I will begin by mentioning that my colleague, Ms Sheila Nunan, has an appointment to meet the Minister for Children and Youth Affairs, so she might have to leave us in the course of the presentation. Hopefully that will not cause any difficulty.
I thank the Chairman and other members of the committee for this opportunity to appear before it and answer questions about the public service agreement, which is commonly known as the Croke Park agreement. We very much welcome this invitation and the opportunity to give evidence on the important matter of public policy.
The trade unions have a stark and not very pleasant message that we are required to share with our union members - it is that their employer, the Government, is virtually broke. Regardless of how we got into this sorry state, or who is to blame, the gap between Government income and spending was over 10% of GDP last year. Despite the absence of growth in the economy, the troika requires that this must fall to 8.6% this year, down to 5% next year, 4% in 2014 and less than 3% in 2015.
We are telling our members that we would still have to bridge a huge deficit even if bank borrowing and related interest were set aside. Above all, we are saying that as long as the public finances are in this state, there will be unrelenting pressure to erode public service numbers, salaries and working conditions.
Unions have had to confront similar realities in private companies, where costs were extracted mainly through a mix of staff cuts and new working practices aimed at sustaining services and market share as income, investment and staff numbers fell. Extracting costs becomes a top priority when an employer is broke. However, a recent Central Statistics Office study confirmed that most Irish private sector companies facing this challenge use the instrument of pay cuts sparingly, if at all. Staff reductions and changed work practices are the preferred measures.
The public service - where pay cuts and a so-called pension levy have cut gross incomes by an average of 14%, with a further 10% cut for new entrants - bucks this trend to a significant extent. While the public servants that we meet understand the need for further substantial cost extraction, they are determined that it can be done without further erosion of their pay. All the experience since the Croke Park agreement was negotiated shows that they are correct.
We are currently half way through a Government programme designed to cut the public service workforce by 38,000 and to slash €3.5 billion off the pay and pensions bill by 2015. Maintaining the range and quality of core public services in this context requires significant changes to working practices, some of which, like reduced dependence on overtime and other premium payments, are themselves cost-reducing.
Change on this scale requires a framework, not unlike those developed in forward looking companies that must extract costs. The much maligned, equally misunderstood, and frequently misrepresented Croke Park agreement is the framework that we have. How misunderstood is it? Take the recent furore over public service retirements, for example. Despite what some commentators led the public to believe, there was no redundancy or early retirement scheme, and no facility for public servants to get extra payments or pensions. Nor was the public told that public servants who left were subject to an average 4% pension cut plus, for those who retired early, substantial actuarial reductions to reflect their reduced years of pension contributions and any early payments. This means that only those who were already at, or very close to, retirement age left. They were people who, regardless of their experience and value, would have gone in the next year or so anyway.
There is seldom any mention of the Croke Park measures that have given managers the tools to prioritise and maintain services as staff exit the sector. All of the evidence is that the use of these tools ensured that there was no dramatic drop in the quality or level of public services on 1 March. Despite the unnecessary scare-mongering, yet again the agreement proved sufficiently flexible to enable management to change and to facilitate the reduction of cost.
Croke Park is an important but very simple agreement. Public servants must co-operate with the extraction of €3.5 billion of payroll and pension costs. In return, their salaries will not be cut again and compulsory redundancies will be avoided. Staff are delivering. In the first of four years - the year up to June 2011 - Croke Park measures directly led to savings of over €680 million, made up of payroll and efficiency savings plus cost-avoidance initiatives.
Last November, the Croke Park implementation body outlined additional reforms achieved and under way, and reported concrete progress on leave standardisation, rationalisation of services and agencies, redeployment, shared service initiatives and many other local and national reforms. In June this year, its second annual report will quantify the savings delivered in the year to mid-2012.
The savings so far achieved, mostly from reduced staffing, have exceeded Government and troika targets. As the deal approaches its second anniversary, however, significant cost extraction is also being delivered directly through reforms in organisations large and small. These include: €50 million a year from the redeployment of surplus teachers; new rosters in medical laboratories and hospitals, saving €7 million a year; changes in radiography services in hospitals, saving €3.5 million a year; changed prison work practices, saving €20 million a year; almost €1 million saved across St. Michael's House disability services; annual savings of €220,000 in Our Lady's Hospice, Harold's Cross, Dublin; some €685,000 annual savings from small initiatives in Teagasc; and a 20% cut in local authority staffing with €16.5 million of payroll and other savings in Fingal County Council and €700,000 in Galway city alone. There are many more examples.
Critics of the agreement often discount the huge savings from staff reductions and complain that the reforms are too tame or too tardy, but the pattern is similar to what happens in private companies that find themselves in dire straits. Staff cuts bring the biggest and earliest cost extractions with changed work practices, to maintain output and add savings, following later in the process, and unnecessary pain is avoided because companies recognise that they need staff on board in tough times and they concentrate on what is really vital.
Sick leave and its management will come under the spotlight in 2012 and the outcome of a management review of allowances and premium payments is imminent. This has the stated objective of discontinuing certain payments for which, in the view of management, there is no business case, in other words, allowances that do not reflect unsocial hours, valuable qualifications, extra responsibilities or particularly arduous work. This exercise is designed to reduce spending on allowances and premium payments by 5% this year, leading to savings of 10% by 2014. The Government also intends a 10% reduction in overtime spending this year, following a fall of 5% in the first year of the agreement.
The Croke Park agreement is a valuable, if demanding, protection for public service workers. Although they have already seen substantial cuts in their pay and pensions, few public servants disagree when they are told that workers in Greece, Portugal, Italy and Spain would appreciate a similar cost extracting framework that protects their positions.
It is a valuable protection for taxpayers and citizens as well. By and large, its value is recognised by Ministers and elected representatives and we have made ourselves available to give briefings and answer questions from all political groupings in the Oireachtas. This recognition is not only because the agreement is delivering relatively rapid and orderly cost extractions with minimal service disruption, but also because it is adding value to Ireland's international reputation. This was acknowledged in October 2011 in an OECD report, which stated that the agreement "has contributed to social cohesion by providing a collectively agreed basis for reform".
