Financial Emergency Measures in the Public Interest (No. 2) Bill, 2009.

Mr. Brian Lenihan, T.D.,

Minister for Finance

15 December, 2009

Introduction

A Ceann Comhairle,

I move the Financial Emergency Measures in the Public Interest (No. 2) Bill, 2009. The Bill gives effect to the decision of the Government to reduce the pay of public servants to achieve a saving of approximately €1 billion in the Public Service paybill in 2010.

A Cheann Chomhairle, all of us in this House in both our professional and our personal lives, have experienced the excellence and dedication of public servants. We all know, for example, the difference a good teacher can make not just to the lives of our children but to the morale of an entire parish. We know how Gardai have put their own safety – their lives at risk to protect the communities they serve. We know how medical staff in our hospitals and in our communities work long hours, and, by definition, in stressful circumstances.

And it is not just providers of these essential services who typify public service at its best. All of us in this House are familiar with the invaluable work carried out by civil servants with the highest integrity. Over the last eighteen months, again and again I have been struck by the manner in which officials in my own Department and, indeed other government departments have worked night and day and over weekends to serve the common good.

As their employer , it is with great displeasure that the Government must now bring forward the first Bill to reduce the salaries of public servants since 1933. Like the Government of that time , we face enormous challenges and our options are limited.

Need for paycut

In my budget speech last week, I set out the Government’s strongly held conviction that the only way to reduce the deficit and continue on the road to economic recovery was to reduce government spending.

The cost of providing Public Services has to be reduced to bring it in line with sustainable revenue levels. Without any correction, day to day spending next year would be about €58 billion, an increase of €2 billion over this year. This is simply not sustainable.

The Public Service paybill accounts for more than a third of all current spending and is the largest component in the cost of providing public services. In these circumstances, this Government has no option but to reduce public service salaries. I assure you, this was a very difficult decision. We are well aware that most public servants are not on very high salaries. We know that, like others, they have mortgages to pay and families to support. They have entered into commitments on the basis of certain salaries which they have already seen reduced by the pension levy. I understand the burden all of this places on individual public servants. But the only way to get out of our current difficulties and return this to economic growth is to bring the cost of public services back in line with available revenues which have now gone back to 2003 levels. Reductions in the pay of public servants is the painful but necessary step in the right direction for the future of this country.

Paycuts for Higher Paid Public Servants

As I announced in the Budget, the pay cuts will be progressive. Public servants on the highest salaries, including members of the Government, will bear the highest reduction in their pay.

Last Friday I published Report no 44 of the Review Body on Higher Remuneration in the Public Sector which examined top level rates of pay in the light of the changed budgetary and economic circumstances and benchmarked them against rates for similar posts in other countries of comparable scale, particularly in the eurozone. Following its examination, the Review Body recommended reductions in pay varying from 8 per cent to 15 per cent and 20 per cent in the case of the Taoiseach.

Because of the time constraints under which it did its work, the Review Body confined its examination to a sample of grades but recommended that the reductions be extrapolated for other relevant groups. Tables 1 and 2 of section 2 of the Bill set out the extended range of pay reductions as follows:

  • 8 per cent for persons with salaries above €125,000 to less than €165,000,
  • 12% for persons earning from €165,000 to less than €200,000 and
  • 15% to salaries of €200,000 or more.

These reductions will take effect from 1 January next. The section provides that the Minister may intervene to address any anomalies that might be result from applying straight pay cuts for persons whose pay is just above the cut off point for each band.,

As recommended by the Review Body, these permanent cuts in pay will replace the temporary waivers of pay made by some individuals including all members of the Government and Secretaries General of Government Departments. In some cases individuals have volunteered to take a pay cut over and above that recommended by the Review Body . Ministers of State and the Leas Ceann Comhairle, for example, would have been due to take a pay reduction of 8% but they have agreed to take a permanent reduction of 10% and I will propose an amendment to the Bill to make that change tomorrow.

