Dáil Éireann díospóireacht -
Wednesday, 13 Nov 2013

Vol. 820 No. 4

Topical Issue Debate

Fallen Animal Collection Scheme

Deputy Willie Penrose

I thank the Ceann Comhairle for selecting this important issue for debate. The publication on 1 November 2013 of the TSE (fallen animal) subsidy scheme and, more particularly, the revised terms and conditions contained therein have been a cause of great concern and angst among the farming community, the Animal Collectors' Association and knackeries. This arises because of an invitation for expression of interest for inclusion in the relevant panels in the revised scheme. The major changes focus on clause 7.8 of the proposed scheme, which proposes, in effect, to limit the haulage of category 1 material to a plant less than 125 km from the intermediate plant or knackery and which would, for example, for many such operators exclude the availability of approved rendering plants located in Northern Ireland. Many such operators have contractual agreements with these approved renderers and have been provided with extremely efficient, effective and compliant service over recent years. The question arises as to why such mutually advantageous arrangements should be fractured by the implementation of a new set of rules and guidelines which will effectively be the death knell for many knackeries as they will find themselves subject to significant price increases because of the smaller number involved. This will lead to cost increases.

What is more serious is that these new rules are being introduced unilaterally without any recourse to consultation with the relevant industry stakeholders, which I find very surprising coming from the Department of Agriculture, Food and the Marine. It seems to be a new departure and one I certainly hope will not be a precursor of things to come.

Indeed, the 125 km have been calculated as the crow flies and do not take cognisance of the actual road distance involved. What inspired this great work of art? The Irish Farmers' Association, IFA, has branded this restriction anti-competitive and said it will increase the cost of animal disposal. Although I do not always agree with the IFA when I speak in this House, I wholeheartedly agree with its contention in this regard. This proposal effectively limits the subsidy for over 48 month old animals to operators rendering product within 125 km of their base and will therefore knock out a significant number of rendering plants that are normally available. At a meeting with the Department's officials in March, the Animal Collectors' Association was assured that any proposal relating to knackeries would proceed by way of discussion and agreement, but clearly no consultation took place.

A number of issues arise. On what basis are the changes being made to exclude the availability of fully compliant major renderers? Reducing competition will inevitably lead to an increase in costs. What is the basis or rationale for the 125 km calculation and exclusionary zone? It is specified that this stipulation cannot be breached except with the express permission of the Department. If there are not two or more rendering premises inside the 125 km radius from the knackery, delivery is permitted to either of the two nearest rendering premises as measured by road. This is making a scheme that should be simple complicated. It appears the Department wishes to ensure that lawyers will never be idle. Will the Minister revisit this scheme before it becomes operational on 30 November next? The scheme appears to be quite workable aside from the 125 km restriction. Why not take clause 7.8 out of it altogether?

Minister of State at the Department of Agriculture, Food and the Marine (Deputy Tom Hayes)

I thank Deputy Penrose for raising this issue.

The fallen animal collection system is an essential element of the infrastructure underpinning Ireland's successful livestock and meat processing industries, which had an estimated combined export value of almost €3 billion in 2012. The TSE fallen animal subsidy scheme ensures that fallen bovine animals over 48 months are disposed of in compliance with all animal and public health and environmental regulations.

The original scheme was initiated at a time when there was a serious crisis of confidence in the European beef market, in which Ireland is a major player, as a result of the emergence of BSE in some member states where it had previously not been confirmed. The burial of animals on farm was prohibited by the EU from 2001 onwards, except in remote areas, which meant that farmers would have to arrange for the collection and disposal of all fallen animals. The introduction of the scheme was seen as an urgent necessity at a time when the market was unable to deal properly with the disposal of fallen stock. The scheme has been modified over the years, but implicit in the objective of the scheme as it now stands is the protection of the environment and the maintenance of Ireland's favourable BSE status.

The current scheme provides for the collection and rendering of over 48 month old fallen bovines required to be TSE tested under EU regulations. The scheme subsidises the collection by animal collectors of fallen cattle over 48 months old from farms and their transportation to Category 1 rendering plants. The rendering and disposal costs of over 48 month old fallen cattle in Category 1 plants are fully covered by the scheme. The subsidy has two components - €30 paid to animal collectors and €58 paid to Category 1 renderers in respect of each animal, excluding VAT. The collection charge to the farmer is capped at €54.03, including VAT. In 2012, there were 53,903 over 48 month old bovines TSE tested in accordance with EU regulations and fully disposed off, at a cost to the Exchequer of €5.78 million. The projected number of animals for the entire year for 2013 is estimated at 75,000, with a cost to the Exchequer of €7.49 million.

