Credit Guarantee Bill 2012: Committee Stage
I would like to remind members to switch off their mobile telephones for the meeting, if possible. Apologies have been received from Deputy Seán Kyne. Deputy Eoghan Murphy will substitute for him.
We will now commence Committee Stage of the Credit Guarantee Bill 2012 for which a grouping list of amendments has been circulated. I welcome the Minister for Jobs, Enterprise and Innovation, Deputy Richard Bruton, and his officials to the committee. I appreciate that they could fit this meeting into their schedule this morning to deal with this legislation.
SECTION 1
Amendments Nos. 1 to 3, inclusive, tabled by Deputy O'Dea, have been ruled out of order as they constitute a potential charge on the Revenue.
Those amendments were submitted several weeks ago. Yesterday evening at 5 p.m. I received a letter from the Chairman to say that they had all been ruled out of order, together with several other amendments. We will have to examine the procedure here. People submit amendments in good faith and on time but they then get a last-minute notification that they are being ruled out of order. It does not give them any chance to re-submit the amendments if, strictly speaking, they are out of order. This is undesirable.
These amendments are ruled out of order on the basis that they constitute a charge on the Exchequer but how do they constitute a charge on the Exchequer? Basically, these three amendments seek to extend the definition of "loan" and expand the type of loan that can be guaranteed. There is already a cap in the legislation, which protects the taxpayer. Given this, how can an expansion of the definition of loan be a charge on the Exchequer?
In fairness, the Deputy's two questions are not for the Minister. As regards the one relating to procedures, I agree with him that the notice was very late. We had to wait for it to be signed off by the Clerk of the Dáil. I have asked, and will do so again, that we get notification much earlier. As the Deputy said, an opportunity to redraft such amendments would be useful. I will work on that for the Deputy. I apologise for any delay but it was not on our part because we also received late notification. I will ask for the answers to be submitted earlier.
As regards the Deputy's second question, the Minister does not decide whether an amendment is ruled out of order. It is done under Standing Order, which has been there for a long time. The Bills Office is saying that the Deputy's three amendments involve a potential charge on the Revenue in the form of an increase in the sales liability for claims under the guarantee in the event of a borrower defaulting on repayment of loan, and additional administration costs that would arise in bringing additional borrowings into the scheme. The Deputy is seeking to bring in overdrafts and other definitions of qualifying loans, so basically there would be more liabilities. The ruling of the Bills Office is that it would increase the State's liability. I accept that it is harsh but it is not the Minister's fault. Ministers do not mind taking such amendments but, as the Deputy well knows, the standing order overrule that approach. That is the decision.
While I am not blaming the Minister, it is more than just harsh, it is wrong. If the taxpayer's exposure is limited to a certain amount - as it is in certain sections - then how can altering the type of loan to be covered within that limit be an extra charge on the Exchequer? I believe the Bills Office is wrong. I would like the office to communicate with me giving me the reason for its decision in writing.
Amendments Nos. 1 to 3, inclusive, not moved.
Question proposed: "That section 1 stand part of the Bill."
On the section itself, looking at the British scheme, matters like overdrafts, new loans for working capital or investment purposes, invoice finance guarantees are allowed. It is getting increasingly difficult for some small businesses to get paid, so they operate on the overdraft. It is basically part of working capital. The UK scheme has been criticised for being excessively restrictive. Some 15 months down the road and several years after the UK scheme was first introduced, we are now proposing to bring in a much more restrictive scheme. It is ironic that on the very day this Bill was published, the British Treasury Secretary announced that he had entered into some sort of agreement with the organisation managing hedge funds in the City of London to assist small businesses. That was done on the basis that the UK's credit guarantee scheme had not done the business. If that is the case, how can we expect a much more restrictive credit guarantee scheme to do the business here?
As regards the definition of "loan", would it not be preferable to leave it to the operator to decide whether guaranteeing an overdraft should be appropriate in a particular case? The cap or limit protection is there for the taxpayer if one wants to restrict it in that way. It seems common sense that there will be certain cases where it would be more appropriate to keep a guaranteed overdraft facility for a good business with perhaps a temporarily bad balance sheet. It should be left to the operator who has every incentive not to sanction bad loans. Therefore, why not leave it to the operator? Why not have a scheme that is at least as liberal as the one across the water which is already shown to be failing? A scheme that is even less liberal and more restrictive is virtually guaranteed to fail. That is why I tabled those amendments - to bring the matter into line with what is happening not just in the UK but also in Canada and some South American countries - Chile, for example - which have similar schemes.
