Priority Questions
1. Deputy Michael McGrath asked the Minister for Finance his views on the impact on mortgage holders, tracker and standard variable rate customers and on the economy generally of the possibility that interest rates may begin to climb again over the period ahead; and his plans to address the matter. [16460/14]
View answerQuestion No. 1 in my name relates to our historically low interest rates, particularly for tracker mortgages. As the Minister knows, the banks are coming before the finance committee this week to give an update on how they are handling the mortgage arrears crisis. The purpose of this question is to have a debate on the impact of any future possible interest rate increases on mortgage holders and on the economy generally.
As the Deputy is aware, I have no statutory role in mortgage interest rates charged by regulated financial institutions. It is a commercial matter for the banks concerned. The mortgage interest rates that financial institutions operating in Ireland charge to customers are determined as a result of a commercial decision by the institutions concerned. The general point raised by the Deputy is an important one and worthy of ongoing review by Government. The country does not have control of monetary policy; that responsibility rests with the European Central Bank.
Changes in interest rates over recent years have, by and large, been downward, reaching the current historic low levels, not just in the eurozone but also in the United Kingdom, the United States and elsewhere.
For some time the focus of interest rate policy has been aimed at providing a sustainable environment for economic recovery in the eurozone and beyond to take hold. The current low rates have been beneficial for households in Ireland where the excesses of the previous decade have left a legacy of indebtedness without parallel in the history of the State. The Deputy has no need to remind me of the significant fiscal adjustment required in recent years, much of which has been borne by households across the country. Income reductions, increased taxes and new levies and charges have been necessary to restore order to the public finances. The reduction in key ECB interest rates has served to moderate some of this burden, particularly for those holding tracker rate mortgages. Recent Central Bank analysis confirms that some households have been in the fortunate position to use this low interest rate environment to deleverage and pay down debts. Where other families have been faced by mortgage distress, a comprehensive framework to support these households through their difficulties has been introduced. Reform of the insolvency legislation has been introduced to allow those unable to find a solution to their indebted circumstances the types of option expected in a modern, functioning economy.
Speculating on the magnitude and timing of future interest rates movements is a hazardous exercise and one in which I do not wish to engage. My focus and that of the Government is on implementing the necessary policies to promote and foster economic growth. Ultimately, a return to economic growth will underpin sustainable public finances, increase employment and improve incomes, thereby protecting households as interest rates inevitably rise at some future point. For now, however, as the president of the European Central Bank, Mr. Mario Draghi, confirmed at the ECB press conference last week, the key ECB interest rate remains unchanged at 0.25%. According to the ECB, incoming information confirms that the moderate recovery of the euro area economy is proceeding in line with its previous assessment. However, the ECB also expects that there will be a prolonged period of low inflation. Against this background, the key ECB interest rates are expected by commentators to remain low for some time. We will, of course, keep all of these matters under constant review and adjust policy as circumstances evolve.
This is an important issue worthy of debate. Considering that the average ECB rate since the introduction of the euro is approximately 2.5% and that the rate went as high as 4.75% approximately 12 years ago, we can see that today it is at an historically low level of 0.25% and it may even come down a little further to deal with the issue of deflation in the eurozone. As night follows day and the Minister has acknowledged, it is inevitable that over time the interest rate will increase, with a direct impact on tracker mortgage holders and a possible indirect impact on variable rate mortgage holders. When considering the mortgage crisis we face and the number of people in arrears, we need to bear in mind that we are facing a potential timebomb as a country. Nobody is expecting the Minister to have all the answers, as he does not control monetary policy or the interest rate policies of the banks. I accept this fully. Nevertheless, we must debate the issue and get a handle on the potential impact on mortgage holders and the general economy if interest rates increase. As that is inevitable in the medium term, we need a policy response to be prepared at least to respond to such a scenario.
