Oireachtas Joint and Select Committees
Wednesday, 16 July 2014
Joint Oireachtas Committee on Finance, Public Expenditure and Reform
Pre-Budget Submissions: Discussion (Resumed)
We will commence today's meeting, which is to discuss pre-budget submissions. I welcome Mr. James Claffey, policy and communications officer, Irish Rural Link, IRL; Ms Michelle Murphy, policy research analyst, Social Justice Ireland, SJI; Mr. Michael Harty, chairman, Home and Community Care Ireland, HCCI; Mr. Robin Hanan, director, European Anti-Poverty Network, Ireland, EAPN; Ms Caroline Fahey, social policy development officer, Society of St. Vincent de Paul, SVP ; Ms Yvonne O'Sullivan, advocacy and policy officer, Free Legal Aid Centres, FLAC, before the committee today.
The format of the meeting will be a round-table discussion on social protection based on the pre-budget submissions received from the organisations present today. The witnesses will make their opening statements in the following order: Irish Rural Link, Social Justice Ireland, Home and Community Care Ireland, European Anti-Poverty Network, Society of St. Vincent de Paul and the Free Legal Aid Centres.
A question and answer session with the members will then ensue and, given the time constraints and to ensure we have a constructive debate, I must insist that all opening statements are kept to a maximum of three minutes. Witnesses have already been advised by the committee secretariat that I will stop them if they go over their time limit. Also, each member is entitled to ask questions only once, and the relevant witnesses can then respond. I remind members, witnesses and those in the Visitors Gallery that all mobile telephones must be switched off as they interfere with the communications equipment and the broadcasting of these meetings.
With regard to the formalities of today's meeting, I wish to advise the witnesses that by virtue of section 17(2)(l) of the Defamation Act 2009, witnesses are protected by absolute privilege in respect of their evidence to this committee. If they are directed by it to cease giving evidence on a particular matter and continue to so do, they are entitled thereafter only to qualified privilege in respect of their evidence. They are directed that only evidence connected with the subject matter of the proceedings is to be given and are asked to respect the parliamentary practice to the effect that, where possible, they should not criticise or make charges against any person or an entity by name or in such a way as to make him, her or it identifiable. Members are reminded of the long-standing ruling of the Chair to the effect that they should not comment on, criticise or make charges against a person outside the Houses or an official either by name or in such a way as to make him or her identifiable.
I now ask Mr. Claffey to commence his opening statement on the pre-budget submissions, and the other witnesses can follow in the sequence I have outlined.
Mr. James Claffey:
Irish Rural Link is the national network of rural community groups representing over 600 community groups and thousands of individuals committed to socially, environmentally and economically sustainable rural communities. Irish Rural Link has fully accepted the gravity of the crisis facing the Government but believes rural communities have borne a disproportionate weight of recent budgetary decisions including carbon taxes, community sector cutbacks and reduced regional investment.
We welcome the Government’s success in maintaining the steady improvement of Ireland’s finances and in particular its work in restructuring the huge national debt.
We also urge the Government to recognise the huge sacrifices being made by people because of the austerity now in place for five years, and strongly recommend that this budget stimulates the economy so that employment can begin to increase and families can lessen the hardship.
We believe that under the IMF-EU-ECB bailout the Government has choices. We note that the IMF representatives clearly stated that the Government must not unduly disadvantage people who are vulnerable or communities that are struggling to maintain structures necessary to be sustainable. It is also noteworthy that the IMF has made it clear that austerity as it is implemented affecting the most vulnerable is not a sustainable policy in terms of restoring the national economy.
Rural people still cannot access a rural transport service or take advantage of free travel entitlements. Much the same can be said about amenities such as libraries and swimming pools. The potential for rural school amalgamations with no consideration of the community impacts or the cost of transport, and the possibility of further Garda station closures, is worrying for most rural communities.
In the past year, families in rural areas are experiencing a raft of financial hardships in terms of care based services, rising fuel costs, cuts to school transport, and Garda station and post office closures. The downturn has also affected families' access to reasonable financial services. That is highlighted by the disappearance of bank branches and the increased tightening of regulations governing credit unions. The latter experience is forcing many families in extreme poverty to depend on moneylenders, whose charges are punitive.
The lack of any functioning overall strategy to inform Government policy on rural development is completely disadvantaging rural communities. The demise of the White Paper on Rural Development, coupled with the ending of the national spatial strategy, has meant that there is no overarching strategy that can inform all Departments on rural policies. National policies are then rolled out without any analysis of the unintended consequences for rural areas.
