The Irish Independent reports that Taoiseach Brian Cowen last night caved in dramatically to public-sector workers, agreeing a deal to protect their pay scales, pensions and permanent job status.

Tomorrow's disruptive 24-hour strike was called off after jubilant union bosses persuaded the Government to drop plans for a 7pc pay cut.

The Government has embraced a union plan to allow its workers to take two weeks' unpaid leave rather than reduce their pay by 6.85pc -- but the measure may have a dire effect on public services, particularly the health system.

The Health Service Executive -- the biggest public sector employer -- said the proposal would take the equivalent of 5,000 staff out of health alone next year.

Instead of cutting €1.3bn from the public sector pay and pensions bill, the coalition now appears set to shave just €1bn off this area of expenditure.

Unions described the Government's backing for the proposal as a "prize" but it is still unclear what further concessions may be made -- if any.

Government sources said no deal had been done and "the objective all the time was a reduction in the cost of the public sector".

But Fine Gael said Mr Cowen had "bottled it" on public sector reform as its finance spokesman Richard Bruton said the short-term deal was unfair and the worst of all worlds.

Schools will remain open and hospitals will run as normal tomorrow after the basis of a deal was agreed to save state employees from an across-the board pay cut in the Budget.

Today the latest figures showing the deterioration in tax revenues will be revealed. The Exchequer returns for November are important as it is a crucial month for a number of tax categories.

The latest unemployment figures will also be revealed this morning.

Taoiseach Brian Cowen said the Government's decisions would not be influenced by the threat of strike action. And he welcomed the fact that the industrial action planned for tomorrow will not now take place and "hopes that progress can be made in the coming days". The Government said meetings had concluded for the evening and will reconvene in the morning.

Meanwhile, Social Welfare Minister Mary Hanafin reiterated last night that welfare payments will definitely be cut.

"The scale of the savings required from public expenditure as a whole means that some reductions will have to be made in the social welfare area,"he said.

Suffer

But other areas of public spending will suffer even more if the Government fails to secure the €1.3bn in savings.

It is estimated that the compulsory time off option will only save €800m at most, if it is applied to all employees.

This leaves a gap of €500m that still has to be negotiated to meet the Government's target.

Following marathon talks, unions said the Government had acknowledged that enough progress had been made to defer a second national day of protest. There is still no agreement on how the unpaid leave measure will apply in key sectors like health or education or on the Government's key objective to "transform" the public sector, including the introduction of a longer working week.

It is understood that proposals are being examined that may allow workers in essential services to stagger their unpaid leave over a number of years.

But major public sector employers and senior government officials were still seriously concerned last night about the potential impact on vital services.

Sources said Mr Cowen had essentially overruled Health Minister Mary Harney, who was believed to be dead set against the unpaid leave option.

The Irish Independent also reports that €10.5bn of AIB loans will turn toxic by end of the year

AIB's top-10 property borrowers, whose loans are expected to be transferred to NAMA by the end of January, owe the bank €3.8bn -- and almost a quarter of this amount is impaired.

Non-performing loans include those where interest is not being paid back in full, where the value of the underlying security has tumbled, and where the bank believes borrowers face future problems meeting repayments.

In a shareholder circular ahead of an extraordinary general meeting to approve AIB's participation in NAMA, the bank reiterated it expects €10.5bn of the €24.2bn of loans it expects to transfer to the so-called bad bank will be impaired by the end of this year.

The bank expects that the discount it faces on its NAMA-bound loans will not be "significantly outside" the average 30pc "haircut" the Government has outlined.

The Government estimates that it will pay €54bn, or 15pc above the market value, for loans it is taking over from five lenders which were originally worth €77bn. The premium relates to the Government's stated aim of paying what's known as the "long-term economic value" of the assets.

AIB said yesterday that NAMA valuation rules specify that the overall land portfolio being taken over cannot be valued at more than a 20pc premium to the market value -- though some will not be valued above the going rate.