The operation of the TSE subsidy scheme has been examined in my Department and a number of changes have been introduced on a best practice basis. These include enhanced compliance provisions and putting some limits on the distance material can be carried while maintaining choice. This examination took into account a number of considerations, including TSE testing requirements, animal by-product regulations, the need to maintain competition and the need for an adequate collection and disposal infrastructure. Under the new arrangements each animal collector will be able to choose from at least two rendering companies. Each animal collector licensed by my Department and each rendering company on the island of Ireland has been invited to express an interest in being included in panels to operate the revised scheme, which it is envisaged will be in operation from 30 November 2013. There are 39 animal collectors who can potentially operate within the scheme and five category 1 rendering plants potentially eligible to provide a service under the terms of the scheme.

It is important to note that these revised terms and conditions only apply to material collected and disposed of under the TSE subsidy scheme, which my Department operates to facilitate the TSE testing of over 48 month old bovines as required by EU legislation. Any animal collector who wishes to opt out of this scheme will, subject to compliance with animal by-product regulatory requirements, not be bound by the revised scheme rules. The new arrangements will be reviewed after six months in light of experience and my officials are open to have discussions with stakeholders. They will talk to the various people mentioned by the Deputy.

Deputy Willie Penrose

Does the Minister of State not find it strange that they start closing the door when the horse has bolted? Why have post-event consultation rather than pre-event consultation? Why not work with the stakeholders and have a consultation with them to work through this? Unless I have gone bonkers altogether, if the cost of rendering rises due to the removal of the current competition and at the same time the Department is stipulating the maximum collection price for adult bovines, which I have set out, that will result in a loss of profitability for knackeries unless they pass on an increased collection price for animals under 48 months old to farmers. There will definitely be a price increase because that is the nature of business. I am a socialist who likes to help businesses to survive, but this is an inevitable result in the competitive marketplace. I cannot understand the policy.

Will the Minister of State review it after three months rather than six months? That might be a reasonable compromise. Hopefully, the Animal Collectors Association and the various other people involved will get a positive hearing from the Department's officials. The Department should not embark on this route in the future. It should work with people in a consultative manner and work together to ensure that what everybody wishes to achieve is achieved.

Deputy Tom Hayes

The underlying factor is that there is a huge export business at stake. Everybody wants to do what is best for the industry. With regard to consultation, we have been consulting with the IFA and the various stakeholders on an ongoing basis, although obviously not on the detail of the scheme. It would be very hard to get agreement across the board. We will review it at six months, but I take the Deputy's point about the three months. In fact, I am open to further discussions with the Deputy to try to deal with this. It is a problem that everybody acknowledges and I would certainly welcome the chance to talk to the Deputy about it at a later stage as we work through it.

Live Exports

Deputy Timmy Dooley

I welcome the opportunity to discuss this matter and I welcome the Minister.

Livestock exports are undoubtedly a critical part of the agriculture sector in this country. Shipping of live exports is a significant competitive component in the market for weanlings and store cattle, particularly in the west of Ireland and County Clare, which I represent. Live exports provide an important element of competition, which ensures farmers get a valuable price for their produce.

Without live shipping, Irish framers would suffer considerably reduced cattle prices. It is estimated that live shipping has this year ensured that cattle prices are approximately €70 to €120 ahead of where they would have been otherwise. The difference in respect of sheep is approximately €6 to €8.

This week's news that TLT International, one of the country's largest exporters, has gone into receivership is worrying, first and foremost for all of those who are owed money by the company, be they cattle marts or large producers who dealt directly with it. It is also worrying for the company's workforce in Mullingar, some 30 people. It is also disturbing for the owners of the company.

It is particularly worrying for livestock producers, who are concentrated in the west, many in my constituency of County Clare. They are involved in beef production and the suckler cow scheme. They produce calves, weanlings and store cattle, in terms of which there is not an appropriate level of land in Ireland to finish. Those animals must be exported to ensure a healthy trade. In the absence of a solid livestock export trade where suckler cows are involved in the production of calves, the prices that farmers will get will be €120 less. This is not viable.

Ireland has a solid programme for the development of the beef sector, namely, Harvest 2020. Unless the Government intervenes without delay to protect livestock exports, we will not be able to achieve that level of production, as Harvest 2020's targets will be impacted. I appeal to the Minister of State to get the Government involved. It should consider export credit refunds and various other mechanisms to promote and support the work of livestock producers.

Deputy Robert Troy

I will follow my colleague's comments by addressing the need for a robust livestock export industry. Given the potential elimination of TLT International, which is based in my constituency and heretofore accounted for approximately 70% of our live export industry, this is a timely debate.

