is inflated public sector pay and pensions and, when faced with thinning numbers on the active payroll, it has resorted to bribery masked in guff about patriotism. But there is nothing less patriotic than passing the cost of failure to future generations of taxpayers or more cowardly than concealing it in the smoke and mirrors world of pensions.

Medusa, once a beautiful woman, so offended Athena, her hair was changed into snakes and her face made so ugly that anyone who looked at her was turned to stone. Even after she was dead her head retained its power to petrify, so too with yesterday’s announcement. This is just the beginning. It is not a budget as we know it but a five year plan that intensifies the squeeze all of us with each passing year.

The Ugly Stuff

• Misdirection dominated the opening as the Government failed to accept responsibility of the so-called structural deficit, about 2/3rds of the black hole created by its reckless policies from 2002. This marks a catastrophic failure to provide real leadership and is its single biggest failing. You cannot lead a nation on false pretences. Where is the honesty?
• Taxes more than spending cuts will be used to fill the void, starting with a treble whammy of Income, Health and PRSI Levies. This risks nose-diving the economy into a downward spiral as people save more rather than spend.
• There is no effort to reduce VAT or suspend stamp duty to encourage more transactions.
• Although the tax hits are progressive, a minimum wage earner will still pay €350 per year on a tiny €17,500 salary. Meanwhile he or she is disproportionately hit by the increase in indirect taxes like a 25% increase in a packet of cigarettes and by unemployment risk.
• Spending cuts are woolly but expect Child Benefit to be means tested next year. Help for crèches to be cut by 65% as Childcare Supplement is abolished and replaced with a new scheme.
• Mortgage interest relief is being restricted to the first 7 years of a mortgage.
• Increasing CGT and CAT is more likely to yield less rather than more tax, especially CGT.
• That public sector pay has to be brought in line with our competitors is mentioned but no immediate action is taken. The Government has funked telling the public sector the truth in crystal clear terms that rates of pay have to come down.
• Incremental pay increases based on longevity and costing up to a half a billion a year remain in place.
• Although Ministerial pensions for serving members gets the chop, some perks get removed and expenses get cut 10% but unvouched expenses remain for TDs, the only workers in the country allowed to do so.

The Pretty Stuff – it’s all relative!

• The government is finally getting its arms around the problem.  International investors who finance Irish debt should not be overly displeased, despite some of the obvious political fudges.
• The income tax hit is progressive which means those on higher income pay more, but there are problems around those earning €75,000 per annum.
• The controversial pension levy is being adjusted at a cost of €100 million to protect lower paid workers.
• The establishment of NAMA (National Asset Management Agency) is the right step, transferring a huge amount of heavily discounted land and development loans out from the banks to reverse the credit crunch.
• Investment in capital projects, although being trimmed, will remain at 4% of GNP for the next number of years.
• Property related taxes are being introduced – interest relief on residential investment mortgages is being cut by 25% and trading profits from residential development land is finally being treated as normal income and subject to income tax or, in the case of companies, 25% corporation tax.
• Banking supervision is being reformed and this time no insider gets the top job.  An outsider, Sir Andrew Large, former Deputy Governor of the Bank of England is to oversee the birth of the new system.
• Further state support for Irish banks will come at the price of ordinary share capital for Irish tax payers.
• A business support fund of €100m over 2 years is being established and investment in crucial research and development is being maintained at 2.5% of GNP for the next number of years.  In addition, tax relief on investment in intellectual property is finally being introduced.
• €128m is being targeted to support 25,000 people in training, experience and education schemes.

All told the beginning of a five year period of austerity in Ireland but the Government hasn’t tried to con the electorate this time. It’s a start, there’s still a long way to go but at least now we have a poxy plan!

In our brief history as a modern economy no budget will so test us like this one. It is the ultimate litmus test of whether we’ve evolved into a mature democracy capable of putting our own house in order or whether we are to revert to type, putting a premium on the electoral cycle and handing the country over to pressure groups before eventually transferring it to the ECB or IMF. Will we get a hard headed economic budget or a slippery political one calculated to do a half job as Fianna Fail buy time and shore up market share for the June elections? Will we face the truth or will we face a fudge? We’ll know today. Here’s a list of ten top priorities.

1. Slash transactional taxes to encourage sales. That means cutting VAT and eliminating Stamp Duty entirely until the end of 2010. What’s the point in having 9% tax that nobody will pay in a falling housing market?