The Government plans to levy a surcharge on the industry in the event that NAMA is loss-making after 10 years. AIB highlighted that such a charge "would be apportioned between participating institutions on the basis of the book value of assets acquired by NAMA".

"Any surcharge imposed on AIB may not exceed 100pc of the corporation tax, if any, due and payable by AIB in the relevant surcharge period,"it said.

AIB said the disposal of loans to NAMA would cut the group's loan-to-deposit ratio from 156pc to 129.5pc, based on its figures relating to the end of June.

Analysts believe lenders need to bring these key ratios down to between 100pc and 120pc over the next few years to reduce their dependence on the volatile wholesale markets.

The Irish Times reports that the Government is set to modify plans to cut €1.3 billion from the public service pay bill next year in order to secure a deal with the public service unions.

The planned strike by over 250,000 public servants tomorrow has been called off following agreement to continue talks on unpaid leave next year as an alternative to cuts in pay rates.

Taoiseach Brian Cowen and Minister for Finance Brian Lenihan met trade union leaders yesterday morning and afterwards Mr Cowen briefed his Cabinet colleagues on the detail of the discussions.

Following approval by the Cabinet, officials were instructed to tell union leaders they were authorised to negotiate on unpaid leave as an alternative to cuts in pay rates.

In return the unions agreed to call off tomorrow’s planned strike. That decision was welcomed later by the Taoiseach who expressed the hope that progress could be made in the talks in the coming days.

The unions estimate that savings of over €800 million next year can be made through agreement on unpaid leave. The figure, which is considerably more than the estimate made by Department of Finance officials, falls well short of the €1.3 billion target of Mr Lenihan.

Government sources said last night that a crucial aspect of any deal would be an agreement on a longer-term programme to reduce the size of the public service.

Ministers believe that if the savings from unpaid leave can be augmented to bring the total close to €1 billion a deal can be done but officials involved in the talks are believed to be more sceptical.

The draft deal involves two stages, a 12-day unpaid leave scheme to produce savings next year and an overall transformation programme for the public service from 2011.

Fine Gael deputy leader and finance spokesman, Richard Bruton, last night described the deal as the worst of all possible worlds.

“They’ve bottled it. They had a chance to deliver real change and cost reductions in the public sector and they’ve blown it. This deal, if it turns out along the lines currently being described, represents the worst of all worlds.”

He said every public sector worker would lose the same proportion of their pay while customers would lose out through reduced services.

However, Labour Party leader Eamon Gilmore welcomed the development. “For more than a month now I had been pressing for the opening of talks between the Government and the unions with a view to reaching a negotiated settlement on steps to reduce the overall public sector wage bill without cutting basic pay,” he said.

The draft agreement means Impact general secretary Peter McLoone and the other union negotiators have succeeded in convincing the Government that savings can be generated without cutting pay, introducing compulsory redundancies or changing pension arrangements.

However, at the same time serious questions remain about how the new plan will work. It is understood Government sources believe that the unpaid leave arrangement could save between €680 and €750 million. The unions put this figure at just over €800 million.

However, this remains far shy of the Government’s initial plan to cut the public sector pay and pension bill by €1.3 billion. As yet there is no indication as to how this gap will be filled and whether other measures are envisaged.

Union leaders and Government officials will today begin working on draft schemes for the operation of the 12-day unpaid leave arrangement.

Some sources have suggested that where it is not practical for staff to take 12 days’ unpaid leave next year, they would in effect be asked to work for nothing in 2010 with the leave being added to holidays at a later date, possibly over a three- to four-year period.

The Government decision to accept the plan came despite a breakdown in talks yesterday morning on the operation of the transformation programme in the health sector that would have involved the introduction of an 8am to 8pm core day.

However, health sector unions refused to accept such proposals.

The Irish Times also reports that a tax or levy for higher earners has come back onto the table in the Government’s internal budget negotiations, according to informed sources.

