Vol. 897 No. 1
6. Deputy Michael McGrath asked the Minister for Finance his views on the economic implications for Ireland of a potential exit by the United Kingdom from the European Union; how this impact would be mitigated; and if he will make a statement on the matter. [40355/15]
I raise the issue of the potential exit of Britain from the European Union. Whether we think this is likely or very unlikely, we certainly need to plan for the scenario, given the implications it would inevitably have for Ireland, particularly for the free movement of people and free trade currently provided for within the European Union. It would have serious economic consequences for Ireland. The question asks what the implications are, what we are doing to plan for this potential scenario and the details surrounding it.
I thank the Deputy for raising this very important issue. The Government's position on developments relating to British membership of the European Union has been clearly articulated, in particular by the Taoiseach and the Minister of Foreign Affairs and Trade; we very much want the United Kingdom to remain an integral member of the Union. This is important for both the economy and the ongoing development of the excellent bilateral relations Ireland and the United Kingdom now enjoy. Ireland is perhaps the member state that would be most affected by any change in the EU-UK relationship. We also believe the European Union is stronger and more effective with the United Kingdom as a member.
The United Kingdom's continued membership of the European Union is, therefore, a matter of strategic importance for the Government. In this regard, Departments, including my own, have been working on the matter for some time. Under the Department of Finance and Economic and Social Research Institute, ESRI, research programme agreement, my Department commissioned research to be undertaken on scoping the potential economic implications for Ireland of a change in the EU-UK relationship. The research was published on 5 November and is an important contribution in deepening our understanding of the potential issues arising. Although the research was commissioned under the Department of Finance and ESRI research programme agreement, it is important to underline that the ESRI is an independent institution.
My Department and others are continuing our assessment of all the issues involved in protecting Ireland's economic interests. However, I emphasise that the main focus of our work is now on examining how to support UK membership of the European Union rather than planning for its withdrawal. In this context, the Deputy will be aware of the publication of the Prime Minister, Mr. Cameron's letter to the President of the European Council on 10 November, in which he sets out in broad terms the changes that the United Kingdom intends to seek in the renegotiation of its membership of the European Union. We are entering a phase of discussions at European Union level leading up to the December European Council. Ireland will be very engaged both at political and official level.
I agree with the Minister's assertion that we need to be actively involved in the process under way between the British Government and the European Union. We should be doing so on the basis that we are actively working towards keeping Britain in the European Union. The reality is we are economically interdependent and our interests are inextricably linked. That is borne out by the trade relationship between Ireland and the United Kingdom. Having said that, we also have a duty to plan for the other scenario of a Brexit which may not be likely but is a possibility. Given the significant issues raised in the ESRI's report in terms of trade, foreign direct investment, energy security and migration implications, we need to actively consider what measures Ireland would need to implement if the scenario was to come to pass. I sincerely hope it will not happen, but my question is whether we are working with the scenario of a Brexit in mind. It is fundamentally in our interests to be prepared should it happen.
The primary work being done in the Departments of the Taoiseach and Foreign Affairs and Trade is to develop a constructive role for Ireland to assist the United Kingdom in retaining membership of the European Union. As we move towards the Council meeting in December, the Government is considering how it can contribute constructively to the negotiations, working with EU partners to reach pragmatic solutions, while at the same time protecting the economic interests of Ireland. We have not yet had any real discussion on the scenario that none of us wants, that of a British exit. That would happen in a subsequent phase. I would be very surprised if it was an exit simpliciter rather than a change in the relationship between the United Kingdom and the European Union. The nature of what would replace that relationship would decide whether this would be a big problem for Ireland or not as the case may be. There are precedents; Norway has such an agreement.
I agree the more likely scenario is a changed relationship between Britain and the European Union and that an accommodation will be reached. Ireland must be actively engaged in that process at European Council level, supporting the position of the British Government where we believe it is in our interests to do so. We may not agree with it on all of the issues being raised, but our overarching objective must be reaching an overall accommodation that will allow Britain to remain within the European Union. The alternative simply does not bear thinking about, as it may involve the reintroduction of tariffs and the need to immediately negotiate a bilateral trade arrangement between Ireland and the United Kingdom. That is not a space into which we want to go. We have a direct land border with part of the United Kingdom in the Six Counties. The issue is fundamental to our future economic interests and the ESRI's report makes a very important contribution to the debate. It highlights the key issues that need to be addressed. I support the Government's position in engaging constructively in the process, with a view to reaching an overall arrangement. I implore the Minister to ensure that, in the background, officials will work on the Brexit scenario.