If we were to go through all the credit guarantee schemes in the world, what is being proposed here is probably the most restrictive. I would like the Minister to comment on that concerning the section itself.
It is my view that the interpretation of the Bills Office on some of the amendments that arise here is having the effect of suffocating an important debate on issues affecting businesses. It could be argued that some of these amendments would involve a cost to the State but there is an equally valid argument that they would not, if other things are taken into consideration. This is the arena for that argument, but to a certain extent this arena is being censored from having that argument due to the interpretation of a standing order.
This arena still allows for discussion. I have said that the amendments cannot be pressed but I am clear that we can discuss all these issues on the section. Deputies are welcome to redraft amendments and resubmit them on Report Stage. That is the benefit of having the matter discussed here on Committee Stage if it is felt they can be redrafted to fit in under the standing order.
Is there a procedure whereby we can consult with the staff of the Bills Office to ensure that anything we redraft for Report Stage will be in order?
I can make that request to see if we can get some help in redrafting them. That is not a problem. I now call on the Minister to reply.
The purpose of this scheme is not to substitute for the banks' responsibility. We are seeking to identify viable businesses which we know are being turned down for loans, as well as identifying categories where the State could step in with a well designed scheme that does not excessively expose the taxpayer. We must understand the history of this, which is that the taxpayer, at a very high cost, has recapitalised the banks which have responsibilities to small businesses. Members of the committee will have seen from yesterday's report by Mr. John Trethowan of the Credit Review Office that he is very critical of the banks in honouring their responsibility to small businesses. We are not seeking in this Bill to substitute for their responsibility. It is important to accept that. We are not trying to answer all the problems regarding credit availability nor can we possibly do that. We are trying to design a scheme that will be helpful to certain identified categories of business that have problems.
Two of the categories in Deputy O'Dea's amendments that were disallowed, namely, new loans for working capital or investment purposes, and invoice finance guarantees are permissible. We can provide loans for invoice financing or for new loans for working capital but we are not willing to support finance for overdraft facilities. The reason for that is based on the UK experience where the default rates have been about double that experienced for comparable term loans. Allowing overdrafts into the scheme makes it much harder to assure additionality which is the key test from the taxpayer's point of view. We are trying to secure additional lending, not substituting for what the banks ought to be doing.
There is also the question of whether it is good banking practice to fund overdraft facilities. The advisers we took on clearly came out against this for a number of those reasons such as the greater risk, it being harder to meet the criterion of additionality and it not being good banking practice. We are not saying it is closed for all time. As members know this scheme will be reviewed within a year. We will examine the experience with this scheme. As Deputy O'Dea will know, there has been a good deal of scepticism across the system about loan guarantees. We have brought in a fairly targeted scheme for which we have received approval. We want to get that up and running and see it work. If at the end of the year we find that there are identifiable gaps that we could hope to fill, we can return to this. We want to get something that is robust, workable, up and running and we can test it in operation. That is what we are keen to achieve. While the taxpayer would have losses to deal with, we believe that the benefits overall in terms of sustaining viable businesses is far greater than the potential losses, and that this is a good scheme from the taxpayer's point of view.
I accept that one can always say that we should be doing more but the primary focus of responsibility in this area, as Deputies have pointed out, is on the banks where each pillar bank is committed to €3.5 billion in respect of SMEs. The delivery of that in a robust way is what is crucial. We are seeking in specific niche areas to come up with a response where we see market failure, to use a term the economists talk about. We are not seeking to substitute for the risk-taking responsibilities that must rightfully be borne by banks which have been substantially capitalised at taxpayers' cost.
I do not want to delay proceedings but can the Minister briefly clarify that items (i) and (iii) in my amendment No. 3 will be covered under the proposed scheme?
Invoice finance is but I do not know what the Deputy means by the term "invoice finance guarantee".
I thought the Minister just said it was covered.
Invoice finance is. What does the Deputy mean by-----
Invoice finance is covered. The Deputy has included the term "invoice finance guarantee".
New loans for working capital or investment purposes are also included.
