Dáil Éireann - Volume 523 - 10 October, 2000

National Treasury Management Agency (Amendment) Bill, 2000: Second Stage.

Minister for Finance (Mr. McCreevy): I move: “That the Bill be now read a Second Time.”

The purpose of the Bill is to extend the role of the National Treasury Management Agency to provide for the establishment of a State claims agency, a central treasury service and a fund investment service. The aim of these new services is to make savings and maximise income for the Exchequer. I intend to set out what each of the services involves and how they will operate in practice later. First, I wish to outline why I propose to establish them under the auspices of the NTMA.

The NTMA was established in 1990 with flexible management structures and suitably qualified personnel to borrow money for the Exchequer and to manage the national debt at a time when debt management had become an increasingly complex and sophisticated activity. The NTMA has proved very successful in managing the national debt. The agency model of debt management has subsequently been adopted by a number of other countries. In the performance of its debt management role, the agency has built up a broad range of financial management skills. It is because of these skills that I asked the agency to take on the role of agent of the commissioners of the national pensions reserve fund, which is also being debated at present in the House.

I have long been of the view that the current arrangements for handling claims against the State are unsatisfactory and that a new approach is needed to put in place a structured and coherent response to meet these claims. The choice is between establishing a new agency to handle claims or to give the task to an existing one. As with the national pensions reserve fund, it is my [1339] view that the NTMA possesses the skills which will enable it to perform this new function in an efficient and cost effective manner.

The proposed central treasury and fund investment service will involve the utilisation of cash and risk management skills which the agency already possesses. These services offer potential savings to the Exchequer. It makes sense to avail of the NTMA's expertise in these areas and to provide for the addition of these facilities to the services already provided by the agency.

I wish to give the House some background on the State claims agency. The upsurge in army deafness claims which took place towards the end of 1995 caused increased attention to be directed at the general question of compensation claims against the State, their cost and how they should be managed. It was argued that the management of claims against the State, centralised in a single agency dedicated to that purpose, would involve the adoption of a proactive approach in seeking least cost settlements in accordance with best practice of claims departments of insurance companies.

The main benefits which were seen as arising from the operation of a claims agency were savings in settlement costs and legal charges to both claimants and the State resulting from more efficient handling of claims. The risk advice role which a claims agency would assume would also help to reduce the incidence of claims and thus the overall cost.

Successive Governments looked favourably on the idea by first directing that draft legislation to establish a State claims agency should be brought forward and later that a claims agency under the NTMA should be considered further. However, the issues involved proved complex and required extensive consultation with Departments as well as the Office of the Attorney General. This was against the background that there is no general legislative provision for dealing with personal injury or property damage claims against the State onto which proposals for a claims agency could have been grafted.

Extensive discussions also took place with the NTMA on the issues involved and, in particular, on how to deal with certain concerns which arose. Those concerns related to issues, such as the scope of the claims to be managed, the funding provisions which should apply and how to give Departments, the clients, an influence in the way the claims functions would be handled. This process took longer than any of us would have wished or expected. The actual drafting of the legislative provisions was also a lengthy process, reflecting that in this Bill we are breaking new ground. The provisions of the Bill meet the concerns mentioned above and I am happy to recommend them to the House.

It is essential that Departments and other State authorities against whom claims are made have an influence on how claims are handled by the agency on their behalf. This will be achieved [1340] through their being directly consulted on the general guidelines to be laid down on how the NTMA carries out its claims management functions and through the policy committee on which the Departments will be represented. The policy and general procedures to be followed in handling claims will be subject to the approval of the Minister for Finance.

It had been envisaged at an earlier stage that a State claims agency would deal with Army hearing loss cases. However, the strategy adopted by my colleague, the Minister for Defence, has been successful in bringing about a dramatic reduction in the levels of compensation being paid in these cases. The Minister has established a pilot scheme specifically for the Army hearing loss claims and it is hoped most of them can be disposed of under that scheme, with considerable savings to the Exchequer. Accordingly, there may not be a role for the claims agency in handling such cases. However, this matter will be kept under review.

I am satisfied the new arrangements will lead to savings for the Exchequer. It is, however, virtually impossible to estimate the amount of savings which might be achieved. The potential can be gauged from the overall cost of claims. Latest estimates of the costs of the new claims arising, excluding Army hearing loss, amount to £8.5 million per year. The legal costs on this amount could be around £2.8 million per annum.

I do not regard the present arrangements for handling claims against the State as satisfactory. Society in Ireland is becoming more litigious. Further class actions, as in Army deafness, may occur in addition to the growing number of routine cases. I am strongly of the view that the State must have in place a structured and coherent response to these claims. A more businesslike approach to the settlement of genuine claims is also desirable in the interests of claimants and to secure lower costs in the long run. The provisions of this Bill will achieve these objectives.

I know the agency intends to adopt a commercial approach to claims management. It will not be a soft touch for inflated claims or those with little or no merit. I would like claimants, existing and prospective, and their advisers to be clear in that regard. If all concerned realise that, they are less likely to make or push claims which they know to be less than deserving.

The agency will also be proactive in the vital area of risk management. The application of sound risk management principles and procedures should ensure that over time the frequency of accidents and injuries will decline. They cannot be totally eliminated. One of the tasks facing the agency will be to ensure Departments have procedures in place to deal quickly and positively with the victims of genuine accidents. Such an approach can often mean that incidents which might otherwise give rise to contentious claims and litigation can be quickly resolved to the satisfaction of all concerned.

The Central Treasury Service proposals will enable the NTMA to offer deposit, overdraft and [1341] loan facilities to health boards, vocational educational committees, local authorities and other designated non-commercial State bodies. The objective is to offer such bodies a competitive service in these areas with a view to achieving savings for the Exchequer.