Concerns have been very well expressed by the Deputy. Given that the trajectory of interest rates by the European Central Bank is still downwards and with low inflation being the primary concern rather than increasing inflation which would require raised interest rates, it is reasonable to agree with commentators who almost universally expect interest rates to remain low for some time to come. Certainly, there is a signal in that respect. Perhaps the more appropriate action would be for everybody with a borrowing problem to use the low interest rate period to improve their position.
We will assist mortgage holders, as we have been doing, by continuing to press organisations that provide mortgages to make these mortgages sustainable, if they are not sustainable now.
Many people who can afford to pay off their mortgages at an accelerated rate are deleveraging. There is a cohort who can do that. For many it is not an option. Rates are likely to remain low for tracker mortgages for the foreseeable future. Inevitably, however, they will begin to increase. As well as stress-testing the banks, the Department of Finance needs to stress-test mortgage holders and the impact on the economy of the likelihood of interest rates rising over the next two- to five-year horizon. Will the Minister at least give a commitment to examine the issue? The historically low interest rates are a key risk for the economy. They are great for those on tracker rates, many of whom can pay additional sums, but many are not even able to keep up with their repayments at the current rate, let alone face the prospect of an increase in the tracker rate. It is a risk facing the economy and the Department needs to examine it even though it may not crystallise until the medium term.
I do not set interest rates. The European Central Bank's setting of rates is one of the primary factors in establishing mortgage interest rates and we have no control over that. The action we can take is limited even though, like the Deputy, we foresee the danger. One of the traditional responses would be to compensate through the tax system, but the previous Fianna Fáil Government abolished mortgage interest relief. I extended it in our first year in Government for a further year. That cushion has been taken out of the system as well, or will be in 2018. I do not see what a general review of the position is going to achieve. If the Deputy has specific solutions to suggest I will have them evaluated.
2. Deputy Pearse Doherty asked the Minister for Finance if he is satisfied with the pace of resolutions for cases of mortgages in arrears by banks, especially the number of permanent solutions being implemented; and if he has any plans to bring forward additional measures to aid home owners struggling with arrears, particularly those in danger of losing their homes in the coming months. [16462/14]
View answerThis question about mortgages comes up every month when we deal with finance questions. Later this evening we will begin to see the procession of senior bankers appearing before the Oireachtas Joint Committee on Finance, Public Expenditure and Reform. I am sure they will expect the Minister to hand them gold stars because they all claim to have reached their targets. The Minister and I know that they have done so through repossessions and voluntary surrender. Is the Minister satisfied with the pace at which the banks are offering and agreeing long-term solutions to mortgage holders in serious distress?
The Government is aware of the significant difficulties some home owners are facing in meeting their mortgage obligations, and the Deputy will know that a comprehensive strategy to tackle the problem is now in place.
A key component of this is the Central Bank mortgage arrears resolution targets - or MART - framework, which set out quarterly performance targets for mortgage arrears resolution by the six main mortgage lenders. These lenders - AIB, Bank of Ireland, Permanent TSB, Ulster Bank, ACC Bank and KBC Bank Ireland - are required to meet targets for both proposed and concluded sustainable solutions in relation to their principal dwelling and buy-to-let mortgagees which are in arrears of more than 90 days. In that context, a sustainable solution has been defined in the Central Bank's published MART document as one of the following: an arrangement, concluded in accordance with the CCMA, in which the borrower is co-operating under the MARP process and the bank has satisfied itself that the arrangement provides a sustainable solution which is likely to enable the customer to meet the original or, as appropriate, the amended terms of the mortgage over the full remaining life of the mortgage; a personal insolvency arrangement effected under the Personal Insolvency Act 2012; or, if an arrangement could not be reached or is not appropriate having regard to the circumstances of the case, voluntary sale of the property securing the mortgage loan or, failing that, any situation in which the bank takes possession of the property, including by way of voluntary agreement with the borrower, or by court order or otherwise.
A range of sustainable solutions have been utilised by each of the lenders to date. These include but are not limited to term extensions, split mortgages, permanent interest rate reductions and voluntary solutions.