While Irish Rural Link welcomes the launch of the Commission for the Economic Development of Rural Areas, CEDRA, report, we still await its implementation but we regard the appointment of the Minister of State, Deputy Ann Phelan, as a positive step towards the implementation of its recommendations.
Ms Michelle Murphy:
I thank the Deputies and Senators of the committee for inviting Social Justice Ireland here to present our proposals. Social Justice Ireland is an independent think tank and justice advocacy organisation that advances the lives of the people in communities through providing independent social analysis and effective policy development to create a sustainable future for every member of society and for society as a whole.
To date, the burden has fallen hardest on those who could least afford to carry it, namely, those who are very far removed from the banking and speculative gambles that were at the root of Ireland's economic crash. The focus of Social Justice Ireland's budget proposals, therefore, is on shifting the balance towards an emphasis on additional taxation measures via the creation of a fair taxation system and reducing the focus on cuts to public expenditure.
Our policy briefing, Budget Choices, sets out three scenarios in terms of reducing the budget deficit, but I will focus on our core proposal of a reduction of borrowing by €1 billion in budget 2015 to meet the deficit target. This is due to a number of factors including redefinitions of GDP, higher growth, the growth in employment, and subsequent increases in taxation revenues and expenditure saving, among other areas. Page 4 of Budget Choices contains the full details of our adjustment.
The Government has choices as it decides what to include, and what to exclude, in budget 2015. It is important that this is publicly acknowledged and considered prior to and during the decision-making process for budget 2015 as these decisions will have a very significant impact on people throughout the State. Government choices should ensure that budget 2015 is fiscally sound, that it improves tax equity, protects the vulnerable, improves governance, and makes decisions that are sustainable.
There is an urgent need to reverse the regressive nature of the budgets introduced by the current Government since 2011. This requires that special care be taken to protect the vulnerable. It requires that those who currently have the most and who benefit the most from our economic system contribute the most.
Our key proposals for budget 2015 are that the Government should dramatically increase funding for social housing; make a significant investment in the broadband infrastructure in rural areas; increase funding for adult literacy; increase funding for disability services; introduce a universal State pension; make tax credits refundable to address Ireland's working poor problem; increase the PAYE tax credit by €5 per week; and increase core social welfare payments by €5 per week.
To finance its debt reduction, the Government should introduce a minimum effective corporate tax rate of 6%; make tax reliefs available only at the standard rate; and introduce a financial transactions tax. A budget oriented along those lines would be fiscally sound. It would prevent any further erosion of the social infrastructure, provide much needed investment, and begin the process of making the taxation system more equitable. It would be fair, good for the economy, good for the vulnerable, and good for Ireland.
Mr. Michael Harty:
I thank the Chairman and the members for the invitation to appear before them to outline how Home and Community Care Ireland, HCCI, believes Government could use the upcoming budget to make better use of existing resources to generate employment and provide the best quality of care to the maximum number of older people.
Home and Community Care Ireland, HCCI, is a national organisation representing 25 private home care providers employing over 6,000 staff in every town, county and rural location in Ireland and contributing over €36 million to the Irish economy each year. HCCI's primary objective is to promote the highest professional standards of care in the home and client choice, in a cost effective manner. Providing care to over 8,500 clients in their own homes throughout Ireland, the HCCI is playing an important role in the development of the home care sector – an integral part of the Government’s stated policy of developing the primary care sector.
In light of Ireland’s rapidly expanding population of those over the age of 65, recent pressure on home care budgets, lack of regulation, questions over the quality of care provision, and the shortage of funds due to an artificial division of what is seen as separate services for older people, HCCI calls on the Government to, first, amalgamate budgets for care of older personsto ensure that people are directed to the appropriate level of care and that people can stay in their homes for as long as possible with potential savings of €69 million in 2015 alone; second, establish more open and transparent commissioning of home care servicesnot provided directly by the HSE, with an end to section 39 allocated funding, through a national tender to achieve a further savings of €48 million in 2015; third, safeguard jobs and maintain home care as an affordable option for all, including those in need of care 24 hours a day, seven days a week; fourth, reform social welfare regulations to incentivise people to take on work in the home care sector; fifth, we call on the Government to double the existing €50,000 ceiling for tax relief for home care; and sixth, extend the IT 47 definition of incapacitation to include home care requirements as a result of old age or infirmity.
HCCI is aware of the difficult economic climate and the clamour for funds from all sectors of society and wishes to be a constructive partner to Government. We have devoted considerable resources to compiling a business case for the future of home care and to identify savings that could be accrued through the more efficient use of existing funds. We call on the Government to use budget 2015 to explore these options to ensure sufficient resources to look after our ageing demographic, while also seizing the opportunity to stimulate employment with the potential for up to 8,000 new jobs by incentivising people who wish to work in the home care sector. I look forward to answering any questions in the question and answer session to follow.
