The purpose of this Bill is to extend the role of the National Treasury Management Agency to provide for the establishment of a State claims agency, a central treasury service and a fund investment service. The aim of these new services is to make savings and maximise income for the Exchequer.
I will set out for the House later what each of the services involves and how they will operate in practice. First, I would like to outline why it is proposed to establish them under the auspices of the NTMA.
The NTMA was established in 1990 with flexible management structures and suitably qualified personnel to borrow money for the Exchequer and to manage the national debt management at a time when debt management had become an increasingly complex and sophisticated activity. The NTMA has proved successful in managing the national debt. In the performance of its debt management role, the agency has built up a broad range of financial management skills. The proposed central treasury and fund investment services involve the utilisation of these skills. It makes sense to avail of the NTMA's expertise in these areas and provide for the addition of these facilities to the services already provided by the agency.
Turning to the State claims agency, the present arrangements for handling claims against the State are unsatisfactory. A new approach is needed to put in place a structured and coherent response to meet these claims. The choice here is between establishing a new agency to handle claims or to give the task to an existing one. The broad range of skills which the NTMA has built up, supplemented by the particular expertise which claims management requires, will enable it to perform this new function in an efficient and cost effective manner. The agency intends to recruit experienced claims managers who will form the core skill-set in the claims management area as they do in commercial practice. In addition, the agency intends to recruit legal expertise both directly and through the use of a panel of solicitors. An experienced risk manager will also be recruited.
It might assist the House if I detailed some background to the decision to establish the State claims agency. The upsurge in Army deafness claims which took place towards the end of 1995 caused increased attention to be directed at the general question of compensation claims against the State, their cost and how they should be managed. It was argued that the management of claims against the State, centralised in a single agency dedicated to that purpose, would involve the adoption of a proactive approach in seeking least cost settlements in accordance with best practice of claims departments of insurance companies. The main benefits which were seen as arising from the operation of a claims agency were savings in settlement costs and legal charges – to both claimants and the State – resulting from more efficient handling of claims. The risk advice role which a claims agency would assume would also help to reduce the incidence of claims and thus the overall cost.
Successive Governments looked favourably on the idea, first, directing that draft legislation to establish a State claims agency should be brought forward and later that a claims agency under the NTMA should be considered further. However, the issues involved proved very complex and required extensive consultation with Departments as well as the Office of the Attorney General. This was against the background that there is no general legislative provision for dealing with personal injury or property damage claims against the State onto which proposals for a claims agency could have been grafted.
Extensive discussions also took place with the NTMA on the issues involved and, in particular, on how to deal with certain concerns which arose. Those concerns related to issues such as the scope of the claims to be managed, the funding provisions which should apply and how to give Departments – the clients – an influence in the way the claims functions would be handled. The provisions of the Bill meet these concerns and I am happy to recommend them to the House.
This whole process took longer than any of us would have wished or expected. The drafting of the legislative provisions was also a lengthy process, reflecting the fact that, in this Bill, we are breaking new ground. It is essential that Departments and other State authorities against whom claims are made have an influence on how claims are handled by the agency on their behalf. This will be achieved through their being directly consulted on the general guidelines to be laid down on how the NTMA carries out its claims management functions and through the policy committee on which the Departments will be represented. The policy and general procedures to be followed in handling claims will be subject to the approval of the Minister.
It had been envisaged at an earlier stage that a State claims agency would deal with Army hearing loss cases. However, the strategy adopted by my colleague, the Minister for Defence, has been successful in bringing about a dramatic reduction in the levels of compensation paid in these cases. The Minister has established a pilot scheme specifically for the Army hearing loss claims and it is hoped that most of them can be disposed of under that scheme with considerable savings to the Exchequer. Accordingly, there may not be a role for the claims agency in handling such cases. However, this matter will be kept under review.
I am satisfied that the new arrangements will lead to savings for the Exchequer. It is, however, virtually impossible to estimate the amount of savings which might be achieved. The potential can be gauged from the overall cost of claims. Latest estimates of the costs of the new claims arising, excluding Army hearing loss, amount to £8.5 million per year. The legal costs on this amount could be around £2.8 million per annum.
I do not regard the present arrangements for handling claims against the State as satisfactory. Society in Ireland is becoming more litigious. Further "class actions", as in Army deafness, may occur, in addition to the growing number of routine cases. I am strongly of the view that the State must have in place a structured and coherent response to these claims. A more businesslike approach to the settlement of genuine claims is also desirable in the interests of claimants and to secure lower costs in the long run. The provisions of this Bill will achieve these objectives.