The proposals stem from concerns expressed by the NTMA that the interest paid on short-term surpluses and charged on overdraft facilities along with bank charges represented bad value compared to the NTMA's capacity to raise or place cash at wholesale money market rates. To achieve savings for the Exchequer, the agency suggested that it might offer central treasury services to the non-commercial State sector. These services were aimed at complementing, rather than replacing, existing banking arrangements for the organisations involved.

An interdepartmental group, which was representative of the NTMA and the various Departments concerned, examined these proposals. The group concluded that the interest rates offered and charged by the banks were generally less competitive than rates which the NTMA could offer. However, the group also noted that some organisations have negotiated discounted bank charges as a part of packages requiring them to maintain some minimum level of cash balances and-or overdraft facilities with their banks.

The practice of maintaining certain levels of cash balances or borrowings in return for low transaction processing fees is not necessarily the most cost effective option. Best practice would dictate that the cost of each service should be evaluated separately, with the objective of availing of the most competitively priced combination of services. I envisage a situation where the NTMA provides the bodies with keenly priced deposit and loan facilities and where the banks provide the transaction processing services. The Bill will bring greater competition and transparency in the provision of theses services which can be of benefit only to the bodies concerned. It will be the responsibility of each individual body to ensure it purchases its package of services in the most cost-effective manner.

The interdepartmental group recommended that the National Treasury Management Agency Act, 1990, should be amended to enable the NTMA to offer central treasury services to non-commercial State bodies and this recommendation was accepted by the Government. The necessary provisions to give effect to this recommendation are contained in the Bill.

As I have already mentioned, last week I introduced legislation in the House which will make the NTMA manager of the new National Pensions Reserve Fund. In this role the agency will act on behalf of the independent commissioners who will control, manage and invest the fund. The proposed role for the agency under the current Bill is different. The Bill deals with funds, such as the Social Insurance Fund, which are managed by Ministers and where the Minister concerned has a statutory responsibility to invest the fund assets. [1342] The Bill will enable the agency to perform this investment function on behalf of the relevant Minister.

Under the NTMA Act, 1990, the functions of the agency are to borrow money for the Exchequer and to manage the national debt. It does not have the statutory authority to manage and invest funds on behalf of the State. This is currently causing difficulties. These difficulties can be illustrated if I describe the situation which has arisen with the Social Insurance Fund. This fund holds the proceeds of employer and employee social insurance contributions and is used to pay social insurance benefits. In previous years the fund's income was not sufficient to cover the costs of these benefits and had to be subvented by the Exchequer.

Due to the increase in employment and wages and the decrease in social insurance payments in recent years, there is currently a surplus in the Social Insurance Fund. This surplus is projected to reach £630 million by the end of the year. As the responsible Minister, I am required to invest this surplus in certain authorised products. These include long-term bonds, short-term securities and cash accounts. However, the risk and investment management systems and skills to effectively manage such a large sum available to me are in the NTMA. The issue is being resolved in the short-term with the assistance of the NTMA through investment in NTMA Exchequer notes. This addresses the risk issue through utilisation of the agency's management systems. However, this approach is not sustainable in the long-term, particularly as the volume of moneys involved increases. Additionally, it does not maximise the return on fund investments as it does not enable investment in higher yielding assets, such as long-term bonds. The most sensible solution to this issue is to enable the NTMA to invest the fund directly utilising the full range of authorised investment instruments on my behalf.

This Bill addresses the anomaly whereby the Government's professional investment expertise which is concentrated in the NTMA cannot be utilised in the investment of Government funds. It enables the NTMA to formally provide a fund investment service where required. It will remain a matter for the Minister in each case to decide whether to avail of the service.

Over the past five years, the NTMA has been involved in consultancy projects in central and eastern Europe, South America and Asia. In all cases work has been carried out for the ministries of finance in the respective countries. Apart from the revenues generated, consultancy work has brought additional benefits to the agency in the form of broadening the skill base of its employees. However, the National Treasury Management Agency Act, 1990, does not formally include a provision to provide consultancy services to parties other than the Government. The Bill formally empowers the agency to undertake such assignments.

I will now outline for the House some of the [1343] key provisions of the Bill. Part 2 contains the provisions in relation to the State Claims Agency. In general, the NTMA will be empowered to manage personal injury and property damage compensation claims against the State, Departments, Ministers and the Attorney General, community and comprehensive schools and residential centres for young offenders. Claims against other bodies can be assigned to the agency in the future if it is appropriate and cost effective to do so.

Section 8 sets out the functions that are to be performed by the agency in relation to the management of claims and counterclaims. The agency will manage claims and counterclaims so as to ensure that the State's liability and associated legal and other expenses are contained at the lowest achievable level. The section also requires the agency to provide risk management advisory services. Where it considers it appropriate to do so, the agency may purchase insurance cover against certain insurable risks.

Section 9 provides for the delegation by Government order of the management of claims or classes of claims to the agency, at the request of Ministers. The section also contains a provision which would allow the Minister for Finance to direct the agency not to begin or to discontinue managing a claim. Such a direction would be made at the request of individual Ministers where the interests of the State so require.

Section 10 deals with the Attorney General's functions in relation to the management of claims by the agency in so far as his role as legal adviser to the Government is concerned. The agency will perform those functions on his behalf subject to the right of the Attorney General to receive such information as he requests from the agency and to give directions to the agency where the interests of the State so require. Such directions may include one directing the agency not to begin, or to discontinue, managing a claim. A direction to that effect, however, will lapse after 30 days unless a direction from the Minister for Finance is given or a delegation order is revoked by that date. The Attorney General may also give general guidelines to the agency.

Section 12 provides for the establishment by the Minister of a policy committee which will advise the agency on policy and procedures relating to its claims management and risk management functions. Section 15 provides that the Minister for Finance may issue directions and guidelines to the agency in relation to the performance of its claims management functions.