It is crucial for the farming sector that there be a competitive live export trade so that factories do not gain an overly dominant position in our island economy. Given the fact that the agrifood industry is worth more than €1 billion per annum, it is important that the Minister take a hands-on approach to the issue and work with the receiver to ensure the business survives and Mullingar continues to be a hub for the live export industry. As my colleague stated, in excess of 30 people who were directly employed by TLT International in Mullingar have been let go in recent days. Many more people are indirectly employed. There is considerable anxiety among the farming community and the marts. As was done in respect of the travel industry, we need to take steps to ensure that marts and farmers are not left out of pocket. It is imperative that the Government move quickly to work with the receiver so as to ensure that we resuscitate the business as a going concern in the broader live export trade, particularly its cattle links to the Italian market.

Deputy Tom Hayes

I thank the Deputies for this opportunity to set the Dáil's record straight as regards TLT International. I share their concern at this unfortunate turn of events for the company, which has served the live export trade well for decades. TLT International has been a significant player in the export of live cattle to the Continent, accounting for approximately 20% of total exports, some 20,800 cattle in 2012 and 12,400 cattle up to the end of September.

I wish to express my sympathy for the 25 workers, the farmer suppliers to TLT International and other creditors who may be at risk of incurring losses as a result of the receivership. I am also concerned for other people in temporary employment who will be negatively impacted. However, I am heartened by the positive comments made on "Morning Ireland" by an Irish Co-operative Organisation Society, ICOS, representative this morning to the effect that marts had historically paid farmers during periods of worse crises and would continue to do so. This is a clear acknowledgement of intent.

My understanding is that the company has been placed in receivership by HSBC, which are owed significant amounts of money. I also understand that the company has advanced a number of reasons for its financial difficulties, including the slowing Italian economy, rising cattle prices in Ireland and delays in securing payments from customers. The House will understand that neither my Department nor I can interfere in the operations of the receiver. This is an important point. The position is that the role of a receiver appointed to companies in distress, which is set down in law, is to establish the assets and liabilities of a company and, in particular, to realise and receive assets in the hope that debts outstanding to the debenture holder that appointed him or her can be met. The powers of a receiver are essentially to manage the business of the company, carry it on and realise assets so as to repay those who are owed money.

As I stated in my opening remarks, TLT International has been a significant player in the export of live cattle to the Continent. In particular, it has been the dominant Irish exporter of weanlings to the Italian market, accounting for approximately 70% of Irish exports to that market in recent years. Clearly, the placing of TLT International in receivership is unfortunate, but it does not place the live export trade in jeopardy. It is likely that the company's absence from the marketplace will have some impact on the weanling market. However, that impact will not be very significant, particularly given the fact that, traditionally, the peak weanling export trade takes place in the early autumn. In addition, exports of live cattle from Ireland to Italy have declined significantly in recent years, mainly as a result of higher cattle prices in Ireland, meaning that our cattle were less price competitive for live export. The economic recession in Italy has also impacted significantly on consumer demand for beef. Live exports to Italy to date in 2013 have been some 23,000. This is down on the 33,100 cattle during the same period in 2012. In total, 37,900 cattle were exported from Ireland to Italy in 2012, down from 53,678 in 2011 and 70,000 in 2010. It is clear, therefore, that the Italian market has been declining in importance in recent years.

I should emphasise that quite a few live exporters are still in business and are capable of taking up some of the slack. Exporters have shown great flexibility in the past to respond to market demand. I am hopeful that, in the medium to long term, the remaining exporters will fill the void left by the departure of TLT International. I wish to reiterate my regret at the placing of TLT International in receivership, but there will not be a major impact on the live export trade.

Deputy Timmy Dooley

I hope that the Minister of State is right, but I believe differently. The failure of this company underlines a significant weakness in protections for people who take the risk. It is interesting that the bank concerned is Hong Kong and Shanghai Banking Corporation Limited, HSBC. It does not appear that TLT International was able to get a relevant supply of credit from our domestic pillar banks. I have no intention of asking the Minister of State to break the law or involve himself in the receivership. I fully understand the separation. However, what I do not understand is why the Government cannot recognise the inherent flaw in the climate in which livestock exporters operate. To suggest that some of the others will take up the slack shows that the Minister of State's parent Department misunderstands the crisis among livestock exporters. Of course the others will be impacted.

They will find it more difficult to avail of whatever level of credit they currently have. I am sure their bankers are all over them for the last couple of days wondering if their exposure is safe or has it increased the risk profile. Government intervention is therefore needed via a belt and braces approach to ensure the sector remains as it always has been - an outlet to ensure effective competition. In this case it is not so much an effective competition against factories, but effective competition against beef producers in the midlands who compete to purchase weanlings.

It is incumbent upon the Government to become involved and develop a strategy in the same way as the previous Government developed one for output and production from the farming sector, known as Food Harvest 2020. In fairness, the Minister of State has continued with that but he needs to examine the livestock export trade to find an appropriate mechanism to protect this sector which is under considerable threat at the moment.