In regard to performance to date, lenders have reported to the Central Bank that they met the 20% proposed sustainable solutions target in the second quarter of 2013 and the 30% third quarter target. In respect of the third quarter, lenders reported that they had issued proposals to 43% of mortgage accounts in arrears for more than 90 days. Furthermore, last December the Central Bank stated its expectations for the quarter ending June 2014 were that sustainable solutions offered to customers would reach 75% for accounts in arrears for over 90 days and that concluded solutions would reach 35%.
According to the latest information published by my Department, in the case of private dwelling homes, some 54,000 mortgage accounts in difficulty have been the subject of permanent restructuring following engagement between borrower and lender. This is to be welcomed. In our ongoing regular contacts with the banks my officials and I have clearly indicated that all possible restructuring options should be fully considered for co-operating borrowers who are in difficulty and that legal action to address a mortgage arrears case should only be used as a very last resort. It is accepted that the issue of mortgage arrears is a major problem that needs to be resolved not only for individual borrowers and lenders but also for the long-term benefit of the country. The roll-out of the MART process is providing momentum to resolve mortgage arrears cases and the outcome of that process, as well as the wider strategy framework, will be kept under close review by the Central Bank and the Government.
I am sure the Minister has not answered my question. I asked him whether he was satisfied with the pace of providing long-term sustainable solutions and, in particular, avoiding the danger that people would lose their homes in the coming months. We know that the rate of repossession has been ramped up. Last week, the Joint Committee on Finance, Public Expenditure and Reform met representatives from agencies working on the front line with people in mortgage distress. To a person, they told us the system was not working. They were critical of the banks and the Government. Some were also critical of the target focused position that the banks had taken. On the face of it, the banks are reaching their targets, but the Minister is not telling the public that 21,000 of the 43,000 mortgage cases he cited involve legal letters or voluntary surrenders. I again ask him whether he is satisfied with the pace of provision of long-term solutions for people who want to stay in their houses. Between the four institutions in question, AIB, Ulster Bank, Permanent-TSB and Bank of Ireland, more than 50% of the actions taken to meet their proposed solution targets have involved either issuing legal letters threatening repossession or forcing home owners to surrender voluntarily. These are family homes, not buy-to-let properties.
We set targets and I am satisfied that the Central Bank has advised me that the targets are being met. The quantum of permanent restructuring is increasing each quarter. The latest information available to me indicates that 54,000 mortgagees have had proposals for permanent restructuring. That is progress. The details of whether the restructuring holds up when audits are carried out by the banks concerned obviously give rise to issues. The Deputy will have an opportunity to consider the details from the banks' perspective when their representatives come before the joint committee.
It is an exaggeration to say a primary tool of restructuring is repossession. For example, the Department of Justice and Equality has advised the Department of Finance that the number of new civil bills issued for the first two months of 2014 is 450. The latest Central Bank statistics for the quarter ending 2013 show that legal proceedings were issued in 1,491 cases to enforce the debt security on a principal dwelling house.
The strong view of the Government is that, in respect of co-operating borrowers under the MARP, repossession of a person's primary home should only be considered as a last resort, and every effort should be made to agree a sustainable arrangement as an alternative to repossession. I am not satisfied that legal letters threatening proceedings against borrowers are satisfactory solutions, if that is the key point of Deputy Pearse Doherty's question.
It is a key point of my question. On 20 February, the Minister told me:
I have informed the Deputy previously that letters threatening repossession or legal action could not in my opinion be considered a sustainable solution under the mortgage arrears targets ... .
In November last, he stated:
I have previously informed the House that letters threatening repossession or legal action could not, in my opinion, be considered a sustainable solution under the mortgage arrears targets process and should only ever be considered after every possible avenue for a solution has been exhausted.