Section 16 sets out the arrangements which will apply in relation to the payment of settlement amounts or awards due to claimants and to the payment of fees to professional and other experts. The agency will make such payments out of the Post Office Savings Bank Fund and will subsequently recoup the amounts involved from the Departments and offices. The Post Office Savings Bank Fund is an extra budgetary account of the Minister for Finance. The account is used primar[1344] ily to hold and invest the deposits received from the Post Office Savings Bank, but it is also used as an intermediary through which the NTMA conducts certain debt management activities with the markets. It provides a ready-made vehicle for the funding of settlements and the payment of fees.

Part 3 contains the provisions in relation to the Central Treasury Service. Central treasury services are defined as the taking of deposits from and the making of advances to local authorities, health boards, vocational education committees and other non-commercial State bodies. These other bodies may be prescribed by order.

Section 20 authorises the Minister for Finance to provide central treasury services to non-commercial State bodies and also provides that such bodies may choose to avail of the service at their own discretion. Section 23 enables the Minister to delegate the operation of the central treasury service to the NTMA, while section 25 provides that the Minister may issue directions or guidelines to the NTMA in relation to its performance of the function.

Section 22 provides that the central treasury service will operate on the Post Office Savings Bank Fund. As with the settling of claims by the State Claims Agency, the fund provides a ready made vehicle through which central treasury services can be provided.

Section 26 provides that vocational education committees may place funds with more than one financial institution and also utilise the central treasury service. At present, vocational education committees are precluded from banking with more than one bank which prevents them from seeking the best value available on surpluses which may arise on their accounts from time to time.

The provisions in relation to the fund investment service are set out in Part 4 of the Bill. Funds invested by the Minister for Finance and funds invested by other Ministers are dealt with separately. Section 28 provides that funds invested by the Minister for Finance may be delegated to the agency by ministerial order. Section 29 provides that the NTMA may act as an agent of another Minister in the performance of his or her investment functions under terms and conditions agreed between that Minister and the agency.

The NTMA was established in 1990 as an innovative solution to a particular problem which existed at that time. In the performance of its primary task of debt management, the agency has developed a number of competencies and skills which can be usefully employed to the Exchequer's advantage in other areas. This Bill allows the NTMA to build on the strengths it already possesses as a debt management agency and to use its expertise to provide further financial and risk management services to the State. I commend the Bill to the House.

Mr. Noonan: This Bill has been in gestation for a considerable length of time. I remember having [1345] lengthy discussions with the former Attorney General, Dermot Gleeson, about the establishment of a State claims agency almost four years ago. I am not blaming the Minister for the delays that occurred because I realise that the issues are quite complex. The Minister has brought forward one set of solutions and we can tease out the implications of these solutions on Committee Stage. I have no difficulty with the principle of the Bill and I will agree Second Stage on that basis. There are a number of issues which will arise on Committee Stage, however, and we will get around to those in due course.

The NTMA has been a particularly successful State agency. It was set up by the then Minister for Finance, Deputy Albert Reynolds, in 1990 for a particular reason. Difficulties arose at the time with the retention of staff. Control, servicing, rescheduling and repayment of the debt were primary economic issues at the time. They have faded into the background in recent years for a number of reasons but it is worth using this opportunity to note the success of the NTMA and to thank its staff, the people seconded from the Department of Finance and the wider circle of civil servants in the Department of Finance who contributed to the control of the debt in the past. Suffice to say that the NTMA has been successful.

The problem with the national debt does not loom highly in our debates now. While the rising tide lifting all boats has lifted the burden of the debt off our backs also, the management by the NTMA of the debt was a significant contributor to the changed circumstances in which we find ourselves. It has left us with an agency staffed with expert people whose skills, in effect, are now underused because the burden of the debt is not as great and having joined the euro, much of what was deemed previously to be foreign debt is now domestic debt. The actual non-euro debt must now be a very small proportion of the national debt, probably about 10%.

Mr. McCreevy: Or less.

Mr. Noonan: Or less. We can see why the role of the NTMA, in rescheduling the debt, avoiding exchange rate risk and so on, has diminished. It is appropriate, therefore, that the Minister should try to hold this agency intact and to seek new functions for it to perform. One of those which was proposed last week and on which the debate will continue tomorrow afternoon is the NTMA's new role in managing the pension fund. I have fairly strong views on that which I will express tomorrow afternoon.

The NTMA is a good place also to vest the new responsibilities of a State Claims Agency. There have been quite a lot of claims against the State. I do not know the most recent figure but there must be between 3,000 and 4,000 claims against the State at any one time at different levels of process, and the amount of money involved is quite large. I [1346] was interested in the Minister's figure that in the most recent year, excluding Army hearing loss claims, we are talking in terms of £8.5 million a year and legal costs amounting to £2.8 million. That makes the point strongly about what the Minister is trying to do.

Those who settle with the new State claims agency will not be short-changed in damages. The only gain to the State will be from the efficiency of the management of the claims, the early settlement of many claims to the benefit of victims and State and the reduction in the legal costs. Legal costs of £2.8 million on a settlement of £8.5 million represent 30% of the settlement, which is extravagant. There is no need for it. It gives rise to a number of other issues.

I agree in general with the idea of a State claims agency and that the NTMA, because it has financial expertise and does not now have as much work or as great a responsibility as it exercised previously, is an appropriate place to locate the State claims agency. It is not clear from the Minister's speech how this will work in practice. The NTMA's expertise is in the financial area. The expertise required in settling claims, in the first instance, is legal. While the NTMA can assess the cost of whether to settle, can make actuarial estimates of whether it is better to settle today or in two years time and can assess whether it is better to settle out of court or to take the case to court, the primary function in a settlement agency is legal, that of experienced barristers, used to dealing with personal injury claims, knowing by the case stated about how much it would be worth. The NTMA does not have that expertise. Is it the Minister's intention to mandate the NTMA to establish an experienced legal department and take in experienced barristers and solicitors, given that much of the work envisaged will be carried out by barristers and solicitors? The Minister is silent on his intent in this regard.

