I remind the House that supplementary questions in response to answers on ordinary questions must not exceed one minute.
Public Private Partnerships.
Ceisteanna (18)
Freagraí ó Béal (39 píosaí cainte)
John Deasy
Ceist:47 Mr. Deasy asked the Minister for Finance the changes he plans to make in the public private partnership process to achieve the new targets for expenditure. [13312/05]
Amharc ar fhreagra
Public private partnerships are part of the overall strategy to deliver on investment priorities. The multi-annual capital envelopes introduced in the 2004 budget set out the Government's commitment to invest significantly in capital infrastructure through both traditional and public private partnership-National Development Finance Agency funded investment. We expect PPP-NDFA funding to comprise approximately 10% of total investment as set out in the capital investment envelopes. Of the total investment programme of more than €36 billion for 2005 to 2009, the PPP-NDFA allocation, funded by unitary payments from Departments' Votes, is approximately €3.5 billion. In addition, there is a target of €1.2 billion for PPPs funded by user charges.
It is expected that the target for user-funded PPPs will be largely met by the roads programme. Adjustments to the targets for PPPs to be funded by unitary payments were made in the 2005 budget to take account of a shortfall against projected targets in 2004. There are a number of reasons for this, including the complexity of the process and the lead time involved in bringing such PPP projects to construction, typically 18 to 24 months.
In this context, I am actively considering what changes, if any, are appropriate to support the continued evolution of the process of projects funded by unitary payments from Departments' Votes. Building on the lessons learned to date and on the progress and expertise already developed, I am considering, with a view to bringing proposals to Government, how best to ensure that the appropriate skills and capacity are in place to assist Departments in procuring PPP projects.
I thank the Minister for his reply but it is not informative regarding what different actions he plans to take to reduce the period. Perhaps the Minister will confirm my understanding that he has had a number of high level discussions with key players in this field who have identified some of the problems, such as the high cost of the bidding process and the delays experienced. Has the Minister any practical proposals to submit that would begin to progress events more quickly?
There is a great deal of scepticism among all parties in the House as to whether PPPs represent good value for money. One reason for this is the reluctance or refusal of the Department of Finance to allow any publication of the comparators which would show standard public sector procedures versus PPPs. Some doubts have been cast on the education programmes where the Minister had access in the case of the Comptroller and Auditor General, although he condemns these doubts as unfair. Will the Minister publish the comparators to lend us confidence about delivering value in the system? This would support his approach if he were to simplify the bidding process. On the basis of what has been achieved since the 2004 budget, does the Minister believe he will deliver this year's target for the PPPs regarding the user charges and the non-user charges?
I made the point that I have nothing to conceal. The National Roads Authority and the Railway Procurement Agency are doing good work. We are witnessing the entry into contracts and the completion of major contracts before time and within budget in the area of transport, including the Kilcock-Kinnegad motorway, the Dundalk bypass, the Fermoy bypass and the second West Link bridge.
There is no bonus to the Department, only to the builders.
Politicians in this House ask for something to be done. The point of this is the economic benefit derived from continuing our public capital programme. Some people say that we should now forget about PPPs if the Comptroller and Auditor General's report is to be believed. I disagree. There are lessons to be learned as we roll out this new procurement mechanism. Not every project is suitable for a PPP but this does not mean we should have none.
One can have all the comparators one wishes and one could work under traditional mechanisms for a certain amount of money, but how long would the work take? If I were to choose between a hard financial analysis——
My question was about what the Minister is doing.
——or a wider economic benefit analysis, I would take the latter and I believe——
The Minister has not said what he is going to do about this.
I said I am in the process of doing something, which the Deputy indicated he knows. I have met many people on this matter to determine how to do this better.
Can the Minister not share his information with us?
I am not in a position to share it with the House until I get agreement. Deputy Bruton was in Government. There are PPP units across the service. I have proposals that must be agreed and approved. I am in the process of developing ideas that will improve the situation and must get agreement on them. I cannot decide off the top of my head what I want to do.
The Minister could enlist the support of the House for some of his ideas.
I look forward to the Deputy's support when the Government approves the ideas as they will improve the present situation. I do not have to give all my information today without Government approval simply because a question has been asked. Deputy Bruton knows this because he was in Government. I do not know why he would ask me to do so.
