I welcome the Minister for Finance, Deputy McCreevy, and his officials to this meeting of the Select Committee at which we will consider the Committee Stage of the Trustee Savings Banks (Amendment) Bill, 2000. Before we begin our deliberations I am sure Members will join me in congratulating Deputy Noonan, who served as his party's spokesperson on the committee for the past three and a half years, on his election as Leader of Fine Gael and in wishing him success in his new position.
Trustee Savings Banks (Amendment) Bill, 2000: Committee Stage.
I join the Chairm an in wishing Deputy Noonan every success in his new role. I wish to inform Members that I am no longer acting as Government convenor on the committee. Deputy O'Flynn will be carrying out that duty in future.
I thank the Chairman and Deputy Fleming for their kind remarks about Deputy Noonan. I am sure they will agree that he will make an excellent Taoiseach after the next election. I look forward to seeing him appear before the committee in that guise in the future. The Minister will no doubt agree that Deputy Noonan is travelling quickly in a positive direction.
I take this opportunity to wish Deputy Noonan well in his new post as Leader of Fine Gael. I wish him the normal courtesies and success, but within the normal limits.
NEW SECTION.
I move amendment No. 1:
In page 3, before section 1, to insert the following new section:
"1.-The Trustee Savings Banks Act, 1989, is hereby amended by the insertion of the following section after section 56:
'56A.-In making an order pursuant to section 57 (as amended by the Trustee Savings Banks (Amendment) Act, 2001) the Minister shall have regard to the desirability of making provision in such order for persons who have for a substantial period been customers of a bank which is the subject of an order to receive a recognition of their loyalty to that bank.’.”.
The thrust of this amendment is to reward customers of the bank. I understand that concerns were expressed by both Opposition spokespersons on Second Stage that customers who have been very loyal to the Trustee Savings Bank will not be rewarded. However, the employees of the bank will benefit greatly and, as stated in The Irish Times, will receive a nice slice of the equity. What about the bank’s customers? Given that the State is going to benefit to a major extent from the proceeds garnered from the sale of the bank, would it not be possible for the Minister to ensure that loyal customers who made the bank such an attractive proposition also benefit? Will he indicate whether he is prepared to accept the amendment, which is quite reasonable? I understand that precedents exist in respect of sales of this nature in other countries, where depositors of state banks that were sold off were rewarded.
I agree with the thrust of the amendment. I wrote to the Minister last year about the representations made to me as a Fianna Fáil Deputy by people who had saved in the Cork Savings Bank before it became part of the Trustee Savings Bank. Decades ago, people saved pennies with the Cork Savings Bank with the result that it became known as the "penny bank". I am sure the Chairman recalls stories of that. It was before our time. I remember having a coin box, which was like a book, in which I saved my money. Bishop Lucey was one of the patrons of the bank and people believed it was their bank. They now believe they should have some form of reward for being early savers in it. Has the Minister had time to reflect on my representations to him on this because the public of Cork will want a reasonable explanation when I go home on Thursday?
The amendment seeks to require me to consider the desirability of giving some of the proceeds from the sale of TSB Bank to its customers who have been with the bank for a substantial period in recognition of their loyalty. As I stated on Second Stage, two issues are involved. One, which is legal, concerns the ownership of TSB. The other is whether customers should receive a payment as a reward for being customers.
I will deal with the ownership issue first. This has been the subject of legal advice from the Attorney General, the effect of which is that the Trustee Savings Bank does not have members, that it is not owned by its depositors and that the relationship between the TSB and its customers is the same as the relationship between any bank and its customers. The conclusion of this advice is that the Oireachtas has the power to dispose of the assets. The 1989 Act copperfastened the legal position.
Deputies will also be aware that customers of other State companies are not shareholders in those companies either. Public assets such as these are held by the State on behalf of all citizens of the country. It is not open to me to arbitrarily allocate generally publicly owned assets to a small group of citizens. The only way I can discharge my overall duty is to take the proceeds of disposals into general public ownership.
Comparisons were made on Second Stage between the TSB and building societies where customers received shares on demutualisation There are fundamental differences between the TSB and building societies. Customers opening a share account in a building society are told they become an owner of the society with the right to vote at annual general meetings. It is the customers of a building society who run the society, elect the board of directors and decide to wind up the business or demutualise. In the case of the TSB, customers have no ownership stake, there are no general meetings of depositors, the customers do not elect the trustees and they have no role in the running of the bank or the decision to sell it. It is the trustees who have taken the decision to request a reorganisation. Customers opening accounts in the TSB do so in accordance with the rules of the bank which clearly state that they have the right to their deposit and the interest thereon. They are not given any indication or impression that their account confers any ownership interest on them.