These banks are not exhausting every option because these banks do not even offer some of the options that are available. As the Minister owns nearly the entire shareholding in AIB, let us give him the detail of AIB. I ask the Minister to tell this House whether he is satisfied with the bank, of which he is nearly the sole shareholder on behalf of the State. At the end of last year, AIB had made just over 14,000 proposals, of which 6,702 were letters threatening legal repossession and 1,573 were with regard to voluntary surrender or abandonment. Of the 14,000, around 8,200 proposals would have either forced borrowers out of their houses or placed them in a position in which they would be badgered to give up their houses. Is that something with which the Minister is satisfied? When will he tell AIB that it is not acceptable to use repossessions to meet the targets? Not one bank would have met its targets if it were not for legal letters threatening repossession.
We have been over this ground several times previously, and Deputy Doherty will have an opportunity in committee to go through it on a line-by-line basis with the banks. What I have said to him is that we set targets and in any reasonable process over an extended period of time, once the targets are set by the Central Bank, I am reasonably satisfied if the bank informs us that those targets are being met. Of course we would like if it were moving at a faster pace, but it is moving at a satisfactory pace at present and significant progress is being made, with 54,000 mortgages having been restructured.
The amount of repossession taking place is very small. According to the last statistic I saw, it was a couple of hundred, and more than half of those were voluntary. This scare about people being put out of their homes in large numbers is simply not true.
It is true that if the possibility of repossession is not available in the legal system of a country, nobody in that country will ever get a mortgage, because the property is the security for the loan. If there is not a legal possibility of enforcement, then the mortgage sector moves out of that country.
3. Deputy Richard Boyd Barrett asked the Minister for Finance his views on whether the deepening housing shortage, rapidly rising rents and property prices and the National Asset Management Agency's plans for large-scale sell-offs of its property portfolio to multinational asset managers and property investors represent a macroeconomic danger which may have serious implications for the public finances; and if he will make a statement on the matter. [16333/14]
View answerFor some time, I have been trying to ring the alarm bells about the dangerous and flawed approach of the Minister and the Government to the housing and property sector. In dealing with other Ministers, I pointed out that it is leading to an emergency in the area of homelessness and the social crisis, but I also believe that it represents a serious threat to the macroeconomic health of the economy. This is confirmed by Douglas Newman Good's survey last week which shows that, unbelievably, a property bubble is developing again, just as I told the Minister it would approximately six months ago.
As outlined in the Medium-Term Economic Strategy 2014-2020, the Government continues to work on addressing challenges in the property and construction sectors. This includes the development of an overall strategic approach to housing supply, identifying and implementing further improvements in the planning process to facilitate appropriate development, and seeking to improve financing options for development and mortgage provision.
In terms of residential property prices, when assessing the recent pick-up in house prices it is important to remember that residential property prices fell by just over 50% from peak to trough and residential property prices nationally are still 47% lower than at their highest level in September 2007. While much of the attention of late has focused on the Dublin market, prices in the capital are currently close to 50% lower than at their peak in early 2007. It is against this background that the recent appreciation in house prices must be assessed.
It should also be noted that the previous housing bubble was accompanied by a dramatic increase in mortgage lending. The same cannot be said of the recent increase in house prices, in that the indications are that a large percentage of transactions are taking the form of cash purchases. Figures from the Irish Banking Federation show the value of mortgage lending for house purchase in 2013 stood at just €2.4 billion, or just 8% of the value of mortgage lending in 2006.
In terms of residential rents, according to the consumer price index, private rents rose nationally by 6% in 2013, following from an increase of 2.5% in 2012. However, this follows a fall of over 25% between 2008 and late 2010. On that basis, private rents are now at approximately the same level as in January 2003.
In terms of output, while the demand for housing is a function of a number of economic and demographic factors, current levels of housing output are running below estimates of medium to long-term requirements, as projected by the ESRI and others, based on underlying demographics and other factors. As I outlined in my budget 2014 speech, I am conscious of the supply limitations in certain urban areas. In light of this, I introduced several measures in that budget to help increase the supply of suitable residential housing stock. These included, subject to state aid approval, the extension of the living city initiative to include Cork, Galway, Kilkenny and Dublin and the broadening of eligibility criteria to include all buildings built prior to 1915.