The Minister could tell the House something of his thinking. This is an important public policy issue and we are here to debate it.
Correct.
The Minister should not hide his knowledge under a bushel. He should share it.
I have the impression the Minister resents us asking him questions.
Not at all.
He should at least grant us——
I am explaining why, for obvious reasons, I cannot be as expansive as Deputy Bruton would like.
The Minister could have come part of the way. He and I have discussed the PPP approach before. If it is the case that the rationale for the Government's employment of PPPs in the provision of capital for specific projects is the savings made, a criterion which the pilot project failed to meet — miserably so I said on the previous occasion, as a result of which the Minister lambasted me — in that the project was between 8% and 13% over the assessed cost of the State providing for the four schools concerned, what steps will the Minister take to ensure that PPP-funded projects in future will meet the criteria of capital savings and will prove to be cheaper than public moneys raised? I worked in banking for a number of years and do not have the same experience as chartered accountants but a simple observation is that private finance is more expensive than——
What was the Deputy's last point?
Private finance invariably proves to be more expensive than money accessed by Government. We have demonstrated previously how money can be raised to finance projects more cheaply. The Government can do this more cheaply through publicly funded enterprise.
What steps is the Minister taking to employ the lessons learned from the failed PPP pilot project in terms of its rationale and criteria rather than specifically in terms of the schools in question? Will the Minister assure the House that we will see better performance on a financial——
The Deputy must comply with the one minute rule.
The PPP is an integrated procurement option and has an important role to play when applied to appropriate projects where there is the right scale, risk and operational profile to harness the benefits of the new approach. The assessment of value for money in a PPP project involving private finance takes account of issues such as the risks transferred to the private sector. The key test involves comparing the cost of procuring the project using traditional means with the cost of procuring it by means of PPP. Other factors, such as the long-term nature of the contract with the private sector, the optimum combination of whole-life cost and quality, the potential for quicker delivery of infrastructure and performance related payments, are also relevant to establishing if a particular option is the best value for money solution overall in a project.
If one looks at this objectively, there is no question that the PPP design build operate models, which have been designed by the National Roads Authority to provide us with the roads programme which is now being rolled out, could not have been rolled out with the same budgetary discipline and with time lines being respected through traditional procurement. Not all the skills involved in the appraisal, design and execution of those contracts are available in the public service. It is, therefore, a question of marrying these skills and identifying the public procurement requirements, the priorities and the way the PPP will provide us with the means to get the job done. However, it depends on the nature of the project as this would not apply to every project. Ensuring good contractual arrangements, transferring risk and incentivising the need to get the job done quickly are means of saving money which would not be possible if we went through traditional procurement means.
The wider economic benefit is part of the analysis. It cannot be a hard financial analysis of one over the other. There is a wider economic benefit by bringing a project on stream more quickly. According to the mid-term evaluation of the national development plan, the return is approximately 16% on the investment. That is what the Economic and Social Research Institution said. There is no question that PPPs have a role. Do we decide that is it for PPPs because of a report by the Comptroller and Auditor General? The evidence is quite the contrary.
Given that it is a new procurement mechanism, we can learn lessons as we go along. I do not claim to know everything about it, no more than anybody else, but other governments use it effectively. Given that we complain about infrastructure deficits here, there and everywhere, we must use PPPs as part of a number of responses, including traditional procurement and traditional means of doing a job. It is clear that is the case. We should have sufficient confidence in what we have rolled out so far and take the independent evaluation of that as a means of looking at the big picture rather than decide there was a problem with a particular school or with a bundle of five schools. It might have been different if it had been a bundle of 20 schools. That is another point about PPPs, namely, that one gets greater critical mass rather than 20 individual contracts.
Is the Minister saying he is not concerned by the Comptroller and Auditor General's report that the cost of the bundle of schools is between 8% and 13% more than if the schools had been built by the State using the direct build method? The State spent €70 million on the national aquatic centre in Abbotstown. It has been closed for more than three months. All water sports associated with this massive investment have been halted for four months. In regard to the tax break factor for PPPs, Kinnegad and other projects, has the Department of Finance factored that into the comparative costs and the cost comparators?
