We are joined by Mr. John McFaul, MP, the chairman of the House of Commons Treasury Committee, Mr. Michael Fallon, MP, Mr. Colin Breed, MP, Ms Sally Keeble, MP, Mr. Andrew Love, MP, Mr. George Mudie, MP, Mr. David Gauke, MP, Mr. Peter Viggers, MP, Mr. John Thurso, MP, and two members of the committee's staff. I welcome the members to the committee. The treasury committee is visiting Ireland as part of its inquiry into unclaimed assets in the financial system and wishes to discuss financial and fiscal matters at a general level. I am Seán Fleming, a Government Deputy from Laoighis-Offaly in the midlands. The Vice Chairman is Deputy Michael Finneran, Deputy M.J. Nolan is the Government convenor and Senator Mary White is also a member. On the Opposition side we have Deputy Paul McGrath from Fine Gael and Deputy Catherine Murphy, an Independent Deputy. I invite the Right Honourable John McFaul to address the meeting.
Exchange of Views with House of Commons Treasury Committee.
Mr. John McFall, MP
Thank you very much for taking the time to meet us during our busy two-day visit to Ireland. The main item on our agenda is unclaimed assets on which the British Government will establish a scheme. We feel we can learn from the Irish experience over recent years. I wish to discuss these issues, especially the legislative aspects.
The work of this committee mirrors the work we do on matters such as banks and bank charges. The committee's report from 2005 discussed the quality and cost of banking services in Ireland and also the issues of overcharging, tax evasion and fraud. During the previous Parliament, our committee examined particularly the issues of banks, credit, regulation and competitiveness.
We also examined financial inclusion, credit, savings, advice and insurance. I note the success of the savings incentive accounts which are due to mature during the next three to four months. We also have a sub-committee which examines customs and excise, missing trader fraud and on-line filing.
I will begin with unclaimed assets, and I ask committee members for their views on the subject, its genesis, the passage of legislation and its success or otherwise.
I will make a comment and will also give committee members from the Opposition an opportunity to speak. Regarding unclaimed assets, we have the Dormant Accounts Act which was personally spearheaded by the former Minister for Finance, Charlie McCreevy. He saw that banks had a great deal of customers' money which they used as their own to help their ratios and activities. He felt it was not their money to be used for such purposes and took a straightforward approach that it belonged to customers.
Mr. McCreevy established the dormant accounts fund whereby an account with no customer-initiated transaction within a large number of years is transferred to the dormant accounts fund. If a person or his or her relative ultimately comes to realise he or she had an old bank account, the money can be reclaimed, and this has happened. The money is not forfeited. It is a temporary transfer. I am sure 95% will remain permanently. It concerns accounts which sit idle for a large number of years. Since the legislation was enacted, we reduced the number of years of inactivity.
Unless committee members wish to raise it, we will not get too much into the controversy of how the funds are disbursed. A board was established to deal with its disbursement for community and charitable purposes. It is now within the remit of the Minister for Community, Rural and Gaeltacht Affairs. This is the second half of the equation.
The term "slush fund" comes to mind.
I will let Deputy McGrath make that statement and disagree with him entirely.
This is the genesis. Mr. McCreevy spearheaded it and amendments have been made since. Generally, everybody is happy with it. It was extended from bank cash accounts to certain unclaimed life assurance policies. A member of the Opposition might make a slightly different observation.
I welcome our guests from our near neighbour across the water. It is a pity they were not here last Saturday when we could have gloated a little. Nonetheless, they are very welcome. It is nice to have them here and I thank them for coming and meeting with us. The Chairman, Deputy Fleming, outlined the Dormant Accounts Act and I am sure the delegation has copies of it.
It arose because, over a long period, the Irish public had a love-hate relationship, which was mainly hate, with banks and financial institutions. Many of them did not serve the public well. We had difficulties with banks overcharging, misguiding people with regard to offshore accounts and encouraging them to invest in a manner which turned out to be illegal. An attitude existed that the banks had to be done at all costs.