That immediately gives rise to questions about the Chief State Solicitor's Office. Much of the legal work, which will be transferred to the NTMA, is currently carried out in the Chief State Solicitor's Office. Is it intended that a large number of legal personnel currently employed in the Chief State Solicitor's office will be transferred to the NTMA and from the legal department of the NTMA, or does the Minister envisage that parallel legal expertise will operate in the NTMA and will be reinforced or second-guessed by the staff of the Chief State Solicitor's Office?

The easy solution, as presented, seems to be to allow the staff of the Chief State Solicitor's Office to continue with the legal work and to keep the financial work in the NTMA, but I do not think that will work. The calculation of risk and advice on whether to settle will have to be given jointly by people with legal experience and financial expertise. The Bill cannot achieve its objective if it provides for pure assessment on a financial basis only and the legal position is not taken into account. The Minister must clarify that position.

To surmount other difficulties, a section of the [1347] Bill establishes a role for the Attorney General. It seems the Attorney General will make the final decision on settlement in cases where there is a doubt as to whether to settle. The chain of command is such that a process is not clear. How will the system operate in practice? If a person fell down a staircase in the Department of Justice, Equality and Law Reform and made a claim, that person's solicitor would write to the Department, that case would be passed to the Chief State Solicitor's Office and then to the NTMA, and then there would be negotiations on whether to settle. How does the chain of command operate in dealing with such a case? The NTMA would take the first step in that it assesses the risk. Would the case then be passed to the Chief State Solicitor's Office or would it be passed to that office first and then passed to the NTMA? Could the NTMA sign off on such a settlement or would that be done by the Attorney General? The manner in which that process will operate is not clear.

The Minster made it clear that parent Departments will continue to have a role in deciding whether settlements should be made. I can see where he is coming from, as there are occasions when issues other than money would arise. If a State claims agency, such as that proposed, were to settle a matter with an admission of liability, that admission would not be only an admission of liability that the State or a Department was at fault, it would be an admission, in many cases, that identifiable individuals in a Department were at fault. A difficulty arises between the desire to settle for financial reasons and the desire of people in the parent Department not to admit liability because they do not want to admit they were at fault if they believe they were not, even though a settlement is being made.

A major problem arises in this regard in terms of how the hierarchy operates. Who would sign off on such a settlement? Would the State claims agency have the plenipotentiary power to settle, would it have to refer all settlements to the Attorney General to sign off on them or would it have to refer all settlements, in the first instance, to the parent Department or agency to sign off on them and then to the Attorney General to sign off on them? This may sound academic but it is not so if a claim is made where an admission of liability involves a named civil servant and a State claims agency admits on its behalf or on behalf of the State that a named individual is liable for error or wrongdoing in respect of which a claim is to be paid.

Class action cases caused many of us in the previous Government to think along these lines. The series of Army deafness claims is the one that springs to everyone's mind. At the start and in the middle of that process it seemed there was a better way to proceed. A better way of dealing with them was found in terms of the manner in which that process proceeded during the past 18 months. If the State were faced with a similar situation, we hope that the State claims agency [1348] would arrive at the class action settlement at a point far in advance of what happened previously.

We know that the State will most likely face a series of claims on behalf of adults who were abused while they were in the care of the State as children. This is an obvious area where the State will face a large class action. That will probably be the first test of how the State claims agency will work. As this is an area of great sensitivity it would be prudent for the Minister to have worked out the answers to the questions I posed. He may have worked them out already but, if so, he did not allude to them in his speech. We may be able to further tease them out on Committee Stage.

A litigant at all times will have the right to pursue his or her case to the High Court. There cannot be any suggestion that the State claims agency can take away the right of a citizen to sue in court and seek a settlement. If the State claims agency employs a group of barristers and solicitors, there is a danger if they are retained as permanent staff that over time they will lose contact with the world of the courts and with the rates in the High Court for injuries. When dealing with the issue of staffing, the NTMA, acting as a State claims agency with a legal department assisting it, could, in a short period of time, lose contact with what is happening outside. Many claims would not be settled and would still proceed to court and, in effect, an intermediate barrier would have been introduced which people would have to climb before facing the long delays before being able to settle in the High Court.

There seems to be a number of unanswered questions as to how this will work in practice. In theory and in principle it has my full support. I appreciate why it has been so long in gestation. I know the questions I am putting and others I will put on Committee Stage have occupied the thoughts of those who drafted the Bill. Those questions are not fully answered in this legislation and I would like to hear the Minister's views when he replies to this debate and before we proceed to Committee Stage.

The Bill's other proposals, such as a central treasury service which will enable the NTMA to offer deposit, overdraft and loan facilities to health boards, vocational education committees, local authorities and other designated non-commercial State bodies, do not cause me much concern. That seems reasonable and fills a gap in the market. There are various times when local authorities and health boards have surplus funds in their balances and I have had personal experience of county managers informing councils that they were putting big sums of money at overnight deposit rates with no particular expertise behind it. That is not the best way to operate with the kinds of balances that obtain in these bodies. Some were very successful, while others were not. Some people did not try to get the best return for the local authority at all; they took the prudent course and brought the money to the local Bank of Ireland or AIB, frequently leaving it in a cur[1349] rent account. Sums of millions of pounds were left for short periods of time in current accounts when they could have been earning money for the local authority or health board concerned. I do not blame anyone for this. County managers and chief executive officers of health boards are managers and not financial experts or investment managers. They would not have staff with the skills of an investment manager. It is timely that the NTMA will take on this role and I approve of this excellent proposal fully. I know they will do the job very well.