I know the agency intends to adopt a commercial approach to claims management – it will not be a "soft touch" for inflated claims or those with little or no merit. I would like claimants, existing and prospective, and their advisers to be clear in that regard. If all concerned realise that, they will be less likely to make or push claims which they know to be less than deserving. I have no doubt, however, that cases will arise which involve sensitive issues or where injury has been caused through negligence on the part of the State. I assure Senators that in situations such as this the agency will deal with claimants in a fair and sympathetic manner.
The agency will also be proactive in the vital area of risk management. The application of sound risk management principles and procedures should ensure that, over time, the frequency of accidents and injuries will decline. They can never, of course, be totally eliminated. One of the tasks facing the agency will be to ensure that Departments have procedures in place to deal quickly and positively with the victims of genuine accidents. Such an approach can often mean that incidents which might otherwise give rise to contentious claims and litigation can be quickly resolved to the satisfaction of all concerned.
The Central Treasury Service proposals will enable the NTMA to offer deposit, overdraft and loan facilities to health boards, vocational educational committees, local authorities and other designated non-commercial State bodies. The objective is to offer such bodies a competitive service in these areas with a view to achieving savings for the Exchequer.
The proposals stem from concerns expressed by the NTMA that the interest paid on short-term surpluses and charged on overdraft facilities along with bank charges represented very bad value compared with the NTMA's capacity to raise or place cash at wholesale money market rates. In order to achieve savings for the Exchequer, the agency suggested that it might offer central treasury services to the non-commercial State sector, aimed at complementing, rather than replacing, existing banking arrangements for the organisations involved.
An interdepartmental group which was representative of the NTMA and the various Government Departments concerned examined these proposals. The group concluded that the interest rates offered and charged by the banks were generally less competitive than rates which the NTMA could offer. However, the group also noted that some organisations had negotiated discounted bank charges as part of packages requiring them to maintain some minimum level of cash balances and-or overdraft facilities with their banks.
The practice of maintaining certain levels of cash balances or borrowings in return for low transaction processing fees is not necessarily the most cost effective option. Best practice would dictate that the cost of each service should be evaluated separately, with the objective of availing of the most competitively priced combination of services. I can envisage a situation where the NTMA provides the bodies with keenly priced deposit and loan facilities while the banks provided the transaction processing services. The Bill will bring greater competition and transparency in the provision of these services which can only be of benefit to the bodies concerned. It will be necessary for each individual body to weigh up the amount of any additional costs that could arise from any disturbance of existing banking arrangements versus the amount of savings that could be derived from availing of the NTMA facilities.
The interdepartmental group recommended that the National Treasury Management Agency Act, 1990, should be amended to enable the NTMA to offer cash management services to non-commercial State bodies and this recommendation was accepted by Government. The necessary provisions to give effect to this recommendation are contained in the Bill.
Last week the House debated legislation which will make the NTMA manager of the new National Pensions Reserve Fund. In this role the agency will act on behalf of the independent commissioners who will control, manage and invest the fund. The proposed role for the agency under the current Bill is somewhat different. The Bill deals with funds such as the social insurance fund which are managed by Government Ministers and where the Minister concerned has a statutory responsibility to invest the fund assets. The Bill will enable the agency to perform this investment function on the relevant Minister's behalf.
Since the establishment of the NTMA the Government's professional investment expertise has been concentrated in the agency. However, under the National Treasury Management Agency Act, 1990, the agency is restricted to a debt management role. It does not have the statutory authority to manage and invest funds on behalf of the State.
This situation is currently causing difficulties. These difficulties can be illustrated if I describe the situation which has arisen with the social insurance fund. The fund holds the proceeds of employer and employee social insurance contributions and is used to pay social insurance benefits. In previous years, the fund's income was not sufficient to cover the costs of these benefits and had to be subvented by the Exchequer.
Due to the increase in employment and wages and the decrease in social insurance payments in recent years, there is currently a surplus in the social insurance fund. This surplus is projected to reach £630 million by the end of the year. The Minister for Finance is required to invest this surplus in certain authorised products. These include long-term bonds, short-term securities and cash accounts. However, the risk and investment management systems and skills effectively to manage such a large sum available to the Minister are in the NTMA. The issue is being resolved in the short term with the assistance of the NTMA through investment in NTMA Exchequer notes. This addresses the risk issue through utilisation of the agency's risk management systems. However, this approach is not sustainable in the long term, particularly as the volume of moneys involved increases. Additionally, it does not maximise the return on fund investments as it does not enable investment in higher yielding assets such as long-term bonds. The most sensible solution to this issue is to enable the NTMA to invest the fund directly, utilising the full range of authorised investment instruments, on behalf of the Minister for Finance.
In short, this Bill addresses the anomaly whereby the Government's professional investment expertise which is concentrated in the NTMA cannot be utilised in the investment of Government funds. It enables the NTMA formally to provide a fund investment service where required. It will remain a matter for the Minister in each case to decide whether or not to avail of the service.
