I know the committee is very busy and it has already been involved in scrutinising the budget of my colleague, the Minister of State, Deputy Brian Hayes. I welcome the opportunity to present the 2012 Estimates for my Department's group of Votes. I will begin by making some general comments on the major developments in my Department's field of responsibility in order that the committee can better understand the changes in the format of the Estimate and the reasons for cyclical or temporary changes in funding requirements. That may obviate the need for some questions later.
The budget for my Department has increased by some €11.5 million, or 39%, compared with the 2011 outturn, or €6.9 million compared with the 2011 Estimate. The increase is required to enable my Department to meet its commitment to formulate and promote policies which drive efficiency, effectiveness and reform across the public service and to manage public expenditure at more sustainable levels. The increased funding requirement is expected to be temporary in nature, tailing off over the period to 2015 as various specific reform projects are completed. However, in view of the fact that the increase is substantial in percentage terms, I would like to set out for the committee the reasons for the increase.
Under the new format, my Department's outputs are divided across two programmes. The first, entitled public expenditure and sectoral policy, has responsibility for the delivery of major public expenditure reviews both in the capital and current areas. The comprehensive review of expenditure set the scene for the full delivery of our expenditure consolidation objectives, coupled with a range of major structural reform initiatives. By any standard, 2011 must be seen as a successful and productive year in terms of upholding Ireland's reputation as a country that has the capacity to manage its public expenditure commitments while driving forward with bold new reform measures. As every member knows, we are operating under the very constrained requirements of the troika, and it is imperative that the expenditure management element of my Department would operate expeditiously and well.
Expenditure on this programme has increased by approximately €3.8 million; some €2.3 million of this arises on PEACE and INTERREG funding, which is cyclical in nature and represents a commitment we have given under a multi-annual plan. I am sure we will deal with that in detail when discussing the subheads. Each of these programmes is a European-funded major capital initiative between North and South - in the case of the PEACE initiative - and between countries in the case of the INTERREG initiative. The cost of supervising and running these initiatives falls to my Department.
A further €550,000 arises from a change in accounting treatment whereby my Department bears accommodation and facilities costs that would previously have been borne on the Department of Finance Vote. Although it is an increase in my Department's Vote, it is Exchequer-neutral. As my Department and the Department of Finance share these services and buildings, it is a clarification of the costs of each Department. The remainder of the increase is accounted for by once-off funding of the upcoming EU Presidency, procurement training which the Minister of State, Deputy Hayes, discussed and National Lottery tendering costs. We will deal with those in detail later.
The second programme is entitled Public Service Management and Reform. I have spoken to this committee about the new reform and delivery office, which has a key role to play in driving, co-ordinating and supporting the implementation of the ambitious reform plan. For this reason, the reform agenda fund, formerly the change management fund, has been allocated a total of €1.73 million for 2012. I am sure that the committee will appreciate that there is sometimes a need to invest in change in order to support increased efficiency and effectiveness, and to reduce costs in the medium to longer term, and that is the purpose of this funding.
Expenditure on this programme has increased by some €8 million. This is primarily driven by a carryover of €800,000 in the pay bill savings from 2011, which will be used to cover temporary staffing capacity required during the progression of certain reform projects. There is also an increase of €1 million on the non-pay administrative budget arising from the change in accounting treatment mentioned previously and a provision of €4.63 million in respect of the development of a human resources shared services centre. This is a short term "spend to save" project, which will see certain human resources functions centralised in my Department. I have already explained to the committee that a number of shared services will be developed. There is provision for the development of a common shared human resource management facility for the Civil Service and this is the first to be progressed. There will be an increased provision of €1.4 million for the reform and delivery office. Provision had been made for some of this work in the 2011 Estimate but work was deferred pending critical reassessment of the merits of each project and development and publication of the public service reform plan which was done last November.
The Revised Estimates were presented to this committee this year and I will deal briefly with performance budgeting. The Estimates this year are being delivered in a new format that brings together an unprecedented amount of information so that Members of the Oireachtas, members of the public and decision-makers generally, can see at a glance the financial and human resource input costs, the key outputs and the impact indicators for each programme. Financial information is set out in strategic programmes which mirror the key objectives set out in the statements of strategy. For each programme, there is a clear presentation of the financial resources allocated to that area, broken down by subhead. This presentation also makes clear the administrative spend going towards each area and the level of staff resources involved. The public service activities are shown, with key outputs in each case. The intention is to give the committees a clear detail of how public funds are being spent. At the bottom of each Estimates page is a section showing the context and impact indicators. These indicators are intended to give a sense of whether the public service outputs are having an impact, in terms of better outcomes, which are being seen and experienced by citizens.