If the Deputy tables a parliamentary question, I will provide her with the detail.
The Minister seemed to indicate that the Comptroller and Auditor General's report is not independent. If one applies the 8% to 13% valuation to the whole schools building programme at the lower end of the scale, one school in every 12 will not be built and, at the higher end of the scale, one school in every eight will not be built. That is the trend in the Comptroller and Auditor General's report.
The Minister also spoke about the 16% guaranteed return mentioned in the ESRI report. The Comptroller and Auditor General's report mentions a guaranteed return of 13% in the Department of Education and Science's bundled projects. Will the Minister explain why that 13% guaranteed return, which is effectively the interest rate, is somehow better than borrowing on the open market at a much lower cost to the State? That is the nub of public private partnerships. Not only do they cost more to construct, we know from analysis carried out by the Comptroller and Auditor General that they cost more to maintain over a 20 to 25-year period. Where is the benefit other than the early construction of this infrastructure?
The benefit is in the roads programme being rolled out. In regard to the Comptroller and Auditor General's report, I respect his view which I will take on board. I will not run away from PPPs.
What is independent evaluation?
The ESRI has given independent evaluation on the roads programme. The Deputy suggests the total capital programme is five schools in the north west or somewhere. Millions of euro are being spent. Huge contracts are being executed, finalised and completed before time and within budget through PPPs.
At a higher cost.
Should we forget about PPPs because the Deputy has a problem with a school or two which was the first PPP effort by the Department of Education and Science? Is the Deputy out of his mind?
There is a trend.
Perhaps the Deputy does not want the roads programme. I forgot that.
The Minister will say we do not want schools either.
Some 600 schools have been built and refurbished since this Government came into office.
In Dublin West 300 children cannot get a primary school place for next September.
Competition Authority Report.
Ceisteanna (19)
Denis Naughten
Ceist:48 Mr. Naughten asked the Minister for Finance the actions he has taken or which he plans to take in response to the report of the Competition Authority on banking. [13287/05]
Amharc ar fhreagraFreagraí ó Béal (11 píosaí cainte)
I should perhaps clarify the context in which the recent report was published and the views of interested parties sought thereon. The report published by the Competition Authority last December was one which had been prepared for it by a firm of consultants. While endorsing the analysis in the report, the authority has not yet taken a position on how best to remedy the issues it raises. Instead, it invited interested parties to give the authority their responses. It is only after it has considered these responses that the authority will issue its own report and recommendations — probably around the middle of this year. Given these circumstances, the response which I sent to the authority was a preliminary one and this will be reviewed in the light of the finalisation of the authority's position on the issues raised in the report.
The report which was published contained 40 recommendations, ten of which were directly addressed to my Department. A particular focus for my Department related to stamp duty on plastic cards. The recommendations on this topic dealt with the issue of the double stamp duty burden on persons in a year in which they switched card providers or upgraded or downgraded the status of the card provided by their existing supplier.
I had already indicated in my budget speech last December that I would take steps to eliminate this double charge and section 128 of the Finance Act 2005 provides accordingly. It amends Part 9 of the Stamp Duties Consolidation Act 1999 to provide for an exemption from a second or subsequent charge to stamp duty for financial cards such as credit cards, charge cards, ATM cards, Laser cards and combined cards arising from the switching of accounts within a financial institution or from one financial institution to another in the same year of charge. The change for credit cards and charge cards took effect from 2 April 2005 while the change for ATM cards, Laser cards and combined cards will take effect from 1 January 2006. These measures will have an important impact in addressing the issues raised in the Competition Authority's report relating to facilitating account switching.
A second area of particular interest to my Department concerned the recommendation that the regulation of non-interest bank charges be phased out. As pointed out in the response which I forwarded to the Competition Authority, the regulation of non-interest charges and fees is aimed at consumer protection. It facilitates the Irish Financial Services Regulatory Authority both to verify that notified charges are being applied to customer transactions and to require restitution in the event of overcharging. A reconsideration of the present arrangements would be warranted only in the context of a compelling case being made that these provisions significantly deter new entrants to the markets for these banking products or that the effectiveness of competition in the sector had increased considerably.