The second issue is whether customers of the TSB should receive some payment from the proceeds of its sale. The argument put forward is that they have been loyal customers for many years and that they built up the bank. The unique status of the bank was referred to by at least two Deputies present and by others on Second Stage. There is also the argument that, unlike State companies, the State has not invested capital or given any assistance to the bank or its predecessors.
I point out that, until 1989, TSBs kept at least 80% of their funds from customers on deposit with the Exchequer. Prior to 1979, almost all the TSBs' funds were deposited with the Exchequer. Customers received a rate of interest on their accounts which was funded by the Exchequer and the banks were paid a margin of 1.65% above this to cover their administration costs. The TSBs have, throughout their history, been funded by the Exchequer and customers have effectively benefited from State support of their deposits. I also point out that, if customers had a choice where to place their deposits, the rate of interest on these accounts had to be attractive.
Since 1989, the TSB has been allowed to operate on the same terms as any other bank, but in 1992 it was exempted from corporation tax in recognition of the fact that the reserves of the TSBs effectively belong to the public generally. It was only in 1993 that the TSB began to pay corporation tax at a reduced rate and only since 1996 that it has paid corporation tax at the full rate.
I am, therefore, unable to accept the amendments. Customers have no ownership stake in TSB Bank and this is also the situation in all State companies. I must discharge my responsibilities to all citizens by taking the proceeds into State funds and, on that basis, I cannot accept any amendments.
I have received representations from a number of Deputies, especially Cork Deputies, and Deputy O'Flynn in particular raised this point with me a long time ago before any negotiations got under way on the sale of TSB. He raised this point when there was general talk about the State banks being sold and when negotiations took place regarding the possibility of ACC and TSB joining up. I remember him pointing out to me at our parliamentary party meeting that, although the TSB was now national, Cork city people regarded it as a Cork institution. I am afraid I am not able to accede to the Deputies' request. I received a number of letters from Deputies on all sides of the House, especially those in the Cork area, but I am afraid I cannot accede to their request. I cannot create a precedent in this regard.
The 1989 Act was very unusual in that the ownership structure of the TSB is unique. I do not believe other legislation exists establishing such an institution, especially concerning the right of initiation, what to do with it, the Exchequer receiving the proceeds and a type of double veto between the trustees and the Exchequer. It was complicated and unusual legislation. No one on any side of the House objected in 1989 to the State receiving the proceeds if it ever came about that the bank would be sold to another party. That was not envisaged at the time.
I understand why depositors and customers might want some shares because they have witnessed the demutualisation of insurance companies, such as Canada Life, Norwich Union and others, and some building societies. However, the ownership structure of the TSB is different. There is no legal right as to what customers have. Ownership is with the State. I obtained the advice of the Attorney General who said that my duty is to all citizens and that the proceeds from the sale of these assets must be taken into public ownership. In that regard, when the State receives money, it is for the benefit of all people and the Government decides what to do with it. I am not in a position to accede to the Deputies' case which was well put here, on Second Stage and in correspondence over the past 18 months to two years.
I am sure the Minister will agree that the ownership of the TSB was debatable until it was tied down in the 1989 Act. I remember newspaper articles at the time querying who owned it. When similar privatisation occurred in Scotland in 1986, depositors took the Government to court and won their case. However, the case was appealed to the House of Lords and the Government won the appeal. If there had been recourse to a higher court, one wonders whether the depositors would have won. Is the Minister clear at this stage that depositors will not take a legal challenge to the Bill because of the precedent set in Scotland and the fact that we have a different legal system where people have recourse to higher courts?
I would not be so bold as to say there will be no court case. We have no evidence of that. However, Ireland has become very litigious and people go to court for all kinds of reasons as is their right. I have not difficulty with that. In a democracy one might often disagree with some of the decisions. However, those decisions are handed down by an independent Judiciary and I have no problems with that even though, as Minister, one might sometimes note that decisions will cost the State. That is the system we operate and it is far better than any other system.
When the Trustee Savings Banks Act was passed in 1989, the Government was advised that the Oireachtas had the power to dispose of the assets. The debate in 1989 highlights that all sides of the House agreed with that view. I am aware of the case in the UK referred to by Deputy Deenihan. Ministers rely on the advice of the Attorney General and he has advised that the funds can be taken into the Exchequer. That is how I am proceeding.
The Deputy pointed out the unusual manner in which the TSB was set up in 1989. The recommendation to dispose of the assets to Irish Life and Permanent has come from the trustees. My independent advice is that the offer is reasonable and I will receive the proceeds. The trustees of TSB have decided that this is the best course for them. I agree with their decision and the money will come into public ownership for the benefit of all citizens.