The NTMA has, over the past five years, been involved in consultancy projects in Central and Eastern Europe, South America and Asia. In all cases work has been carried out for the ministries of finance in the respective countries. Apart from revenues generated, consultancy work has brought additional benefits to the agency in the form of broadening the skill base of its employees. However, the National Treasury Management Agency Act, 1990, does not formally include a provision to provide consultancy services to parties other than the Government. This Bill formally empowers the agency to undertake such assignments.
I wish to outline the main provisions of the Bill. Part 2 contains the provisions in relation to the State claims agency. In general, the NTMA will be empowered to manage personal injury and property damage compensation claims against the State, Government Departments, Ministers and the Attorney General, community and comprehensive schools and residential centres for young offenders. Claims against other bodies can be assigned to the agency in the future, if it is appropriate and cost effective to do so.
Sections 6 and 7 define a number of key terms used in relation to the management of claims. Section 8 sets out the functions to be performed by the agency in relation to the management of claims and counterclaims. The agency will manage claims and counterclaims to ensure that the State's liability and associated legal and other expenses are contained at the lowest achievable level. The section also requires the agency to provide risk management advisory services. Where it considers it appropriate to do so, the agency may purchase insurance cover against certain insurable risks.
Section 9 provides for the delegation by Government order of the management of claims or classes of claims to the agency, at the request of Ministers. The section also contains a provision which would allow the Minister for Finance to direct the agency not to begin or to discontinue managing a claim. Such a direction would be made at the request of Ministers where the interests of the State so require.
Section 10 deals with the Attorney General's functions in relation to the management of claims by the agency in so far as his role as legal adviser to the Government is concerned. The agency will perform those functions on his behalf subject to the right of the Attorney General to receive such information as he requests from the agency and to give directions to the agency, where the interests of the State so require. Such directions may include one directing the agency not to begin, or to discontinue, managing a claim. A direction to that effect will, however, lapse after 30 days unless a direction from the Minister for Finance is given or a delegation order is revoked by that date. The Attorney General may also give general guidelines to the agency.
Section 12 provides for the establishment by the Minister of a policy committee which will advise the agency on policy and procedures relating to its claims management and risk management functions. Section 15 provides that the Minister for Finance may issue directions and guidelines to the agency in relation to the performance of its claims management functions.
Section 16 sets out the arrangements which will apply in relation to the payment of settlement amounts or awards due to claimants and to the payment of fees to professional and other experts. The agency will make such payments out of advances from the Post Office Savings Bank fund and will subsequently recoup the amounts involved from the Departments and offices. The Post Office Savings Bank fund is an extra budgetary account of the Minister. It is used primarily to hold and invest the deposits received from the Post Office Savings Bank, but it is also used as an intermediary through which the NTMA conducts certain debt management activities with the markets. It provides a ready-made vehicle for the funding of settlements and the payments of fees.
Part 3 contains the provisions in relation to the central treasury services. Central treasury services are defined as the taking of deposits from and the making of advances to local authorities, health boards, vocational education committees and other non-commercial State bodies. These other bodies may be prescribed by order.
Section 20 authorises the Minister to provide central treasury services to non-commercial State bodies and also provides that such bodies may choose to avail of the service at their own discretion. Section 23 enables the Minister to delegate the operation of the central treasury service to the NTMA while section 25 provides that the Minister may issue directions or guidelines to the NTMA in relation to its performance of the function.
Section 22 provides that the central treasury service will operate on the Post Office Savings Bank fund. As with the settling of claims by a State claims agency, the fund provides a ready-made vehicle through which central treasury services can be provided.
Section 26 provides that vocational education committees may place funds with more than one financial institution and also utilise the central treasury service. At present, vocational education committees are precluded from banking with more than one bank which prevents them from seeking the best value available on surpluses which may arise on their accounts from time to time.
The provisions in relation to the fund investment service are set out in Part 4 of the Bill. Funds invested by the Minister and funds invested by other Ministers are dealt with separately. Section 28 provides that funds invested by the Minister for Finance may be delegated to the agency by ministerial order. Section 29 provides that the NTMA may act as an agent of another Government Minister in the performance of his or her investment functions under terms and conditions agreed between the Minister and the agency.
The NTMA was established in 1990 as an innovative solution to a particular problem which existed at that time. In the performance of its primary task of debt management the agency has developed a number of competencies and skills which can be usefully employed to the Exchequer's advantage in other areas. This Bill allows the NTMA to build on the strengths it already possesses as a debt management agency and to use its expertise to provide further financial and risk management services to the State. I commend it to the House.