The levy of 1 or 2 per cent has led to strong differences of opinion between Government departments and agencies over its effectiveness. Bodies such as the IDA and Enterprise Ireland as well as the departments of Enterprise and Employment and Finance are believed to have argued against them on the basis that it could push the marginal tax rate for higher earners close to 60 per cent, and dissuade companies with high-calibre employees from choosing Ireland as a base.

According to the sources, others within Government have argued the levy would be important from a political perspective as a “solidarity clause”. Such a measure would send out a strong message to social partners and to others that principles of fairness and balance were being adhered to.

This has been described as having a “demonstration effect” which will not raise significant revenue for the exchequer but will send out an unequivocal message that high earners are being targeted. Minister for Finance Brian Lenihan has consistently said, most recently at the launch of the Pre-Budget Outlook this month, that the only new tax in the budget would be the carbon levy.

However, discussions on whether or not the new pay levy for higher earners will apply have not yet reached conclusion, it is understood.

Financial Services Ireland (FSI), the Ibec group that represents the Irish financial services industry, yesterday said income taxes should be left untouched in the budget.

There are also firm suggestions from within Government that the net cut in public sector pay will be closer to €1 billion than the €1.3 billion proposed since early autumn.

However, Government sources said last night that the overall target of savings remained €4 billion. The budget and the continuing pay talks with the social partners dominated yesterday’s meeting of Cabinet.

Ministers have not yet reached agreement on the final details of the budget. A further Cabinet meeting has been scheduled for this evening and an additional meeting for tomorrow has not yet been ruled out. The Minister for Finance will also brief Fianna Fáil TDs and Senators at a specially convened meeting of the parliamentary party tomorrow. The budget, to be announced next Wednesday, is expected to include cuts in child benefit allowances, albeit with protections for the lower paid.

While pensions are expected to remain untouched, there will also be cuts in social welfare. There has been growing speculation that the budget will target the jobseeker’s allowance for cuts, with particular emphasis on young single people.

The Irish Examiner reports that the Exchequer could lose out on bank payments worth at least half-a-billion euro next year after the European Commission imposed strict new rules on how AIB and Bank of Ireland will refund the Government, Fine Gael’s finance spokesman Richard Bruton has warned.

His claim follows a statement to the markets yesterday by AIB, one of the country’s two major banks, that the commission has instructed that it "should not make coupon payments on its Tier 1 and Tier 2 capital instruments unless under a binding legal obligation to do so" while the commission is assessing the bank’s restructuring plan.

Mr Bruton called on Finance Minister Brian Lenihan to immediately clarify how taxpayers can expect a return from the €7bn billion Fianna Fáil has poured into the two main banks consisting of €3.5bn in each for a 25% equity stake, following this latest development from Brussels.

The preference shares issued by the Government pay a dividend of 8% equal to a total of €560m annually, or €280m from each bank.

Last night, Mr Bruton called on the finance minister to clarify this further threat to the taxpayers without delay.

"Having bailed out AIB and Bank of Ireland by investing €7bn in shares, Brian Lenihan’s plans to get regular dividend payments from the banks are now looking very uncertain.

Although the European Commission has approved the Government bailout, it looks like the banks will not be allowed to make the regular dividend payments that Brian Lenihan was expecting, he said.

"The Government has already blown €4bn on Anglo Irish Bank, an institution which should have been wound down by now.

"So taxpayers cannot afford yet more incompetence from Mr Lenihan, let alone any more bailouts of spendthrift banks," he said.

The claim by the minister that the taxpayer would make a profit from the bailout of the banks looks less certain than it did before.

That could be crucial to the budget arithmetic if the €560m dividend receipts promised by Mr Lenihan are to be included in the Government’s budget forecasts, he said.

A spokesman for the minister last night moved to allay any fears that the commission ruling could cost the state over a half-a-billion euro in lost dividends in 2010 alone.

Further consideration will be given to the payment of these coupons during the ongoing discussions with the European Commission on the bank’s restructuring plan.