Mr. Robin Hanan:
I thank the committee for the invitation to put our point of view. We take as a starting point what is becoming accepted across the political spectrum, which is the statement in the new statement of Government priorities that the ongoing programme of economic repair will be accompanied by an equal emphasis on social recovery. We want to address how that needs to be done in a way that particularly addresses the position of people experiencing poverty. Our members are both national and local community organisations and they represent people affected by poverty and work with them on the ground. They report increased deprivation and hardship, which is difficult to convey in figures or in a short presentation. However, the CSO figures show that according to the deprivation indicator, which used to be considered a basic measure of those living right on the bottom line and unable to afford basic essentials, the numbers experiencing deprivation have doubled to a quarter of the population, including more than a third of children, and the number of people at work who are experiencing deprivation -for example, they are unable to afford to heat the house adequately or afford clothing and shoes - more than doubled between 2008 and 2012, which are the most recent figures.
We need to examine every aspect of the budget to see how it can address ongoing poverty. People experiencing poverty have been hit by a triple whammy of job losses and reduction in quality of work, with much more casual work and more conditions at work on the one hand; cuts in services as a result of the recession and the decisions taken; and cuts in eligibility for welfare, which have hit many people hard. They have made it harder for people to take up work.
We need to go back to the national anti-poverty strategy, NAPS, of almost 20 years ago, which is still Government policy, to carry out poverty impact assessments on every aspect of Government policy. At its best, poverty proofing was a relatively secretive system and quite tokenistic. We argue in our submission in more detail than I have time for in this presentation that it is important to open up this process. We would encourage Ministers to come to committees such as this, as they are required to under NAPS, and present the impact of each important decision in the budget process for better for worse on poverty and to argue their case. No one is trying to constrain government decision-making but we need at least to have a clear public debate on the impact on poverty. It needs to be comprehensive. It is not good enough for Departments to say, for example, the issue of direct provision for asylum seekers is outside the scope of poverty proofing or aspects of taxation policy do not need to be fully assessed. We need a public and open process.
The rest of the submission goes into more detail about our proposals on welfare levels and maintaining the basic level of welfare, proposals to restore some of the cuts in eligibility over the past number of years and making it easier for people to access quality work.
Ms Caroline Fahy:
I thank the committee for the invitation. Our 11,000 members in the Society of St. Vincent de Paul are seeing at first hand the impact of the economic crisis and the austerity programme that has followed. Calls for help to our regional offices have increased by more than 100% since 2009 and we are spending more money than ever helping individuals and families in need. We are spending more than €80 million per annum, which is up from €52 million in 2008. In 2012, we spent more than €22 million on food and cash assistance and more than €11 million helping households with their energy costs. Help with fuel and energy costs is up by almost 200% since 2008, demonstrating the impact of austerity and deprivation on households across the country.
The reason for the increase in our spend is the impact of austerity has been most strongly felt by people with the lowest income and least resources and the cumulative impact of the cuts to incomes and services over the past number of years has resulted in a huge negative impact on people's ability to cope. The increased cost of living is eroding the real value of incomes whether they are from social welfare or employment. Our colleagues in the Vincentian Partnership for Social Justice have found that the costs of a minimum essential standard of living, which is based on needs, not wants, increased by more than 3% between 2008 and 2013, which is much faster than the rate of general inflation.
The cost of energy heating for the home has increased by an average of 25% since 2009 but supports such as the fuel allowance have been reduced. The largest group requesting help from us is families with children, in particularly those heading by a person parenting on his or her own. Research carried out by our colleagues in Social Justice Ireland has found that a one-parent family that is out of work has experienced the largest reduction in income of any group in the country. The next worst affected group is a couple with earnings of €200,000 a year.
There has been a great deal of discussion about Ireland's recovery and we welcome the progress that has been made but our members are not seeing that reality in people's pockets and lives. People continue to struggle on a daily basis to afford basics such as food, fuel and education costs. This year we have titled our pre-budget submission, Planning for the Right Kind of Recovery. The right kind of recovery would bring us towards a nation where caring for each other, our children, older people and people with disabilities is valued and supported, where individuals, families and communities can participate fully in society and where an adequately resourced State and a strong economy, employment and business environment supports the type of society in which we wish to live.
We are asking Government to announce a budget for 2015 that tackles poverty, social exclusion and unemployment, provides supports to people in jobless households to make the move from welfare into employment and invests in our children and young people. We set out 33 priorities in our submission based on the needs of those we assist. These are things we have to ask for because of what we are seeing on the ground. If these policy recommendations were implemented, it would put us on the road towards the right kind of recovery.