NAMA has adopted a phased and orderly approach to the disposal of loans and assets in Ireland. This means that the release of assets for sale in the Irish market is being done in a manner that takes account of the market's capacity to absorb them. NAMA's approach since its inception has been vindicated by the significant improvement in the Irish property market over the past 12 months. This has enabled NAMA to sell substantial asset and loan portfolios at very competitive prices and, in so doing, NAMA is reducing the contingent liability that its senior bonds represent for the Irish taxpayer.
The Minister shows an unwillingness to acknowledge the seriousness of the issue. It is not just about absolute levels of property prices or rents; it is about the dramatic increase in property prices over the past few months. Property prices in Dublin have risen by 23% in the past 12 months, by 12.9% in the past three months and since 2012, when the market bottomed out, prices have increased by 36%. I do not have figures for rent but the homelessness crisis, where six people declare themselves homeless every day, is indicative of the dramatic rise in rent taking place in Dublin. Two years ago, the Government told us this would not happen and said that cuts in rental allowance could lead to a reduction in rent. The Government has been spectacularly wrong in its approach to this sector and, unbelievably, it has introduced property-based tax incentives such as real estate investment trusts, REITS, and changes in capital gains tax that encourage a massive speculative surge from big vulture funds that have accelerated their investment in this area. It is causing a dangerous property bubble.
The Deputy gets confused with percentages. If a house drops from €300,000 to €200,000, it is a reduction of 33.3% but if the house increases from €200,000 to €300,000 it is an increase of 50%. Moving away from percentages and looking at the actual amount of money by which house prices are rising in Dublin, the prices are still 47% to 50% below where they were at the peak of the boom.
It is very good news for people who have invested a lot of their savings in houses, particularly those in negative equity, that the housing market is re-establishing itself, of which I am in favour.
Of course, there is pressure on rents, but part of it is due to the fact that the economy has entered a growth phase and more jobs are being created than even the Government had anticipated. Many young people are being sucked into Dublin and looking for rental accommodation. The vulture capitalists the Deputy deplores so much are the ones who are helping to solve the problem. They will buy whole blocks of apartments and invest to upgrade them. They are investing in the economy and providing the accommodation we need. NAMA is playing its part also. The collapse was so profound that it will take a while to get the housing market back on an even keel again.
Deputy Richard Boyd Barrett overran his time allocation, but I will allow some leeway.
The Irish Times today ran a headline which asked whether it was time to take a punt on Irish property again. Does this not concern the Minister or for that matter the Taoiseach in going to New York and talking about how property investors should come to Dublin because they could make a killing in the Dublin property market? To start to treat and incentivise speculation in property after the economy was beggared precisely because of that activity seems crazy beyond belief. One of the consequences of this, as I am sick of pointing out, is an absolutely massive housing and homelessness crisis. Even the Irish mortgage brokers association has stated it cannot and will not provide social housing for people on low and middle incomes. It will not do it. That is why we say rent allowance is not accepted. On the one hand, we again have speculation in this area and, on the other, we have a homelessness and housing crisis. When will the Minister wake up?
Outrage does not build houses. One needs to have a plan-----
The Minister is not building any.
The Deputy should allow the Minister to respond.
One needs to have a plan to build houses.
It is the banks that are building them.
I remind the Deputy that it is only one year ago since he was equally outraged by the overhang of empty property in the market in Ireland - ghost estates and unfinished apartment blocks.
Which the Minister would not give to the councils.
The recovery has been very strong. We have offered over 4,000 houses through NAMA to local authorities and they are available for them as they want them. NAMA has committed to building 4,000 social houses in Dublin in co-operation with the local authorities.
The plan now involves building only 2,000 houses.
The Deputy should not interrupt.
NAMA advertised for joint ventures and received the results in the past two weeks. There is huge interest in providing housing in Dublin through joint ventures between NAMA and experienced building companies with the use of foreign finance. NAMA has told me it is very confident that in the next five years or so it can produce 22,500 private houses - family homes - in Dublin. We are getting there, but in a broken market it is difficult to come forward with solutions.