The bank will strive to find a way to ensure that it can pay the dividends due to the Government on its capital investment in the bank "in cash rather than activating the alternative mechanism which would give rise to issuance of ordinary shares" that would lead to the Government having to increase its stake in the bank from 25% to over 40% based on the current worth of AIB’s shares.

The spokesman added that the commission has already indicated it will support efforts by AIB down the line to raise private capital.

That would include measures "aimed at providing adequate remuneration to the government’s preference shares without necessarily diluting existing shareholders," he said.

The Financial Times reports that the United Nations body in charge of managing carbon trading has suspended approvals for dozens of Chinese wind farms amid questions over the country’s use of industrial policy to obtain money under the scheme.

China has been by far the biggest beneficiary of the so-called Clean Development Mechanism, a carbon trading system designed to direct funds from wealthy countries to developing nations to cut greenhouse gases.

China has earned 153m carbon credits, worth more than $1bn and making up almost half of the total issued under the UN-run programme in the past five years, according to a Financial Times analysis. The credits are currently trading at about $10-$15 each.

Industrial countries can meet part of their commitments under the 1997 Kyoto protocol to battle global warming by financing projects that mitigate emissions in developing nations. Projects only qualify for credits if the applicants prove they would not have been built anyway, a condition known as “additionality”.

The controversy over Chinese wind farms and other CDM projects will intensify calls for the system to be overhauled at the UN’s Copenhagen conference, which opens on Monday.

China-based consultants said the CDM’s board in Bonn began refusing approval for Chinese wind power projects in the middle of 2009, over concerns Beijing had deliberately lowered subsidies to make them eligible for funding.

“The board now suddenly says the projects are not additional, whereas in the past they found no fault with additionality,” said Yang Zhiliang, general manager of Accord Global Environment Technology, one of China’s leading CDM consultants. “They are blaming the Chinese government and its decision to lower subsidies.”

Ms Yang said Beijing had other aims, such as limiting overcapacity in the wind turbine sector, in setting subsidies. “The Chinese government wouldn’t adjust subsidies just to bag CDM money,” she said.

Industry officials said the CDM board had refused approval for about 50 wind power projects. Doubts over whether CDM funding will be available in the future has also prompted power companies to stall new wind power investments.

Lex de Jonge, head of the UN board, confirmed that “a handful of [Chinese] projects” had been suspended but declined to give reasons. Michael Wara, of Stanford University, said there were considerable problems in China with the CDM’s rules.

With the emphasis that Beijing is now placing on both smaller hydro-electric projects and wind power, the government would have supported at least some of the projects receiving money under the CDM scheme anyway.

“It is hard to believe that there is additionality in many of the energy projects in China right now,”he said.

Chinese government officials quoted in the local media defended the CDM process as an effective mechanism for helping developed countries cut emissions and the only one that gave poorer nations a role.

Chen Hongbo, of the Chinese Academy of Social Sciences, said although the system needed reform, it should be maintained. “I think that after 2012 [when Kyoto expires], the CDM cannot stop immediately,” he said.

The FT also reports that high earners are bracing themselves for more tax rises in next week’s pre-Budget report as Alistair Darling, the chancellor, comes under pressure to sharpen dividing lines with the Conservatives over the taxation of wealth.

Labour MPs are furious that David Cameron is attempting to claim the “progressive” mantle from Labour, arguing that the Tory pledge to raise the inheritance tax threshold to £1m is a sign that the party’s heart still lies with the rich.

Options being debated by Labour MPs include widening the net for the new 50p top rate of income tax, further reducing tax relief on pension contributions for high earners or increasing national insurance contributions for top rate tax-payers.

Some tax advisers have predicted big increases in capital gains and inheritance tax for their wealthy clients, as well as cuts in personal allowances and pension reliefs, and an even higher top rate of income tax.