It emerged that the banks had an unfair advantage over the public in a number of ways, one being dormant accounts. Money was sitting dormant in accounts for a long time and, as the Chairman stated, the banks were able to use it as if it were theirs. The Dormant Accounts Act established a mechanism to identify these accounts and put the money into a dormant accounts fund. Generally, this was welcomed. If a genuine case came forward, the money could be restored. In many cases involving elderly people, small accounts may have lay around. When they were added together, the amount involved was large and the banks were able to use it.
A second aspect involving bank drafts was identified but nothing happened. In considering it in a British context, perhaps the delegation might take action on it. On the previous occasion we received information on this, we learned there is approximately €1 billion in uncashed bank drafts. I do not mean current bank drafts drawn last week. I mean bank drafts in existence for two or three years.
There is no expiry date on them.
People drew bank drafts and they sit there as cheques. In the meantime, the banks have the use of this money. It may be worth examining. One wonders why people are able to leave such vast sums of money lying as a cheque in a cupboard rather than using it. Perhaps it is hot money they wish to hold until an appropriate day. This issue emerged but we did not do anything about it.
The creation of the dormant accounts fund was somewhat controversial. Initially, it was at arms length. It is now under the jurisdiction of a particular Minister. My colleagues may wish to comment, but the term "slush fund" comes to mind, especially in the run-up to an election. The Minister has this largesse which he can distribute to community and sporting groups. One can state it is it good that community groups benefit. However, we as the Opposition and the delegation as fair-minded politicians would not want a Minister to go to one's local club and provide €100,000 for extra changing rooms or €2 million to build a sports pitch. It should be disbursed in a fair and equitable manner.
If the distributions of cash which took place are examined, one will find the Minister's constituency does dramatically well. Perhaps we are not unique in Ireland. Perhaps it is a disadvantaged area and the projects are especially good. Being of a suspicious nature——
Mr. McFall, MP
Is there a record of how much is spent in the Minister's area compared with other areas?
Yes.
Mr. McFall, MP
What is it?
I cannot recall. It is not my constituency so I do not know.
We do not have a straight vote like in Britain.
It is enough to make the allegation but when one wants facts, the allegation——
It does stand. I did not bring the record but it is available as a public document. The delegation can examine it. This is the situation. When a change of Government occurs this year, it may not change dramatically. Sometimes, it is suggested that we make these claims in Opposition and, when we go into Government and state our Minister cannot disburse these funds in such a manner, our own people will get annoyed because they feel it is their turn to receive the money.
The concept of the dormant accounts fund is good. It is a matter of carefully working out how it will be disbursed so communities and groups most in need benefit from it to help lift them out of difficulties. Generally, it was very welcome. I do not know what can be done in respect of the rider on the bank drafts but the issue might be worth considering. In the British context, the amounts involved may be much more. Banks do not want to discuss these matters because they have the use of the money and, if one were to be able to investigate, the Criminal Assets Bureau might become interested.
I join with the Chairman and Deputy Paul McGrath in welcoming the representatives of the House of Commons Treasury Committee. I hope they have an enjoyable visit to Ireland.
The Dormant Accounts Act was the brainchild of the former Minister for Finance and current Commissioner for Internal Markets and Services, Mr. McCreevy, in response to questions people raised about banks. It was an innovative measure which proved has successful.
The procedure provided in the Act for disbursing funds is transparent and works in the best interest of the community and disability sectors. Every parish, community and county has the opportunity of applying to the fund. We have all had demands made of us in our constituencies to make representations in that regard but it is inappropriate to call the money a slush fund because one does not use slush funds for community support or disability services. An evaluation body decides on funding awards and appeals can be made to the Minister in the event of an application failing. Sometimes these appeals are successful.
The Act has supported groups which do not have the capacity to access mainstream financing due to the paperwork involved. The application procedure is straightforward and the projects funded can be as simple as providing a bus to take people to day care centres. A safety valve exists in that money can be drawn back by a family if it is identified or wanted. It is a good concept as long as it used in the public interest.