Deputy Robert Troy

I also have grave concerns about the impact that this decision will have on the industry. This industry has been in operation for almost 30 years. It has ensured competition yet it has received very little support. This particular business accounts for 60% to 70% of the market. It is not right, accurate or fair for the Minister of State to say that others will take up the slack. There are all sorts of rumours concerning the bank. Deputy Dooley is correct to say that this company was forced to go to HSBC, which is based outside the State, due to the difficulties that businesses here are facing in accessing credit.

Customer regulation comes under the aegis of the Central Bank, so it is vital that the Minister return to the House next week with a clear report on what actions the bank has taken in this regard. The Minister should give a commitment to do so. Was it right and proper that a receiver was appointed? The House should know that due procedure was adhered to. This serious issue has resulted in 30 jobs being lost in Mullingar and many more jobs indirectly. This company accounts for 60% to 70% of the market, which is now being taken out of play. Why has an examiner not been appointed, as opposed to a receiver? As we all know, when a receiver is appointed, the unsecured debts are most unlikely to be paid. The receiver's job is to pay himself first and then pay the bank, but that leaves marts and farmers way down the pecking order.

I am not confident that the Minister of State is giving this matter the urgency and priority it requires. This company has been in business for 30 years and has served the farming community well. It accounts for 60% to 70% of the market share, but I wonder if the Minister of State has what it takes to resolve this issue. I ask him to return to the House next week with a report on the Central Bank.

Acting Chairman (Deputy Bernard J. Durkan)

The Deputy's time has expired.

Deputy Tom Hayes

We need to be sensible in what we say and how we react. Everybody in this House hopes the receiver will be able to work his way through the difficulties and salvage the company. That would be the most satisfactory outcome, whereby cattle exports will continue regardless of who owns the company. The receiver should be allowed to do that. I take the Deputy's point concerning cattle prices. If Deputy Dooley is in contact with his people in County Clare, he will know what the manager of Sixmilebridge Mart said this week when reacting to the TLT story. He was quoted in the newspaper as saying there was a good trade at the mart on Saturday for all stock, with weaning prices especially strong. Before people in this House say cattle prices are down, they should check what is happening in their own constituencies. That was in County Clare.

Deputy Timmy Dooley

With respect, the company went into receivership on Friday.

Deputy Tom Hayes

I spoke to some of Deputy Troy's constituents yesterday when I was presenting them with certificates for good farming practice. They told me that cattle prices had risen in their area.

The main point is that people should be paid for their cattle when they sell them. On "Morning Ireland" this morning, the chief executive of ICOS told a good story. I will be monitoring the matter as it proceeds, but I will not be interfering with the receiver's due process. I hope the business will be protected and that farmers will be paid.

Deputy Timmy Dooley

What is the Government going to do about it?

Acting Chairman (Deputy Bernard J. Durkan)

The time for this Topical Issue matter has expired.

Credit Unions

Deputy Patrick Nulty

I thank the Minister for Finance for attending the House to address this important issue. I wish other Ministers would follow his example. The Newbridge Credit Union situation has prompted a major debate about the future of credit unions and the financial sector generally. It must be acknowledged that the credit union movement has played a crucial role in communities. The Minister should make a clear statement about the future of credit unions and the Government's confidence in and commitment to that movement. He should reassure ordinary families with credit union deposits and loans that they are safe and secure.

According to press reports, one in five credit unions are in shallow financial waters. A few days ago, the Irish Independent reporter, Charlie Weston, said the same thing. The Minister has his finger on the pulse but he needs to make a clear statement about what is happening with credit unions.

The situation in Newbridge Credit Union is unique, given that it was based in a building that was once valued at €3 million. That will come as a shock to many credit union members. Is this the thin end of the wedge? Is it an outlier or is it indicative of a liquidity problem concerning the balance between credit union loans and deposits? What is the future for the credit union movement in Ireland?

Can the Minister outline the Government's vision for the credit union movement? Can he spell out a policy for dealing with credit unions that encounter difficulties? Is Newbridge the only credit union in difficulty? Will there be more and, if so, when will information be available to the public? Does the Minister see credit unions as an integral part of the Irish financial sector?

The Minister's constituency is similar to mine and he knows that the credit union movement is the wall between families who need credit and moneylenders who seek to exploit the injustices and inequalities in our society. The credit union movement is crucial in that respect.

Can the Minister ensure credit unions will be independent and not merely subject to takeover by banks? Is the Permanent TSB situation unique and not to be repeated?

