I am glad to have the opportunity to contribute to this debate. I do not approach this from the same point on the ideological spectrum as the Minister or Deputy Noonan. I will explain why as succinctly as possible. The Minister said, "...there is no significant strategic or policy justification for continuing State involvement on the margins of the banking sector". I do not agree with him, and he continued after that to make a case for a strategic involvement.
ICC has played a significant role in the SME sector. It may be less vital than it was ten years ago but who knows what might happen in future. However, the main point is that the Minister has got it the wrong way around. We should not say there is no significant justification for the status quo. We must justify the sale. We must especially do so when there is only one bidder and when all the indications are that the Minister is receiving a good deal less from the sale of the bank than he thought he might receive a few weeks ago. The Minister has not discharged that onus in his contribution to the House nor in any of his contributions on this issue over the past two years.
This is a sad day because it marks the definitive end of a concept my party introduced into politics some seven years ago, namely, the notion of a State-owned third banking force. The truth and harsh reality is that it did not happen because we failed to bring about the degree of consensus necessary to make it work. We lost the argument. It is worth recalling that the notion of a third banking force was first developed in 1991 by MSF, the principal union in ACC and ICC. We in the Labour Party were happy to co-operate with our colleagues in the trade union movement, and we included it as an issue in our manifesto in 1992. A commitment to explore the possibility of a third force in banking was contained in the Fianna Fáil policy outline of December 1992 and was later included in the programme for Government of the 1992-94 Fianna Fáil-Labour Government of which the Minister was a member.
The idea was simple. We were and still are aware that the State banks had been drifting for some time. ICC is a significant player in the SME sector. ACC is still struggling to find a niche, having previously been identified with the agricultural population. TSB, at that stage, had emerged from the savings bank sector with a distinct identity but no clear mission. Last but not least, the post office system still is in need of massive upgrading entailing the provision of new services and the installation of new technology.
On the other side of the coin, the banking sector is dominated by two big banks and there was widespread concern that they were, in effect, operating as a cartel to the detriment of real competition and, ultimately, at the expense of the consumer and economy as a whole. I mention all this now because I think it will quickly be seen that much of it still holds true today.
In the event, it proved impossible to get agreement at any one time from the management or staff of the banks concerned and, ultimately, the proposal ran into the ground. It was a good idea whose time never came. It foundered in the face of political hostility and indifference or opposition on the part of many of the interest groups concerned. The question that now arises is whether there is a distinctive role for ICC within the State banking sector. Had that question been posed a few years ago, I would have said "yes" definitively. Now, I am not quite so sure.
The ICC has fulfilled a clear and distinct role over the six decades since its establishment. It has, as the Minister pointed out, provided venture capital and loan facilities to the SME sector. It is probably fair to say that that part of the economy is well catered for as things stand, but that has not always been the case. Back in the dark days of the 1980s, it was decidedly difficult for people with a good idea to gain access to finance. In many cases, they were required to give personal guarantees if they did not have some track record and were made to do so in a way which made a complete nonsense of the whole idea of corporate liability. It was not at all unusual for someone starting out in business to be required to borrow on the security of the family home. If one adds in the exorbitant rates of interest then being charged, one will see there was a distinctly unattractive cocktail for someone trying to set up a small business.
ICC was important in that it was prepared to tread where others refused to. It developed a relationship with small business and came to hold about 10 per cent of the SME sector business. In 1994 the then Minister for Enterprise and Employment, Deputy Quinn, made available a fund of £100 million to small and medium sized enterprises at favourable rates of interest. The money was quickly availed of and the major associated banks were quick to match the ICC intervention. In effect, the ICC was very appropriately used as a vehicle to lever funds from the bigger banks. The bad days of the 1980s are behind us and start-up capital is no longer quite so difficult to find.
It would be wrong to think, however, that the bad old days will never return. It is not difficult for banks to lend at times when the economy is expanding, particularly at the current extraordinary growth rates. When I look at the credit figures produced by the Central Bank, I wonder whether the banks are not lending too easily and whether we might, at some future stage, come to regret the generous nature of their current lending.
What will happen when the cycle turns, as it inevitably will? What will happen when the returns on lending are not as assured as they currently are? Can we say for sure that we will not then need the foot in the door which the ICC gave us? The Minister is confident that the market will provide, but I do not share his confidence in the banking sector in the marketplace.
