I thank the Chair. I offer best wishes to everyone on the committee for the new year. I thank the committee for its invitation to attend. I will make some opening points on the reasons for the invitation. I will not go through my statement in full but pick out a few key points so that we can move to a discussion. I am joined by my officials Mr. Joe Cullen, principal officer with responsibility for income tax and the employment wage subsidy scheme, EWSS,, and Mr. Brendan O’Leary, principal officer with responsibility for insurance and pensions policy.
On the Covid-19 supports for businesses, the committee will be aware of the importance and value of the EWSS, and its predecessor, the temporary wage subsidy scheme, TWSS. Together, they have involved the expenditure of almost €10 billion. In the case of EWSS alone, more than €7 billion has been provided. This amount comprises direct subsidy payments of €6.12 billion and PRSI forgone of €956 million. The Covid restrictions support scheme, CRSS, has provided support of €713 million to over 25,000 businesses.
The EWSS legislation places the administration of the scheme under the care and management of Revenue. The key metric for access to the scheme was a decline in turnover due to the impact of the public health restrictions. Revenue has been rigorous in its structured programme of checks to ensure the eligibility of businesses for subsidy payments under EWSS and will pursue any instances where a business fails to qualify for the scheme for whatever reason.
On the matter of companies that were in receipt of such support and subsequently paid dividends to their shareholders, I would state at the outset that I am not at liberty nor would it be appropriate for me to comment on the affairs of individual taxpayers. While the question of what dividends a company may or not be in position to pay to shareholders is a matter outside the current legislative remit of the scheme, I will keep this matter under review and assess whether it would be appropriate to introduce any further conditionality. However, I am strongly of the view that it would be important that any changes are proportionate and would not undermine the overarching policy rationale underpinning the scheme, which is to maintain employment. More than 700,000 employments have been supported by the EWSS and it is important that we do not lose sight of this important end goal. I stress that the overwhelming majority of companies which have participated in the wage subsidy schemes did so because they genuinely believed they would need support at that point based on the effect of the pandemic on their business. In the overwhelming majority that proved to be the case. Some companies subsequently had a strong financial year and ultimately considered that the State support was not required by them and returned the support received to Revenue. I would strongly encourage other companies who are in a similar situation to consider their actions.
On the broader issue of the future of supports, as the committee will be aware, in light of the necessity to reintroduce public health restrictions last December, the higher rates of EWSS were extended for a further two months across December and January. The EWSS was also reopened from 1 January for certain businesses who otherwise may not be eligible. These enhancements are beneficial to all sectors of the economy and in particular those sectors most severely impacted by the pandemic, including the hospitality, arts and entertainment sectors. The CRSS was also extended to 31 January 2022 so that businesses that have been significantly restricted from trading can now qualify for the scheme. The turnover reduction criteria was also increased from no more than 25% to 40% of 2019 turnover, and new businesses established between 13 October 2020 and 26 July 2021 are now be eligible to apply for the scheme. These changes were made in recognition of the challenges facing businesses in the sectors directly impacted by public health regulations.
I and my Government colleagues have always committed that there will be no cliff edge in respect of supports for businesses while accepting that such supports cannot continue indefinitely. In that vein, we continue to monitor developments, particularly those of the coming days and weeks, and consider options for the future of supports for impacted sectors.
Turning now to the issue of business interruption insurance I should begin by noting that the majority of such policies in place did not provide business interruption cover in relation to Covid-19. Ultimately, this is a legal, contractual matter between the relevant counterparties and in some cases has been the subject of litigation. Nonetheless, for the smaller number of policies that did provide such cover, it became apparent that some insurers deducted the value of state supports from claim settlements. Such deductions would appear as having been justified as being in line with the established insurance principle of indemnity. However, the Government was concerned that such action could be seen as representing a subsidy for insurers and furthermore, was not in line with the prevailing spirit under which these extraordinary supports were provided. My Department examined this issue firstly in terms of the prevailing relationship between state supports and insurance claims. It appears that in most instances, this issue does not arise because well-established measures already exist whereby state supports are not provided if losses are already covered by insurance, or where they are, they can be refunded to the State through official channels.