My Department has two strategic programmes, public expenditure and sectoral policy and public service management and reform. The administration headings from the previous Estimates are included for illustrative purposes but all of the expenditure detailed in Part II of the Revised Estimate for my Vote under Roman numerals is included in the financial resources allocated to the strategic programmes. In summary, this year's Estimates represent an important structural reform intended to assist the committee members in their task of scrutiny and of holding the Government to account.
However, the new Estimates are just one part of a broader project of reform in the area of accountability, performance and Dáil oversight. I wrote to the chairpersons of all Oireachtas committees in January to advise them of the new arrangements and the opportunities for greater engagement by public representatives in the Estimates formation process. In last December's comprehensive expenditure report, I announced a move to a modern medium-term expenditure framework, which involves the setting of expenditure ceilings for each Department over a three-year period. Therefore, the overall allocations available to each Department for 2013 are already known and the process of debate and engagement with Departments on how to prioritise within these allocations, can get under way at an early stage. This means the committee will know the expenditure ceilings for next year and the CRE documentation published in full in December 2011 show the options for savings. It would be useful for all committees to engage with line Departments to ensure that all the options are teased out and maybe indicate preferences in advance of the Estimates process proper. Committees should not feel constrained to wait until Estimates are produced later at the end of the year, or until the Revised Estimates are formally submitted, before engaging in the policy debate.
For this year, the objective is to maintain this momentum of achievement and of reform. We will meet all of our public expenditure targets, as we did last year. We will drive forward with further reform measures. For example, a new value for money code has already been put in place and it is published on the Department's website. Teams of evaluators are conducting targeted analyses of various public expenditure areas while Departments conduct more general value for money and policy reviews. I envisage that all of these analyses will come before committees in due course, to aid the work of members in scrutinising Departmental allocations, and indeed to contribute to the role of members in engaging in the Estimates deliberations at an earlier stage. The types of indicators included in the new Estimate are ones which my Department considered might be of most interest to the committee members. As indicated in my letter to committee chairpersons in January, I am more than happy to receive any constructive feedback from committees about how the process can be improved, and whether the indicators – both for outputs and for impacts – can be refined to give a clearer sense of what is being achieved or what is intended to be achieved. In my view, a close engagement with the Oireachtas on this matter can only improve the quality of scrutiny and improve the levels of accountability, both for Ministers and for public service managers, regarding what is being achieved and delivered with diminished public funds.
I will now deal with public service reform. Ireland is committed under the EU-IMF programme to reducing the overall size of the public service. This is also a key element of the programme for Government. The total net cost of the public service pay bill will be reduced from the high tide mark of 2008 to our target of 2015, by some €3.5 billion, or €3.8 billion from the pay bill peak in 2009. Delivering this reduction will require continued implementation of the moratorium on recruitment, with exceptions being limited to essential posts and the utilisation of redeployment as the primary mechanism to fill posts which have been approved. Significant progress is being made in reducing the numbers employed in the public service. The outturn for the end of 2011 stood at 296,900. This was the level of employment in the public service. Numbers have fallen to approximately 292,000 at the end of the first quarter of 2012. The Government is on track to meet its ceiling for 2012 of 294,400, exceeding the target set by the previous Government by a full two years. This is no small achievement and I recognise the impact this has had on public service workers and their families. In case there may be any confusion, these numbers are whole-time equivalent posts, so the actual volume of people leaving might differ sometimes from the number of whole-time equivalent posts. I salute the many people in our public services who are striving daily to deliver a first-class service within reduced resources and increased demand. In this context, I refer to the widespread concern expressed about the ending of the grace period at the end of February. I am pleased that considerable work has been undertaken in all areas of the public service in advance of that date and this has ensured that the pessimistic scenarios depicted by some have not materialised. The work done by transition teams, local management and particularly, by front line staff, has ensured that service delivery has been protected as staff have co-operated with widespread workplace change and greater efficiency.