I thank the Deputy for his support and agree with him on the position he outlined, which is helpful and constructive. With regard to the renegotiation by the United Kingdom of its relationship with the European Union and the capacity of Ireland to be of assistance with pragmatic and constructive proposals, rather than looking at it as the United Kingdom trying to have separate and distinct arrangements for itself, we can see it as the United Kingdom trying to make changes in the European Union to the benefit of the whole Community. If we approach it from that perspective, there is a better chance of securing a positive result. I can envisage a case where the United Kingdom will advocate change, arguing that such changes would benefit all member countries of the Community, and will be accommodated in that space. That is opposed to the United Kingdom stating it is different and needs a separate deal. That is not a workable solution.
The Deputy who tabled Question No. 7 is not present.
8. Deputy Clare Daly asked the Minister for Finance if the Revenue Commissioners have agreed to the change in local property tax procedures, on an administrative basis, for home owners with properties affected by pyrite, as announced by him in budget 2016; when these changes will come into effect; and when they will be put on a legislative basis. [40178/15]
The Minister announced in the Budget Statement with great fanfare that he was finally going to address the difficulties of the owners of properties with pyrite in accessing their legitimate right to an exemption from the local property tax. This has been consistently sought for almost two years. What is the meat of the proposal and when is it likely to be introduced? Are there other details?
I thank the Deputy for raising this issue again. She has raised it on a number of occasions. I have moved to meet the concerns she has expressed on behalf of the householders involved. I announced on budget day that I was accepting the recommendations made by Dr. Thornhill in his review of the local property tax with respect to those properties which had been damaged to a significant extent by pyrite.
Revenue has agreed to my request that the change in procedures be implemented on an administrative basis pending the enactment of the necessary legislation.
Dr. Thornhill recommended the continuation of the exemption from local property tax for properties with significant pyrite damage, for the most part in line with the current arrangements. The exemption will continue to be restricted to those properties that have been certified as having a damage rating of "2" or "1 with progression". The damage must be proved by inspection and testing by a competent person, such as an engineer, in accordance with a standard published by the National Standards Authority of Ireland. He also stated that where property owners elect not to incur the costs of testing, they have the option of submitting a self-assessed value to the Revenue Commissioners for the property which in their view reflects its current market value, taking account of the possible presence of pyrite.
Dr. Thornhill also recommended that the requirement for the certification of pyrite damage by a competent person be relaxed in certain limited circumstances. The first circumstance is where the Pyrite Remediation Board has agreed to remediate a property without carrying out the usual laboratory testing that definitively establishes the presence of pyrite. Where this happens, the Revenue Commissioners will accept confirmation from the Pyrite Remediation Board that it has accepted a particular property into its remediation scheme in lieu of certification by a competent person. The second circumstance is where a relevant party such as a guarantee company, an insurance company or a builder or developer accepts responsibility for the remediation of a damaged property or agrees to fully compensate the property owner in lieu of remediation. Where this happens, the Revenue Commissioners will accept documentary evidence that the relevant party has given an appropriate commitment to remediate the property or to fund the necessary remediation works.
Additional information not given on the floor of the House
I am advised that the Revenue Commissioners are currently preparing guidelines for the purpose of implementing Dr. Thornhill's recommendations on an administrative basis and that these will be published by the end of November. Work on the necessary legislative amendments to give statutory effect to the changes is under way and I hope to introduce them to the Oireachtas in the near future.
If any home owner was listening in, far from thinking the process has become simpler, his or her head would be splitting after listening to the Minister. The reality is that many of these people have had hundreds of euro and more than €1,000 in some instances deducted from their wages for properties that are simply valueless. Based on the Minister's response, I am not clear whether we must wait for legislation for this new arrangement to come in. When will this legislation be tabled? Is the exemption still restricted to three years because I do not think that is good enough given that the property continues to be essentially valueless and incapable of being sold, extended or improved in any way? The suggestions made by Dr. Thornhill may be a slight relaxation but they do not go far enough and it is regrettable that the Dáil has not been given an opportunity in any form to discuss those issues prior to any legislative change. Is that envisaged and when will we see legislation if that is what it depends on?
