Dáil Éireann debate -
Wednesday, 8 Oct 2008

Vol. 663 No. 1

Leaders’ Questions.

Deputy Enda Kenny

I understand the Government has not yet finalised the guarantee scheme so the Taoiseach is not in a position to answer on that matter. However, I wish to refer to an area over which he has control.

In today's newspaper the Taoiseach states that next week will be a defining moment for Ireland. In the recent past he pointed out that no one will escape the consequences of managing our economy and he stated that greed is a human failing and has not been absent from Ireland. On the day he made that comment, the HSE set up a bonus system for 2009 of €1.4 million, a 20% increase on 2008. On average, there are 300 people on trolleys every day, there have been serious cases of misdiagnosis and deaths from cancer, particularly among women, some 1,200 acute beds are unused and, this morning, it was announced that a rehabilitation facility will be closed. There is still no fair deal for those under economic pressure because of the cost of nursing homes. That is a performance that does not warrant a 20% increase in bonuses over 2008.

Deputy Fergus O’Dowd

Hear, hear.

Deputy Enda Kenny

It does not warrant any bonus increase. The Taoiseach is not responsible for everything but he is responsible in the main for the economic mess in which we find ourselves. Having checked with HSE authorities around the country, the bonus in place for 2009 will make matters worse when one considers what will happen in community and primary care facilities next year. I am reliably informed that when the Taoiseach brings in the defining moment next week, there will be cuts of at least 300,000 hours in home help, no walking aids, no wheelchairs, no new physios, occupational therapists or speech therapists appointed and a serious curtailment of home care packages with the result that the vulnerable, those who sustained the country in the creation of the Celtic tiger, will be neglected. There is no question about it.

In July, the Government said that the 3% cutback in payroll would not affect education and health. Whatever else he must do in respect of able-bodied people, the Taoiseach should not take the political cleaver to the quality of life of the old and vulnerable, who cannot speak or act for themselves. I would like the Taoiseach to give me an answer on whether he stands over the position where, in advance of what we know will happen in that sector, the HSE is in a position to set up a bonus increase of 20%, amounting to €1.4 million.

The Taoiseach

The contractual arrangements and conditions of employment in respect of the HSE and its staff refer to the recommendations of the review body on higher remuneration in the public sector. This is about trying to ensure one provides a pay scale that relates to performance based on setting targets. The principles of higher remuneration in the public sector were about trying to bring comparability to the private sector to get such practices in place. Awards should be related to the achievement of highly demanding and challenging targets and stretch objectives that are difficult to achieve. The scheme provides for the payment of awards after the year end where it has been determined that the prior agreed stretched objectives have been met.

Deputy Pádraic McCormack

It is not justified.

The Taoiseach

These are matters for the HSE board in terms of contractual obligations and conditions of employment. Clearly, I expect it will take into account the new economic situation with which we are contending.

While bonus schemes can be in place, the question of whether they are approved and paid depends on these performance related issues being confirmed and completed over the period of that year. It relates to management issues involving officers in the HSE to which this applies. On the more general point made by Deputy Kenny, the Government is doing all it can to maintain, to the greatest extent possible, the service levels built up over time. We are in a new economic situation and we must deal with the current budgetary position. We are trying to address that as equitably as possible.

Deputy Enda Kenny

It goes back to the point that no one on the Government benches will accept responsibility for anything. The current situation was signed off under the Taoiseach as Minister for Finance, with reckless spending and no management of the value for money secured from what was spent over the past number of years. Lehman Brothers is not responsible for the fact that there will be a serious reduction in home help packages, no walking aids and no wheelchairs next year.

The minutes of the HSE meeting on 9 April were given to Deputy Andrew Doyle in response to a question. These point out that the HSE, set up by the Government and reckoned by the Minister for Health and Children to be a once in a generation move to provide world class health services, is now being deconstructed by the same Government because it has failed. During its deconstruction, McKinsey consultancy was employed at a cost of almost €1 million to point out how it should be done. The minutes of the board meeting state it discussed key design principles and requirements to maximise organisational effectiveness and deliver greater integrated service management. It has cost almost €1 million to deconstruct something described as a once in a generation move to provide world-class health services.