2. Commonsense tells us what must be done, hammering the economy with high taxes on work and success to avoid accepting that we must primarily cut spending, will extinguish the economy faster than any single measure. A top income rate which together with PRSI pushes over 50% will kill the incentive to earn more money by those that already pay most of income tax. So widen the income levy and hit the old reliables but don’t increase the top rate of income tax past the half way mark.

3. Inject further capital into banks but with severe conditions about unfreezing lending and set up a special asset recovery agency to strip out and manage bad debts.

4. Face the truth, we can’t afford our day to day spending. In the awful conundrum between protecting the most vulnerable, those on social welfare or protecting the least vulnerable, those with jobs and pensions for life, who are we to choose? We can’t fork out €20 billion on pay and the same again on social welfare. Scrap the dishonest pensions levy and call it what it is, a pay cut but this time apportion it properly. Abolish incremental pay increases based on longevity. Immediately replace increments with bonus pay for merit only.

5. Announce a voluntary redundancy and early retirement package for public sector employees. Tell the sector the truth, Irish public sector pay has to start gradually coming down to the same level as competing economies. Private sector pay is already rapidly adjusting. Start de-layering bureaucracy now. There are 49,000 administrators supporting 62,000 front liners in the Health system, that’s a crazy ratio heading towards one to one. Same in other sectors. Cull the number of agencies and cut Directors fees across the board to 2003 levels.

6. Widen the tax base. Having boosted property transactions by suspending stamp duty incrementally introduce a tax on investment properties. Don’t include holiday homes unless you’re prepared to go after pads in the sun. Introduce elegant not crude carbon taxes but offset with incentives.

7. Redirect capital spending to job dense activities like home energy efficiency but accelerate the delivery of these schemes. Free up the investment and banking finance bottleneck for strategic projects such as commercial wind farms and energy technologies. Introduce more not less tax incentives for R&D initiatives and the sciences for businesses especially those that gel with our universities.

8. Be very careful of reforming pensions without very clear understanding of the complexities and interlinks. Do not touch reform of private pensions especially for middle income earners unless you’re prepared to introduce a quid pro quo cap on public sector pensions. A thirty grand public sector pension is worth about a million Euros. Few private workers will ever reach those heady numbers so if you hit their incentive to save for retirement you must be prepared to cap public sector pensions at thirty grand a year.

9. Leadership is vital if you are to sell the package. That means steeply cutting pay and pensions to The President, the Taoiseach, the Ministers and eliminating all the perks like committee chairman and conveners fees.

10.; Sell us a vision of what we can be in the years ahead. Know the way, show the way and go the way.

The Public Sector national strike is off. Thank heavens we’re moving past the anger phase and into searching for real solutions to the common threat of losing our independence in running our countries finances. Next we need to move past simple slogans and into precise detail. Slogans like it must be fair and the rich should pay for their excesses make for great speeches but ignore the harsh reality that the budget will, by necessity, hit just about everyone.

I’ve been banging away at the daftness of the most protected marching to offload their burden elsewhere.  If super taxes on high incomes could get us out of this mess I’d say it. If nailing and jailing fatcat bankers would do it, I’d say it. If taxing the worldwide assets of Irish tax fugitives were possible and effective, I’d say it. If there were any way out other than spreading the load across all workers hell I’d be leading the march. But there isn’t.

Right wing theology this is not. It is simply the truth.  The ugly facts of the matter are that if all workers and that includes, the self-employed and owners of SMEs don’t carry the load together, it is the weakest and most vulnerable in society that will get it in the neck. That means our elderly parents on very low pensions, our growing jobless neighbours worried sick about their children’s education and how to meet the next loan demand, our sick and disabled, our home helpers and the hundreds of thousands of others that rely on us taxpayers to help carry them.

That’s the contract we all enter into when we pay our taxes. No group of workers has the right or the justification to claim special privileges in ring-fencing their incomes, that’s why I’ve been relentless in exposing the nonsense of public sector victimisation. If Public Sector Union chiefs got their way and lessened the load on their constituents it isn’t the rich who suffer. Their load would be paid for by savage cutbacks in social welfare payments, in hospitals and throughout our schools.

The most important thing the Government needs to get right about this budget is leadership, that means leadership built on telling the truth with crystal clear communication and unafraid to stand up to powerful vested interests used to dictating to Government.