As I said in my reply, the Revenue Commissioners have agreed to my request that the changes in procedures be implemented on an administrative basis pending the enactment of the necessary legislation. I am also advised that the Revenue Commissioners are preparing guidelines for implementing Dr. Thornhill's recommendations on an administrative basis and that these will be published by the end of November. On the issue of legislation, the Dáil runs until the middle of December and is scheduled to return after Christmas so the intention is to legislate.
I take it that in the worst case scenario for a homeowner where no ground testing has been carried out, the homeowner can assess the value of the property. Presumably, if it is incapable of being sold because it has pyrite, it will return a very minor value and, therefore, be open to a very small property tax and the Revenue Commissioners will agree to that. Will the duration of the exemption be altered in any way by the suggestions made by Dr. Thornhill?
As I understand it from the Deputy and others who raised it, the nub of the problem was that the exemption could only be triggered by a test which sometimes cost an enormous amount of money that was well in excess of any relief that would be provided. This is being removed. The Revenue Commissioners are prepared to take evidence that is below testing. I have outlined the different types of evidence they will take but they will take self-assessment as well, which is probably the simplest. We will be clearer when they incorporate what I gave in my answer into the guidelines they intend publishing in the next two weeks. After that, the intention is to enshrine this in law but it will operate before the legislation is implemented on an administrative basis and I have the agreement of the Revenue Commissioners in this regard. There is no proposal to extend the period but we can look at that when the legislation arrives.
9. Deputy Seán Kyne asked the Minister for Finance if he will report on funding through the Strategic Banking Corporation of Ireland for Irish small and medium-sized enterprises and for agriculture; if he is satisfied with the total lending provided; the number of banks and lending organisations that are delivering the funding programme through the corporation; and if he will make a statement on the matter. [40372/15]
This question relates to the Strategic Banking Corporation of Ireland and funding through it for SMEs in agriculture. Can the Minister report on the total lending provided, whether he is satisfied with the level of funding and whether other banks or lending organisations will be eligible to engage in that process and lend?
I thank Deputy Kyne for this very important question. The Strategic Banking Corporation of Ireland, SBCI, was formed in late 2014 and began lending in March of this year. The SBCI makes its funds available to SMEs through lending partners known as on-lenders, the first of which are Bank of Ireland and AIB. The SBCI has made considerable progress in providing finance to Irish SMEs. To the end of September of this year, the SBCI has lent €110 million to over 3,200 SMEs across Ireland and to all sectors of the economy.
It may interest the Deputy to know that the SBCI has developed a tailored agriculture investment loan. This product is available for investment by agricultural SMEs involved in primary agricultural production, the processing of agricultural products or the marketing of agricultural products. The loan can be for amounts of up to €5 million with a loan maturity of between two and ten years. To date, approximately one third of the SBCI's total lending has been to SMEs in the agri sector who have taken out agriculture investment loans. I understand that the SBCI intends to publish further detailed lending results for 2015 in early 2016.
The Government's aim for the SBCI is to increase the provision of finance to Irish SMEs and to provide such finance at a lower cost and on more flexible terms than were available in recent times on the market. Additionally, it is intended that the SBCI will foster greater competition amongst finance providers in the market. The SBCI is achieving this by working with existing and new providers to develop enhanced products and by supporting new entrants to the SME lending market.
In this regard, the SBCI has recently announced new on-lending agreements with two non-bank lenders, Finance Ireland and Merrion Fleet. This is a key step in creating greater competition for SME lending in the Irish market and providing funding for a broader range of products including asset finance, leasing and contract hire.
Additional information not given on the floor of the House
The SBCI is in advanced discussions with a number of other bank and non-bank lenders and it is anticipated that further announcements of new on-lending agreements will be made in the coming months. The SBCI is committed to leveraging existing and new relationships with on-lending partners to support SME growth and investment through the provision of lower cost and longer term funding. To date, the SBCI has committed a total of €475 million for on-lending to Irish SMEs, out of its current funding capacity of €800 million. The SBCI has made significant progress over its first seven months of operations, both in terms of providing funding to SMEs and building a strong infrastructure through which it will continue to provide long-term support to SMEs.