Deputy Billy Timmins

I thank the Ceann Comhairle for selecting this matter for the Topical Issue matter. I also thank the Minister for attending the House. At a time when we are increasingly sceptical of the media, I acknowledge the role of local radio in this regard, including East Coast FM, which is my local station. This morning I listened to the Clem Ryan Show on Kfm Radio in Kildare, and he approached this subject in a most pragmatic, fair and reasonable manner. The winding up of Newbridge Credit Union is a very emotional subject in Kildare.

As well as the Newbridge situation, there is the broader national question concerning credit unions. It is clear things were not right in Newbridge and the difficulties were first identified by the Central Bank back in 2004. That speaks volumes for that organisation and its effectiveness in addressing the difficulties concerned. If it had acted in a more professional manner at the time, the credit union may have been saved.

I understand a meeting will take place tonight between the board of directors and members. I urge members to hasten slowly. It is important that the volunteers get out their message in regard to what happened over the past number of years. This is a unique situation with regard to Permanent TSB. It is difficult to visualise how it will be progressed. Is there a learning curve for everybody or has Permanent TSB and the Government a definite plan in regard to what will happen to Newbridge Credit Union? My understanding is that the building is in the ownership of the State. There is a desire on behalf of people in the area for a new credit union. I would welcome the Minister's view on this aspect.

With respect to the national issue, the message going out is that this is a unique situation and a one-off. There is a contingency fund of approximately €500 million for the recapitalisation of credit unions, €54 million of which I assume will go to Newbridge Credit Union. Where do other credit unions stand? Some reports suggest that one in four credit unions have issues. The Tánaiste said that 20 credit unions are reported to have regulatory reserves below the minimum requirement. Perhaps the Minister would elaborate on the situation. It is important that the message goes out that the Government supports the credit union movement. Most of the people engaged with the credit union system do not engage in other banking mechanisms. It is important these people have confidence in the system.

Minister for Finance (Deputy Michael Noonan)

The decision to transfer assets and liabilities, excluding the premises, of Newbridge Credit Union to Permanent TSB was necessary to safeguard members' savings as the only alternative option available to the Central Bank was liquidation, which would have seen unprotected savings of in excess of €1 million lost. This would have included the savings of charities, schools and individuals. For this reason, on Sunday, 10 November the Central Bank applied to the High Court under the Central Bank and Credit Institutions (Resolution) Act 2011 and received approval for the transfer of the assets and liabilities of Newbridge Credit Union, excluding the premises, to Permanent TSB. The Central Bank has published extensive information on its website setting out the details of the transfer, including the relevant background material and financial details. It is also examining a range of other material which remains subject to High Court confidentiality restrictions to ascertain whether any of this material can be published in due course.

As Minister for Finance, I agreed to the payment to Permanent TSB of a financial incentive of up to €53.9 million to support the transfer. This was on foot of a request from the Governor of the Central Bank. The incentive includes €23 million in cash upfront; €4.25 million for restructuring and integration costs; €2 million for other transferring liabilities; a maximum additional €24.7 million to cover additional costs resulting from all loans being written off with nothing recovered and a risk share on the transferring loans, whereby the State will absorb 50% of the losses where loans perform below their transfer value and 50% of the gains where they perform above the transfer value. If these loans were written off entirely with no recovery, this would result in an additional €24.7 million total cost. The financial incentive provided in the Newbridge case is fully recoupable from the financial services sector over time in the form of a levy.

The Central Bank undertook a process which involved the examination of possible credit union combinations in line with the resolution options available. This examination resulted in an approach being made to a number of credit unions. Ultimately, however, no credit union considered that it was in its best interests to complete such a combination, even in the context of extensive taxpayer support. This partly reflected the exceptional nature of financial difficulties at Newbridge Credit Union and the relative scale of the credit union within the sector. The Central Bank also considered proposed solutions put forward by various interested parties but none proved feasible in addressing the problems or protecting members' savings. It was in the context of a possible liquidation that, with the support of the Central Bank, a request was made to Permanent TSB to undertake this transaction. I would like to express my thanks to Permanent TSB for its participation in this process, which has brought stability and certainty to the situation and specifically to the members and staff of Newbridge Credit Union and has provided an alternative to liquidation. The transfer of Newbridge Credit Union to Permanent TSB means that Newbridge Credit Union members can be assured that they can continue to operate their loan and deposit accounts as normal.

The bad practices in Newbridge Credit Union over many years can be illustrated in the following key lending statistics: an individual loan of €3.2 million, which was in excess of the Credit Union Act restriction of a maximum of 1.5% of the total assets; 52% of the loans exceeded five years duration as opposed to the maximum set out in the Credit Union Act of 20%; the average loan in Newbridge Credit Union was €17,281 as compared with the average credit union loan of €7,764; and there were 26 loans of an average value of €550,000, which were seriously distressed. These figures illustrate that Newbridge Credit Union was operating in a very different way from a normal credit union. The structure of some loans was more akin to development loans with bullet repayments as opposed to regular repayments.