This is a time of extraordinary change in the banking sector. Irish Life has been privatised, Irish Permanent has been demutualised and the two have merged into Irish Life and Permanent. By all accounts, the new bank is seeking further expansion. The First National Building Society has also demutualised and it too is struggling to find a new identity as a bank. Ulster Bank looks set to be sold and ACC and TSB will be merged and may well be floated. The word on the street is that National Irish Bank is seeking to make further acquisitions and may leave if it does not succeed. The overall effect is to consolidate the sector and reduce the number of players in the market. This in turn will reduce the choice available to potential customers, which may or may not be a bad thing. The central question is whether the reduced number of players will reduce the level of competition. It is of little benefit to customers to have a wide choice of banks if they are all offering the same product at the same cost.
Ultimately, what matters to consumers is the level of competition between banks. Our experience in this regard is mixed, to say the least. The main associated banks have operated as an effective cartel for many years. They may differ in relation to individual charges but the overall level of charges is much the same. There have been occasional shocks to the system such as the arrival of the Australians some 15 years ago, but these have been the exception rather than the rule. More recently we have had the experience of the Bank of Scotland. Only a few months ago we were told by the domestic mortgage holders that they were not in a position to pass on the full benefit of the ECB interest rate cut. We were told they would be unable to maintain the rates paid on deposits if they had to pass on the cut. Then Bank of Scotland arrived on the scene and offered mortgages at 3.99 per cent. Within a few days, this rate was matched by all the major banks without any reduction in deposit interest rates. On the contrary, deposit interest rates have started to rise following a further intervention by a UK bank. Ulster Bank has raised its deposit interest rates in recent days and, doubtless, other banks will follow suit.
The banks are constantly balancing the interests of their shareholders with those of their customers. A quick glance at the profits of some of the bigger banks gives a clear picture as to who is winning out. Only genuine competition in the market can decisively alter the way in which that balance is struck. More likely than not, competition will come from the new players in the market, but we cannot afford to depend on this happening. We need an effective competition policy and a means of enforcing it. At the moment, we have neither. As things stand, prudential supervision of the banking sector is in the hands of the Central Bank. The Director of Consumer Affairs has responsibility for bank charges although her responsibility does not extend to interest rates. The Competition Authority looks at competition issues, usually on foot of individual complaints.
The Government is committed, in principle at least, to setting up a single regulatory authority to deal with financial services. The Government should consider setting up a competition directorate within the SRA whose function would be to promote the maximum possible level of competition within the banking sector and to take action to prevent anti-competitive practices. The advantage of having the directorate within the SRA is that they could benefit from the exchange of information, particularly that which becomes available to the SRA by means of its exercise of the supervision and prudential part of its remit. This would offer us a reasonable chance of ensuring direct, genuine benefits to the consumer.
In the context of all the exceptional changes which are occurring in the banking sector, there is, or could be, a role for a small State-owned bank with a defined and important place in the market. The question arises as to why the Minister so badly wants to offload the ICC and the other State banks. I have repeatedly asked the Minister this question and have yet to receive a satisfactory reply. The Minister merely repeats the mantra that he sees no role for banking in the State sector and he persistently tells us he is taking a non-ideological view of the issue. What is the Minister's problem with a State-owned bank with a strategic role? I suggest his view is driven by the precise ideology he is so anxious to eschew. He is opposed to State banks because he is opposed to the whole notion of a commercially successful semi-State sector. I suspect he is greatly taken with the views of his colleague, the Minister for Enterprise, Trade and Employment, who recently referred, rather laughably, to the "joy of flotation". I suggest the Minister's view is quite simple, namely, that if a bank can be sold, it should be sold. This holds good even if the needs of consumers and the needs of a particular company or a particular sector suggest otherwise.
The Minister is quick to accuse those of us on this side of the House who have always argued in favour of public service that we do so out of what he would call "ideology". I suggest that in this case, it is the Minister who is putting ideology ahead of the needs of the circumstances. When this process started, there were ten potential bidders, three of which made indicative offers. Two of those have since withdrawn, leaving Bank of Ireland as the sole bidder. All the indications suggest the final offer will be somewhat lower than the indicative offer made earlier by Bank of Ireland. We are entitled to know how this happened. Why has this apparently attractive offer attracted only one bidder?