I thank the Minister for his reply and commend him on his role in the establishment of the SBCI in conjunction with the EIB, the German state bank and the German finance minister. I welcome the amount of loans that have been made, up to one third in the agri sector which has been a powerhouse of job creation over the past number of years. It is great to see that this level of investment and lending is possible through the SBCI.
I understand that banks are obliged to inform applicants of the possibility of SBCI loans where the terms of their own loans are not agreeable or they are not agreeable to lending. Is this happening in all cases? Does the Minister envisage even more lending organisations coming to the fore over the next number of years in terms of providing increased competition notwithstanding the bodies he has listed?
I understand that Bank of Ireland, AIB and the two non-bank on-lenders are honouring the terms of the protocols they have entered into. I hope that there will be more on-lenders. I know that the SBCI is in advanced discussions with a number of other bank and non-bank lenders. It is anticipated that further announcements of new on-lending agreements will be made in the coming months. In terms of advertising the availability, apart from the obligation on the banks to inform customers, many of the trade organisations and representative bodies are fulfilling a role of providing the information.
The Irish Farmers Association, IFA, and the Irish Creamery Milk Suppliers Association, ICMSA, for example, are doing it in the agriculture sector. The Irish Business Employers Confederation, IBEC, is certainly doing it for small and medium enterprises, SMEs, and the Small Business Association is also doing it. There is significant take-up across the sectors but the agriculture sector took the lead. Dairy farmers, in particular, are gearing up for the non-quota days and there is very significant investment going into dairy farms.
I thank the Minister for his reply. Does he envisage any increased role for the credit unions in respect of SME lending? There has been speculation about this and there was a pilot programme in Kilkenny. Does the Minister envisage any role, maybe not at the level of €5 million but for smaller loans because credit unions are very interested in getting involved in this area?
The credit union movement is an admirable one and we are lucky to have it in Ireland because it is a source of credit for many people who would not normally interact with banks. I am a very strong supporter of the movement. Last week I met with the representatives of the two main credit union bodies, together with a representative of the Credit Union Managers Association, to discuss the Credit Unions and Cooperation with Overseas Regulators Act 2012, the final part of which will be signed into law at the end of the year. We discussed various implications and minor difficulties that need to be ironed out in advance of that. I also indicated that we would review the implementation of the Act and that we would further consider extending the role of the credit union into the areas the Deputy suggests.
10. Deputy Robert Troy asked the Minister for Finance if he is actively pursuing plans to force banks to reduce variable interest rates for mortgage customers; if he is concerned by the high rates charged by banks that are no longer active in the new mortgage market, and are therefore not subject to competition pressure; and if he will make a statement on the matter. [40357/15]
Will the Minister continue to pursue plans to force the banks to reduce the variable interest rates charged? Is he concerned about the high interest rates being charged by banks that are no longer active in new mortgage markets and, therefore, are not subject to competition pressure and will he make a statement on the matter?
I thank Deputy Troy for raising this matter. It is a very important issue for many constituents of all Deputies. As the Deputy knows, I have taken steps to ensure that the banks provide options for mortgage holders to reduce their monthly repayments. Last May, I requested a report from the Central Bank on the topic which was subsequently published. I also met with the six main mortgage lenders in May and outlined my view that the standard variable rate, SVR, being charged to Irish customers was too high. The banks agreed to review their rates and products and, by the beginning of July, to have simple options to reduce monthly mortgage payments for SVR customers.
In September, I concluded a series of follow-up meetings with these banks and the reality is that the majority have put options in place to allow borrowers reduce their repayments. These options range from lower variable rates to new suites of variable rates based on loan-to-value and reductions in fixed rates.
While I did not meet all mortgage providers operating in Ireland, I met with those which cover the majority of the mortgage market. Furthermore, these meetings should impact on other lenders in the market. I expect that changes to interest rates by the main lenders should drive competition in the mortgage market and exert downward pressure on other lenders to reduce their rates in line with other providers.
I, therefore, encourage borrowers to contact their bank to see what is available to them in their circumstances or consider moving to another bank, where possible, if the offer is not satisfactory.
Central Bank research suggests that 21% of existing private dwelling house, PDH, variable rate mortgage customers could save by switching their provider. Many of those who cannot save by switching are on tracker rates where the interest rate is already low or have SVR rates but with small remaining balances. I would encourage customers to see if there are options available to them to reduce their repayments by switching provider. I expect that if financial institutions are convinced that there is a threat that they will lose existing customers, they will reduce the rates they currently charge such customers. The Competition and Consumer Protection Commission, CCPC, website www.consumerhelp.ie is a valuable source of information on the rates charged by various financial institutions.