This morning, President Sarkozy stated there should be no more bonuses or dividends and the same is being stated in the United States and Britain. Here we are, under the tutorship of the Taoiseach, having agreed a 20% increase in bonus payments for the HSE when many areas of our health services are faced with decimation, particularly those dealing with the old, vulnerable, weak and voiceless. The Taoiseach stated there would be no cutbacks or 3% payroll reduction in frontline health services. If the Taoiseach proceeds down this line, whatever else he has to do with able bodied people he should not attack the old, weak or vulnerable.

I would like the Taoiseach, as director of affairs in the country, to state that based on its performance and what we know will happen next year, the bonus scheme for the HSE will not be paid. Allowing another €1 million to be spent in consultancy, as was pointed out to Deputy Doyle, in breaking up what the Minister for Health and Children stated would provide world-class health services speaks for itself in terms of the type of management, effectiveness and non-acceptance of responsibility of this Government for anything that happens. It is all independent advice. Will the Taoiseach deal with this?

Deputy James Reilly

Where is the Minister?

The Taoiseach

As I pointed out, contractual issues are raised and while the Leader of the Opposition might like to ignore them, they cannot be ignored and must be dealt with. I also made the point that bonus systems must be based on performance related criteria.

Deputy Pádraic McCormack

There is a lack of performance.

An Ceann Comhairle

The Taoiseach, without interruption.

The Taoiseach

The populist argument can be made by the Opposition day and night, as it always is, but that must be related to performance targets and part of the question of public sector reform and getting people into the public sector was ensuring we had bonus systems which correlate to the private sector.

Deputy Pádraic McCormack

The chief executive earns €1,700 per day.

Deputy Dermot Ahern

Let the Taoiseach answer.

The Taoiseach

This was proposed and agreed by people because it was a way of bringing private sector people into the public sector pay scales. We agreed this was the way to proceed. The HSE board must take into account the new economic situation we face. One cannot decide willy-nilly to break conditions of employment. One must ensure the performance-related criteria are stringent and ambitious.

Deputy Pádraic McCormack

They are judging themselves.

Deputy Jan O’Sullivan

They are diverting funds from the disabled and the dying.

The Taoiseach

The HSE board makes those decisions and that is right. That is how it is in respect of every bonus payment scheme.

With regard to the more general issue related to consultancy and the McKinsey report, this issue is to ensure that in the reorganisation which has been taking place the management system interrelates between the community care system and the acute hospital system. Changes are being made to ensure this join-up is there and that is a good thing. A lot of work has also been done on reviewing the personnel management of the operation and the Minister for Finance will have views on this and will discuss them with the House next week. This is all part of a major reorganisation taking place in the health service.

Deputy Jan O’Sullivan

It should have been done when it was established.

The Taoiseach

Despite all that has been said by the Opposition, measurable improvements have been made in what has been taking place in a range of activities.

Deputy Pádraic McCormack

There has been none whatsoever.

Deputy Seymour Crawford

Where?

The Taoiseach

Yes, there have.

Deputy Seymour Crawford

Wards are being closed down.

The Taoiseach

Many people using the health service are far more satisfied with it now than they were in the past.

Deputy Pádraic McCormack

It is getting worse.

The Taoiseach

There are continuing problems but rather than defending the present method of delivery in the system perhaps the Opposition should support the reforms needed and proposed in many instances by the HSE——

Deputy James Reilly

Like the last raft of reports.

The Taoiseach

——in an effort to improve the delivery of services. That would be a far more constructive approach than the approach it is taking today.