I am glad at least that they will be covered. I ask the Minister to reconsider what I propose regarding overdraft facilities because he will know that many companies now have overdraft facilities which are being used for day-to-day trading because payments are being made later and later. That was my purpose in putting forward that amendment. I certainly agree with the Minister when he said that the scheme is targeted. "Targeted" is a lovely word. The scheme is very well targeted with no possibility for expanding at present. If I oppose the section, the Minister will use his majority to vote down my opposition to it. There are other matters we have to debate and I want to move on from this but I want to express my dissatisfaction that the term loan is deliberately defined in such a narrow way.
Question put and agreed to.
SECTION 2
Amendment No. 4 is in the name of Deputy O'Dea and I am pleased to say that this one can be discussed.
I move amendment No. 4:
In page 5, between lines 20 and 21, to insert the following subsection:
"(5) Lenders will be subject to a processing target of 20 working days (beginning when the lender has received all necessary information from the applicant).".
This is a minor amendment. I notice in some of the schemes there is a processing target in order to speed things up. Often a business can be in imminent danger of closing down, therefore, time is of the essence. It might be more appropriate to include this provision in the proposed scheme rather than insert it in the legislation. I am prepared to withdraw the amendment if the Minister can provide assurance that there will be a targeted time limitation within the scheme.
The position is that lenders in the scheme will continue to be subject to the code of practice which has a 15-day turnaround. The code which they will have to respect has a tighter time limitation. We do not believe we should insert a looser one in the legislation than the one that is being respected. We can make sure it is clearly stated in the scheme that it is clear that they will respect the code of practice.
Amendment, by leave, withdrawn.
Section 2 agreed to.
SECTION 3
Amendments Nos. 5 to 9, inclusive, and amendment No. 25 are grouped and may be discussed together.
I move amendment No. 5:
In page 5, subsection (1), lines 21 and 22, to delete all words from and including "(in" in line 21 down to and including "person")" in line 22.
These are minor textual amendments replacing "he or she" with the word "person" in all cases. These are basically textual amendments and there is nothing of substance in them.
Amendment agreed to.
I move amendment No. 6.
In page 5, subsection (1)(a), line 24, to delete “he or she” and substitute “the person”.
Amendment agreed to.
I move amendment No. 7.
In page 5, subsection (1)(a), line 24, to delete “not more” and substitute “fewer”.
Amendment agreed to.
I move amendment No. 8:
In page 5, subsection (1)(b), line 28, to delete “his or her” and substitute “the person’s”.
Amendment agreed to.
I move amendment No. 9:
In page 5, subsection (1)(b)(ii), lines 33 and 34, to delete “he or she” and substitute “the person”.
Amendment agreed to.
Section 3, as amended, agreed to.
SECTION 4
Amendments Nos. 10 to 12, inclusive, have been ruled out of order.
Amendments Nos. 10 to 12, inclusive, not moved.
I move amendment No. 13:
In page 6, between lines 34 and 35, to insert the following subsection:
"(6) The Minister shall ensure that in the case of a default on a loan the recovery of monies or assets will reflect the level of guarantee shared between the lender and the Minister.".
This amendment proposes that the Minister shall ensure that in the case of a default on a loan the recovery of moneys or assets will reflect the guarantee shared. This is a mechanism to protect the State and ensure that it is not the case that the State would take a bigger share of the hit than the lender. I do not believe there is any controversy in what I propose and I hope the Minister will agree to it.
To avoid moral hazard, the presence of the guarantee or the guarantee rate does not and should not affect the borrower's obligation to the lender. The lender must, as far as reasonably practicable, treat a borrower with a guaranteed loan in exactly the same way as any other comparable customer. The presence of the guarantee should not make the lender either more or less rigorous in his or her relationship with the borrower, including the recovery procedures. It is essential to minimise dead weight and this is addressed by the charging of the 2% premium, that is, making it more expensive than conventional borrowing and, therefore, only something entered into if there is a very definite need for the finance. Furthermore, by the guarantee being in favour of the lender rather than the borrower, there is not a perverse incentive for the borrower to behave differently in terms of the degree of commitment to successfully repay the loan. Therefore, I cannot accept the proposed amendment.
I hear what the Minister is saying but the State is giving a guarantee and the legislation provides a guarantee for up to 75% of the loan. Will it be the case that the State could give a guarantee for 75% of a loan but if the loan is defaulted upon that the State would not be guaranteed access to 75% of the assets, or to what is left, to cover the loan?