Additional information not given on the floor of the House
The reality is that the majority of mortgage lenders have put options in place to allow borrowers reduce their repayments. Therefore, I do not consider it necessary to take any further action at this time but my Department continues to keep the situation under review.
I thank the Minister for his response. He is right, it is a very big issue because 300,000 households with young families are being screwed and crippled by interest rates. In some instances, the interest is twice the rate of that in other EU member states. Some people are paying €4,000 a year on a €200,000 mortgage more than is being paid in Northern Ireland. That is not fair. The Minister talks about his modest reductions in the universal social charge, USC, in the budget but can he imagine what an extra €4,000 a year would do for many families who are struggling? He said he concluded a series of meetings in September but the consequence of these meetings was a totally inadequate response from the banks. The meetings were about as useful as an ashtray on a motorbike because the interest rates are still too high and are crippling people. The Minister talks about the reduction in fixed rate interest rates but that does not suit everybody. He talks about switching mortgages but that is not suited, or open to, people in mortgage arrears or negative equity.
This party produced legislation earlier in the year which would have given power to the Central Bank to intervene. It is time the Minister enacted that legislation.
We asked the Central Bank to review the situation in the spring and it turned down the offer to become the authority that regulated interest rates. It thought this was a very bad idea and that competition in the market is the best controller of interest rates and the products offered. All the main lenders, AIB, Permanent TSB, Bank of Ireland and the others, made new offers after their meetings with me. Some of them reduced their rates by up to 20%, which is a significant reduction. We will not get the rates down to the European average, which the Deputy described, because the business in Ireland has come through a catastrophe and there are so many arrears on loan books on mortgages that the costs to the mortgage providers in Ireland are significantly higher because they are dealing with bad books. They are dealing with arrears, which is the key issue. I constantly monitor this and have regular meetings with the main banks and will continue to do so. It will be an agenda item for forthcoming meetings, as it was in the past. Significant progress has been made and the Deputy should encourage those who talk to him to avail of the new offers because there seems to be considerable reluctance to switch even when it is in the interest of customers.
The total figures are not as big as the Deputy says. The fixed mortgages are at very low interest rates. Some elderly or middle aged people have a very small balance left on their variable rate mortgages and do not think it is worth changing their relationship with their bank managers. There is a cohort of people adversely affected and I am addressing their needs.
There are 300,000 households on variable interest rates. Only 700 people switched their mortgages to date this year. That is minimal. People do not switch because of the charges associated with switching, legal fees, valuation and other professional fees that are involved. People in negative equity and those in mortgage arrears cannot change because no financial institution wants to deal with them. The Minister has the power to instruct the Central Bank to intervene. Intervention is needed.
The legislation we proposed was balanced correctly because it acknowledged the obvious need for the banks to be profitable but it also acknowledged the rights of consumers to be treated fairly because they are not being treated fairly. The Minister talked about the difficulties the banks have gone through but AIB recently announced that it raised €750 million at a cost of 0.66% per year. It is able to raise money at an extraordinarily low interest rate but it is charging 3.6% to hard pressed struggling families. They should not be the ones left to shoulder the responsibility and help dig the banks out of the mess they created for themselves.
As I said to the Deputy, it is a major cause of concern in certain households. I am very much aware of the concern he expresses and I will be in constant dialogue with the bank, but the solution is more competition. The different banks cannot offer the same product at the same price because if they do, there is no competition. I want them to offer different products and if there are price variations, that is the competition but people must be willing to switch. It is a question that needs to be addressed by the advocates in terms of saying that this is a major crisis. If the Deputy's figure is correct, why did only 700 switch from a particular bank? One possible answer is that interest rates across the world are at an historic low even though the comparative interest rate between here and the European Union is high. The Deputy should ask his parents' generation what they were paying on their mortgage and he will see that. Interest rates are at an historic low.
What balance did they have? It cost £4,000 to buy a house.
One possible explanation for the anomaly the Deputy is raising is that many people are happy with the interest rate they are paying, especially if there is a small balance left on their mortgage, and they will not switch for small rewards.