The chief public concern before the termination of the grace period was with regard to the fate of front line services. In order to protect those services, the Government is committed to keeping control of public service pay costs. The Financial Emergency Measures in the Public Interest (No. 2) Act of 2009 and the Croke Park agreement, set the overall framework for public service pay policy. These instruments remain crucial to reducing the overall public service pay bill in line with the commitments made in the memorandum of understanding with the EU-IMF. I am required before the end of June each year to carry out a review of the operation, effectiveness and impact of this Act, having regard to the overall economic conditions in the State and national competitiveness. The next review will be completed by the end of June and it will be laid before both Houses of the Oireachtas.
The Government's overriding objective is not merely to control public service pay costs but also to have a more customer-focused, leaner, more efficient and better integrated public service which delivers real value for money. In that regard, the Croke Park agreement continues to serve as a key strategic framework for underpinning stability and economic recovery. Reports published by that body in the past year have provided evidence of solid and measurable progress under the agreement. However, we know there is much more to be achieved in every part of the public service, given the ongoing difficult economic and fiscal environment. The Croke Park agreement implementation body is currently carrying out its second annual review and progress under the agreement will be published in the coming weeks.
It is not only on the numbers and pay fronts that the public service must change. Given the challenges we face as a country, we need to achieve the most ambitious reform of our public service ever undertaken in the history of the State. The difficult situation means that reduced costs, innovation, flexibility and the delivery of streamlined services must be at the heart of our reform agenda.
Late last year I launched the Government's public service reform plan. It represents a comprehensive and integrated approach to reform, with clear time lines set down for the implementation of the 200 or so actions. The plan is based around five key commitments to change, namely, placing customer service at the core of everything we do, maximising new and innovative service delivery channels, radically reducing our costs to drive better value for money, leading, organising and working in new ways, and maintaining a strong focus on implementation and delivery. I have established a dedicated reform and delivery office, led by a programme director within my Department, to oversee and drive this reform programme. We have also put in place effective governance and other support structures to ensure a strong focus on delivering reform across all sectors of the public service.
We are reforming how people are managed through, for example, the performance management system, with a far greater emphasis than before on detecting underperformance and taking steps to rectify it. The introduction of the senior public service initiative has as its objective the strengthening of senior management and leadership capacity across the public service and supporting a greater degree of mobility across Departments and agencies. We are reforming how we are organised by implementing shared services, evaluating options for external service delivery, restructuring and reorganisation, online delivery and greater use of information and communications technology, and rationalising State agencies. My Department will drive the reform agenda during 2012 by continuing to introduce shared services models in areas such as human resource management, payroll, banking and pensions. Shared services will provide significant benefits through a reduction in duplication, streamlining of business processes and reduced transaction times. To lead this initiative, a shared services transformation manager with significant international experience in the shared services area has been appointed. Significant progress is already being made on the human resources shared service for the Civil Service, and payroll and pensions shared services projects are also being initiated. Sector-specific shared services implementation plans will be in place for all sectors by the end of June.
The business consulting unit in the reform and delivery office will lead business process improvement in Departments and agencies, with a renewed focus on administrative and service level improvements across the Civil Service. The same unit is also designing a pilot for a Government-level performance measurement system, to be known as GovStat. It is intended that GovStat will give online access to the public and Members of the Oireachtas to the performance measures used by the Government to demonstrate the success or otherwise of the delivery of public policies. In addition, the new baselining unit in the office will provide leadership of baselining across the public service, manage overall co-ordination, aggregation and analysis of baseline data and feed those data into the development of business cases. The baselining of administrative and back-office functions across the public service to ascertain the current level of performance will be an important step in developing a comprehensive business case in support of shared services. We will also identify and evaluate innovative and alternative models for delivering non-core public services in order to reduce costs, increase flexibility and allow public service organisations to focus on their core valued-added activities. There are opportunities for the best of the public and private sectors to come together, learn from each other and present new models for delivering services efficiently and effectively.
My Department, through the political reform unit, is also working to facilitate more transparent and better government. This includes policy and legislative changes covering freedom of information, protected disclosures or whistleblowing, regulation of lobbyists, and ministerial and Civil Service accountability. We are at an advanced stage in the preparation of the general scheme of a freedom of information Bill and I will be pleased to answer any questions in that regard. I expect to be in a position to introduce a Bill later this year to give effect to the commitments on freedom of information set out in the programme for Government. The Government recently approved the draft general scheme of the protected disclosures in the public interest Bill 2012, the heads of which I presented to the Oireachtas Committee on Finance, Public Expenditure and Reform. This Bill provides for an overarching legislative framework for good-faith reporting and protected disclosure on a uniform basis for all sectors of the economy covering the public and private spheres, including An Garda Síochána and the Defence Forces. It represents the first step in fulfilling the commitment in the programme for Government regarding the introduction of whistleblower legislation. Work is also progressing on the introduction of a legislative framework for the regulation of lobbyists. The Department is currently studying the submissions received, as part of the consultation process we have put in train, and is developing a policy paper on this issue. In addition, the nature of the accountability relationship between Ministers and civil servants is under review. A position paper is being developed to identify the legislative and other necessary changes to deliver on the programme for Government commitments in this regard, which are extensive in fundamentally altering the Ministers and Secretaries Acts.