In the case of Secretaries General, Level 1, that is the Secretaries General of the Departments of the Taoiseach and the Department of Finance, a reduction of 15% was recommended by the Review Body. Both the Secretaries General concerned have volunteered to accept a reduction of 20%.

The Government has also decided that from 1 July next year, a new reduced pay rate will be introduced for Secretaries General, Levels 2 to align it with the salary of a Minister. In order to provide an appropriate pay differential, the Secretary General level 3 rate will also be adjusted downwards for new appointees from the same date.

Hospital Consultants

While Hospital Consultants were not among the grades examined by the Review Body the Government has decided that reductions should be applied to them on the same basis as other groups at similar salary levels and on their current salary.

Judiciary

While the Review Body concluded they were constitutionally precluded from recommending a reduction in judicial pay, they said were they not so precluded they would have considered a downward adjustment. As I told the House last week, the Chief Justice and the Presidents of the Courts have urged all Judges to pay the pension levy and I will make provision in the Finance Bill to facilitate these payments.

In the light of the findings of the Review Body, we have decided there will be no increase in judges’ pay during the lifetime of the Government. As I said, last week, future Governments may choose, as in the past, to continue this course of action.

Other recommendations of the Review Body

The Government has accepted the Review Body’s recommendation that there be no increases in the pay of the higher Public Service groups, including any adjustments that might otherwise arise under National Agreements, before the end of 2012. The Government has also accepted the recommendation that performance-related award schemes in the Public Service should be suspended. The Body remains in favour of moderate performance related awards when economic circumstances permit.

Public servants with salaries of not above €125,000

Table 3 of Section 2 of the Bill sets out the rate of reduction to public servants who do not earn more than €125,000. They will have their salaries reduced with effect from 1 January 2010 as follows:

  • A reduction of 5% on the first €30,000 of salary
  • A reduction of 7.5% on the next €40,000 of salary
  • A reduction of 10% on the next €50,000 of salary.

The effect of this approach is to provide overall reductions ranging from 5% to just under 8% for the higher paid in that group. The salaries of Oireachtas members will be reduced in accordance with the recommendations.

Taxable allowances which are related to basic salary, like overtime, will be cut in line with the relevant salary reductions. Fixed taxable allowances will be reduced by 5% for those with salaries of up to €125,000, and 8% above that. Any allowance or payment which is a reimbursement of an expense will not be reduced.

Section 2 also provides that these reductions will have effect notwithstanding any provision to the contrary under any other legislation, instrument or contract. Practical arrangements are now being made to issue new salary scales to implement the pay reductions in the New Year.

No exemptions possible

It has been suggested that the first €30,000 of pay should be exempt. That would reduce the projected savings on the Public Service paybill by around a half, some €500 million.Because most public servants earn less than €50,000, a progressive reduction has to be applied to all public servants’ pay if the required savings are to be achieved and no group could be exempted.

Main provisions of Bill

I will briefly outline the main features of the other sections of the Bill.

Section 1 defines terms used in the Bill, including the terms ‘public servant’ and ‘Public Service body’. Office holders or employees of the Civil Service, the Garda Síochána, the Permanent Defence Force, local authorities, the Health Service Executive, vocational educational committees, primary and secondary schools, third-level institutions, and the non-commercial semi-state bodies will be subject to the reductions.

In order to avoid any doubt, certain bodies are specifically excluded in the Schedule because of their commercial status or the nature of their mandate which means they do not have Public Service pay rates applied to them. I intend to bring forward some amendments to this section tomorrow to ensure that it covers the appropriate public service bodies, including the Central Bank and the Financial Services Authority, following a decision by the Board to take account of the proposed general adjustment to the pay rates of the Public Service in determining remuneration levels.

Given the recent public discussion about pay rates in the commercial State-sponsored bodies, I want to clarify their position. Pay cuts in the commercial State-sponsored bodies like Bord Gais and the ESB will have no impact on the public service pay bill because the pay of those bodies is funded through their own commercial efforts. With the exception of chief executives, the Minister for Finance does not control the pay of the staff of these bodies. They have not been covered by the public service element of pay rounds in the past and have taken an independent approach to controlling their pay bills, as happened in RTE where voluntary reductions were agreed by the staff or in the ESB, where there have been a number of voluntary redundancy schemes.