I asked the Minister in the House last week if he was determined to push ahead despite the collapse of the competitive tendering process. He repeated the mantra that he sees no role for State banks, which he again repeated today. The implications are clear. The Minister is determined to sell come what may. He is determined to sell not to the highest bidder, but to the only bidder. Bank of Ireland has the Minister, and I am tempted to use a colloquial phrase but I will confine myself to saying, somewhere between a rock and a hard place. He has to sell because he has no other strategy. The Minister is in no position to get best value for the taxpayer because he is ideologically committed to selling the bank come what may.
In any event, this Bill does not even require the Minister to satisfy himself or anybody else, much less the House, that he is getting best value, for what is a public asset. On the contrary, section 2 gives extraordinary powers to the Minister for Finance. In effect, it allows him to dispose of the ICC Bank in whatever way he chooses. The section is nothing less than a blank cheque and I object in the strongest possible terms to being asked to sign this blank cheque on behalf of the taxpayer.
The Minister should give us every possible detail of the proposed sale at this stage. I accept there is some information which is commercially sensitive but given that this is an asset in public ownership, there is a special onus on the Minister to make the maximum possible level of disclosure. Let us face it, he has given almost no details to the House today. If that cannot be done now, it should be done later. Whenever the deal is done, as surely it will be done, the Minister should be required to put the terms of the sale before the House for approval, and I will table an amendment on Committee Stage to oblige the Minister to do that.
I will outline an analogous case. In the past, the Minister was a member of a local authority and those of us who are members of local authorities will be familiar with the statutory requirement whereby local authorities, to dispose of property in their ownership, must put the details of that property before the city or county council for approval. I see no reason in principle that a similar provision should not apply to the sale of a major asset such as a bank.
Deputy Noonan referred at some length to the ESOP and the ESOT and I concur with everything he said, particularly as it relates to the taxation of ESOTs. The Minister in his Budget Statement last year introduced a sale as you earn scheme and he has indicated in the past, as have some of his colleagues, his general support for ESOPs and ESOTs and that is something with which I concur. There is justification for looking at the taxation of increases in the value of shares, particularly as they are dealt with under the income tax code. I concur with Deputy Noonan in that regard.
We must stop and reflect on the use of ESOPs in the context of this Bill and Bills of its kind. In a sense, ESOPs are now being used in the State sector as a straightforward bribe to facilitate privatisation. I see no reason in principle that we should not allow an ESOP or ESOT to operate within any semi-State company where the workers want it. It should not be seen as a bribe to facilitate privatisation but as a normal part of the social partnership structure to which this Government and other parties in the House claim to be committed.
The details of this ESOT are not dissimilar to those of the Telecom Éireann ESOT and it seems likely that workers will benefit to a considerable extent. I congratulate them on the deal they have done; it is a very generous one and, from their point of view, a good deal. I wonder whether employees of Bank of Ireland, who presumably in time will find themselves working side by side with ICC Bank workers, will have some cause for envy and jealously regarding the type of conditions and benefits enjoyed by former employees of ICC Bank.
We need to generalise this matter. It must become more than just a means to facilitate privatisation. By all means, we should grant a certain percentage of shares to workers in exchange for a transformation deal, but it should be immediately available as a matter of principle and right within the ESB and CIE, for example.
In a statement of July 1998, the Minister guaranteed the current employees of ICC Bank that their terms and conditions of work would be respected in any sale. What does that mean? We know from the experience in the merger of TSB and ACC Bank that the terms and conditions of people working in ACC Bank have been signifi cantly changed. Some have been transferred from Dublin to Cork, which they apparently did not want. What does the Minister's commitment to retain the terms and conditions mean? Does it mean, for example, that employees cannot be transferred from one branch to another or within the Bank of Ireland system generally without their consent? What does the commitment not to have any compulsory redundancies within the company mean in the context of the overall Bank of Ireland structure in the future? Does the Minister intend to draw up an agreement with Bank of Ireland? Does he expect the trade unions currently involved in ICC Bank – I understand it is principally MSF – to involve themselves in an agreement with Bank of Ireland before the sale goes through?