There is a difference between people's attitudes in 1989 and today.
I agree.
In 1989 we all agreed that the State should benefit from all such sales as we were so stuck for money. However, people see things differently today because the coffers are overflowing. People sympathise with depositors if an injustice is seen to be done or there is a lack of equity. The Judiciary would take a different view of such cases today. This could yet prove to be a landmark case. Attitudes towards State ownership and privatisation have changed dramatically. The Supreme Court may take a different view on these matters.
Much of the value built up by TSB over the years has been due to the special relationship with the State. It also meant that customers benefited because they were receiving a commercial rate of interest from a bank which was strongly supported by the State and, therefore, less likely to fail than private sector banks.
In my earlier contribution I referred to the rates of interest which applied up to 1989. The money was kept with the Exchequer and there was an additional 1.65% differential. The only argument left is that customers deserve a payment as a reward for being customers. In the case of Irish Life, Telecom Éireann and ICC Bank there were no free shares for customers. The proceeds received by me and my predecessors were paid directly into the Exchequer. I am bound by these precedents and will pay the proceeds remitted to me by the trustees into the Exchequer for the benefit of all citizens. I am, therefore, unable to accept the amendment.
I agree with Deputy Deenihan that the Exchequer's situation is different to that in 1989. However, the principles remain the same. As regards State assets the concept of an ESOP has been developed whereby, in the case of Telecom Éireann, which is the best known example, 5% of the shares went for transformational practices and 9.9% were purchased at a fair price. The rest of the shares were sold off. The same applied in the case of ICC Bank.
People referred to by Deputies O'Flynn and Michael Ahern feel that if employees are getting such a favourable deal why can they not also benefit from such a deal. If that applied with a State owned bank which had a special relationship with the State, poorer citizens, who could never deal with TSB or any bank as they did with credit unions, would be excluded. Why should such people be excluded from benefiting from this process?
The money which accrues to the State benefits all citizens. A well known radio broadcaster whom I count as a friend often referred to the Minister for Finance or the Government of the day as "they". When referring to taxation this individual would say, "they are out to get your money". The implication was that the Government of the day was totally different from everyone else. Governments, of whatever hue, act on behalf of all citizens. People choose their public representatives at elections and a Government is chosen which does its best for all citizens.
I have often been intrigued by the impression which some commentators give that the Government is taking money from people for its own benefit. Whatever money comes from the proceeds of the sale of TSB will go into the Exchequer and will be spent on various Government programmes concerning social welfare, education, reducing taxation or whatever. The money benefits all citizens, including those who were customers of TSB and those who were never in a position to be customers of TSB or any other institution.
People have seen the gains made by employees through ESOPs but I am not prepared to establish a precedent in allocating free or transfer shares to one sector of customers. Should a former customer who closed his or her account five years ago be included? Should it only apply to customers who started with TSB 40 years ago referred to by Deputy O'Flynn? One would never get agreement on who should be included.
Am I correct in saying there was no objection in 1989 from any political party and that the advice at the time was correct?
Yes.
This is an important issue for me because, if we agree this amendment, I would not like my opposite number in Cork——
It has nothing to do with 1989.
I accept that but are going back over the history. All parties agreed in 1989.
My officials studied the Oireachtas debates and there was universal agreement at that time.
Amendment put and declared lost.
SECTION 1.
I move amendment No. 2:
In page 10, lines 33 and 34, to delete "the pre-Union Irish statute 33 Geo.2, c. 14(Ir.),".
I thank the Deputy for this technical amendment which I accept. The amendment will delete a reference to the pre-Union Irish statute 33 Geo.2, c. 14(Ir.). I do not know what all that means but it must be very important. This statute was deleted in 1962 by the Statute Law Provision (Pre-Union Irish Statute Act), 1962. The reference had been overlooked because it is referenced in other sections of the Trustee Savings Banks Act, 1989. I am aware that the individual who carries out this research for Deputy McDowell is a keen student who has pointed out many anomalies in Finance Acts in recent years and is correct 98% of the time. The man, whose surname begins with H, was an adviser to the previous Government and does a very fine job.
We would all like to have advisers like that.
Amendment agreed to.
I move amendment No. 3:
In page 12, line 9, to delete "and 1959" and substitute "to 1989".
I thank Deputy McDowell for this amendment which I intend to accept. The Deputy is correct in tabling this amendment because the collective citation for the Bankers Books Evidence Acts was amended by section 141 of the Central Bank Act, 1989. Once again, I compliment the Deputy's adviser for doing a fine job. We were very good friends when he served as an adviser to the previous Government.
Amendment agreed to.
Section 1, as amended, agreed to.
Sections 2 to 4, inclusive, agreed to.
Title agreed to.