I would like the Minister to expand his comments on the fund investment service and the social insurance fund. The social insurance fund was, in my experience, more a concept than an actual fund for many years. It was in deficit for so long that the State was simply topping it up. There was never any question of the money in the fund being invested at a rate of return because there was no money in the fund; it was always in deficit. Over the last few years it has slowly crept into surplus and I am surprised at the level of surplus declared today by the Minister – £630 million in the social insurance fund is a fairly significant surplus at a time when those who benefit from the fund are not showered with generosity by the State. I understand from what the Minister said that he has certain responsibilities for investing this money which derive, I presume, from the Act which instituted it in the first instance. Although, as I said, this did not arise while the fund was in deficit, now that it is in surplus it is prudent that the NTMA acts and invests the funds for the best return possible.

However, this gives rise to the question that I posed when we were introducing the pensions fund Bill last week – if the expectation is that the social insurance fund remains in surplus and that fund is used for contributory pensions, among other things, why does the Minister feel there should be a separate mandate for the NTMA to manage the contributions that are dedicated for the purpose of pensions, while in another part of the same organisation there is a section which is managing the 1% of GNP which is being put in to fund any shortfalls there might be after 2025 in the payment of pensions to PRSI, social insurance or State pension beneficiaries?

It seems to me that if the NTMA is to manage a pension fund, the first contribution should be the contributions made by civil servants to their own pensions and the contributions made by those who pay PRSI to the social insurance fund. I cannot see why the Minister is setting up a variety of investment funds related to the provision of pensions.

While I agree with giving the NTMA the additional role of a fund investment service in respect of funds in the social insurance fund, I cannot see why that particular part of this Bill could not have been incorporated into the other Bill. That would seem a more logical fit, because now we will have a situation where the NTMA is managing the debt while acting as a claims [1350] agency. It will be investing surplus funds from local authorities and so on and will also be acting as the manager of the new pension fund initiated by the Minister. The funds already available are about £5 billion, which will be topped up by a sum of over £600 million a year and rising as GNP rises. On top of that, the Minister said today that the NTMA will be given the role of managing surplus funds in the social insurance fund, which, among other things, is used for social insurance benefits. It is also used extensively for pensions.

I do not understand why the surplus fund – as long as it is in surplus – cannot be put into the primary pension fund. I do not understand why we should continue on a pay as you go system for the pensions of civil servants, teachers, gardaí and so on in circumstances where contributions are being made. There does not seem to be a fund and yet we are setting up the fund but the contributions are not going into that fund. There is illogicality here that needs to be explained either in the context of this Bill or the pensions Bill.

That said, I do not have a problem in principle with the Bill, but there are difficulties which I hope to tease out on Committee Stage. I wish the NTMA well in the provision of consultancy services. There is no problem with giving them a statutory mandate to provide these services in the fourth section of the Bill. I will agree to the Second Stage, but there are issues to which I will return on Committee Stage.

Mr. McDowell: As Deputy Noonan said, this Bill has been a long time coming. I know it was first conceived by my former party leader and the then Attorney General, Mr. Dermot Gleeson, four or five years ago and I know the Minister has been supportive of the idea since he took office. We also know that the Bill has caused a certain amount of institutional tension between the Departments involved, which is par for the course in cases like this. I welcome the Bill and I am glad it has been introduced.

The idea behind it is very straightforward. Our society is becoming a good deal more litigious than it would have been 20 years ago. More and more claims are being taken and the State is appearing more and more often as a defendant in cases taken by ordinary citizens. As matters stand, the treatment of cases taken against the State is haphazard, to say the least, and is not as controlled as it might be. We have all heard about cases which one might have considered hopeless but which have been fought to the door of the courts and sometimes through the courts at a considerably increased cost to the Exchequer than might otherwise have been the case.

There seems to be a reluctance on the part of the State to accept liability and, to some extent, that is understandable. There is a reluctance to set precedent which might prove to be costly in future. However, a failure of bureaucracy is also evident in this. Our system is not well adapted to the notion of accepting fault. Civil and public servants who are perfectly good decision makers [1351] in just about any other area will sometimes baulk at the notion of accepting that they or the system they operate is at fault or that one of their colleagues has been at fault in operating the system. It is not difficult to understand the group dynamic involved in that, but there is an additional element which also may be relevant.

In the private sector claims managers often accept liability in cases which could easily have been fought through the courts. They settle cases for so-called nuisance value. In very simple terms, they will pay a few thousand pounds here or there just to make a case go away, whatever its merits might have been. They often settle a case for nuisance value simply to avoid the additional costs, including legal costs, which would be incurred by pursuing the case further. In an ideal world this should not happen.

In an ideal world justice should be pure and should be seen to be done in the courts or, if possible, beforehand but in the world of commercial reality this practice happens all the time and we should acknowledge it. It may not be a great idea in principle to accept liability in cases where it is not established or where one believes that it cannot be established, but in practice it helps insurance companies or claims managers to manage claims and limit their costs and liabilities. In the State sector there is a greater reluctance to take such a hard-headed view and, as I said, it is easy to understand why this is so. However, the net effect is that the State ends up paying out more than it might otherwise have done, and that is something we must make every effort to stop.

There is a view developing in this country that we have something of a claims culture and the statistics seem to bear this out. In particular, there is a view that the State, State authorities, local authorities or vocational education committees are an easy touch for a few quid. There are legion examples of people who set out essentially to rip off the State and there is hardly a member of the legal profession who could not regale one with stories of where that has happened in the most outrageous of circumstances.

I remember as a young solicitor five or ten years ago coming across a case of an unfortunate woman in a northern suburb of Dublin whose two very young children had had the misfortune to have suffered broken limbs, a broken arm in one case and a broken leg in the other, within a fortnight of each other. She came to my office, asked for advice and explained that both children had been hurt in the same playground by falling over a bollard and off a swing. I told her that she might very well have a case against the local authority and we initiated a claim against it. I looked for a medical report from the casualty unit of Beaumont Hospital. The first sentence of it stated that the young lad attended at the accident and emergency department when he fell from his bike. In the second case I was told that the young girl had been a passenger on the crossbar of the bike. This appeared in the medical report and had not been [1352] disclosed to me by the woman who presented with her two injured children.