Consideration was then given to whether the Government could legislate to ensure that the Covid-19 moneys retained by insurers were returned to the State. Having received legal advice, it was determined not to enact legislation seeking to retrospectively recover the amounts deducted by insurers.
There is a lack of transparency around this general issue. For this reason, the insurance (miscellaneous provisions) Bill, which is currently being drafted, includes as a clear, practical response two provisions directly linked to this. The first will clarify that the Central Bank may collect, for the purposes of the National Claims Information Database, NCID, data on any State supports deducted from final settlement amounts. This enhanced transparency, building on the positive impact of the NCID, will enable us in the future to make better, evidence-based policy decisions to help ensure that this situation does not arise again, thus protecting the public interest. The second pro-consumer provision will require insurers in the interests of transparency to inform policyholders of any such deductions of public moneys from final settlement amounts.
I note there has been some discussion about the approach taken in the UK. The Financial Conduct Authority, FCA, there advised that insurers should make a case-by-case assessment as to whether it is appropriate to make such deductions, considering the nature of the support and the terms of the policy. The Central Bank’s general approach is aligned with this FCA advice.
It is important to recall that at the start of the pandemic, a core aim was to provide payments to the many businesses that needed them as quickly as possible. I think we can agree that this was achieved. However, there are lessons to be learned about deductions by insurers. Accordingly, the insurance (miscellaneous provisions) Bill of 2021 will provide a new framework to provide information on this practice. This, along with the policy learnings from this crisis, will enable the Government, if we are developing new supports, to help ensure that this does recur. I also note that the test cases related to this issue are ongoing and the courts are currently considering issues of quantum, with a judgment expected soon. Accordingly, I am unable to comment further on these cases at this time.
Insurance must take a "customer first" approach to these matters, in line with the Central Bank's guidance on resolving issues around business interruption insurance. There will be a further implementation report due soon on the Government's action plan for insurance reform.
Moving on to the sale of AIB shares, on the AIB trading plan, I announced to the market on 21 December 2021 my intention to sell part of the State’s 71.2% directed shareholding in AIB over the next six months by way of a trading plan. This will be managed on behalf of the State by Bank of America Merrill Lynch. The Government believes that banking is an activity that should be provided by the private sector and that taxpayer funds which were used to rescue the banks could be better used in other ways. My announcement on AIB is further progress in the Government’s policy of monetising its remaining stakes in the banks and returning them fully into private ownership.
As the committee will be aware, a total of €29.4 billion was invested in AIB, Bank of Ireland and PTSB over the period 2009 to 2011. Some €19.5 billion has been recovered in cash by way of disposals, investment income and liability guarantee fees. In the case of AIB, the State invested €20.75 billion and has recovered €10.62 billion, leaving a deficit of €10.13 billion. As at 10 January 2022, the State’s remaining equity stake in AIB was valued at €5 billion. I have instructed Bank of America Merrill Lynch to target that up to, but not more than, 15% of the expected aggregate total trading volume in AIB is to be sold over the duration of the trading plan. This is to ensure the State, as seller, does not disturb trading in the price of the shares on any given day. The number of shares sold each day will depend on market conditions, among other factors.
The trading plan which has been designed to handle volatility in the share price. Only a small amount of shares will be sold each day and a floor price, below which shares cannot be sold, has been built into the plan. The important outcome is not the price on a particular day but what on average is achieved over the duration of the plan. This is the first activity since 2017 for AIB. I expect the pace of share sales to be slower than what we have seen in the Bank of Ireland but it is important that we make further progress on what will be a journey over many years.
I will keep other sale options open, including larger block trades or directed buybacks from AIB itself, should these opportunities present themselves. With regard to usage of the sales proceeds, it is important to highlight that no new income will be generated from the plan and the transaction should be viewed as a switch in State assets from shares to cash.