Our key priority in tackling poverty and social exclusion is to ensure social welfare payments, tied income supports and secondary benefits are adjusted to reflect the increased cost of living. We must also ensure any changes to income tax, the Universal Social Charge or other taxes benefit those on low incomes rather than those on higher incomes.
We would like the changes to the one-parent family payment reversed to tackle unemployment and provide opportunities for jobless households.
Ms Yvonne O'Sullivan:
I thank the committee for inviting FLAC to make a presentation on its pre-budget submission. The Oireachtas and its standing committees play a vital role in overseeing the Government’s compliance with its international human rights law and the State's obligations and this is also applies to the budgetary process. The State has duties, freely entered into, to immediately provide protection of a minimum core of human rights in key areas of life. These are at the heart of our concern regarding budget 2015. FLAC is currently co-ordinating a shadow report, which will reflect evidence of how the State is meeting its economic, social and cultural rights obligations on the ground. In light of that, our submission focuses on how best to protect vulnerable groups by ensuring the State adheres to such standards. FLAC believes this would produce a budget that allocates resources in a way that is proportionate, transparent and fair.
I will summarise our proposals for the budget. The Government should provide a basic level of subsistence - in other words, a social protection floor - that would allow all persons to live their lives with dignity. The Government should carry out impact assessments of budget proposals before decisions are made and not after, as is currently the practice. The Government should ensure more transparency, accountability and participation in the budget process by using a human rights framework. This also includes greater participation and input from stakeholders, including groups directly affected by the decisions as well as valuable expertise as in that of the Irish Human Rights and Equality Commission. The Government should make budgets that are democratically and openly debated and discussed in the Oireachtas with adequate time and that are based on up to date, understandable legislative material. The Government should reduce expenditure on social protection through greater efficiencies rather than cutting payments to vulnerable groups.
Systemic reforms in the appeals process such as improving decision-making at first instance could yield savings. Here, too, FLAC remains concerned that decision-making must meet basic human rights standards of fair procedure and transparency. The Government should also alleviate concerns about the recovery of overpayments by respecting the right to a minimum income. The Department is able to unilaterally recover up to 15% of a basic social welfare payment which means that the State could put a person at risk of dropping below its own basic minimum income limit of €186 per week. FLAC recommends implementation of a robust appeals procedure and clear guidelines on how a person's circumstances should be taken into account in assessing his or her capacity to repay the amount of the overpayment.
The Government should reinstate and put on a statutory footing The Lough credit union repayment scheme. This was broadly a successful initiative that assisted vulnerable MABS clients without bank accounts to access credit. Its termination was a retrograde step and should be reversed.
In summary, the Government has legal obligations in the operation and functions of all public bodies and Departments to uphold the right of every person in the State to a life of dignity. FLAC recommends a human rights approach to budgetary decisions and the process of budgeting which would help the State to meets its commitments.
I thank the committee. I am happy to take questions from members.
I thank Ms O'Sullivan. The reason this meeting is taking place before the summer recess is the budget cycle has been changed, with the budget now being presented in October instead of December. Another significant aspect this year is that, having exited the bailout programme, Ireland, like other member states in the eurozone, has country-specific recommendations. I invite the delegates to bear in mind these recommendations when responding to questions. Questions will be grouped. If that is agreeable, I encourage members to keep their questions brief and delegates to reply coherently. I will begin with Mr. Claffey. I am very interested to hear Irish Rural Link's views on the rural fuel poverty strategy and how it would work.
Mr. James Claffey:
Our members, in particular, the elderly, have experienced extreme fuel poverty. Greater numbers are suffering as a result of the reductions in the fuel allowance. In our view, revenue from the carbon tax should be ring-fenced and a proportion allocated to deal with this problem. The recent severe winters have highlighted the problem for the elderly.
Mr. James Claffey:
For example, in many rural areas housing has not been built to standards in terms of insulation and as a result, most of the heat generated in goes straight out through the walls and fuel is being wasted. The strategy needs to ensure more fuel is provided and that funds will be provided for insulation in order that heat can be retained in the house. This is most important for the well-being and protection of the elderly, the houses of many of whom are 50 or 60 years old and do not meet standard regulations.
My next question about the social justice service programme and the corporation tax rate is directed at Ms Murphy. The assumption made in the proposal is that the effective rate is 6%. Is that correct?