Mr. McFall referred to unclaimed assets within the financial system. I presume the UK is no different from Ireland in having large numbers of inactive accounts. I am sure the House of Commons committee will come forward with its own proposals on the matter but we found our solution to be positive for communities and sectors that needed finance. The money has been put to good use. The returns are all on public record and, although I do not know whether an extra few euro was spent in the Minister's constituency, I am sure the difference is limited. It is up to us, as Government and Opposition Members, to make applications on behalf of our communities.
Hear, hear.
I do not think the Minister would close the door in the face of any public representative who makes a genuine application on behalf of a community or disability group.
They are put in two bundles.
I welcome the delegation. I am sure frequent mention will be made of Mr. McCreevy, who I have the distinction of replacing in the by-election subsequent to his departure to Europe. The dormant accounts scheme was widely accepted because people regarded it as sensible. There was little serious public resistance once the safeguard was in place that funds which were legitimately forgotten could be reclaimed. In terms of disbursement, however, the definition of disadvantage is too narrow. While areas which are developing rapidly, such as my own constituency, are not seen as being economically disadvantaged, they are disadvantaged in that it is more expensive to purchase land where house prices are higher. Disadvantage can exist in different forms and places.
Members may have comments to make on the questions we received from the House of Commons committee with regard to who should monitor the operation and collection of the scheme. The collection of the fund is a matter for the Financial Regulator. There is no link between the collection and disbursement of dormant accounts and the two functions are supervised by separate Ministers. The funds are generally spent on social inclusion projects in urban areas and in rural areas of population decline. A disbursement board was formerly in place but the Minister now has responsibility for the matter. The disbursement of funds in the scheme is similar to the funds provided through the national lottery, most of which is approved by the relevant Minister. There is no separate disbursement board for lottery funding. Accountability for the disbursement of funds is a matter for the relevant Minister and Oireachtas committee. The delegates are free to take any lessons they wish from our observations and to raise any further questions they may have.
Mr. Colin Breed, MP
What are the principal differences in the way funds are disbursed between the national lottery and dormant accounts schemes?
I do not think there is any major difference. Funds in both schemes are approved by the relevant Minister.
Two different Ministers have total control.
There is no separate disbursement board for national lottery funding.
The main areas of funding from the national lottery are health, arts and sports, whereas the dormant accounts funds are generally intended for social inclusion and disadvantaged areas.
Mr. Breed, MP
Is there any reason these funds could not be administered by a board which was completely independent of a Department?
That is a fair question but our Government has decided against that route.
There is no particular reason, other than the loss of opportunities for photocalls in constituencies.
Mr. George Mudie, MP
What is the consensus on special savings accounts? Will the scheme be extended or reintroduced and can an argument be made for tailoring the scheme to encourage the involvement of lower paid workers?
At present the scheme has a five-year duration and the accounts are almost fully matured. The only way in which the scheme continues is via a revised scheme for people on incomes under €50,000. If they use their lump sum to contribute to a pension fund the Government will top up the amount paid by one third. It is designed specifically to encourage people to invest in a pension.
Mr. Mudie, MP
How long does it last?
There is no end date. The funds must be those built up in the SSIA and transferred to the new scheme.
I was in Opposition at the time it was introduced — I seem to have been eternally in Opposition. That will change shortly, however.
I will blow my own trumpet. The Minister who introduced the scheme envisaged that approximately 500,000 people would avail of the scheme. I differed and felt it was a gift horse which people would jump at, which turned out to be correct. It was availed of by 1.2 million people at a time when between 1.2 million and 1.3 million people were at work. The scheme was set up in such a way that a man could include his wife as a contributor, even if she was not working. My wife works in the home and did not have to show whether she had an income of her own, so I qualified twice.