The guarantee covers the losses on the loan so if there is a 50% recovery and a 50% loss, the State picks up 75% of the loss subject to an overall cap on the entire portfolio of loans of 10%. The 75% guarantee is triggered when a loan goes into default. We reckon there is a 50:50 risk share if the 75% on the individual loan is combined with the 10% on the portfolio. Overall we reckon the State would pick up half the losses on the portfolio and the banks would pick up the other half, but on an individual loan it would be 75% of the loss incurred on it. The State having a guarantee does not mean a borrower who is able to pay back half can settle for a quarter.
The Minister has used an example of being able to pay back half. I am trying to protect State's level of exposure on a loan.
The asset Deputy Tóibín is discussing is dealt with before it comes to the Government guarantee. It is only losses that are involved. I think the purpose of the amendment is achieved by paying out only on losses.
The bank must treat this borrower in the same way and recover everything it can. It is only then, when the bank establishes that it has not been able to recover the entire loan, that the State steps in to pick up 75% of what was not recoverable. The bank must retrieve everything possible to protect its skin in the game.
Any assets are dealt with first and it deals with the losses afterwards. It is not a case of a bank being able to use an asset for itself.
I will take the Minister's word on it.
Amendment, by leave, withdrawn.
Amendment No. 14 has been ruled out of order.
Amendment No. 14 not moved.
Question proposed: "That section 4 stand part of the Bill."
I tabled amendments to make the scheme more expansive. Section 4(2) mentions the 75% and section 4(3) mentions the overall 10%. In his announcement which accompanied the Bill, in the Dáil and in the explanatory memorandum, the Minister worked out the cost to the State would be limited to approximately €6.3 million per annum, taking the cap into account. The Minister states that for this €6.3 million per annum the Exchequer will benefit to the extent of €25 million. If the 75% were removed the exposure would be €8.3 million. If there is a 198% return on €6.3 million why not take a 198% return on €8.3 million or more? It seems to be an extraordinarily good investment. The State would benefit more the more it invests.
As the Deputy knows, these benefit to cost ratios are projected and they take into account indirect gains. If a scheme the State introduces takes people who might otherwise have been unemployed, they will contribute to the tax code and the projection takes into account this type of social benefit. It would not be unusual for capital schemes to see high benefit to cost ratios of 4:1 or 5:1. Such good benefit to cost ratios on State initiatives are not unusual so this is not a huge bonanza scheme. However, it does show a positive which is how I secured Government approval. Equally, in the environment in which the public finances are being put together there is a desire to see ceilings on taxpayer exposure as they have come in for substantial guarantees to the banks. What we are doing is asking the taxpayer to pick up risk on behalf of people who should normally receive funds from the banks. We are identifying a market failure and stepping in with a targeted scheme. I take the Deputy's point that it is highly targeted, but these are protections for the taxpayer to ensure overall across the portfolio of qualifying loans that the State and the banks will each pick up approximately half of the losses. We believe it will open up for a category of loans access to finance which they would otherwise not receive.
If there is demand and the scheme works well we will review it at the end of the year and we can look afresh at these rules. Deputies will understand there is a natural caution to protect the taxpayer in designing a scheme. We want to ensure additionality and that the taxpayer is protected. We seek to design a scheme that will work and if it succeeds, we will build upon it. I will return to the point I made the outset. We recognise the banks have primary responsibility and they are not squaring up to the scale of their responsibility. We are not stepping into substitute for this responsibility. We seek to strike a balance. We will return to the committee in a year's time with a report when we can discuss how well the scheme has done and how it should be developed.
Did the Minister recently receive a submission from the Small Firms Association? I received one and I am sure it was sent to all Members. It stated recent surveys indicate there will be a much bigger demand for the scheme than was originally envisaged when the Government decided to introduce such a scheme. It is extremely concerned about the limits.
I know people have various views. The Deputy's suggestion of removing the 75% cap and putting the State in for 100% of the risk would mean the bank had no skin in the game. How would we assure the taxpayer that the bank we are overseeing will lend in a way that is responsible and sensible? We must retain skin in the game for the primary dealer with the customer. We are not substituting for the banking relationship with the customer, which must be robust. What we are stating is that the banks will turn down some cases because of market failure such as not knowing the business well enough or the business not having enough collateral for the banks to take the risk. What we are stating is that we want the banks to issue loans in these cases. We do not want banks to give up their skin in the game and we will step in with this guarantee to allow the banks to cross the line for this type of loan.