Ms Michelle Murphy:
No; we are recommending a minimum effective rate of 6%. We have done some modelling. I refer to a number of reports, the one that is quoted most is the PriceWaterhouseCoopers' report, but it does not necessarily reflect the majority of corporations in Ireland that pay corporation tax. Following some modelling we find that some corporations pay tax at a rate between 0% and 3% and 3% and 6%, while others pay at a rate between 6% and 9% and 9% and 12%. We are saying that if a minimum effective corporation tax rate were to be implemented, significant revenue could be generated. We are saying the minimum effective rate should be 6% because the majority of Irish companies pay at between 9% and 12.5% because they are not all exporting.
Any company registered here is in a particular zone. The committee has looked extensively at companies that may be engaged in very elaborate tax constructions but Ms Murphy is talking about an effective tax rate for companies that are Irish-registered and liable to the Irish rate of corporation tax.
Ms Michelle Murphy:
To follow on from that point, we have an opportunity with the BEPS-OECD report for Ireland to take the lead. This does not affect the 12.5% headline rate, but there is an opportunity for us to take the lead and address some of the issues being considered internationally. With regard to the CSRs, country-specific recommendations, on behalf of Social Justice Ireland, I can say we are very worried about recommendation No. 1. While we welcome the emphasis placed on broadening the tax base, we are very concerned about the statement on making the expenditure ceilings more binding and removing statutory discretion because this would prevent the investments required in the other CSRs such as providing access to quality child care, improved training and all the measures needed to address the issue of jobless households and poverty. If the recommendation on binding expenditure ceilings is implemented, it will not be possible to invest to address the other problems identified.
I refer to the reference in the country-specific recommendations to Ireland continuing to deal with the structural deficit in taxation which happened around the time of the collapse. I refer to water charges and property tax. Social Justice Ireland representatives attended the committee two years ago and engaged in innovative thinking about the property tax. I assume the organisation is still in agreement on the need for the tax as a concept-----
At the time it was modelled on that basis of local services in order that those who had access to schools and bus stops in their locality would pay more than those who lived at a distance from such services. There are advantages and disadvantages to that approach. For example, a person living in a mansion in a remote part of Ireland would pay very little in property tax compared to someone living in a small flat next to a bus stop who would be paying a lot more. What is Social Justice Ireland's current policy on property tax?
Mr. Michael Harty:
The current care budget is nearly €1.3 billion, of which almost €1 billion - just over €900 million - is ring-fenced for residential care which, in general, is not people's first choice. The Minister has stated in the Dáil that approximately 33% to 40% of people in residential care do not necessarily need to be there. The figure of €69 million in savings comes from making more funds available for home care services and moving people out of residential care back into the community and home, which is where they would prefer to be and which would result in significant savings for the Government. Studies show that approximately 4.5% of the over-65s are in residential care, about 30% to 40% above the figure for our European peers. In ring-fencing funds under the fair deal scheme we are actually creating an artificial demand for residential care places and pushing people towards that form of care, rather than doing what the Minister suggests and let the money follow the patient. We advocate that people should be assessed and offered a certain level of support but letting them choose whether it should be provided through residential care, community care or home care services. In our view, there would be a significant movement of people from residential care to home care settings which would bring consequential savings.
Mr. Michael Harty:
The relief is very welcome at the funder's marginal tax rate; therefore, it can be up to 42%, which is very positive. However, we are finding that in the more complex cases in which people need to be cared at home for up to seven hours a day, the ceiling of €50,000 does not cover them. Once again, families are making the calculation and deciding that they would be better off in moving their relative into a residential care setting.
Upping the ceiling would allow people to access more complex and acute care at home.
I am very interested in Mr. Hanan's concept of jobseeker's payments moving to an hours-based scheme as opposed to a daily one. I was that soldier once and it had a very adverse impact. If one gets only one or two hours of work every day, amounting to 16 hours over the course of a week, which is two day's work, how can that be modelled? If somebody earns minimum wage and works eight or six hours over a week, it probably equates to a day's wages. Somebody doing part-time teaching, as I was, probably earns three times the industrial hourly wage. How can we ensure creating an allowance for an hour does not adversely impact people on low wages? People earning high wages can also work part-time hours.
Mr. Robin Hanan:
The Chairman has raised a number of important questions. In discussions, the Tánaiste and Minister for Social Protection raised questions about this. Our main concern is that people who might be able to access part-time work, move on to full-time work and, eventually, off the welfare system, are hitting a welfare trap not just because the existing system is too restrictive in terms of the number of days worked, but because it has been made more restrictive, particularly in the budget before last. The Minister raised a concern that there is a danger that employers would take advantage of the situation by employing people for an hour per day or very short lengths of time, leaving the Government to make up the difference. This is largely the situation, and people are often forced outside the regular economy, to take up work under the counter, so to speak, or forced out of work completely.