Deputy Eamon Gilmore

It is a week since emergency legislation was introduced to provide a State guarantee for the banks. Last week, we were told the Government would introduce a scheme this week to set down the conditions under which the guarantee was being provided. Yesterday, the Taoiseach told us the scheme is not yet finalised. From what we hear, it may be next week before we see the terms of the scheme. I understand the Minister for the Environment, Heritage and Local Government, Deputy Gormley, stated in an interview this morning that it has been delayed because of the scheme announced in the United Kingdom.

A week after the legislation was introduced, we are still unsure what exactly we have guaranteed. We do not know the terms or conditions of the guarantee provided and we do not know what will come back to the taxpayer in return for the guarantee provided. In the absence of the scheme we were promised what guarantee is now in place? Do I understand correctly that in the absence of a scheme, the guarantee is, in effect, the statement the Government issued on 30 September? If so, as of now does the guarantee only extend to the six banks named in the statement? How is the guarantee extended to the other financial institutions which I understood were to apply on the basis of the scheme? What exactly is the nature of the guarantee and what is its status as of now?

Will the Taoiseach clarify an aspect of the Government statement of 30 September? Reference was made to dated subordinated debt — lower tier two — being subject to the State guarantee. As I understand it, this debt is the arrangement whereby very wealthy people make money available to the banks, effectively as a loan, and receive far higher interest than a normal depositor because the understanding is that if anything goes wrong with the banks the money is gone.

The guarantee scheme announced by the Government last week provides a State guarantee for this form of debt. We have seen a number of schemes introduced by other states such as Germany, Denmark and the United Kingdom. None of these arrangements provides a guarantee or cover for dated subordinated debt.

Why was this form of debt included in the Irish scheme? Approximately how much of this debt exists? I am advised it could be in the order of €10 billion. It is high-risk money provided by high net worth people to the banks on very high interest rates. According to this scheme we have provided a taxpayers' guarantee for it.

The Taoiseach

With regard to the guarantee scheme, this has been an evolving situation. I want to make it clear to the House that work on the scheme being carried out by officials of the Department of Finance, the Central Bank and the Financial Regulator is continuing with a view to finalising it as quickly as possible. The boards of the Irish Financial Services Regulatory Authority and the Central Bank discussed the scheme on Monday evening and they will feed their recommendations into the finalisation of the scheme. It is important to stress the need for discussion on the draft scheme later this week between the Irish authorities and the European Commission with regard to EU state aids and competition requirements.

As the Deputy will be aware, the Minister for Finance met the EU Commissioner for Competition on Monday evening to discuss the Government's approach and contacts are ongoing as the work proceeds. The issues discussed at the meeting between Commissioner Kroes and the Minister for Finance currently are being factored into the drafting of the scheme. A particular priority in this regard is to ensure the scheme appropriately addresses the issues of subsidiaries of overseas parents operating in Ireland with a substantial retail main street presence.

I assure the Deputy that it is a priority to ensure the scheme will be laid before the House as soon as possible. The Minister, Deputy Brian Lenihan, and the Commissioner both agreed it was important to take steps to guard against any undue distortions of financial flows and the Minister indicated that such concerns would be addressed through the implementing measures currently being drafted, which will provide for controls and quantitative balance sheet controls. This is the up to date position and it is important to point out that the breaking situation in the United Kingdom also must be factored into our considerations here.

I make the point that as the House passed the legislation last week on foot of the statement given by the Government on the morning in question, it was setting out its preparedness to stand behind the banking system and the six main banks in the State. Subsequently, in the course of discussions, both inside and outside this House, suggestions were made as to whether it would be possible to incorporate into the scheme other banks that were not on the list for reasons already outlined by the Minister. Consideration of this issue continues and important questions must be clarified and addressed in respect of wider group liabilities in the event of anything happening to a subsidiary here.

Deputy Emmet Stagg

What about the question?

The Taoiseach

I am answering the question.

Deputy Emmet Stagg

The Taoiseach is not.

An Ceann Comhairle

Please allow the Taoiseach to speak without interruption.

