I opened the Second Stage debate in the Dáil with some facts about the national debt which might bear repeating in this House. Total employment in this country is about 1.1 million and each of these persons is on average paying out of his and her pocket almost £2,000 each year just to meet interest on the debt. Half of that sum is going abroad. The debt is £25 billion and represents almost £23,000 per head for each person at work here. These figures are growing. Our aim in this Bill is to do everything possible to minimise this burden.
I said in my budget speech earlier this year that the Government had decided to establish, under statute, an independent office for the management of the national debt. My statement referred to the fact that debt management has become an increasingly complex and sophisticated activity, requiring flexible management structures and suitably qualified personnel to exploit fully the potential for savings. The purpose of this Bill is to provide for the establishment of the new office, to be called the National Treasury Management Agency.
The Bill enables the Government to delegate my statutory borrowing and debt management functions to the agency, but my responsibility as a member of the Government will be unchanged. In other words, the Minister for Finance's powers are not being diminished in any way. This new agency will act on my behalf as Minister for Finance and under my control. An advisory committee is being established to advise and assist the chief executive of the agency. The chief executive will be directly responsible to me as Minister for Finance and will be the accounting officer for the agency.
As is clear from what I have said, debt service costs have become a major burden on the Exchequer. It has become obvious as well that the executive and commercial operations of borrowing and debt management require an increasing level of specialisation and are less appropriate to a Government Department. The Department of Finance, who have been dealing with borrowing and debt management up to now, are basically a policy Department. The function of borrowing money by the Department in the name of the Minister for Finance began with the issue of national loans in the early days of the State. In those days it was a relatively straightforward function. Despite the huge growth in borrowing by the Exchequer, including the breaking of new ground in the international capital markets, the Department continued to adapt and coped very well with these increased responsibilities. But we cannot ignore what has been happening in the past five or six years, and in particular the loss of financial expertise from the Department, about which I will say more in a moment. Exchange controls have been all but eliminated. Cross-Border capital flows have increased. Deregulation has grown. Markets have become more complex. There has been rapid growth in new debt management instruments. The function of borrowing money in the 1990s and of managing debt, particularly active management, is increasingly specialised.
In GNP terms Ireland's national debt remains one of the highest among the OECD countries at over 120 per cent of our GNP at end 1989. Interest payments alone come to over £2.1 billion this year or 9 per cent of GNP. This is a huge burden and is almost equivalent to the total yield from income tax in the PAYE sector. It is about 60 per cent greater than total Exchequer expenditure on the health services and about 60 per cent greater than total Exchequer expenditure on education. At its most fundamental, of course, these huge debt servicing costs can be tackled only by continuing to reduce borrowing and to limit or stop the rise in our debt, but shrewd management of that debt can also yield savings and contribute to an improved budgetary position.
Debt management is essentially about managing risk. As I have said, our debt is enormous and the range of borrowing and debt management instruments used, both at home and abroad, is large, varied and complex. Out of the total debt of £25 billion, over £9 billion is in foreign currency. It is subject to exchange rate variation vis-à-vis the Irish pound, particularly in regard to currencies outside the EMS such as the US dollar and the yen. Out of the total foreign currency debt, about 40 per cent is at a floating rate of interest and is subject to movements in international interest rates. It is obvious, therefore, that adverse trends in exchange and interest rates can cause a severe rise in our debt servicing costs. Debt management must, in the first place, minimise the effects of these adverse trends by switching between the currencies in the debt portfolio and by varying the proportions at fixed and floating interest rates having regard to projected movements in interest rates generally. In addition to those strategic risk management techniques there are several ways of covering interest rate and exchange rate risks in the short-term.
All these techniques can make valuable savings as well as averting risks. My Department have been examining the potential for savings on the national debt portfolio in consultation with a number of leading international banks and are satisfied that significant savings are available while following a risk-averse debt management strategy. I should emphasise here that savings on the national debt are available across the board and are not confined to the foreign debt portfolio. Opportunities also exist in the domestic market and an active approach can secure savings in the switching between fixed and floating interest rates, between long and short maturities and between different forms of debt instruments.
The domestic gilt and bill markets alone total almost £14 billion so that the potential savings from even small, but active, shifting of the portfolio are significant. I should also mention that non-residents now hold about £4 billion of this figure. Adding this to the foreign currency debt, the net result is that non-residents hold over half of our total debt and we are spending each year about £1 billion in interest payments to non-residents.
What is vital if we are to get the most benefit from all borrowing and liability management opportunities is to have a professional and specialised team to do the job and that they should operate in a stable working environment. It is readily acknowledged that financial institutions are only as successful as the people working in them. In our dealings with foreign banks we have seen many instances of key personnel leaving. Ultimately if these people are not replaced quickly and effectively, the services offered by their former employers deteriorate and their profitability suffers. There is no reason a treasury management operation should be any different. It cannot operate effectively while constantly losing staff or knowing that its staff can be readily poached. That is what has been happening in the finance division of the Department of Finance. The increasingly specialised and complex nature of the work has been unfortunately matched by a constant drain of people to the private sector, attracted by better rewards and career prospects.
