After the one-day public service strike this week, the Government, trade unions and the public need to reflect on a painful lesson from the recent past: excessive public sector pay awards in the early years of this century played a central role in triggering the 2008 financial crash.

The popular narrative of that episode is that the crash, the subsequent austerity and the EU/IMF bailout were all the fault of the banks. While there was no excuse for the reckless behaviour of the banks, the focus on their sins has allowed a convenient shifting of responsibility from other players – the government and the public sector unions.

One key element of the public finance crisis that engulfed the country in 2008 was the runaway cost of the public service pay and pensions bill, which fuelled unsustainable growth in government spending from 2000 onwards.

This process was partly driven by a rapid expansion of personnel, with the number of public servants rising by 35 per cent between 2000 and 2008, but it was compounded by a rise in pay of 32 per cent between 2003 and 2008. The cumulative increase in inflation over the same period was 18 per cent.

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