The Taoiseach

Deputy Stagg, I will answer the question.

Deputy Emmet Stagg

While I thought the last Taoiseach was a waffler, the present Taoiseach is worse.

The Taoiseach

Is that right?

Deputy Pádraic McCormack

The Taoiseach is going around in circles.

An Ceann Comhairle

The Taoiseach, without interruption.

The Taoiseach

Regardless of whether Deputy Stagg interrupts, this is a quite complicated situation——

Deputy Emmet Stagg

I understand it.

The Taoiseach

——and I do not accept that one should be blasé about it, given what is being done. The Government must take account of what is developing. Developments took place yesterday and this morning in the United Kingdom of which we must take cognisance. I am being careful to ensure this State takes an appropriate, rather than an inordinate, risk. This is what I am trying to ensure.

Deputy Michael Ring

That is the reason the Taoiseach is keeping on the bankers.

The Taoiseach

No. It is important to do so.

Deputy Dermot Ahern

A steady hand.

The Taoiseach

We also were obliged to take account of the European Commissioner's views on these matters. We are having constructive and co-operative engagements with all those parties, including those who have indicated they may have an interest in applying for the scheme.

Deputy Emmet Stagg

What about the question?

The Taoiseach

Deputy Stagg, this is the answer to the question.

I refer to the other specific matter raised by Deputy Gilmore regarding what debt is being guaranteed by the State. On the basis of the advice we have received from the Central Bank and the Financial Regulator, the assets of the banks to which the guarantee relates exceed their liabilities. We are not including tier one capital arrangements, which includes equity or equity-like instruments. However, all other liabilities are being guaranteed by the State on the basis of the advice from those who are competent to so advise the Government.

Members should remember the purpose of this guarantee is to ensure that our banking system has access to adequate liquidity, in order that we can obtain the time and space to ascertain the manner in which the banking system may be restructured over time or developed in a way that will overcome this problem. The immediate issue before the Government was the liquidity question and it had to be addressed very quickly. On the advice of those from whom the Government should take advice in this regard——

Deputy Pádraic McCormack

The banks.

The Taoiseach

——this was the arrangement to which the Government came. I believe this arrangement has helped to bring some stabilisation to the liquidity question. The further issue as to how the banks should move from here is an issue that must be dealt with by the sector, by regulation and by ourselves as we interact with them on the basis of the guarantee scheme when it comes before the House for approval.

While I would have liked to have thought we would have it by now, it was not and is not possible to finalise those arrangements until we take into account every aspect of this situation based on the arrangements that have been happening across the water. I note the Chancellor of the Exchequer has indicated it will take the British Government some time to work out the details on how it will proceed. It is clear, on the basis of its statement this morning, how it intends to proceed. That is its view as to how it should respond in its situation. The Government here decided how it would respond in our situation. I assure the House that every care is being taken to bring about a position whereby we will have a scheme that will meet the requirements of the situation we have announced ourselves and which will ascertain whether it is possible or appropriate for the Government to accommodate others that have a strong retail presence here. The Government has had ongoing and constructive discussions with those parties. In addition, we must ensure that on arriving at that point, the European Commission also is satisfied that we have met the considerations and issues it has raised with the Minister for Finance when he met Commissioner Kroes. This sets out the context and reason for our actions and I hope this constitutes a response to the specific questions raised by Deputy Gilmore.

Deputy Eamon Gilmore

First, the Chancellor of the Exchequer in the United Kingdom announced conditions attaching to the British package that have not been attached to the Irish package. I note the British proposals include conditions relating to taking an equity share in banks, to restricting payment of dividends and putting restrictions on the reward and remuneration packages of top executives of banks, all of which remain open-ended in Ireland. This is not helpful and I am becoming concerned by the delay in bringing forward the scheme because this delay is creating a degree of uncertainty again about what is happening in the banking world. In the meantime, we appear to have some kind of open-ended unqualified guarantee for the banks.