4. Deputy Michael McGrath asked the Minister for Finance if he will provide an update on the assessment of the financial health of the credit union sector and on the number and extent of regulatory interventions and consolidations within the sector thus far and in the pipeline; and if he is satisfied that everything possible is being done to ensure the vital and unique role of the credit union movement is protected. [16461/14]
View answerI am sure the Minister will agree that the credit union sector is vital to the economy and the country and provides an important counter-weight for a banking sector that is still struggling to find its feet. Key issues affect the credit union sector as it is going through a transformation phase. There is much consolidation and credit unions are struggling under onerous lending restrictions. The Credit Union Restructuring Board, ReBo, is doing its work in restructuring credit unions. I hope the Minister can give the House an update on the financial health of the sector as per the latest Central Bank assessment.
The credit union movement is a very important sector and I would like to give the Deputy the update he seeks. There were 388 credit unions at the end of December 2013 with total assets of €13.9 billion. Total members' savings for 2013 amounted to €11.6 billion. Loans to members have decreased by almost 13 per cent from December 2012 and currently stand at €4.3 billion, with the sector average loan-to-asset ratio at 32%. Approximately €778 million in total provisions for bad debts were reported for 2013, compared with arrears in the sector of approximately €756 million. These figures show that just over 100% of arrears are currently being provided for. A total of 18 credit unions had a reserve ratio less than the required 10%, with a combined deficit of €11 million.
The Commission on Credit Unions recommended a range of measures to support the credit union sector. A key recommendation was that the sector be restructured on a voluntary, incentivised and time-bound basis. The Government contributed €250 million to the credit union fund to support this process, which is being overseen and facilitated by the Credit Union Restructuring Board, ReBo. ReBo has assisted in two credit union mergers recently - the merger of Balbriggan, Skerries and Donabate credit unions to become the Progressive Credit Union, and the merger of Baltinglass and Castledermot credit unions. ReBo has engaged with more than 300 of the 388 credit unions to identify their willingness to participate in the restructuring process. Currently, ReBo is assisting 96 credit unions in 47 projects. ReBo is working to the timetable set out in the commission's report and is expected to complete its work by the end of 2015.
The commission also recommended that a statutory stabilisation fund be established to support credit unions that are under-capitalised but are otherwise viable. The statutory basis for stabilisation is in place and the Department of Finance has published a consultation paper on the introduction of the stabilisation levy of €5 million per year towards a total funding need of €30 million. At the request of credit union representatives, this consultation process has been extended until the end of May.
Additional information not given on the floor of the House
The Credit Union and Co-operation with Overseas Regulators Act 2012 implements more than 60 of the Commission on Credit Unions' recommendations, including those related to governance and regulatory reform. The Central Bank is currently consulting the sector on the introduction of a tiered regulatory approach under the Act.
In terms of regulatory interventions, the Central Bank has advised me that about 58% of all credit unions are subject to lending restrictions. Of the credit unions with lending restrictions, more than 69% can lend €20,000 or more to an individual member.
I am satisfied that these measures, together with governance and regulatory changes introduced on foot of the commission report, will underpin a stable credit union sector into the future.
The figures the Minister outlined highlight that what we have in the credit union movement is a healthy overall sector, but there are a number of credit unions with serious financial difficulties. It is a question of bringing about the restructuring that is required in order that the weaker credit unions can be supported by the stronger credit unions, and to have such consolidation ideally on a voluntary basis. One of the issues to the fore is the lending restrictions that are in place. The Minister's figures underline the point that the loan-to-asset ratio is 32%. The credit unions to which I have spoken have buckets of cash but they are simply not allowed to lend it at present because they are working under very onerous lending restrictions imposed by the regulator under the Central Bank, and that is causing a very real problem, not only for the credit unions - because they cannot put members' savings to work - but for the economy generally, because credit unions have always been the option of choice for many consumers who do not have a relationship with the banks. I am afraid we will lose that connection, which has historically been the bedrock of support for credit unions in communities around the country. In tandem with the restructuring, I would like to see the Central Bank ease off on the very heavy lending restrictions that are currently being imposed.