The maximum contribution, which was a good aspect of the scheme, was £200 per month, or £2,400 per annum, which the Government topped up with a further 25% or £600. The contribution of £200 per month became £3,000, later becoming the equivalent in euro. The minimum contribution was £10 per month and a person was committed to save for five years. The total fund amounted to €15 billion and became drawable between 1 June 2006 and 31 May 2007. I joined very early and drew mine in early June 2006.
The total Government spend in a year is just over €50 billion but the scheme will reintroduce €15 billion into the economy, almost one third. The State had contributed between €2.5 billion and €3 billion but when people receive their money they will buy cars and pay tax of almost 60% of the cost. If they buy clothes or other goods they pay VAT at 21% and the amounts are similar for house renovations. One could see it as a good investment from the Government's point of view. Our tax take last year increased by €3 billion on the estimates, which is enormous in a small economy, and I am sure the Chairman will agree that a proportion was due to people spending maturing SSIA accounts.
Some people will continue to save and there should be a follow-up scheme. Any economist who examined the operation of the SSIA scheme would conclude that it had been successful. I saw figures in the newspapers the other day for the various investment options available. Banks and other financial institutions compared investment options for the five years of the operation of the scheme. Fixed interest yielded, at most, 4%, giving a lump sum of some €20,000 at the end. Those who had opened investment accounts did even better.
I saw a reference to a firm whose scheme returned €33,000 to its investors.
Yes, one firm returned €33,000, compared with €20,000 one would have received with a fixed interest investment.
That scheme involved equities.
The worst return from such schemes was €24,000. It worked out as a good investment and is worth considering. The upper limit of £200 per month kept the scheme within the grasp of many ordinary people, many of whom took advantage.
Mr. Peter Viggers, MP
We have been concerned about financial exclusion, whereby people who do not have access to bank accounts are disadvantaged in terms of claiming benefits. People with a float in their bank accounts pay less in bank charges than those nearer the margin. It is the banks' reporting season and it seems they have been very efficient and competitive but have left behind many people. What interest has the joint committee taken in this subject and how effective has its action been?
We have a very effective credit union system. The Irish League of Credit Unions is a not-for-profit organisation, with branches all over the country, which serves many people without regular bank accounts. We find, however, that one must have a bank account for an increasing number of social welfare payments. It is now the preferred option for the Department of Social and Family Affairs, whether the payments are for unemployment, disability or other benefits. More and more people are being forced to open bank accounts, and that gives rise to the issue of charges. Banks normally offer free banking for 18 months, which is attractive to start with but then expires. We have spoken with the Money Advice and Budgetary Service, MABS, and the Society of St Vincent de Paul, which is the largest charity in the country, to explore those issues, but they have not yet been satisfactorily resolved.
One of the problems we have is the fact that banks are pulling out of smaller rural communities. This is not just affecting people in financial difficulties or at the lower end of the financial spectrum. Banks locate according to geography and increasingly offer on-line services, which is especially inconvenient for older people, who are often not computer literate, and creates an added area of disadvantage.
The thinking behind the SSIA scheme was that we had swapped our national debt for personal debt and it was designed as a mechanism to encourage people to save. We will soon see how much money stays in the system but very few subscribers dropped out over the five years. It remains to be seen if it has achieved its objective of making us better savers.
The problem with the argument is that much of our prosperity is based on debt, which seems like a contradiction. If, for example, the Germans were not such great savers and we did not have people to borrow from, we would have had some difficulties.
The thinking is mostly that if there is to be a continuation, it should be strategic in terms of targeting the needs in the economy. For example, a large number of people would be wholly dependent on social welfare pensions and we should encourage that group to invest in pensions for the future. The intention now is for a far more targeted approach than was evident. The take-up was far higher than the initial expectation as it was something of a gift horse for most people, who saw it as such.