• On the spending side that means telling us that all salaries from President Mc Aleese down through Ministers, TD’s, Judges, Senior Civil Servants, heads of State agencies, lecturers, gardai, teachers and nurses are too high for our shrunken and uncompetitive economy and must be cut. Deep cutbacks are already happening in the private sector as businesses scramble to survive.
• Let’s widen the tax base to include investment property taxes, carbon taxes, let’s skew income tax to ensure higher earners carry relatively more, let’s cut out all non-essential tax breaks and go after tax exiles. But even doing all these things we still cannot avoid taking more tax from low and middle income earners that have jobs. We also need to avoid the fatal trap of taxing success at more than 50% of income by introducing an ill-conceived new tax rate - do that and we’ll kill motivation stone dead.
• Let’s be smart, foresighted and brave enough to continue to invest in the things that will matter most during the next up cycle especially projects that will support sustainable jobs in clean technology, in the sciences and engineering and in energy efficiency and generation. That means not being afraid to borrow to invest even though faced with hugely challenging cash calls elsewhere.

And if the Government fail to deliver clear headed leadership this time, let’s throw them out.

Public Sector action scheduled for the end of March serves just one useful function – it vents anger. But it is based on a sham victimisation position. Here’s what the Government and Opposition parties are afraid to say;

• Adjusting for education, experience, occupation and gender public workers are paid 20% more than everyone else.
• Contrary to public sector union propaganda where the single mum example is often wheeled out, the low paid enjoy the highest premium at 30%. The high paid have the least at 10%. A single mum is far better off in the public sector than serving in the local fast food joint where she’ll have 30% less pay including no pension.
• In money terms public sector pay, now touching an average of fifty grand a year, is running nearly ten grand a year ahead of the private sector.
• This premium ignores the current pay cuts hitting the private workforce and the extraordinary pension premium enjoyed by the public sector.
• A teacher starting work today would need to pay between 27.5% and 33.6% of salary each year for forty years into his or her pension if it wasn’t subsidised by the private sector. A garda would need to pay between 36.6% and 44.8% because retirement on full benefits is as early as age 50.
• The cost of the pensions levy after adjusting for tax relief is just 4% to 5.3% on incomes between €25,300 and €66,100, far less than the substantial pay cuts assailing the private sector.
• In strongly competing economies like the UK, Germany, Holland, Denmark and Finland public pay is at a discount to private sector pay because of the extra security.
• Irish average pay in the education sector in 2005 at €51,666 stood 25% above the UK and 66% above Swedish 2007 levels.
• French average pay in its much lauded health sector in 2006 was €26,780 compared to Irish pay of €39,240 in 2005. That’s a 46% difference.
• In 2001 there was 247,000 employed in the public sector. By 2007 this had risen by over 22% to 302,500, mostly in Health up 26,000 to 107,500 and Education up 18,000 to nearly 86,000.
• The total pension bill is now capitalised at €60 billion. The annual pay bill at €20 billion up 50% in a short few years is, simply put, unaffordable according to economists employed within the public sector and who publish a Quarterly Economic report.
• Time on the clock rather than merit increases pay and adds close to a half billion each year in extra pay. In 2007 Garda basic started at €25,800 and moves by increment to €46,000 after 17 years. Teacher’s €31,000 pushed to €60,300. Admin officers €33,500 went to €55,100, Clerks €23,220 to €35,700, Public Health nurses €46,400 to €55,200, Staff Nurses €30,400 to €43,000. These are higher today.
• The Irish President, Taoiseach, Ministers and top officials are amongst the highest paid public servants in the world outperforming Britain, France, Germany and the USA a truly remarkable feat given our tiny size.

Ireland’s had a property bubble but it’s also run a parallel public sector bubble where the tax revenues from one expanded the other. The harsh truth is that we cannot afford the public sector gravy train at its present level but no politician has had the courage to say it including Fine Gael and Labour. Instead of focusing on a clumsy pensions levy we need to work together to find a common solution to the stabilising the public finances otherwise outside agencies will do it for us as an ultimatum. Public sector pay will have to adjust to fit the shrunken economy and that means several years of adjustment in relative terms if we are to regain competitiveness and finance future expansion in public services. So let the anger vent but when the bile subsides recognise that jailing bankers and hitting the rich with extra tax will not avoid what has to be faced; Public sector pay has to come down if large scale job losses are to be avoided. What Public Sector Union chiefs should be mulling over is not a daftly constructed pension levy  but whether to sell job losses or pay cuts to its members.