People leave for all kinds of reasons and sometimes it can be too costly to retain them. But it is unrealistic not to be able to make an appropriate response in terms of financial rewards or career opportunities in order to retain valuable staff. This is especially so in what is an active seller's market for their services. Even more fundamentally, the size of the national debt, the complexities of its management and the huge burden which it places on the national economy make it a very significant part of our public finances and mark it out as a special case. The Exchequer's debt represents by far the largest portfolio in the country and it is inexcusable not to devote the best possible expertise to its management.
The choice for the Government and for me as Minister for Finance is whether we can allow Ireland's national debt management operation to continue to lose experienced and qualified people and expect that somehow the Department of Finance will cope or whether the risk of letting our debt management lag behind other treasury management structures, either in Ireland or elsewhere, is too great and the consequences too costly. We tried to recruit suitably qualified people into the Department of Finance but this was not successful.
I said in the Dáil that we must be realistic about our situation, however painful that may be, and accept that we are not going to be able to get and hold the best type of people that we need in a Civil Service environment. We have got to pay market rates for the right people and devise an organisational structure which they can be encouraged to join and to give of their best in the interests of us all.
I have already said that our interest payments come to over £2 billion annually. Even a small percentage saving can yield a significant reduction in our budgetary expenditure. If these savings are feasible, and it has been demonstrated that they are, then we must commit the necessary resources and the management structures to ensure that they accrue. That is why the Government are satisfied that establishing an agency as provided for in this Bill is the right solution.
I would now like to outline for the House the basic structure of the agency. The Agency will operate under the general control of the Minister for Finance; the chief executive of the agency will have a direct reporting relationship to the Minister; there will be no board of directors between the Minister and the agency; instead there will be an advisory committee to whom the chief executive can refer; because the national debt is such a large and complex part of our public finances the present carefully constructed controls involving the Comptroller and Auditor General and the Exchequer system of accounts will continue; accountability will be enhanced by making the chief executive formally accountable to the Dáil through the Public Accounts Committee for the financial affairs of the agency; there will be flexibility as to pay and conditions so that key staff can be recruited and retained; in return, they will be assigned clear levels of responsibility and must perform to these levels; and the agency's staff will not be civil servants.
Turning to the Bill itself, I would like especially to mention the key provisions in sections 4 and 5. Section 4 states that the principal functions of the agency will be those delegated to it in section 5. Section 4 also makes it clear, as I have indicated already, that the agency will operate under the control of the Minister for Finance and subject to whatever directions and guidelines he may give.
Section 5 enables the Government by order to delegate to the agency the borrowing and debt management functions of the Minister for Finance. These functions of the Minister are contained in the legislative provisions identified in the First Schedule. The principal such provisions are listed at (g) in the Schedule, viz section 54 of the Finance Act, 1970, as amended in particular by section 118 of the Finance Act, 1983. These allow the Minister to issue debt and to engage in debt management operations. Most of the other references to the legislative functions of the Minister for Finance refer to the operations of the Post Office Savings Bank, and small savings generally.
An order made under section 5 will be annulled if either House of the Oireachtas passes a resolution annulling it within 21 sitting days of the order being laid before it. Section 5 also sets out in some detail the subsidiary functions of the agency. These deal with matters such as the borrowing programme to be undertaken by the agency each year, as well as the submission to, and approval by, the Minister of the annual estimate for expenditure arising out of the national debt. Also included are various advisory and other ancillary functions to be performed by the agency.
Another provision of the Bill to which I would like to draw particular attention is section 9 which deals with the establishment of the advisory committee. The intention here is to engage the knowledge and experience on a part-time basis of senior people with a proven track record in financial services. It might be possible that some of these would have an international background and would, if necessary, be headquartered outside Ireland. This would not only reflect the international arena in which the agency will operate but offer a useful background of experience and advice for the agency's operations.
Section 12 is also worth mentioning in particular. This provision effectively nominates the chief executive of the agency as the accounting officer for the management of the national debt. This will allow the Dáil, through the Public Accounts Committee, to engage in a detailed examination of this large item of expenditure.
I should also say something about section 14 dealing with the disclosure of information. A number of Deputies in the Dáil expressed concern at first about the minimal nature of the £1,000 fine for unauthorised disclosure of information. As I said in the Dáil, however, the fine is deliberately low in order to have access to the District Court and seek summary conviction following which the perpetrator can be dismissed without delay. The alternative would be to proceed by way of indictment which would take longer. Dismissal is not the only deterrent of course. A non-disclosure clause will be written into the contracts of employment, a breach of which can be pursued under the civil law and, finally, the Official Secrets Act will apply under which stiff penalties are applicable.
I commend this Bill to the House.