There were some other issues in the report for my Department to which I have also responded. The full text of the response is on my Department's website at www.finance.gov.ie. As to my views on the matter, I welcomed the report when it was published. It deserves careful consideration by all those concerned. The report’s overall conclusion that there are competitive issues to be addressed in the banking sector leading to higher costs for customers must be taken seriously. My Department will pay particular attention to any recommendations relating to the legislative framework governing financial regulation.
Does the Minister share my view that there are serious issues in respect of competition in the banking sector which are highlighted by the fact that profit-taking in the sector is three times as high per customer in Ireland than elsewhere and the cost of banking is 73% higher here than elsewhere?
Against that background, is the Minister happy that the Competition Authority's report is adequate in addressing the change that needs to occur in this sector? Does he consider there is enough in the recommendations emerging from its report? Would he consider changes such as requiring the charging on current accounts, which is fairly standard practice in the UK? Is he satisfied with the captive sale by banks to their customers sometimes of products they do not need, as we have seen in recent cases? Does he consider there is a need for more far-reaching change to promote genuine competition in the banking sector? What sorts of changes would he consider initiating to promote greater entry into the banking sector and greater value for money to customers of the banking sector, particularly small business and personal borrowers, not forgetting that when the bank ECB rates came down only half of those cuts were passed on to personal and small business borrowers?
As I said in my initial response, the authority has to take positions in this regard. It issued its report for consultation or comment. Upon that process being completed in the next few months, as I understand, we will be in a position to be aware of the final views of the Competition Authority on this matter and how we might respond to it. I made the point generally that the report deserves careful consideration.
The issue of how we improve competition in banking for the benefit of consumers is important. We have the new regulatory framework through IFSRA, which has a strong consumer focus in terms of the committees in place to ensure that the consumer is protected. Where there are practices, to which the Deputy referred, that seek to cajole people into providing products that go beyond practical ethical marketing, that is an issue IFSRA is in place to deal with in the normal regulatory course.
As to the legislative response we will give governing financial regulation to assist in competition, that would be best considered by us when we know the final position of the authority on these matters.
The Competition Authority took a long time, and presumably that was costly, in producing this report. Many of the people involved in preparing it seem to be American PhDs. I am not sure how much they know about the detail of Irish banking.
Is the Minister concerned about the suggestion in the report of the letting go of procedures for notifying charges, limited and all as they are, in the context of Irish banking, given the scandals we have endured from Irish banking in recent times? It is difficult to understand why these procedures should be arbitrarily dropped? The report pulls its punches in giving information to customers on charges, which is key information in allowing customers to make informed decisions about shopping around. Is the Minister disappointed that the Competition Authority has laboured mightily and really only produced a mouse?
In fairness to the Competition Authority, its main findings are that competition does not function well in certain parts of the Irish banking sector and that the market is highly concentrated with two large banks accounting for more than 70% of retail banking market.
With due respect, is that not something we and the Committee on Finance and the Public Service know from our personal observations?
The Deputy may have a few personal observations, but the point I am making is in regard to some of the recommendations. I made the point about IFSRA having a strong statutory consumer mandate under the 2003 Act. The existing legislative provisions relating to fees and non-interest bank charges were introduced in the context of concern about the effectiveness of competition between banks and are aimed at consumer protection. They facilitate IFSRA to verify that notified charges are being applied to customer transactions and to require restitution in the event of overcharging. The requirement to seek approval for such bank charges does not pose any substantive barrier to competition.
There is also a suggestion to amend the Bills of Exchange Act to allow for electronic presentation of cheques and initiating legislation to support cheque truncation. We are always open to legislative adjustments to facilitate adoption of new technology or more efficient processes. Before endorsing that recommendation I would need to be satisfied the measures being proposed would bring about an overall improvement in the efficiency of the payment system.
The authority also invited the Department to bring forward a position paper setting out the implementation for a national payment strategy. That recommendation relates presumably to the report by Accenture Consultants entitled National e-Payments Strategy that the Information Society published in 2003. It raised complex issues for a range of stakeholders, both the State sector and private sector, and requires a more considered evaluation than this recommendation by the consultants would suggest.
A significant issue in responding to the suggestion of a national strategy and to what extent the State should take a role in it revolves around the very exercise the Competition Authority is undertaking, in that, any consideration of the strategy would have to take account of the outcome and impact of that exercise. We look forward to the report of the authority in respect of that.