I am not sure we have identified and taken action on the issue but there is a problem in that many ordinary people dependant on welfare and low incomes would not have bank accounts at all. Part of the difficulty more recently is that to open a bank account here now is worse than doing a driving test. A person must appear at the bank probably on two or three occasions and the amount of documentation one must have to open an account is terrible. For all my married life I have had a joint account with my wife and quite recently, for a particular reason, my wife wished to open a separate account. Three visits to the bank were required and she had to bring along her passport, utility bills, etc., to open her own account in the same bank we have used for 50 years. It has become extremely difficult. This is off-putting to the ordinary person who does not want to go through such hassle.
The Chairman made reference to an organisation, the credit union, but I am not sure if similar bodies exist in the witnesses' country. The credit union movement in Ireland is colossal, having started off 50 or 60 years ago with small local area do-gooders and business people who got together and put a few pounds into a fund. They asked how they could help the less well off to get loans, etc. Loans were operated at 1% interest per month on a declining balance, and this worked dramatically well.
The credit unions were very successful and there is now an overall group of unions supervising the whole country. Each union has its own base and operates locally with its own voluntary committee, which sanctions loans, etc. They have professional staff and the unions themselves are highly successful. Most people would be a member of one, and I am sure I would not be breaking a confidence by saying most of us might borrow through the credit union when changing our car, etc.
They are used very well and most ordinary people would have a credit union account. They may go into a credit union for a few bob to pay for a confirmation, wedding or 50th birthday party, for example. It has counteracted to some extent a serious problem we had with moneylenders doing business with locals. They were operating illegally and charging enormous interest rates. They have been snuffed out to a great extent.
There is an increasing pressure from the Department of Social and Family Affairs to have bank accounts. To process the transfer of funds from the Department to bank accounts costs 2 cent or thereabouts per transaction whereas the process of transferring payment from the Department through the local post office is approximately €1.
I was recently in New Zealand where they have started an excellent service relating to bank accounts. The clerk to the committee accompanied us on the trip. They have started what is called Kiwibank, which arose from the fact there was no longer an indigenous New Zealand bank, with all the banks controlled from outside. In a dramatic response to this the New Zealand Government set up Kiwibank, which operates through post offices right across the country.
It has a colossal network and the bank operates commercially. It has been growing at a rate of 5,000 new customers per day or 25,000 per working week. The post office network already existed and it became the Kiwibank network. That model could be looked at across the world.
I am sure the House of Commons committee would be very pleased to hear that Fianna Fáil in Government are even giving money to the Opposition Deputies and their wives.
There will be no photo call though.
I do not think I fully understand the question asked by Mr. Viggers, could he repeat it?
Mr. Viggers, MP
I stated that this committee is interested in financial exclusion and I went on to ask the extent to which this Oireachtas committee is interested in the same topic. I also asked what steps have been taken to try to alleviate financial exclusion and how successful these have been.
The simple answer is we have done very little in that area. Perhaps it is one we should identify and take on. We have left it to the existing systems and in particular, the credit union movement has really taken control of the issue and been to the fore.
There is a case to consider in that field. A section of the community is excluded from main commercial banks and find it difficult to get credit. If it were not for the credit unions, perhaps we would have been obliged to take on the issue beforehand. Perhaps we have been given food for thought.
I have two final comments on that issue. I mentioned there is a State-funded organisation called the Money Advice and Budgeting Service, funded by the Department of Social and Family Affairs. This is for people who are getting into debt and is a good organisation in that representatives will meet a family in debt, try to assess outgoings and attempt to set up output on a structured basis. In some cases it would negotiate with the electricity or telecoms suppliers to come to an arrangement on payment of the debts. That is for people who have almost fallen through the net.
Another point is not directly related but concerns people being able to access banks. There has been a big increase in Ireland of automated teller machines. For example, they are in practically every filling station in the country. Most supermarkets have them as well. Although we might not have as many branches, people have access to cash through the hole in the wall machines, as they are known colloquially. People can physically withdraw money more easily than they would have in the past and do not have to go to branches, which tend to operate restricted hours.
Are there any other topics?