On the face of it, it is very easy to dismiss those cases and to say that such people should not try to rip off the State or a local authority as it was in this case, and that would be the politically correct response to make. However, it is worth taking it a little further. It is worth considering whether in such circumstances there should not be an entitlement to compensation for children who are injured while on the property of a local authority, which is also the property of the State. Many people in society do not make the link between fault, negligence and compensation. They see the link as between genuine and sometimes serious injury and compensation. They expect to be compensated for the injury irrespective of whether someone else is at fault. The conventional legal view is that these people are wrong and deserve to lose in court and that we should not deal with them in the first place.

However, there may be good reason to deal with them and there are jurisdictions which deal on a no fault basis in such cases, be they occupiers' liability or road traffic cases. New Zealand has been to the fore in operating a no fault system for many years in the latter area.

People are genuinely injured, they have a grievance and they have certainly incurred costs. The blunt reality is that, if the State were to entertain some of these cases – I do not argue it should be done in all cases – such as in a school, for example, where a child is injured in the playground, it might prove cheaper for the State or VEC to deal with cases for compensation purely on the basis of the injury caused rather than seeking to establish or defend a case of negligence where the individual has to establish that there was not proper supervision or the teacher had taken a smoking break or something of that nature. We might find it cheaper and it might be fairer to deal with cases of that nature simply on the basis of the injury caused and on a no fault basis.

Another interesting question is whether the State, as a defendant, owes the same or a greater duty of care to citizens or employees than perhaps do other authorities or employers. In law, the answer is that it does not and that is the end of the matter. However, in practice, our expectations and the citizens' expectations are different. For example, the State never disputed liability in the Stardust case, but it was widely felt to be right to compensate the victims in the way that was ultimately done through the tribunal. I remember speaking to the then Attorney General, John Rogers, and I know the efforts he made with the full support of Government and the House to devise a structure which would be fair and reasonable. In the end the State made ex gratia payments in cases where liability was, to say the least, by no means clear.

To put it even more bluntly, the State could have dragged those unfortunate people one by one through the courts over a period and who [1353] knows what the outcome might have been. Instead, an essentially political decision was taken that justice required that these people be compensated. I know that that decision, when taken at the time, had not only support within this House but wide public support. I would go so far as to say that, had any other decision been taken, there would have been a great deal of public resistance and resentment.

The hepatitis C case is a case of something that very nearly went wrong. In the first instance, the State decided to defend the McCole case. I do not know what happened – Deputy Noonan probably has a better idea than I do but it is not difficult to guess. The lawyers told the politicians to admit nothing in case the floodgates opened. It was only after a measure of public outcry that the tactics changed and, ultimately, justice was done to the satisfaction of all concerned.

What I am getting at is that the State is not the same as any other defendant. Citizens expect the State and its agents to exercise an additional level of care and discretion. There are cases which are exceptional but not unusual where the State accepts liability, and properly so, even if the case is defensible according to the normal rules. It is important that the new structure we are setting up under this legislation allows for this. The agency must operate according to normal commercial criteria most of the time, but there will also be occasions when a more political view will need to be taken and the structure must allow for that possibility. In particular, it is important the structure is not used as cover by those, be they public servants or politicians, who are reluctant to make the hard decision.

The legislation sets up the National Treasury Management Agency as the claims agency. I have no problem with that for some of the reasons given by Deputy Noonan and the Minister. However, it is worth lingering on why the NTMA was chosen. On the face of it, it has no specific expertise to offer in dealing with legal cases or in claims management. It does not seem to be the obvious choice. I guess the reason lies not just in the fact that it has expertise which is not used as much as it was ten years ago but also in its structure. It is in the public sector but has a private sector ethos and is not of the public sector. It is not bound by public sector employment or pay structures. It is more flexible, has a higher turnover of staff and contracts work in and out at the discretion of management.

It is not a secret that this unique status causes a certain measure of tension, not to mention resentment, on the part of the Department and the rest of the public service. We must learn from this experience. The State, in the form of the Civil Service and the public service in general, needs to be able to buy in expertise for a short period. Likewise, we need to be able to offer existing public servants greater flexibility. We must be able to allow these people to take a career break in order to work in the private sector for a short period. To borrow the management phrase, we [1354] must be more “task oriented” rather than adhering to our current generalist position.

Like Deputy Noonan, I am interested in discovering how the Minister sees the agency working. I had a useful briefing yesterday with the Minister's officials – I thank the Minister and his officials for allowing that to happen – and I asked how the agency would work and what practices it would adopt. To paraphrase the response I received, I understand this would be a matter for the agency which, effectively, is the ethos contained in the Bill. It is unlikely the Department would take such a hands-off approach if any project were suggested by just any other Department. It appears a unique status has been afforded to the NTMA, which is probably a good development. However, I wish to know how it will work in practice because I am not sure the Department can take such a hands-off approach.

There is a lesson here in terms of how other jobs might be done. Perhaps we can explore the jobs to which I refer on another occasion. However, there is a lesson to be learned in terms of giving flexibility and granting the task to particular public servants who are not as constrained as others might be or have been in the past by the way in which things are done traditionally.

The Bill is essentially permissive. It allows Ministers to refer claims, it allows the agency to accept them and it allows the Attorney General or a Minister to direct that the agency should discontinue dealing with a particular claim. I wish to know whether the Minister envisages that particular types of claims will be assigned ab initio to the agency. The Minister's intentions were made clear in respect of Army hearing impairment claims, but let us consider the example to which Deputy Noonan referred, namely, people who were placed in State schools in the past. Does the Minister intend that a decision would be taken to refer all of these cases to the State agency? Would the agency, in effect, be performing a role similar to that played by tribunals, such as the Stardust tribunal or the hepatitis C tribunal, in recent years in assessing damages and awarding damages to particular individuals, accepting, of course, that such individuals would always retain the right to appeal to the courts should they choose to do so?