The imposition of lending restrictions is the responsibility of the Registrar of Credit Unions, who is the independent regulator of credit unions at the Central Bank. Within her independent regulatory discretion, the registrar acts to support the prudential soundness of individual credit unions to maintain sector stability and to protect the savings of credit union members.
I have been informed that it has been necessary to put lending restrictions in place in individual credit unions where there are regulatory concerns about their operation and the resultant risk to members' savings. The criteria assessed to determine the imposition of lending restrictions include, but are not limited to, prudential returns, which are unaudited returns, submitted by the RCU; financial ratios which cover levels of arrears and provision coverage; and the governance framework within the credit union. Decisions on regulatory restrictions, which are imposed in the form of directions under the Act, are made by the registrar. Other regulatory restrictions may be imposed as part of an ongoing supervisory engagement. These may be dealt with by the registrar but they may also be dealt with by a member of the management team, depending on the issue.
Another issue I wish to raise with regard to the sector is the Central Bank's initiative to deal with multiple debt scenarios. The credit union representatives have withdrawn from the Central Bank initiative because of what they regard as an imbalance in the treatment of secured and unsecured lenders. In their view it vests inappropriate control in the banks and lacks fairness and transparency. In light of the very slow start, to say the least, the Insolvency Service of Ireland has made on secured and unsecured debt, does the Minister agree this issue needs to be resolved because ultimately it is in everybody's interests if agreements can be reached without recourse to the statutory insolvency procedures? It is regrettable the credit union representatives have felt the need to withdraw from the Central Bank's initiative.
I understand the Central Bank's three-month multi-debt framework pilot, which operated during the final quarter of 2013, has now run its course. The pilot helped to highlight factors which assist, as well as issues which prevent, borrowers with multiple debts from finding mutually acceptable informal solutions with their lenders. Any further initiatives arising from the pilot framework findings are a matter for the Central Bank. The Central Bank facilitated the scheme in co-operation with the lenders and the operator, StepChange. Most lenders, including some credit unions, participated in the sample cases. The pilot scheme has demonstrated to lenders the variety of solutions which can be applied to debtors in distressed debt situations. Of course statutory insolvency frameworks which deal with secured and unsecured debt are in place and available to any insolvent debtor to propose an arrangement for his or her creditors to restore him or her to solvency.
The information which the Central Bank gleaned was of benefit. Like Deputy McGrath I would like to see more progress being made under the Personal Insolvency Act because it was major legislation processed through the House over a lengthy period of time.
5. Deputy Richard Boyd Barrett asked the Minister for Finance in the context of recent calls by trade unions and others for wage increases if he will consider a new wage policy to stimulate economic growth; and if he will make a statement on the matter. [16334/14]
View answerIn recent months, representatives of workers and trade unions have stated they believe it is time to change wage policy to see wage increases for workers to alleviate the deprivation many working people suffer as a result of six years of cuts, to give an urgently needed boost to demand in the economy and to stimulate growth and employment. Will the Minister consider responding positively to the calls of workers and trade unions for wage increases?
It is not surprising that trade unions and others would call for wage increases, especially given the recent visible improvements in the economic environment, including in the labour market. Indeed this improvement in economic conditions is evident from the fact that certain firms throughout the private sector have recently agreed to pay increases to their employees. However, other firms, reflecting their own particular circumstances, are not in a position to agree to pay increases. This reflects the diversity of firms in the economy.
In my view, wage negotiations are best conducted at a local level, where individual enterprise or sector specific competitiveness and profitability issues can be taken into account. For this reason, a return to some form of centralised national wage arrangement does not appear appropriate in current circumstances. A centralised deal would inevitably result in wage increases that were either too high for some sectors or, in others, lower than would be justified by productivity and competitiveness considerations.