Much analysis has been done and that of Mazars suggests a 30% refusal rate throughout the SME sector, but it is more than 40% for smaller businesses. I understand other work done indicates problems on the banks' side and in the way loan applications are presented. Enterprise Ireland is working on better presentation of loan applications. We also need to work on better skills in the banks. The credit review office needs to work on less risk aversion by banks which should recognise their responsibility to small businesses, which provide 90% of the jobs, pay packets and mortgage payments of their clients. We are introducing a scheme which can be extended if it works. Those protections of caps are essential as we test it and develop it further. Regarding the 75% cap referred to, we need to retain skin in the game for banks or-----
I am more concerned about the overall limit and I believe they are more concerned about it also.
Does the Minister wish to address the €150 million limit?
We need to wait and see the demand-led schemes. I understand that in the UK and other places, these have been slow to get off the ground. From our discussions to date, I do not believe the €150 million cap will result in many good loan applications coming to us because the scheme has been capped out before they could be examined. If that is the case we will re-examine the ceiling and we have the scope to come back after the review. In order to get this through as a scheme and given the resistance to a system for loan guarantees, we have had to have caps on the potential exposure. Having such a ceiling has been the price of getting the scheme off the ground. We will forensically examine the achievement and see how the portfolio limit performs. The working through of this is sharing the risk on the overall portfolio half-and-half with the bank. The combination of the 75% and the 10% gives the 50:50, which is seen to be a reasonable request of the taxpayer in terms of dealing with this portfolio at this time.
Question put and declared carried.
SECTION 5
Amendments Nos. 15 and 18 are related and may be discussed together by agreement.
Deputy Richard Bruton: I move amendment No. 15:
In page 7, subsection (2), lines 4 to 6, to delete paragraph (d) and substitute the following:
"(d) the payment of the initial premium or annual premium under section 8 by instalments:”.
We are making amendments on foot of contributions by Deputy O'Dea and other Members on Second Stage. The premium payment is being extended from the original 12 weeks to be payable within six months of the loan agreement. This allows the borrower drawing down the loan up to six months after the agreement is made. We will also provide for the payment to be made in quarterly instalments or an upfront lump sum payment, whichever suits the individual borrower. The fear expressed by Deputies was that the upfront 2% premium pay was unduly burdensome. We are proposing this measure as a result.
I thank the Minister for implementing that suggestion, which will improve the scheme.
I have a question for you, Chairman. I tabled an amendment requesting that the scheme referred to in subsection (1)shall come into effect within 60 days of the enactment of this Bill by both Houses of the Oireachtas. That has been ruled out of order as being a charge on the Exchequer. How, in the name of God, can that be a charge on the Exchequer?
The argument is the Members could have the effect of increasing cost if the scheme is to commence within a prescribed timeframe, which is earlier than the date appointed by the Minister.
I do not believe the Minister will be unduly dilatory about introducing the scheme. The Bills Office seems to be claiming that if this is commenced within 60 days rather than 70 days or 80 days, there will be an extra cost on the Exchequer.
Does it come under the Croke Park agreement?
I do not know under what agreement it comes.
That is a fantastic word, "potential".
It was used very well by all governments.
Standing Orders present the difficulty here. As I said before the meeting, I have asked that we review the Standing Order. It is a problem for me as Chairman. It is there and we have to obey the Standing Order, but I agree with the Deputy that it is very harsh. Amendment No. 16 cannot be moved.
The Chairman may say it is harsh but the way it is being interpreted is ridiculous. It is absurd.
We are seeking to develop the scheme in parallel so there is substantial work done on the scheme and we do not envisage any delay. We will lay it before the Houses as quickly as possible.
Does the Minister envisage it being done within two months of the Bill being signed?
We would, absolutely. If Deputies want to meet officials to discuss the scheme, I would be more than happy to facilitate that.
I thank the Minister. That is helpful.
Amendment agreed to.
I am afraid amendment No. 16 is out of order and cannot be moved.
Amendment No. 16 not moved.
Section 5, as amended, agreed to.