A difficulty still exists in the Bill with regard to accountability. The NTMA will be charged with performing quite a significant task on behalf of the Government. As I understand it, the responsibility of the director of the agency will continue to be, as it is under the main Act, to the Minister for Finance. I assume, therefore, that the Minister will be responsible to the Dáil for the activities of the State claims agency. I am not sure that is adequate. The practice has been that, in effect, the Minister does not answer to the House for the activities of the NTMA simply because they rarely tend to be at the top of the agenda. There is a case for obliging the agency, at the very least, to produce an annual report if not to present that report to a committee of the House, whether to [1355] the Committee of Public Accounts or the Joint Committee on Finance and the Public Service, whichever seems more appropriate. However, there is a need for a mechanism to establish accountability. Such a mechanism does not exist currently.

The Bill obliges the Minister to establish a policy committee. The role of that committee is not clear from the Bill. I assume it will be to deal with broad issues of policy and there is no question that it will deal with individual cases of any sort. However, it is still not clear which issues of policy the committee is likely to deal with and to whom the committee, in turn, is responsible. For example, will the Minister interact with the committee? It is also unclear how the policy committee will interact with the advisory committee or with the NTMA in general and, for that matter, why is was felt necessary to establish a separate committee. Why could the two matters not be dealt with by one committee? I am anxious to hear the Minister expand further on that matter.

I am not sure – this is a very important point – how it will interact with the Attorney General, whose role is already established in law. As I understand it, under the Bill the Attorney General will be entitled, should he choose to do so, to have information passed to him by the agency about particular cases. The Attorney General will also be able to instruct the agency to discontinue dealing with a particular case. However, I am not sure whether the Attorney General will be entitled to inform the agency about how it might deal with a particular case. I suspect it is not envisaged that the Attorney General would do this very often but it is not clear whether he retains that power. In my view, the wording in the Bill is not sufficiently clear in this regard.

There may be occasions where the Attorney General would choose to instruct the agency to deal with cases in a particular way. As stated earlier, there are cases where we would not want the agency to deal on a purely commercial basis with individual claims. In such circumstances, the Attorney General might seek to intervene and direct that matters be dealt with in a certain way. Will such powers be granted or does the Minister see the power to withdraw a case from the agency as being sufficient to safeguard the State's interests in such circumstances?

The Bill is confined to broad areas such as damage to property and damage to the person where actual loss occurs. Why was it not cast more broadly than that? Why was it not stated that the agency would deal with all cases against the State and then rely on the mechanism which exists to withdraw particular cases should it be felt wise or necessary to do so? Why restrict it specifically to damage to property and to the person? Why can it not deal with cases involving unfair dismissal or defamation? If a particular Minister in the course of his or her duty is accused of defamation, why should the agency not be in a position to deal with the case? I do [1356] not understand the thinking behind this provision and perhaps the Minister can enlighten me.

I was struck by the provision in the Bill relating to insurance under which the agency is entitled to advise in relation to insurance and take out insurance to safeguard against particular types of claims. What is the current practice? Is the State, as it operates, for example, through vocational education committees or health boards, insured?

The Bill's other provisions make common sense. However, I wish to ask some further questions. The provision of a treasury service, as Deputy Noonan stated, is simply a matter of common sense. Dublin Corporation, for example, deals with an annual budget of something in excess of £300 million. I do not know what its practices are but certainly there is a great deal of money abroad at any given time, whether it is ratepayers' money or money paid directly from the central fund by the Government to local authorities. It is correct that they should have available to them the sort of facility which is being established in the part of the Bill which deals with treasury services.

Is the limit on services overly restrictive? As I understand it, the Bill restricts it entirely to taking moneys on deposit and making advances. I am not sure whether other facilities could not be provided. My understanding was that these services would be provided by the agency on an agency basis and that the NTMA would take money we were putting on deposit and seek a rate in the wholesale market or simply use the high street banks and, perhaps because of its unique position, obtain good short-term rates. However, the Bill is not entirely clear in that regard.

I had the opportunity to try to tease out the operations of the Post Office Savings Bank fund with the Minister's officials yesterday, a matter I have had grave difficulty coming to terms with for a number of years. Thanks to their patient efforts, I am somewhat closer to understanding how it works. However, I remain unsure about one aspect of it, namely, whether it is intended that the NTMA, through the post office fund, would, in effect, act as a bank. Would it be using the fund as a short-term means of putting money on deposit and providing it back to the authorities that had given it money in the first instance? Is it intended in all cases that the NTMA will farm the money out or obtain advances from high street banks on the wholesale market, or is it intended that, in certain cases, the post office fund could be used by the NTMA to provide those services itself, which would lead to it, in effect, operating as a bank?

The fund investment service is welcome. However, it appears to be cast in limited terms, only dealing with a fund which is under the management or control of a Minister. In current circumstances, this seems to restrict it largely to the social insurance fund. I am not sure that this should be the case. Does the Minister understand the wording as it currently stands to exclude [1357] money under the control of the Revenue Commissioners, for example? Is it intended that moneys currently held or invested by the Central Bank should be invested as part of this fund? It is not clear what the intention or the legal position is. Is it intended that the Central Bank moneys will be taken and put into the fund or is it possible that this could be done using this legislation at some time in the future? Clearly the social insurance fund is not the only repository of State funds. It would make sense if we were in a position to offer the same facility to all funds available to the State.

The Minister for Social, Community and Family Affairs, and presumably the Minister for Finance, will be obliged to agree the terms under which the social insurance fund can be invested or deposited. In dealing with moneys of this kind which are held by the Minister on trust, we should seek, perhaps by Statute, to safeguard the capital concerned. It is not sufficient simply to provide that the terms under which the money can be used will be agreed between the Minister and the agency. We should look more carefully at this issue. The money is being held by the Minister on trust for people who have made social insurance contributions. It is their money and it is unconscionable that the amount of money available in the fund should be less at the end of a given period that at the start because of the way it was invested. We should be more restrictive in prescribing how this money should be invested.