The Bill provides that the proceeds of the sale should be simply absorbed into an ever increasing Exchequer surplus. I will make a suggestion to the Minister. We all agree An Post is greatly in need of considerable investment. We need to increase the use of new technology and improve the level of service provided by An Post. That is something which will require investment, perhaps not in each post office but certainly in the main post offices in county towns. That would be a useful way to earmark the £200 million or £250 million which the Minister will obtain from this sale. He should plough it back into that section of the State banking sector, namely An Post, which I assume he intends to keep.
The sale of ICC Bank, assuming it goes ahead, will leave a gap which is currently being filled largely by banks such as the Anglo-Irish Bank, AIB and, to a small extent, by Bank of Ireland. There will always be a need for the State to get involved directly in providing venture capital in circumstances where companies find it difficult to get it or, for that matter, in providing additional capital or loan facilities to companies seeking to expand. Companies seem to experience difficulties, not at the entry level, but at the expansion level when they reach a certain size and want to increase the number of workers, their output and perhaps get into the business of export. They seem to find it difficult to make that crossing or to bridge that river. At that stage there is a role, which has been identified by Enterprise Ireland, for the State to provide not only loan facilities and capital but the type of back up facilities, advice and consultancy sometimes required in those circumstances. Does the Minister see a role for Enterprise Ireland, for example, in filling the gap that may well be left by the absence of the ICC Bank?
The Bill, as the Minister and Deputy Noonan pointed out, allows for an increase in the borrowing requirement of ICC Bank. I presume we will have an opportunity to debate the issue of ACC Bank and TSB at a later stage. I supported the Minister in the case of the ACC Bank and the TSB. I believe ICC Bank has a potential strategic role and for that reason should be retained. However, I see no such strategic role in the State D511–A10
banking sector for ACC Bank or the TSB which are, in effect, small banks with no obvious strategic role in the State sector. I supported from the start what the Minister proposes to do and I am well aware of the origins of those proposals.
We are in some difficulty here, and the proposal to merge and float virtually at the same time is the core problem. I do not want to get into the industrial relations difficulties. It would not be useful to explore them on the floor of the House.
The Minister will be aware that there is a feeling within ACC Bank that it is being taken over, in effect, by TSB in advance of its flotation and that to date the merger has served the interests of TSB rather than the employees of ACC. I do not want to debate the pros and cons of that, but the core problem here seems to be the decision to do everything in one bite. The Minister has, in effect, bitten off more than he can chew in that decision and should at least keep it under review, even if he cannot reverse it at this early stage. If the Minister has to reverse this decision early next year there would be a benefit in signalling it now so that we do not inflict untold damage on the bank when we ultimately get to float it, which I imagine will happen in the next two to three years. The Minister has asked Mr. Phil Flynn to intercede as a trouble-shooter and has appointed people within his Department to perform a similar role. I wish them well, as that is a good concept and one I hope we can bring to fruition. However, given that there are difficulties here and that we cannot be sure the flotation will happen, or if it will happen soon, I share Deputy Noonan's concerns about giving the Central Bank and the Minister unfettered power to increase the borrowing limit of ICC. The Minister should specify a particular limit in the Bill on Committee Stage.
Let us be honest, we are talking about a takeover by Bank of Ireland and I am a little bothered about it because I am not sure what the Bank of Ireland is seeking to do. Neither the Minister nor the Bank of Ireland have informed us in that regard, but that may be expecting too much from them at this stage. However, before the process is finished we should know what the Bank of Ireland is planning to do and we should have sight of its business plan. We need to be reassured that Bank of Ireland intends that ICC, when in the ownership of Bank of Ireland, will continue to provide particular facilities to the SME sector. That sector of our economy is vitally important, particularly as it is largely indigenous, unlike the multinational sector where so much of our recent growth has been centred. We are entitled to see that business plan and I urge the Minister and Bank of Ireland to make it available to us before the process is completed. It is fair to say that the Bank of Ireland has not always been to the fore in helping small businesses and if it was being honest it would acknowledge that. I hope this move signals a sea change and is not just a move to acquire market share. I hope it signals that it will be more helpful to that sector in future. If that is the case it is a welcome move.
I do not like the principle of this Bill, though I acknowledge we are a considerable way down the road with it. It would be difficult to row back at this stage and I am not suggesting that is possible. However, I do not like the way in which this deal has come out or been carried through. I do not like the way the Bill effectively gives the Minister a blank cheque to do with as he wishes, and for that reason I will oppose it.