NEW SECTION
I move amendment No. 17:
In page 8, before section 6, to insert the following new section:
"6.- A credit guarantee scheme shall be debated by both Houses of the Oireachtas prior to sanction by the Minister.".
I wish to clarify what will happen. The standard procedure appears to be that the scheme will be published and if a motion to annul it from either House does not materialise within 21 days, it takes effect. I am trying to ensure that the scheme is fully debated. One of the weaknesses in the legislation is that it is only reviewed after 15 months, when much business has gone down the tubes. It is enabling legislation that gives the Minister power to introduce the scheme. I am delighted the Minister has given a commitment that the scheme will be introduced smartly, which is a comfort to us all. However, the Members of the Oireachtas should have the right to debate the scheme.
We do not know the minimum or maximum loan figures and what is the situation regarding personal guarantees. Does somebody who is getting a guarantee also have to give a personal guarantee? How will it affect the private residents etc.? We need to understand details such as the permissible purposes for the loans. In this instance I am talking about whether it would be a loan or an overdraft. For what activities can a loan be obtained? That kind of detail is very important and it seems appropriate that at a minimum it should be discussed by the Oireachtas Joint Committee on Jobs, Social Protection and Education so that we can tease out the details. I am simply trying to make provision for that; otherwise based on my vast experience of this House a scheme will be produced and will become the meat of what will happen here, not debated or discussed by Members of the Oireachtas.
I have only been here a wet week.
It has been a long wet week.
I agree with Deputy O'Dea. Many regulations are introduced without having been discussed with the relevant Bill. I know in the planning sector-----
The changes proposed for the committees which are to be announced in the coming weeks might give us a greater chance for the joint committee to discuss in depth schemes such as this one and to discuss regulations without discussing the full Bill. We will have more time on our hands to do that. From a chairman's point of view, we can certainly facilitate greater discussion on this in the coming weeks if the Deputy wishes. I will ask the Minister to reply now in the meantime.
The scheme is as we have described in most of our discussion here. It will detail the operational arrangements between the operator and the banks rather than the broad-brush matters such as the minimum loan being €10,000 and the maximum loan being €1 million, and the categories of loans, which are set out in the legislation. Banks will continue to operate with their customers in the ordinary way. We are keen to move ahead without having to come back to the Oireachtas a second time to debate this. We have committed to come back within a year and to lay the scheme before the Houses. Obviously the Oireachtas Joint Committee on Jobs, Social Protection and Education can look at the scheme. I am happy to facilitate discussion ahead of publication of the scheme with Opposition spokespersons or other Deputies and Senators. The provision that the Minister can sanction or amend a scheme without having to have substantive fresh debate in the Dáil is one I wish to retain. I want a degree of flexibility in the operation of the scheme as it develops. We will not do anything behind closed doors. We will lay any amendments before the House and I will be subject to parliamentary questions. If people feel strongly enough, they can use the 21-day period to seek to rescind it. However, this is not an unreasonable level of ministerial flexibility. With primary legislation we are seeking approval for the principles of the operation. Everything we do under that will be laid before the House and available for Deputies to question and scrutinise. I am not seeking something unreasonable.
The committee can ensure it is discussed before the time limit as well. We can feed our discussions to the Minister.
If the Oireachtas is expected to have an input into legislation, it puts forward suggestions. In fairness to the Minister, some of the suggestions we made on Second Stage were taken on board. We could be equally useful in discussing the terms of the scheme, which will be the meat of how this system will operate. I understand what the Minister is saying about flexibility in administering the scheme and about having to come back to the House every time he wishes to amend it. That is quite reasonable. My suggestion is that before he signs off on the scheme we have a couple of hours of debate about it to see if we can improve it.
It would be preferable if we debate it in the committee and the Minister can take the views on board.
Yes, but I am not happy to have to go back into the Chamber. It will be very busy so it will be very hard to get time.
I am not suggesting that. I am suggesting an initial discussion to see if we can have an input.
Subject to the diary, I am always available to appear before the committee to discuss things of interest. I will seek to facilitate this but I do not want to be committed by an amendment of this nature to a procedure which would hold things up from our point of view. We want to get this up and running, test it and then refine it.
It states that the discussion would take place prior to sanction.
I am not willing to accept the amendment but I will de facto co-operate with the committee in any way I can.
Amendment, by leave, withdrawn.
Sections 6 and 7 agreed to.