The Central Bank has informed me that, based on data submitted by credit unions as at 30 September 2013, some 20 credit unions have reported regulatory reserves below the minimum requirement of 10% of assets. This gives rise to a capital shortfall of in the region of €11 million. The Central Bank is continuing to work through a portfolio of approximately 100 credit unions on a case by case basis. The programme of work to engage with such credit unions is informed by the following: levels of arrears, inadequate bad debt provisions, high fixed asset to total asset ratio and other supervisory concerns, including weak lending practices. The outcome of these engagements can include some or all of the following: governance changes, risk mitigation programmes, lending and other business restrictions and requirements for credit unions to seek capital support.

The funding required for Newbridge Credit Union is being provided by the resolution fund and is fully recoupable from the financial sector via a levy over time. The Government has made available €500 million to support the stability of the credit union movement. This amount is divided between two funds of €250 million each, one for resolution, which is being used in the Newbridge case, and an other which is for voluntary restructuring under the Credit Union Restructuring Board.

I emphasise that the Government recognises the important role of credit unions as a volunteer co-operative movement and the distinction between them and other types of financial institutions. The Government's priorities remain the protection of members' savings, the financial stability of credit unions and the overall sector. I would like to remind credit union members that protection available to credit union members under the deposit guarantee scheme currently safeguards up to €100,000 per depositor per financial institution.

The Government is determined to support a strengthened and growing credit union movement and would encourage the movement to work with its stronger credit unions so they can provide a viable option for assisting weaker credit unions. In particular, the Government would like to highlight its support for the future return of a credit union to Newbridge.

Deputy Patrick Nulty

I thank the Minister for his reply. I would welcome if he could elaborate on his statement that the Central Bank is working with approximately 100 credit unions in regard to their financial balance sheets and the degree to which they are operating within best practice. What is the level of engagement by the Central Bank with the credit unions concerned?

I welcome that the Minister has reiterated the commitment in terms of the guarantee of deposits. Perhaps he will confirm that the Permanent TSB takeover situation is unique and will not set a precedent. Can the Minister and Government guarantee that financial institutions will not take over or seize credit unions from members? The Minister will be aware that the credit union movement is different from the banks. It is not driven by the massive profit motive by which banks are driven. We all know that the banking sector has no interest in the future of this country. The banks do not care about this island. As I said, credit unions are the bulwark against the loan sharks and crooks that seek to exploit inequalities in our communities.

Can the Minister assure us today that the Permanent TSB takeover will be the only one of its kind or are there more in the pipeline?

Deputy Billy Timmins

I thank the Minister for his reply. A message seems to have gone out from the Government that it is supportive of a replacement credit union in Newbridge. That demand may be coming from the public - I do not know - but it is important that we know where the Government stands on this, so that false hope is not built up. Does the Minister know what will be done with the building?

Do we have an idea of the total value of all loans of the more than 390 credit unions across the country? What is the total value of their deposits? I notice that Kieron Brennan, the CEO of the Irish League of Credit Unions, stated that credit unions have access to literally billions of euro that could be lent out. It may not be feasible or it may require a change in legislation, but has the Government looked at the concept of lending to or borrowing from the credit unions? It might be a two-way house whereby the credit union could help the Government if it is looking for funding in the future. It may not be possible, but it has been put out there. Perhaps the Credit Union Restructuring Board could look at it and report on it.

One of the things that fuelled the problems in Newbridge was the property rush. In the loose alliance in which I am involved with Deputy Mathews and others, we have come forward with a theory called the "fair value of a property". I ask the Minister to look at that theory. In additional to the historical breaks on lending, there should be a fair value assessed, based on the average cost of the house via the average income. There should be an established multiplier based on historical information, which should be used as a general rule of thumb in future. It would certainly prevent the situation whereby financial institutions were taking a risk on property prices, for which the taxpayers ultimately had to foot the bill.

Deputy Michael Noonan

I want to assure the House that the case of Newbridge was an outlier, both in terms of its level of impairment and its actual size. It is an enormous credit union compared to the practice in many towns and villages. I also wish to restate the Government's commitment to the credit union movement, as I have done on several occasions on behalf of the Government over the last two and a half years. We have taken a number of actions to secure the credit union movement in Ireland, including establishing a credit union commission, and we have taken on board the key recommendations of that commission, including the establishment of the Credit Union Restructuring Board.