The recommendation to bring forward legislation to facilitate mortgage switching has implications outside my Department's role in regard to the financial services sector. It would seem to raise issues in regard to conveyancing, contract law and possibly bankruptcy and insolvency law. The outcome of the current consultative process being conducted by the authority may clarify those issues and when its specific proposals for reform in this area are put to my Department they will be seriously considered.
Our reaction to the recommendation that the money laundering steering committee should consider amending its guidance notes to allow for accounts to be opened and funds to be deposited but not withdrawn prior to customer identification is that this is primarily a criminal law enforcement matter. It is not clear how this suggested change would increase competition while at the same time it would seem to interfere with the clear requirement for a bank to know its customers. We will review the position in the light of the authority's final report later this year.
There are a number of recommendations that clearly have been put forward. This process of response will allow the authority, in the first instance, to make its final recommendations. They are more likely to be amenable to ultimate implementation on the basis that all these complex issues will have been considered before final recommendations are made.
Does the Minister agree the response of the main Irish banks to competition issues has not been about improving the quality of their services, having failed to inform their customers or having taken them for granted, but about examining their cost base in infrastructural terms, diminishing staff numbers and closing facilities, sub-branches, which are considered less cost effective and less profitable in isolated locations? Customers in rural areas have to travel longer distances to conduct face to face banking. Does the Minister accept this is a negative trend that he should address?
In the private banking sector there are commercial considerations that management and boards from to time to time consider. The most recent one related to the Bank of Ireland. I have made my position known, namely, that in the context of social partnership, I hope the legitimate interests of staff are taken into account in regard to these matters. I have no doubt but that the bank's staff unions and associations will more than adequately represent staff interests and that there will be agreed procedures to determine the overall repositioning of the bank in competitive terms that will meet an agreed outcome between all the stakeholders in the bank, including the staff.
There is also another issue. We are talking about the need for competition and competitiveness for banking and ensuring lowest possible costs to the customer, with which I agree. However, if it emerges that achieving that changes the traditional branch system to some extent, although I do not believe that is envisaged in the Bank of Ireland where such a change would be major, it would provide an opportunity for organisations like An Post to do that sort of business for a bank in loco or instead of the bank. An Post would make sure there is a face to face banking facility even in our smaller towns and villages where there may be pressures due to the level of activity in bank branches where the services they provide may be considered for relocation. Instead of viewing such changes as threats, they may present opportunities. Certainly in the context of An Post’s position, such outside the box thinking may be required as part of the resolution of the problems that exist there.
The service ethos and the customer friendly approach that most in this House would have remembered as part of the commercial main street-high street banking sector of years ago is all history. The service ethos and customer friendly approach has long been subsumed by the drive towards greater profitability, better returns and better performances. For a large swathe of ordinary citizens, it is a case of take it or leave it. They have little or no means to lever and no representation in regard to the banking sector. One is on one's own. It would almost invite a customer service user's representative body.
The Minister referred to opportunity and other thinking by way of opening up opportunities to the post office and other service sectors. Given that citizens need a safety net, what about having a State bank, providing all the crucial services in which the commercial profit-driven banks currently dominate and hold sway? Is that not the answer in a time of opportunity? Should we seriously consider this, given that the current providers have no interest in customer service and the service ethos that once applied?
The issue that will drive better value for money in the banking sector is more competition. We have already seen this in the new entrants coming into the market. On face to face banking and the demise of what the Deputy regards as the friendly atmosphere when one goes into a bank to borrow money, and being given it willingly at very benign rates, is not a vision I have from my first visit to a bank. The fact is that technology has overtaken events. The lessons of the last bank strike were that people did not need to go into the bank to do business. The ATM machine took away the basic leverage people understood existed in terms of industrial relations in the banking sector. This is why it differed so much from the previous bank strikes in the 1960s and 1970s. People just want to get their money. They do not necessarily need to have a cup of tea or coffee. Technology has taken over in the banking sector and financial services generally.
I do not share the Deputy's view on providing a State bank. I have too many priorities at the moment. A State bank that would not have profit as a motive would not last very long.
Written answers follow Adjournment Debate.