NEW SECTION
I move amendment No. 18:
In page 8, before section 8, to insert the following new section:
8.—(1) Subject to subsection (3), a participating borrower shall, not later than 6 months after the entry by him or her into the qualifying loan agreement concerned, pay to the Minister an amount (in this section referred to as the “initial amount”) equal to 2 per cent of the principal of the money lent under that agreement.
(2) Subject to subsection (3), a participating borrower shall, not later than 4 weeks after each anniversary after the entry by him or her into the qualifying loan agreement concerned, pay to the Minister an amount (in this section referred to as the “annual amount”) equal to 2 per cent of the principal of the money lent under that agreement.
(3) Where provision is made in a credit guarantee scheme for payment of the initial premium or the annual premium by instalment, a participating borrower may pay the initial premium or the annual premium by instalment at such intervals as are specified in the scheme.".
Amendment agreed to.
SECTION 8
Amendments Nos. 19 to 24, inclusive, are out of order.
Amendments Nos. 19 to 24, inclusive, not moved.
Question proposed: "That section 8 be deleted."
Can I ask some questions about amendment No. 20, which relates to the administration costs to the loan agreed?
Basically, you are proposing to delete the obligation of the borrower to pay the 2% premium charge and propose as an alternative the payment of the administration costs of the loan to which the agreement relates.
This would have the effect of increasing a charge on the Revenue as the premium charge is to be paid on an annual basis for the term of the loan agreement. It is a payment to the guarantee scheme for the purpose of reducing the net cost of the scheme, not just for administration costs. It is net cost; the 2% does not just cover administration costs. If it is removed, it will leave the State exposed arising from the cost of settling guarantee claims when the borrower defaults. The amount of revenue that is expected to be guaranteed by the State under the charge is therefore greater than the administration costs of the loan to which the agreement relates under these two amendments.
Would it be possible to analyse this? Obviously, some of the costs that are not included in the administration costs would be costs-----
That is a question you can raise on the discussion on section 8.
Some of those costs could be loans that are not fully met, losses to the scheme and so forth. There is an understanding that those costs exist, but what would the understanding be as to what component those losses would be? In other words, the 2% covers administration costs but given the fact that the amendment has been ruled out of order my understanding is that it also covers other costs. What would those costs be?
It has been ruled out of order because if the 2% is removed, there is less money for the State. It is ruled out of order because it causes a charge for the State.
I am a Member for a little longer than a wet week but does the Standing Order rule out amendments that put extra costs on the State or does it rule out putting down amendments that actually reduce profits to the State? There is a difference.
The potential cost would be if there was no 2%. There would be a cost on the State.
A component of that 2% is a profit.
If there is no 2% at all, there would be a charge on the State.
Either way there is a cost.
Yes, either way would be a charge or cost on the State. That is why the amendment is out of order.
The Standing Order uses the term "potential cost".
There is a radical difference between a potential cost and a profit to the State. I am trying to differentiate what level of that 2% is costs and what level is profit.
The Minister can answer that question. However, the 2% will bring in revenue which will cover potential losses if a loan defaults. Therefore, there is a potential cost to the State. Your amendment would increase the potential cost to the State so we cannot allow it. The other discussion can be had with the Minister.
Rather than that 2% being a general cover of costs, I would like to have a discussion about the specific components of that 2%.
Are there any other questions on section 8?
I agree with Deputy Tóibín that there is a fundamental accountancy difference between less profit and more cost, but I still understand the Minister's rationale based on the Standing Orders. What is less easy to understand, perhaps, is that extra cost can be incurred by the State because one pays the 2% in instalments over 12 months instead of up front. If one wishes to interpret it strictly, that would also be a charge on the Exchequer.
I will withdraw my amendments because the Minister has provided for that situation in his earlier amendment. What precisely is he providing for in his earlier amendment? As I understand it, he is providing that the scheme will make arrangements or will set out the rules for payment of the 2% by instalments.
They have the first six months to pay nothing and after that it is by quarterly instalments.
Yes, if they wish. To deal with Deputy Tóibín's question, the administration of the scheme is approximately €1 million per year. In respect of the value of the risk premium, obviously it depends on what is issued. If one issued €100 million, the 2% would be €2 million. That €2 million would rise based on the amount of outstanding loans. It could rise up to the ceiling that is envisaged of €450 million. The administration costs would be approximately €1 million per year, from our point of view. Obviously, the banks have their own costs but that is built into their spread.