A rise in capital gains tax, possibly from 18 per cent to 25 per cent, is widely predicted, partly to close the gap with the new 50p rate of income tax. Lisa Cornwell, of Kleinwort Benson, a private bank said: “We think capital gains tax is unlikely to stay at 18 per cent. It is perceived as something the wealthy pay.”

Inheritance tax is also tipped for reform, with speculation focusing on a new tax of 50-60 per cent for estates above £1.5m, abolition of exemptions for business assets and agriculture land, and the reintroduction of tax on lifetime gifts.

But Chris Sanger, of Ernst & Young and a former adviser to Gordon Brown, said such moves would raise modest additional revenues and be unpopular with a surprisingly wide sector of society. “Inheritance tax is the tax everyone aspires to pay.”

Any such moves are certain to be supplemented by anti-avoidance measures following Treasury promises to “tilt the game back towards honest, hard-working taxpayers”.

The Revenue has indicated it will act against high earners converting income into more lightly taxed capital gains.

Advisers also expect it to narrow the tax-planning options available to bankers receiving big bonuses, as well as possibly blocking arrangements by family-owned businesses to accelerate dividends ahead of next April’s tax rises.

The political appeal of tax rises for the wealthy will be weighed up against warnings about the risk of a “brain drain” of high earners and the diminished appeal of the UK as a destination for businesses.

A recent straw poll by Withers, the law firm, suggested that a high proportion of big earners was considering leaving for Switzerland, Monaco, the Channel Islands and Hong Kong.

The Treasury is aware of the risks. After the Budget, it said it expected to collect just 31 per cent of the tax it might theoretically expect from increasing the rate of income tax from 40p to 50p next April for those earning more than £150,000. Nonetheless, there have been indications that Treasury officials believe the top tax rate could be pushed up still further – to 60p or even 70p – and still generate extra money for Treasury coffers.

Escaping the tax net is harder than it used to be, following the introduction of rules affecting those who retain links to Britain and want to make regular visits.

The possibility of a change of government next year is prompting some would-be exiles to delay their departure. Ronnie Ludwig, a partner in the Edinburgh office of Saffery Champness, an accountancy firm, said: “Inquiries are way up. People are now asking the question: what would be involved? What would I have to do? But most people think there will be a change of government. They are sitting and waiting to see what the government would do.”

But Leonie Kerswill, of PwC, the professional services firm, said many clients were minded to leave Britain for a few years, until tax rates had come down again.

She had received considerably more inquiries about leaving the UK than she did during last year’s furore over tax rises for “non doms”, the foreigners living in Britain. “A lot more people are leaving,” Ms Kerswill added.

The New York Times reports that as part of his bid to make General Motors management appear more accessible and responsive coming out of bankruptcy, the chief executive, Fritz Henderson, set up a Web page called Tell Fritz.

One consumer sent in a question last month asking why G.M. had fared so poorly in a recent Consumer Reports survey.

“We were generally disappointed in our results,” Mr. Henderson responded.“We simply must produce better results.”

On Tuesday, the new G.M. board agreed emphatically with Mr. Henderson’s assessment, and asked him to resign immediately.

The move to replace Mr. Henderson — and name G.M.’s chairman, Edward E. Whitacre Jr., as interim chief executive — stunned the auto industry. From the outside, Mr. Henderson appeared to be making some headway, by making broad cuts to G.M.’s famously bureaucratic culture, introducing aggressive marketing strategies, and stemming the sharp decline in sales.

But if G.M. was to truly reinvent itself — as the company promised in commercials after a government bailout helped it emerge from bankruptcy — the board decided that the 25-year veteran of G.M. was too tied to the company’s past mistakes to bring a fresh approach that could help reverse its decades-long slide.

According to a person with direct knowledge of the board’s deliberations, there was no final straw that led to Mr. Henderson’s forced resignation. Rather, G.M.’s directors began discussing weeks ago that the company needed to seek an outsider to lead the company.

“Fritz was just not enough of a change agent,” that person said. “The board wants a world-class C.E.O. and now they have enough breathing room to find one.”