To make this work, we would need stronger regulation of the zero-hours contracts and short-term work, which a number of Ministers have raised over recent years. We would need to ensure the existing income limits are paralleled with a change in the number of hours. We have this in a separate presentation which we can send to the committee. The reality of modern working, particularly in the service economy, is that more people are working a few hours scattered over a full week.
For instance, if one is unemployed and receiving benefit one could earn €1,000 working on a Tuesday, theoretically, without any impact on the days for which one is signing on. If one receives allowance and earns just €100 for a day's work, it would have a very significant impact on the payments one receives for the remainder of the week.
Mr. Robin Hanan:
It must be examined. We have made more detailed proposals on how the hourly and daily rate can be reconciled without throwing the burden back on the State, which also happens in the context of the family income supplement, where the State takes up much of the slack when people work part time. The existing payments, as well as having genuinely seeking work and available for work requirements, also have income thresholds in place. The income threshold-----
Family income supplement may be more equitable. Could Ms Fahy expand on her thoughts about training or work experience opportunities for young early school leavers? Based on my background, training should be part of any work experience.
Ms Caroline Fahy:
Our members, particularly for young people and in rural areas, see that the only participation opportunities are schemes such as Tús which have no training element, which is a terrible shame. We are particularly concerned about vulnerable young people who leave school early and for whom there is not much available. We deal with the effects of it when they become people of working age with low incomes or no employment. The Department of Social Protection is introducing an internship scheme for those particularly disadvantaged young people. While we support it in theory, one of the issues with internship schemes is that people on low incomes find it more difficult to take those up and benefit from them.
We want young people under 26 years to have the back-to-education allowance paid at the rate of €188 per week to meet the cost of education, because it has been taken away. Such a measure would support young people financially, particularly those who are very disadvantaged, because money is a major barrier. People with a very low literacy level, below FETAC level 3, might not have many opportunities to improve their literacy in an intensive way so they can move on to FETAC level 4. We want the education and training boards to provide this so anybody with low literacy skills and very low levels of qualifications are not-----
I was an adult literacy organiser in my previous work, to which I may return. One of the difficulties my colleagues in the field talk about is the people at or below FETAC level 3. A certain degree of flexibility is required for this client group because their first experience of education was not positive and dealing with the structure of the system is very difficult for them. Given that FÁS has been replaced by SOLAS, is the Department of Social Protection moving towards too rigid a space to deal with those people or is it just anecdotal information?
Ms Caroline Fahy:
We hear similar stories anecdotally. Especially for those who have had a negative experience, the first foray back into education could be less formal, for example, community education that would give them a taste for how education has changed since they were at school. Flexibility is important. It needs to deal with people where they are and set out a clear path for them towards their goals. It must fit in with what employers need but also with what the person wants.
I am sure the other Deputies, like me, have people coming to them with overpayments of €500 to €30,000. They can go on for years. By and large I have found the Department to be fairly sensible about what is achievable in cases where a person on a fixed, low income owes a large amount of money. Even an overpayment of €30,000 could be reconciled with a payment of €10 to €20 per week. The proposal indicates that this does not seem to be the experience. Is Ms O'Sullivan saying the Department tries to get back the greatest portion of the money in the shortest period of time and does not consider people's day-to-day living experiences?
Ms Yvonne O'Sullivan:
Again, anecdotally we have many stories of the Department seeking the 15%, which pushes many people into facing difficulty paying for normal living expenses. We are having issues and concerns around the appeals process within recovery, the lack of transparency, and the fact that the information does not formally state that if an overpayment arises, one has a right to appeal. It states that one can report that the amount is incorrect but does not clearly leave a window open-----
I have been successful in a number of these cases. The legislation is very clear and it is a forensic examination. The error is on one side of the table or another.
It is either that the person has not provided sufficient information for whatever reason - there might be a change in family circumstances, somebody has returned to work and the overpayment has been created - or else the person has provided every reasonable piece of information that was required and the mistake was made by the Department. If it can be proved that the error was on the part of the Department, the sum, regardless of the amount, is eliminated.
Ms Yvonne O'Sullivan:
It is also beyond the stage where the overpayment arises but when the recovery takes place. A person is not able to challenge the amount up to that 15% whereby the Department can take back the money. It is unknown how the Department weighs a person's other expenses, which might be a debt or they might have a large family. How are general living expenses taken into consideration by the Department? There are also many cases at present which date back ten or 20 years, so having that evidence would be great-----
Ms Yvonne O'Sullivan:
FLAC appreciates that the money must be recovered, whether the overpayment is through fraud or it is through no fault of the person themselves. The issue is that the State has set the basic minimum income rate through the supplementary welfare allowance, and it is clearly set in its guidelines, yet it does not appear to adhere to it in the recovery process. That is our key concern.