Rather than speaking in whole figures, would it be possible to identify the component of that 2% which is costs and the component which is administration costs?
It is not broken down that way. In respect of our administration costs, it has a fixed element that is not loan related. It is approximately €1 million. Obviously, depending on how many loans are issued, the percentage will be different. If we issue €150 million in the first year, we will take in €3 million in the premium of which €1 million will be used in meeting administration costs. The other €2 million will be to defray the losses we would otherwise have incurred which are calculated at €6.38 million. Therefore, we would be adding to our losses of €6.38 million and the taxpayer loss would increase.
Many of these businesses, which are finding it difficult to get loans, will be very sensitive to even marginal increases in the rates they will be paying. The reason we tabled that amendment was to ensure that the effect on the business would be minimal and would just be to cover the administration costs, rather than there still being what looks like a premium within the 2%.
Another dimension is that under state aid rules, the Government was obliged to include a premium. At 2%, the premium included is at the low end of the permitted range, which can go up to 4% for such schemes. I reiterate including a premium was obligatory under European Union state aid rules. While the premium chosen obviously strikes a balance, it is at the lower end of the potential scale.
I apologise for interrupting but what is the lowest premium permitted?
The lowest premium is 0.8%.
Question put and agreed to.
SECTION 9
I move amendment No. 25:
In page 9, subsection (2)(b), line 4, to delete “to”.
Amendment agreed to.
Section 9, as amended, agreed to.
SECTION 10
Amendments Nos. 26 and 27 are grouped together.
I move amendment No. 26:
In page 9, line 8, after "time," to insert the following:
"not later than 12 months from the commencement of the scheme,".
The Minister provides in section 10 that he will conduct a review of the operation of the scheme at some time. This amendment simply attempts to specify in writing that such a review will take place not later than 12 months from the commencement of the scheme. As I understand the Minister has stated this was his intention anyway, there should be no great difficulty about this measure.
This is new legislation that must be refined and enhanced. It will be important to put in place a system whereby the development of the legislation is measured and tweaked after 12 months - this has general acceptance from everyone present - and then every 12 months thereafter.
On the provision of a review after one year, I note this is a three-year scheme as matters stand. As this is what the Government has provided for, a review after 12 months is the appropriate approach. The proposal to have a further review 12 months later would be over-egging the issue but the Government will revert to members with a review after 12 months experience with the loan scheme. It will not be available within 12 months but the Government will establish a period of 12 months to collect data and patterns, will perform the review and will revert to members at that point. While I am happy to commit to doing that, the amendments outlined by the Deputies are not necessary.
Basically, the Minister is stating that while he will do it, he will not permit it to be written into the legislation.
I have committed to doing this in any event. I have made a commitment to conduct a review of the scheme within a year.
How stands amendment No. 26?
I will take the Minister's word for it.
Amendment, by leave, withdrawn.
Section 10 agreed to.
Amendment No. 27 not moved.
Section 11 agreed to.
SECTION 12
Amendment No. 28 tabled by Deputy O'Dea has been ruled out of order because of a potential charge on the State. Moreover, members already have discussed it.
Amendment No. 28 not moved.
Question proposed: "That section 12 stand part of the Bill."
Basically, the amendment provided that the Act would come into operation not later than 60 days after its enactment.
May I take it this is a general question on section 12?
Yes, this is a general question on section 12. The Bills Office, in its wisdom, has stated this measure would increase the charge on the Exchequer, as though the salaries and expenses of those who will enact it would change dramatically depending on whether it happens within 60 days. However, this point can be discussed again.
It probably would cost money.
When does the Minister envisage this scheme will come into operation? While I am aware it will be after the scheme is drawn up etc., will there be a time gap thereafter?
Report Stage will be on 4 July and the Government will try to get it out as quickly as possible thereafter in July.
Basically, there is quite a lot of interest in the scheme and I have received a number of queries as to when it will be in practical operation.
The Government hopes to have it out there in July.
Question put and agreed to.
Title agreed to.
I thank the Minister and his officials for their attendance. I note we have done well in respect of time and thank members. I thank the Minister for the offer to try to facilitate discussion on the scheme itself and we will try to make that happen.
Bill reported with amendments.