While these companies must be allowed to act commercially, and in accordance with the normal industrial relations process, the Government is of the view that pay restraint in these companies fulfils a longer term national interest, namely ensuring competitive pricing for energy and other goods. But it is the market and the regulators that will impose that discipline upon those bodies.

I remain concerned about the pay at top levels across the economy. In this Bill we are addressing the pay of top public service posts. I propose to bring proposals to Government at an early date to review the arrangements governing the pay of chief executives of the commercial State-sponsored bodies.

I have already outlined the main content of Section 2 which provides for reductions of pay rates by amendment of all provisions (including statutory provisions, circulars, instruments and contractual arrangements) which currently fix the remuneration rates of public servants.

Section 3 enables the reductions of salary rates to be disregarded for the purposes of the calculation of the pension entitlements for those public servants who have previously retired or will retire in the period from 1 January 2010 to 31 December 2010. Having considered the potential legal, superannuation and personnel management issues and their impact on the Public Service, the Minister may extend the period beyond the specified date of 31 December 2010. A managed retirement rate for older and more experienced public servants over the course of next year, and beyond if necessary, will help avoid disruption of service delivery.

Section 4 affirms that, other than as provided for in the Bill, any purported amendment of a provision fixing the remuneration of a public servant which would increase the remuneration of a public servant has no effect, unless it is by a future Act of the Oireachtas or is necessary to reflect a legal entitlement of the public servant or servants in question, for example because of an equal pay claim under European law.

Under Section 5 a public servant has no entitlement to receive a higher rate than that provided for under the legislation, and the employing Public Service body has no entitlement to pay a higher rate. Any overpayment should be recovered by the Public Service body concerned; otherwise, the overpayment amount may be withheld from any funding provided to the body concerned.

Section 6 provides a limited power to the Minister of Finance to exempt or vary the reduction in pay rates provided for in the Bill in respect of a public servant or group or class of public servants, where exceptional circumstances exist relating to a condition or aspect of employment and a substantial inequity would arise as a consequence or because of an arbitration award that the Government would normally be required to implement. A similar power was also included in respect of the pension levy. I intend to exercise this power sparingly and only when just and equitable.

Section 7 requires an annual report to each House of the Oireachtas reviewing the operation, effectiveness and impact of the legislation and considering whether any or all of the provisions of the Act continue to be necessary, having regard to its purposes, State revenues and the Public Service pay and pensions bill. The first such report will have to be submitted by June 2011 at the latest.

Section 8 is a standard regulatory power. Section 9 permits disputes as to whether any public servant is affected by the reduction provided for under the Act to be finally determined by the Minister. Section 10 states the Short title of the Act and provides for its commencement.

Quality of public servants

A Cheann Comhairle, the Government’s decision to reduce the Public Service pay bill, is no slight or denigration of the quality of our public servants. Public servants work hard every day, to provide all the essential work that underpin our daily lives.

Some parts of the Public Service work better than others. Some sectors need to update their way of working and their way of dealing with their customers. Not all civil and public servants reach the high standard that is, by and large, the norm. And, like all human endeavour, there is always room for improvement.

But the tone of some recent commentary in the media about the Public Service has been grossly unfair. It is part of a gladiatorial tendency that serves no useful purpose. It is right that high standards should be demanded of public servants and it is to be expected that their job security at a time of recession would come into the public focus. But no good will come from setting sections of the State against each other in this time of difficulty for us all.

Threats of industrial action

There have been some threats of industrial action. I would appeal for a period of reflection rather than reaction, and dialogue rather than recrimination. I do not believe that threats of industrial action and refusal to deal with change to our Public Services will win public support. Nor do I believe it will help us to find a basis for agreement about managing the Public Service pay cost in this unprecedented economic crisis.