I wish to revert to the specific question I asked about dated subordinated debt. No other scheme to provide a rescue or support package for the banks in any other country has included this form of debt. This is the form of debt that comes next after equity if something goes wrong. Interest is earned on such instruments at a far higher rate than is earned on a normal deposit. The reason for this is the understanding that such money is at risk if something goes wrong. The scheme the Government announced last week, for a reason I cannot understand, has included this form of debt and has provided a guarantee for it. I have been informed that in the couple of weeks preceding the Government's announcement last week, a great deal of trading took place in this stuff. People were trying to off-load some subordinated debt at a discounted rate and one could purchase some of it for approximately 80% of what it originally was worth. Suddenly, an Irish guarantee scheme guaranteed it to the value of 100%. I am told, for example, that one of the six banking institutions listed in the Government's statement has something like €2 billion of subordinated debt. Why was it included in the Irish scheme? Who decided or recommended that it should be included in the Irish scheme?

Deputy Pádraic McCormack

The banks.

Deputy Dinny McGinley

It would be interesting to find out who they are. Someone somewhere is pulling strings.

Deputy Eamon Gilmore

What is the state of the Central Bank's knowledge about trading activity in this form of debt in the weeks leading up to the Government's decision to provide the guarantee? This is a specific question. If something goes wrong, ironically this high risk stuff will be the first charge on the Irish taxpayer. As the taxpayer now is providing a guarantee for the banks, Members are entitled to know the reason this stuff was included and who it benefits.

Deputy Dinny McGinley

The Deputy should not tempt people.

The Taoiseach

As I have explained, the advice in respect of all these matters and in respect of all policy decisions was taken from the appropriate bodies, namely, the Central Bank and the Financial Regulator.

Deputy Pádraic McCormack

The banks advised the Government.

Deputy Dermot Ahern

Were the Deputy in Government, he would do the same. However he is not.

The Taoiseach

We have heard enough of that sort of nonsense. They are the bodies that provide advice.

As for the availability of liquidity in the banks, obviously every area of liquidity that can be obtained must be obtained and retained by the banks to the greatest extent possible. It related to capital inflows as a result of the guarantee being provided and whatever liquidity or capital they had in the banks themselves. It is important to make the point that this is the basis upon which the advice is given and taken.

The actions of the UK were mentioned and they must make their decisions as they see them under their circumstances. What they or we do depends on our respective circumstances. They already had nationalisation of banks and some guarantees being given to banks. The Chancellor of the Exchequer, the British Government and its Prime Minister do what they believe is the right thing. They must come up with £50 billion up front as part of a recapitalisation process at this time. They see it as appropriate, coupled with the availability of long-term debt to the tune of perhaps £200 billion. It is their intention to acquire preference shares as a result.

That is fine as it is their approach and business. I have no comment to make on that one way or another and I am sure they are well advised. We take our advice from our own people. I believed the way to deal with the issue, based on all the advice we received on that occasion, was to act in the way we did. It was essential to our national interest that we acted and we did on the basis of the advice available from the appropriate authorities. That is the basis upon which Government works, as the Deputy knows.

Deputy Eamon Gilmore

Why was this included?

The Taoiseach

The Central Bank and Financial Regulator indicated to us what areas would be covered and they put it forward.

Deputy Eamon Gilmore

Why?

The Taoiseach

We went with that advice.

Deputy Pádraic McCormack

The Taoiseach believes them.

The Taoiseach

With due respect to Deputy Gilmore I wish to make the Government position clear. There is no need for any suggestions to the contrary. The advice obtained by Government regarding policy matters in this area was from the appropriate authorities.

Deputy Michael D. Higgins

It was to keep on gambling.

The Taoiseach

Anything that can be done at that point to retain liquidity in the banking system — and obtain further liquidity as a result of our State guarantee — is the whole motivation behind everything we do in this matter. It comes from the appropriate advice we take.

Deputy Jim O’Keeffe

How competent was that advice?