Deputy Brian O'Shea gave me notice of his intention to raise on the Adjournment the subject matter of the decision of the banks to introduce charges on the handling of local authority accounts. The matter is in order. The Deputy has ten minutes to present his case and the Minister of State has five minutes to reply.
Adjournment Debate. - Bank Charges on Local Authority Accounts.
Thank you, a Cheann Comhairle, for giving me the opportunity of bringing this very important matter before the House tonight. I am glad to see that Deputy Connolly, the Minister of State at the Department of the Environment, is present. From my experience in the Seanad, I know that Deputy Connolly has a genuine commitment to the local authorities.
I am a member of two local authorities, Waterford County Council and Waterford City Council. At present, we are in the throes of preparing the Estimates and striking a rate. I was horrified to learn that the banks have taken a decision to phase in charges on the discharge of local authority accounts. This must be seen against the background of the reductions of the rate support grant over the past three years, a nine per cent reduction followed by a 14 per cent reduction and a five per cent reduction. In net terms, £110 million has been taken out of the local authority rate support grant in the past three years. Jobs have been lost. There has been a huge curtailment of services.
As I have said at the outset, the banks intend to phase in these charges. I would estimate that the impact of these phased charges would be of the order of £1.5 million. However, if the charges were to be implemented in full, the figure would be two and a half times that amount, bringing the total bank charges to somewhere in the region of £4 million.
Let us look at the institutions that want to introduce these new charges. It is estimated that the Bank of Ireland will make a profit of £180 million this year and that AIB will make a profit of £250 million. There has been always a special relationship between the local authorities and the banks, the banks acting as treasurer for the local authorities. The banks get a great deal of income by way of interest charges from the local authorities. It must be said that there are no risks to the banks when they are dealing with local authorities, they are sure of being paid their money. I suggest that in next year's budget the banks levy should be adjusted to cover the cost of these charges and that the local authorities should be reimbursed by that amount. This increase in the bank levy should exceed any proposed increases by the Government.
Local authorities have suffered but I am most concerned that the development and policing roles of local authorities have been very seriously undermined. The Department of the Environment send directives on what the local authorities should do to protect the Environment. Unfortunately, this is a farce because funds are not provided to police the implementation of the directives. Local authorities have neither the staff nor the facilities to carry out this role.
Local authorities can make a huge impact on tourism but they are being stripped of the wherewithal to make an input. For instance, our roads are getting worse. At present levels of funding there is no possibility that a great number of our county roads would be resurfaced within 100 years. We have reached the ridiculous. The local authorities have become more committed to the protection of the environment but they cannot carry out their functions due to a lack of money. Tourism and leisure are large growth areas within the EC. Despite the great potential for the development of tourism, we are not benefiting to any great extent.
I hesitate to interrupt the Deputy but I trust he will not stray too far from the subject matter he has raised with me — the introduction of charges on the handling of local authority accounts. That is the nub of the issue.
I was leading up to that. It is very short-sighted of the banks to attempt to remove very scarce resources from local authorities. If local authorities are allowed to develop the potential for tourism, this will bring more business to the area and increase revenue to the banks. I believe the Minister must intervene with the banks. I believe that the Minister would share my view that this is a totally unwarranted and unjust intrusion on local authorities. The banks make large profits from the local authorities and they should not attempt to take very scarce resources away from them. If the banks were put on notice that it is the Government's intention to increase the levy and that local authorities will be reimbursed from that extra levy, it will spell out clearly to the banks that this intrusion and this greedy effort to get extra resources from the starved finances of local authorities will not be tolerated by the Minister or by the Government. I look to the Minister for determined and real action to prevent this terrible problem arising for local authorities. For instance, I know one local authority in Carlow which will have to pay £20,000 in bank charges next year on the first stage of phasing in. The chairman of that county council, Councillor Michael Meaney, made the very salient point recently that the AIB were in trouble with the Insurance Corporation of Ireland. They were very glad to be bailed out by the State to the tune of £20 million.
The banks have always been to the forefront in advising the Government and making very strong statements about cutting back on Government funding, but now they are attempting to take further from local authorities which have been starved of funds by the Government to the tune of £110 million in rate support grants in three years. That is a horrendous reduction in local authority funding. In conclusion, I once again state that I absolutely deplore this decision. I look to the Government, and in particular to the Minister for the Environment, to spell out clearly to the banks that they should desist from introducing charges on very lucrative local authority accounts. The local authorities, with their meagre resources, should be allowed proceed with the excellent job they are doing in spite of all the restrictions.
I want to thank Deputy O'Shea for raising this matter. Local authorities have been exempt from bank charges since 1925. There has always been a special relationship between the banks and local authorities as clients. No one in banking circles would deny that there is prestige attached to handling a local authority account. That being so, I cannot understand why the banks want to introduce charges. Deputies may recall when the health boards were brought into operation some years ago the bank managers and representatives from the major banks canvassed members for their accounts. What has happened since then?
It could cost local authorities between £1.5 million and £2 million if these charges are to be introduced. That money has to come from the resources of the local authorities and I think we all know at this time that local authorities are hard pressed for cash. I do not want to get into the financing of local authorities because the Ceann Comhairle would not allow me to do so. That debate is for another day.
I am extremely concerned about these proposed charges and I am glad to say that the County and City Managers' Association have taken up the matter with the bank concerned and are refusing to pay the charges. One of the banks wanted to introduce these charges last July but following representations from the County and City Managers' Association they did not proceed with them. I am now led to believe that another bank wants to introduce these charges.
As I have said, it is a privilege for banks to handle the account of any local authority. It is sure money and, that being so, I take a serious view of the matter. As the Deputy quite rightly pointed out, the banks are making substantial profits. As a business concern that is their prerogative and I accept that. In any event, I remain convinced that local authorities are valued clients of the banks and their business is valuable in a wider sense attracting banking custom. This value was fully appreciated almost 20 years ago when the Associated Banks attempted unsuccessfully to introduce bank charges for local authority accounts. I have no doubt that local authorities throughout the country which are now in the process of drawing up their expenditure estimates for 1990 will not welcome the prospect of having to curtail essential services any further in order to accommodate bank charges, and I cannot blame them for that. My Department are fully aware of the position. They fund 50 per cent of all local authority expenditure and everyone knows that money comes from the taxpayer.
I appreciate the Deputy raising this matter this evening because it is a very important issue and one on which I am keeping a close eye. Negotiations are taking place between the County and City Managers' Association and the banks, and the managers are keeping me informed of the position. I do not want to say what further action can be taken because, Deputies will appreciate, I would not like to pre-empt what the outcome will be. The banks are handling millions of pounds for the councils and the taxpayers — all the money comes from the people. I am now asking the banks to seriously rethink this matter because I take a serious view of it.
When I get a further report on the negotiations between the County and City Managers' Association and the banks, the Minister and I will then decide what other action can be taken. I hope the bank will use common understanding and they will leave matters as they are. They tried to introduce these charges 20 years ago and did not succeed, and I have no doubt their proposal will be resented on this occasion also. In the long run I hope common understanding will prevail.
The Dáil adjourned at 11.20 p.m. until 10.30 a.m. on Thursday, 16 November 1989.