I have questions regarding the workings of the Bill but I welcome the principle underlying it. It has been a long time coming and I am delighted that we are now discussing it. It will make a great deal more sense to manage matters in the proposed organised fashion rather than the mishmash of the past. I support the Bill on Second Stage.

Mr. Higgins (Dublin West): There are some good provisions in the Bill but their potential depends on how they are put into effect and administered in practice. The effectiveness of the State claims agency will depend on how it is administered. I have concerns regarding how narrowly the remit of the claims agency might be interpreted by the Minister and those responsible for putting it into effect. Will the approach taken be purely legalistic and will the overriding concern be to minimise costs to the State?

The Minister said the agency intends to adopt a commercial approach to claims management. I would have no truck with false or fraudulent claims against any agency of the State or with any effort by an individual or group to gain taxpayers' funds through fraud or fraudulent representation. However, questions must be asked about how the State claims agency will deal with issues which could be extremely sensitive.

I hope the Minister will clarify the range of the remit of the claims agency. The Bill refers to loss of life, personal injury and loss or damage to property. How widely will personal injury be [1358] interpreted? The case of Jamie Sinnott which was recently adjudicated on in the High Court related to a claim by a mother for negligence by the State in the education provision for her son who suffers from autism. Would such a case come under the remit of the State claims agency? The agency will not simply deal with accident claims against local authorities, for example.

The policy committee provided for in section 12 comes into focus in this regard. The Bill provides for the establishment by the Minister of a policy committee which will advise the agency on policy and procedures in relation to its claim management and risk management functions and makes specific provisions in that regard. Will the remit of the policy committee take matters of human compassion, the social responsibility of the State and justice into account? The case of Mrs. Brigid McCole is one in which the State was neither compassionate nor just in treating someone who was injured by an agency of the State.

Will the remit of the policy committee and the State claims agency be broad enough to take account of the factors of social justice which arise in cases such as those already before the courts? Following the Jamie Sinnott case, another case is being heard regarding a facility which caters for autistic children. Would the policy committee be expected to examine the obligation of the State regarding the education of children with a disability to ensure they live the fullest life possible? The Sinnott case has many other serious implications for children who suffer from ADHD, the attention deficiency syndrome which is a major problem in a number of schools. There will be further claims against the State with regard to this disability. Can the remit of the policy committee and the agency be so broad as to look into these matters and advise Departments and State agencies on the avoidance of such claims by providing, in the first instance, that no injury is done in the case of people with disabilities to their mental and physical development?

Section 11 places an obligation on State authorities to report to the agency as soon as may be any adverse incident which may give rise to a compensation claim at a later stage. If there is a narrow interpretation and there is an incident in which a State agency is involved and there is clearly the possibility of a claim against the State, this can be easily dealt with, but this may not apply in the case of the local authorities which face a massive number of claims. Leaving frivolous and fraudulent claims aside, genuine claims can and do arise from negligence, albeit not deliberate, on the part of local authorities due to the circumstances in which they find themselves. Lack of personnel and funds can lead to a situation where the infrastructure for which local authorities are responsible is left in a dangerous condition. Roads and footpaths, for example, may be left in a state of disrepair. This can cause genuine injury which then becomes a major burden on the local authority concerned in meeting the claims submitted. This applies to the entire list of areas [1359] for which local authorities are responsible, including public lighting and road traffic arrangements. Investment in advance in all these areas could avoid an enormous number of such claims.

It should be part of the remit of the policy committee and the State claims agency to require local authorities to conduct a regular audit of risk factors within their functional areas. As a matter of practice, each local authority should have a troubleshooter or a lookout to identify such problems, not primarily to save money, although that is important, but in the interests of public safety and providing better services for citizens. The policy committee and the State's claims agency should not react to events, rather they should take on the role of ensuring State agencies prevent accidents and happenings which at a later stage can cause them to pay out large amounts of money which could be much better invested in improving infrastructure and other services.

Another function of the central treasury service will be to offer deposit and loan facilities to health boards, vocational education committees etc., with a view to achieving savings for the Exchequer. Will the Minister clarify what is meant by this? Obviously, money should not be wasted needlessly, but I hope there is no hint that the State will adopt a penny-pinching attitude whereby savings will accrue to the Exchequer rather than the health board or local authority concerned. Any savings should be used to provide better services.

There should be a requirement on the bodies concerned, for example, local authorities, to use the central treasury service rather than the banks where loan facilities are available on better terms. Deputy Noonan referred to deposit rates. The same applies to loans. Local authorities should be required to ensure money which swells the already bloated profits of the banks is saved through the central treasury agency for investment in services. Why should loan facilities be restricted to non-commercial State-sponsored bodies? They should be extended to publicly-owned companies generally. Financial institutions have bled semi-State companies and the State sector dry for many decades and made enormous profits in the process.

Last June I tabled a question to the Tánaiste and Minister for Enterprise, Trade and Employment relating to the size of the State guaranteed debt of Nitrigin Éireann Teoranta. She informed me in reply that in 1987 when Irish Fertilisers Industries was formed from a joint venture between NET and Imperial Chemical Industries Nitrigin Éireann Teoranta became the holding company for the State's 51% shareholding in IFI. At the time of the joint venture NET retained approximately £164 million of its historically accumulated State guaranteed debt. The last sentence left me breathless. From 1987 to the end of NET's financial year in September 1999 NET paid £188 million in interest on a debt of £164 million. That is absolutely incredible. This kind of [1360] grotesque abuse of a State body to the advantage of financial institutions should prompt the Minister to make some good suggestions on how to save public agencies money. When I requested details of the financial institutions which made this killing at the State's expense NET informed me in writing that it would not supply them as it was commercially sensitive information or words to that effect. This is something the Minister should seriously consider.

Debate adjourned.