I welcome our guests and thank them for their presentations. I will start with the pre-budget document from Social Justice Ireland. There has been debate for some time about refundable tax credits. It is included in Social Justice Ireland's proposal to deal with what it generally calls the working poor. That is an accurate description of a cohort of people in Ireland today. The proposal would cost approximately €140 million. Will Ms Murphy explain how these tax credits would work in practice and who would benefit from this system?
Ms Michelle Murphy:
We published a study on this in 2010, and I am sure some of the members are familiar with it. The basis of it is that some people earn an income that is not high enough for them to gain the full value of their tax credits. The proposal is to make the two main tax credits refundable. The burden would not be on the employer as they would be refunded to the person from the Revenue Commissioners. It would benefit approximately 113,000 individuals in the State. The average repayment is between €46 and €50 per week, so it is approximately €1,000 per year. This is all detailed in the report, which is on our website.
It would make the tax system equitable, in that everybody would be treated in the same manner and everybody would get the full value of their tax credits. The high earners get the full value of their tax credits. The reality is that 16% of people living in poverty have a job and they clearly are not getting the full value of their tax credits. For a very small sum of money, €140 million per annum, it would make a huge difference to the livelihoods of approximately 113,000 people. It would also be easy to implement, because it would not be necessary to create a new administrative process. The employer would not have to do anything. The State would do it.
The main purpose of it is to incentivise people to take up employment, even if the pay attached to it is not great. However, taking the refund into account, it provides an extra incentive to work.
Ms Michelle Murphy:
Yes, it incentivises employment over welfare because it would widen the gap between pay and welfare rates. It also makes our tax and welfare system more appropriate to the 21st century. It benefits people on low incomes and makes our tax system fairer and more equitable. It also takes into consideration that many precarious forms of employment are on very low pay and people often do not have a choice whether to take these jobs, so at least everybody is treated fairly by the tax system under this proposal.
If this proposal were implemented, any further tax changes to be implemented in terms of income tax could be done through the tax credit system so that everybody would benefit in the same way, as opposed to changing bands and rates in which everybody does not benefit in the same way. The current discussion about changing the higher rate, for example, would result in the gain going to the highest earners. It does not go to those on low incomes. Even changing the standard rate band would only benefit those people who are at that rate and above it, that is, earning over €32,800 per year. There is no benefit to people earning less than that, and there is a huge cohort of people in the country who earn less than that. Implementing refundable tax credits would benefit those on very low incomes and it would also reform the tax system so that any future changes in income tax could be done through the tax credit system.
There are barriers facing people on social welfare at present who wish to get back into work, even if they have an offer of employment. Ms Murphy has identified one avenue for dealing with that. Another issue is the area of secondary benefits. The rent supplement, in particular, appears to be the main barrier. Holding on to that if one gets work is a problem. The medical card is another issue. When one adds them all up, one would have to be earning a very good salary for it to be worthwhile.
Ms Michelle Murphy:
That is the issue of replacement rates and it is a very specific issue for a small group of people. The majority of people who are on the live register are not entitled to rent supplement and those secondary benefits. In the case of the people who are, especially people with families, we must examine a way of tapering those benefits so that one tapers their withdrawal in terms of the income level. It is a huge cost to a person if they take up a low-paying job and all of those benefits are withdrawn. One must think of the other costs they have. It is not just their earnings but the other people who are dependent on them. Obviously, a more tapered withdrawal system would be of huge benefit. There is progress now in terms of the housing assistance payment and changes to the rent supplement system so it is to be hoped we should see some progress in that regard and that should make a difference as well.
Mr. Claffey drew attention to the issue of broadband in rural communities in his submission. Will he give his view on the level of broadband provision in rural areas in general? He says what is required is an investment strategy to deliver fibre-based broadband to the last 500,000 rural homes. Is that the number of homes in Ireland that do not have fibre-optic broadband at present?
Mr. James Claffey:
That is our estimate, but we have found out in recent weeks that the figure could be significantly higher. Broadband service in some areas is 1 Mb and 2 Mb, and in some cases it is non-existent. If fibre-optic broadband was delivered, it would be of huge benefit not only to the quality of life for residents in rural areas but also in terms of investment and business. If broadband was brought up to the level that exists in major towns and cities, there could be the creation of 10,000 jobs through the creative economy. It would encourage people to work from home and to run online businesses.
There are approximately 2 million households in the country, so Mr. Claffey is saying that about one in four do not have access to fibre-optic broadband. However, the Government has various programmes for rolling out broadband in rural areas. Is Mr. Claffey saying that is not making an impact and is not making inroads into that deficit?