I would like to follow up on the distribution of the funds from the unclaimed assets. It was stated that this was to tackle problems of social exclusion and disadvantage, and done on the basis of applications coming in. Is there any effort to align either the distribution or the priorities with Government policy on tackling exclusion or disadvantage? If so, or even if this is not the case, how does the Government look at the effectiveness of the spend? In the UK, the amount of money that could be potentially spent would be very significant. What are the assurances in terms of effectiveness?
As Chairman, I would say the effectiveness of public spend on particular projects is one of the main questions. No country has cracked the issue and can guarantee such effectiveness. This funding goes towards child care facilities as well and supports many socially necessary activities, but no one could give a definitive answer. There is a gap.
Does the Irish Government say the fund is for social exclusion and disadvantage and that it will take applications or does the Government state its priorities for tackling exclusion and how it will spend the money?
The invitation to apply for funding is advertised in the national media and the Government sets out criteria. It focuses on particular areas, such as urban centres known as RAPID areas, Revitalising Areas by Planning Investment and Development, and rural areas where population is in decline. Parts of the country would not receive much of this funding because they do not fall into these categories. Deputy Catherine Murphy has indicated that hers is a growing constituency which is often excluded.
I apologise for being late. I welcome the delegation from the House of Commons. There is a strong friendship now between Ireland and the United Kingdom in many areas brought about by the great Prime Minister, Tony Blair, who has done good work for Ireland. While the delegates may not all come from his side of the House it is important to praise him because he has become very popular in Ireland. In the past few days Ireland played the United Kingdom in rugby, a wonderful event.
Financial exclusion, however, is the topic today. No one in Ireland is financially excluded now because of the wealth of our society and the low level of unemployment. Some people may be deprived and have money management problems, but we have gone from 18% to 20% unemployment a few years ago to 3.6%. There are approximately 200,000 people on the live register, many of whom could work but do not like work. These are the people who have financial difficulty.
I am worried about the influx of British banks into Ireland competing for our business. That would not happen but for the buoyancy of our economy. Irish banks are very profitable but they use the profit to finance the following year, a fact that some people have misconstrued. Financial exclusion is not a real problem in Ireland compared with the major problems we had many years ago. Our economy has turned in the right direction with wealth we never envisaged. That has been brought about by Governments which put measures in place to bring about this success.
The only difficulty we have is the movement of industrial jobs to India, China and elsewhere. Regarding educational qualifications, a Leaving Certificate today is equivalent to a Junior Certificate 30 years ago because one must have some qualification to get a job in high-tech industries. Events in China today and the American balance of payments will have a ripple effect here.
Mr. McFall, MP
I thank the committee for this session which has been very helpful. It is startling to find that there is no problem of financial exclusion in the Republic of Ireland.
We will go over to England.
Mr. McFall, MP
We may be unique in the United Kingdom in having this problem, on which we have produced a report. Even if it is only for bedtime reading and nothing to do with public policy, we will leave a copy for the committee. We will also leave a copy of the report of a short inquiry into travel insurance which may be relevant to people going abroad, whether on business or holidays. There is also an account of the work of our committee to give this committee an idea of what a parallel committee in the United Kingdom does.
I thank the delegation for coming here today. I join my colleague, Deputy Ned O'Keeffe, in thanking Prime Minister Blair for his personal commitment to, and passionate involvement in, the peace process in the North. Our economy is such that we need 50,000 economic immigrants every year to sustain it. We effectively have no unemployment and must bring people in from abroad. To date that has been successful.
The number one issue in this country is stability and the peace process. That overrides everything. I feel personally sorry for Tony Blair that his political legacy is being blighted by the war in Iraq. We, however, are indebted to him for his personal efforts in the peace process. I have been involved in it since 1993 and know what he has done.
That concludes our meeting. We are sorry we did not have more time for the discussion. There is a general election coming up shortly so we do not have a full complement here today. Some members might be out in their constituencies.
Mr. McFall, MP
There are €15 billion to distribute before then.