The Central Bank has the regulatory function over the credit union movement, and it has been working in partnership with several credit unions around the country to ensure that they are restored to strength, if they have any level of impairment, in accordance with the new regulatory regime. One of the key regulations applied by the Central Bank is that the level of reserves should be at 10% of the balance sheet of the credit union movement. There are 20 credit unions below that level. If they were not able to trade themselves into having adequate reserves and the Central Bank had to apply resolution fund money to bring them up to the 10% reserve figure, the cost of that is €11 million in total across the 20 credit unions. In comparison to what is going into Newbridge, the overall potential liability is quite small.

Beyond that again, there is another tranche of credit unions that are in constant friendly contact with the Central Bank, which is helping them to have better lending practices, better supervision mechanisms and to apply the rules more rigidly. However, the 20 credit unions are those in the high risk category, and that is the situation there. Once again I would like to reaffirm the Government's commitment to the credit union movement. We are fully aware of the part that credit unions play in many communities in Ireland, and how they are integrated with the community.

The Newbridge Credit Union building was not included in the transfer of assets to PTSB, which did not want it. A value of €15 million has been ascribed to the building on the credit union's balance sheet. My advice is that the market value of it is somewhere between €3 million and €4 million. No decision has been made yet about the building, but the likelihood is that the OPW will assist. While PTSB will maintain facilities in the existing building over the transitional period, PTSB does not intend to operate a branch of PTSB out of that building. The OPW will provide assistance and we understand that a particular State agency would have an interest in that building. There is no intention of leaving it empty. If it is occupied along the line I think may happen, the agency may provide very welcome community services out of that building.

Social Welfare Benefits Eligibility

Deputy Ray Butler

I thank the Minister for Social Protection and her Department for the work undertaken so far towards securing social welfare provision for the self-employed, and I wholeheartedly welcome the report of the advisory group on tax and social welfare commissioned by the Minister.

During the general election campaign in 2011, I met many business people throughout my constituency who raised serious concerns about the complete lack of social welfare support for the self-employed. These were people who provided employment, paid PRSI, income tax and VAT, but whose businesses had collapsed following the economic downturn. I remember calling to one house in particular while canvassing and meeting a man who operated his business from the side of his house. He showed me details of numerous neatly-filled files of VAT, PRSI and income tax, which he had paid into the system correctly and on time. He explained to me that now that his business was no more, he was left to fend for himself, to pay his mortgage and feed his children with little or no support from the system he had paid into for so many years.

Therefore, it is heartening to see that in less than three years, since the Government came into power, the Minister has addressed this need by lowering the thresholds for the self-employed, and allowing them to be assessed for social welfare straight away on receipt of a letter from their accountant stating that the business has ceased trading. I also note that statistically, approximately 80% of self-employed people who have applied for social protection did qualify for a payment, which is proof of the Government's commitment to supporting our business community through good and through bad. However, we must now reinforce this provision by establishing proper system supports for the self-employed while our country comes out of the dark days of recession, as we are the only industrialised nation in the EU that has not got these features in place.

The first step is to implement the report I mentioned earlier and in doing so, introduce a new class stamp of 5.5% for the self-employed, which would automatically entitle them to sick pay and disability cover. The question is whether we make this a voluntary or mandatory system. As a previously self-employed person, I believe a mandatory system is the only way forward in order to be fair to all.

While it is encouraging that approximately 80% of self-employed applicants qualified for some form of social welfare support, it is in fact the PAYE worker who is footing this bill. Therefore, I would argue that it makes more sense to have the self-employed contribute the extra 1.5% themselves towards their own possible future social welfare needs. Revenue acquires income tax from the self-employed through their profits, or if the business is non-profit-making, it secures tax through their drawings. It therefore appears that paying a little extra on a stamp benefits the self-employed more and covers any eventual sickness or disability.

In respect of the collapse of a business and subsequent full unemployment, I have studied the British model whereby social welfare support comes in the form of an income-based jobseeker's allowance, which is of course means-tested. I believe this model best suits the needs of our self-employed.

It is fair to say that over the lifetime of this Government, the progress made towards supporting and recognising the social protection needs of the self-employed has positively evolved but more fool-proof foundations need to be introduced to ensure they are better protected in the future and further research on other European models needs to be explored and considered.

Minister for Social Protection (Deputy Joan Burton)

I thank Deputy Butler for raising the issue of providing social protection for the self-employed, which he has raised on many occasions in this House because it is a very important issue for the hundreds of thousands of self-employed people in the country.

Self-employed persons are liable for PRSI at the class S rate of 4%, which entitles them to access long-term benefits such as State pension, contributory, and widow's, widower's or surviving civil partner's pension, contributory, and maternity benefit. Ordinary employees who have access to the full range of social insurance benefits pay class A PRSI at the rate of 4%. In addition, their employers make a PRSI contribution of 10.75% in respect of their employees, resulting in the payment of a combined 14.75% rate per employee under full-rate PRSI class A.