To sum up, since it was established in July of last year, my Department has been involved in a very wide-ranging series of public service and political reforms, within the parameters of the public expenditure constraints on the Government and the commitments in the programme for Government. I am happy to record my appreciation of the work of all departmental staff. A great deal remains to be done in the years ahead, but I have every confidence in their continued ability to respond effectively to all demands placed on them
I will now turn to the 2012 Estimate for Votes 11, 12 and 14 to 19, inclusive, which are summarised on page 3 of the brief. Members will note that the proposed Vote group allocation has increased by €87.625 million, or 22%, compared with the 2011 outturn. I have already spoken in detail about the increase in my own Vote. The remaining increase is driven largely by an additional provision of €73 million in the superannuation and retired allowances Vote for 2012, which is under my aegis and provides for pension and lump sum costs for civil servants. This year's estimate for Vote 12 proposes a net provision of €418 million, an increase of €73 million, or 21%, on the 2011 provisional outturn. This increased provision is to cover the additional pension and lump sum costs of public service retirements arising this year with the expiry of the pension "grace period" on 29 February, with 1,424 people retiring before this date on the basis of their pre-cut pay. Staff who retired before the end of the period are subject to the public service pension reduction, which is 4%, on average, while those who retire after this date have pensions based on reduced pay levels, with an average pension reduction of 7%.
The Government is committed to getting our public finances back in order and doing so in a fair manner. That is why I increased the public service pension reduction in the last Financial Emergency Measures in the Public Interest Act to 20% on elements of pensions over €100,000, which impacts on a very small cohort of retirees. I take this opportunity to dispel some myths about civil servant pensioners and, in particular, those who retired during the grace period. The 2012 Estimate assumes an average pension for civil servants retiring this year of €29,000, with a corresponding average lump sum of €87,000. These numbers show that pensions for the huge majority of Civil Service retirees are modest. There is a great deal of focus on the top end of pensions in the public service, but the actual figures clearly show that these large pensions are not representative. It must be stressed that 38% of civil servants - a rather startling figure - are on occupational pensions of €10,000 or less, with 25% having pensions of €5,000 or less. While some of these may have other pension income, these numbers show that commentators should be very cautious about claiming that pensions are excessive in general. Some, quite hysterical, media reporting claimed that the youngest and brightest would leave in their droves with large redundancy packages. The reality is that there were no redundancies. The grace period provided for people to retire on a pension based on their pre-cut salary, calculated on the actual duration of service. There were no special benefits. Where staff were retiring before normal pension age, they received an actuarially reduced pension. Only 13 of those retiring were under the age of 50, all of whom did so on health grounds and with their pensions actuarially reduced.
There are once-off costs for people retiring, particularly with the payment of lump sums. However, it must be remembered that significant savings in the Government's pay bill will result, particularly with the non-replacement of staff and the subsequent reduction in numbers. Once the pension lump sum is paid in the year of retirement, the continuing pension cost is 50% of the original pay cost or less. This is a saving which will have been achieved without redundancies.
During the period from 2009 to 2015 it is expected that the Exchequer pay bill will reduce from €17.5 billion to €13.7 billion. This amounts to a saving of €3.8 billion from the peak. Even when the inevitable increase in public service pension costs over this period are included - this increase represents a liability about which people were aware and which has been maturing in the past 40 years - there will still be a saving of €3.3 billion or a reduction of almost 19%. In the first quarter of 2012 some 7,897 individuals retired from the public service. This and the fact that we entered 2012 below our target mean we will comfortably meet the overall target figure of 294,400 for the end of the year.
As regards the other Votes in the Department of Public Expenditure and Reform group, the committee has been supplied with a background briefing document by my departmental officials on all the Estimates being presented. I thank the Chairman and members for their attention. I commend the Estimates to the committee and will be happy to answer questions which might arise.