Mr. Henderson’s resignation was announced at a hastily called news conference on Tuesday by Mr. Whitacre.

Mr. Whitacre said Mr. Henderson had done a “remarkable job” in leading the company after taking over from Rick Wagoner, who was forced out as chief executive in March by President Obama’s auto task force.

But Mr. Whitacre suggested that G.M. was not moving fast enough to improve the quality of its vehicles after receiving $50 billion in government aid. “We now need to accelerate our progress toward that goal, which will also mean a return to profitability and repaying the American and Canadian taxpayers as soon as possible,” Mr. Whitacre said.

Mr. Whitacre added that G.M. was “on the right path,” but needed to more quickly under new leadership.

“While momentum has been building over the past several months, all involved agree that changes need to be made,” he said, without taking questions from the media.

There was no statement from Mr. Henderson, who said in recent weeks that he hoped to prove himself as the best person to lead G.M.’s revival.

Mr. Henderson had been one of G.M.’s most accomplished executives in recent years, despite the company’s sagging fortunes. He had headed its operations in Europe, Asia and Latin America and served as chief financial officer and president before getting the job of chief executive.

But even he had expressed some doubts about how he could represent the new G.M. to the public after it emerged from a 40-day, government-sponsored trip through bankruptcy in July.

G.M. had already put Mr. Whitacre in its first post-bankruptcy television ads that introduced a 60-day, money-back guarantee on its cars and trucks.-

The idea to make Mr. Whitacre the face of the company in those ads first came up at a lunch between Mr. Henderson and Robert Lutz, another veteran G.M. executive.

In an earlier interview, Mr. Lutz described that discussion, and recalled how Mr. Henderson reasoned that he was not the right person to be in those ads.

“My biggest strength is I’ve been with G.M. for 25 years,” Mr. Henderson said, according to Mr. Lutz.“And my biggest weakness is that I have been with G.M. for 25 years.”

A G.M. spokesman, Chris Preuss, said Tuesday that the federal government, which owns 60 percent of the automaker, played no role in Mr. Henderson’s resignation. “This was a board level decision,” he said.

A spokesman for the Treasury Department, Andrew Williams, said government officials were informed of the resignation after it happened.

“This decision was made by the board of directors,” Mr. Williams said. “The administration was not involved in this decision.”

Industry analysts have speculated for weeks that G.M.’s board had soured on Mr. Henderson because he had supported the sale of its European operations — a decision since reversed by the board — and clashed with him on the timing of a public stock offering for the company.

But people close to the board’s decision said Mr. Henderson was always viewed by directors as an interim chief executive who was chosen to provide continuity for the organization after Mr. Wagoner’s departure.

“I don’t think this comes as a big surprise,” said Rob Kleinbaum, a former G.M. executive who is now an industry consultant. “Mr. Henderson may ultimately have succeeded in changing G.M., he couldn’t do it without changing the rest of the management team.”

Mr. Whitacre declined to say whether further changes would be forthcoming in G.M.’s executive suite. However, people close to the company said it was searching for a new chief financial officer and might fill other jobs from the outside.

For now, Mr. Whitacre is firmly in charge of both G.M.’s board and its operations. He said he would begin working immediately out of an office at G.M. headquarters.

“I want to assure all of our employees, dealers, suppliers, union partners and most of all, our customers, that G.M.’s daily business operations will continue as normal,” he said.

Since emerging from bankruptcy, G.M. has managed to hang on to most of its United States market share, and to step up its development of its next generation of cars, trucks and crossover vehicles.

One analyst said the company appeared to be moving in the right direction with its products, and expressed concern that its activist board could impair that effort.

“The risk is that the board and Mr. Whitacre do something stupid on the product side,” said David Cole, director of the Center for Automotive Research.

There were few details given about what Mr. Whitacre called “an international search” for a new chief. He gave no indication that any other G.M. executives could be considered for the job.