Failure of recent discussions with Unions

It must be remembered that the Government and the Public Service unions agreed that the Public Service pay bill would have to make a significant and proportionate contribution to the necessary adjustment in the public finances in 2010 and in subsequent years. We had agreed about the need for a radical transformation of the way in which Public Services are delivered.

Some weeks ago, the Government entered discussions with the trade unions represented by the Public Service Committee of the ICTU in response to their proposal that the necessary adjustment could be found by means other than cuts in rates of pay. Parallel discussions took place with the representative bodies of the Garda Siochána and the Defence Forces. I have already acknowledged in this House the efforts on both sides to reach agreement. Both sides were very open and honest with each other about the basis on which they entered discussions.

During the course of those discussions, the Government acknowledged that public servants have already made a substantial contribution to the necessary reduction in public expenditure in 2010, by the decision of the Government not to implement the pay increases under the 2008 Transitional Agreement, through the pension related deduction of nearly 7% on average, and through the effect of the moratorium on recruitment and promotions and the incentivised scheme of early retirement and career breaks. Unfortunately, more was required.

The Unions’ proposal was based on pursuing payroll reductions through the accelerated implementation of an agenda for change and transformation of the Public Service. Savings would arise over time from a more flexible and integrated Public Service, with easier redeployment, changed work practices and the facilitation of further reductions in numbers through increased productivity.

Given that such changes would take some time to put in place, the staff side suggested that an interim approach would be taken by deducting 12 days salary in 2010 on the basis that staff would be required to take the 12 days of compulsory unpaid leave in 2010 and later years, with the minimum impact on service delivery. The Government estimated that this could save up to 4.6% of the payroll or about €750 million in 2010, the Unions a little more, although not the nearly €1 billion figure some are now using.

Unfortunately, those proposals did not provide an acceptable alternative. The Government was clear that a basis for agreement would only exist if the scale of the reduction in the Public Service pay bill was sufficient, and it was not. The reduction had to be permanent in character: the compulsory leave proposal was a proposal for 2010 only. The Government made it clear that any transitional arrangements could not impact negatively on services to the public and, even with close management, some impact on services would inevitably occur.

Therefore, the Government was unable to agree to the terms proposed by the unions and took the decision it did to reduce Public Service pay. However I will not apologise for entering into discussions with the Public Service unions – any responsible employer would act that way.

Need to continue dialogue

I want to emphasise that the Government wants to continue this dialogue with the Public Service unions to deliver the change that we both know is needed. Public Services are about the people that use them. What the public wants is proper delivery of services and to have quality service delivery as central to the work of public servants at all levels. To achieve that, we need a Public Service that is highly productive, applies world-class technology and adapts constantly and flexibly to underpin the Smart Economy and sustain full employment and high living standards across the whole community. It will be a Service where the performance of organisations and individuals is better managed and where there is greater accountability, especially for managers. In the future Public Service, public bodies and individual public servants must work across sectoral, organisational and professional boundaries when designing and delivering services for people, and must move across those boundaries when need arises.

That is the only way in which we will be able to continue to deliver the necessary services to the people of Ireland over the next few years when resources will be constrained, even as the economy starts to recover.

We in the Government know that managing public servants’ concerns about adapting to change can best be done through constructive engagement, consultation and dialogue. I would hope that the Public Service unions will re-engage with the Government and Public Service management so that, together, we can address the issues of how to manage the cost of the Public Service in 2011 and beyond. That way, we can achieve the best result for hard – working public servants.

The Government’s approach to the transformation of the Public Service has always been one of consultation and agreement. The Government has a long record of investment in the National Partnership structure and, despite the considerable difficulties that we face, we continue to favour a process of dialogue where possible.

Conclusion

I hope that, on reflection, the Unions will recognise that the Government had to take action to stabilise the public finances and, as an essential element of this, make reductions in the Public Service pay bill.

I commend this Bill to the House.

Dept of Finance, Government Buildings, Upr Merrion St. Dublin 2, Ireland. Tel +353 1 676 7571 webmaster@finance.gov.ie