In 2011, I established the advisory group on tax and social welfare to meet the commitment made in the programme for Government. The advisory group is examining and reporting on issues involved in providing social insurance cover for self-employed persons in order to establish whether or not such cover is technically feasible and financially sustainable. Any proposals for change in the social welfare system must be financially sustainable and cost neutral.

On 6 September 2013, I published the group's report on the issues involved in providing social insurance cover for self-employed persons. The group found that the current system of means-tested jobseeker's allowance payments adequately provides cover to self-employed people for the risks associated with unemployment. I thank Deputy Butler for acknowledging the changes we have made in respect of self-employed people and farmers, who for the most part are self-employed and who can catastrophically lose their business. It used to be that they had to use the previous year's accounts. We now take current up to date evidence of what has happened to them. The group found that 80% of self-employed people have access to jobseeker's benefit. Consequently, the group was not convinced that there was a need for the extension of social insurance for the self-employed to provide cover for jobseeker's benefit.

The group found that extending social insurance for the self-employed was warranted in cases related to long-term sickness or injuries. To this end, the group recommended that class S benefits should be extended to provide cover for people who are permanently incapable of work because of a long-term illness or incapacity through the invalidity pension and the partial capacity benefit schemes. The group further recommended that the extension of social insurance in this regard should be on a compulsory basis and that the rate of contribution for class S should be increased by at least 1.5 percentage points.

In the course of its deliberations, the group identified a range of issues associated with the subject of social insurance for the self-employed that should be addressed, and made a number of recommendations in this regard. These include, among others, the means assessment for self-employed income in terms of accessing jobseeker's allowance payments, credited PRSI contributions, self-employed access to activation and training schemes and the role that information campaigns might play in addressing information deficits, particularly with regard to entitlements to jobseeker's allowance, as we have just discussed them.

Deputy Ray Butler

I thank the Minister for her reply. There is no perfect solution to all cases when it comes to social welfare and the self-employed. I have heard various groups from the Irish Small and Medium Enterprises Association, ISME to the Irish Farmers' Association, IFA, and others, say that they want it to be voluntary. I do not think it will work voluntarily. I understand the economy and how the country is now but we must move forward. If one makes a profit one pays one's income tax. If one does not make a profit but breaks even one pays tax on one's withdrawals. Surely it would be better to put 1% or 1.5% onto a new stamp to give one protection for one's family and future and to have something there if the business folds.

I put to ISME and other groups the question should we leave the system as it is? The system does not work for the self-employed. We need social protection. We saw what happened when the Celtic tiger crashed. The Minister has done excellent work for the self-employed. Could we do this now and bring it to a head with an increase to 5.5% from 4%? I spoke on local radio with various organisations during the week. To judge by the feedback in the form of e-mails and texts the business people understand that they must pay a little more. They know that and they want this stamp. The majority of small independent businesses want this stamp and security for their families if anything happens to their business.

Deputy Joan Burton

I thank Deputy Butler because his is a very sensible suggestion. The 2010 actuarial review of the social insurance fund, which I published last year, determined that the self-employed are obtaining better value for the level of their current social insurance companies than are those in employment, where they and their employer pay a combined contribution of 14.75%. The actuarial review went so far as to say that the effective annual rate of contribution needed to provide the core full-rate State pension currently available to self-employed contributors is approximately 15%.

The advisory group's proposal was to move to an area of cover for self-employed people that it considered was very important in respect of long-term or permanent incapacity or illness, and to cover them for this, for a small amount extra. There are private insurance schemes available, income protection schemes to cover long-term personal illness and invalidity but, as I am sure Deputy Butler knows, and as most small business people know, while they are in the private sector these are extraordinarily expensive. The advisory group's proposal would have given this kind of cover for long-term invalidity and illness, which happens to a percentage of people who cannot work again, either for themselves or as employees. This would have given them a route back, and through the partial capacity benefit scheme that I brought in since becoming Minister, as part of the reform of social welfare, it would have given them an opportunity to become involved part-time, depending on the level of capacity.

I agree with Deputy Butler that the committee's proposal of 1.5% was modest. Perhaps it is slightly ahead of its time and the organisations to which Deputy Butler refers would on reflection and study, and perhaps through talking to self employed people, review whether this really is good value for money. The principle of social insurance is that the whole population concerned is covered and contributes. That allows what we hope is a small number of people affected to be in effect covered by a community rating principle. On the other hand, if one goes for private cover that is done on a slightly different rate and the private institutions charge handsomely for it. Some self-employed people can certainly afford that but I am aware that many of the self employed people about whom Deputy Butler speaks would not be in a position to buy that kind of very expensive scheme for themselves.

Sitting suspended at 1.50 p.m. and resumed at 2.50 p.m.