In principle, increases in wage rates in profitable enterprises and or sectors that reflect improvements in productivity and that are consistent with competitiveness requirements are welcome. It is crucial however, given our goal of full employment by 2020, outlined in the medium-term economic strategy, that increases in wages do not come at the cost of lower employment. While moving in the right direction, unemployment remains unacceptably high and the priority from a labour market perspective must be employment growth. All of the Government's economic policies are designed with this in mind. As a small, open economy, long-term sustainable growth in Ireland depends on the health of the internationally-traded sectors. This requires that costs in the traded and non-traded sectors evolve in a manner that, at a minimum, maintains the economy's competitiveness.
A total of 27% of households in which one person is working are suffering deprivation. Moreover, 10% of those in which two people are working are suffering deprivation. Consequently, in addition to the hundreds of thousands who have no work and are suffering poverty and deprivation, there is the significant phenomenon of the working poor, that is, those who are working long and hard but still remain in poverty. On that level, there is a necessity to shift from wage cutting to wage increases to alleviate such deprivation. However, it is also extremely clear that taking money out of the pockets of working people, as has been done in the past five years, has absolutely destroyed domestic demand on the high street for small shops and businesses. Ghost towns are developing nationwide, which is hitting employment because people have no money in their pockets to spend. While the Minister might have a point about considering this issue on a sector by sector basis, does the Government intend to shift policy and begin to examine ways to push up the wages and disposable incomes of low and middle income workers?
All members of society, including employees, have contributed to the adjustments it has been necessary to make in recent years. I suppose the biggest contribution has been made by those who lost their jobs. There is a trade-off between the general level of pay in an economy and the number of new jobs one can provide. The priority of the Government is focused on creating new jobs. However, that is not to state there are no profitable sectors within the economy, as, of course, there are. The Government encourages the profitable sectors to give wage increases to their employees, which also forms part of Government policy. I understand that in 2013 approximately 40% of firms in the private sector gave wage increases. While I cannot provide a statistic for the Deputy, I understand this trend is continuing and strengthening into 2014. However, the Government is not disposed to return to centralised wage bargaining. It considers the best way to do it is for those showing increases in productivity or profitability and which have the wherewithal to provide modest wage increases. However, competitiveness within the economy must be maintained. It is because Ireland has become quite competitive that the economy is now producing up to 5,000 extra jobs per month.
Ireland is a low-wage economy. Employee compensation as a percentage of total operating costs in Ireland stands at 22%, one of the lowest anywhere in Europe. It is considerably less for workers than is the case in Britain, France, Germany and most other European countries. Workers in this country, frankly, are being screwed against a backdrop in which productivity is high and profits are rising. The collapse of the joint labour committees and the lack of legislation on collective bargaining, thereby giving workers trade union rights, mean employers are not disposed to give people wage increases, even where they are making profits. What proactive measures will the Government take to ensure workers get a share of the profits they are producing to deliver them from deprivation, as well as to give a boost to the economy which could lead to the creation of jobs? There is no trade-off involved as if workers are paid a little more, they will have more to spend and it could create more jobs.
Wages in Ireland, at certain levels, are lower than in the economies described by the Deputy, albeit not dramatically so. Many of the wage rates for comparative work in the United Kingdom are about the same or lower. However, if one looks towards eastern Europe, the countries of which compete with us frequently, there are much lower pay rates. I recall that in my own home town of Limerick the reason the manufacturing end of Dell was transferred to Poland was Polish wage rates were far lower than those which prevailed in Ireland at the time. Consequently, when one talks about Europe, one should recall that there are 28 member states and that it extends far to the east.
That is the logic of the race to the bottom.
It is not all confined to the Netherlands or the Italian region around Milan. However, the policy is clear. The Government is not returning to centralised bargaining, but it will continue to grow the economy. It is seeking to use many of the benefits of growth to create additional jobs because there are high unemployment levels and many students are coming out of schools and colleges.
However, at the same time we know that there are companies that have had productivity gains and gains on profitability, and we think wage increases are justified in those circumstances.