Mr. James Claffey:
In the immediate term it is definitely not making inroads. There is a target set down for the end of 2016 that every home in the country will have fibre-optic broadband. We would encourage the Government to meet this deadline under whatever circumstances. This will drive the rural economy, which has been in decline in recent years.
This is addressed to Mr. Harty. We regularly hear from the Government that the priority is to allow people to stay in their home for as long as possible due to the cost of long-stay nursing home facilities and so forth and the cost of having people in acute hospitals. The experience on the ground appears to be quite different, certainly from my point of view as a practising politician. One is often contacted by families who wish to keep a loved one at home, but they face barrier after barrier. They find it difficult to get sufficient support from the State through the HSE to keep the person at home. What is the practical experience of the members of HCCI at present in dealing with that issue? What are the main changes Mr. Harty would make?
There is no doubt that it is an issue. We encounter people on a daily basis who are in need of care. They might be in hospital and need to be discharged. What is happening is that they are being encouraged to apply for the fair deal scheme and, as an afterthought, perhaps for a home care package.
In fact, one of my members told me a story recently about a 90 year old aunt of theirs in Wexford. She had lived by herself for many years but had to go into hospital for an operation and was encouraged to apply for the fair deal scheme. She said that she preferred to continue living at home and that she wanted to apply for the home care package scheme. None the less, she was granted access to the fair deal scheme at a cost of some €1,000 a week to the State whereas her first preference was home care, three or four hours a day, which would have cost €200 to €250 per week. That lady is at present in residential care.
We have to be cognisant of the fact we are still living in difficult economic times and we have to spend our money more wisely. One of the best ways of spending money wisely is by promoting client choice. Who better to decide how money should be spent than the patients themselves?
Does Mr. Harty have figures on the typical cost to the State of supporting somebody to stay in the home as opposed to the typical cost through the nursing home scheme? I accept some people are higher dependency than others and perhaps, eventually, have to be in a long-stay facility. Has Mr. Harty the numbers to back up what he is saying?
Mr. Michael Harty:
Absolutely. Roughly, it is between €800 and €1,000 a week for residential care, depending on location in the country, whereas, for a person of medium or low dependency, the cost of home care would be between €200 and €300 per week. It is over double the cost but, not only that, people generally do not want to be in residential care. It is rare in politics that politicians give people what they want and save money at the same time, but that is the case with home care.
Mr. Michael Harty:
One of the major issues is that the Department of Finance is loth to generate a statutory right to home care. People have a statutory right to residential care through the fair deal nursing home scheme but they do not have a right to home care. What we have been calling for is regulation of standards in the sector underpinned by legislation to give people a statutory right to home care. Obviously, given the times we are living in, it is something the Department of Finance does not want to look at. That is certainly a major part of the problem. It is a very short-sighted view. By giving people a right to home care, we will save more money in the long term.
I would like to ask Mr. Hanan about the poverty proofing of budget proposals, to which he referred in his statement. I believe we would all agree in principle with that. The question is how it would work in practice and to what extent it would slow down and make more bureaucratic the decision-making process. Ultimately, the Government and the Legislature have to make decisions. How would this poverty proofing work in practice? How much work would have to go into proofing individual budgetary decisions in the social welfare area, for example?
Mr. Robin Hanan:
There are different levels of poverty proofing. When the poverty proofing system was introduced first in the national anti-poverty strategy in 1997, there was originally very tight co-ordination by the Department of the Taoiseach to ensure all Government memoranda and most of the main items in the budget, through what was then a single Department of Finance, included statements on their impact. The level of assessment depended on the nature of the proposal. Therefore, a proposal for the introduction of a new scheme included a certain amount of subjective data and a certain amount of economic modelling. At the moment, the Department of Social Protection is rolling out a new supplementary social impact assessment, using the SWITCH model, and some of that information will be usedpost hocto look at the impact of tax and welfare decisions in the round in the budget. I am sure the committee is aware of this as the Department will have made presentations to it about the impact.
There are a number of problems with this, however. First, the new model only looks at the overall impact of the entire budget and does not look at the contribution of different elements. Second, where it identifies groups that are particularly disadvantaged, there is no feedback or no mention in the next budget of what compensatory measures will be taken to take that into account. Last year and the year before, for example, as one would expect, young unemployed people and lone parents were identified in this regard.
The model that was originally developed in Ireland in the 1990s has been held up as a model across Europe, and effective poverty proofing can include its combination of the objective and the subjective. However, the objective data is relatively easily available now through mechanisms such as the SWITCH model, economic modelling and the assessment of taxation. We are told some of this is already happening in terms of dialogue between different Departments, but none of this is part of the public or political debate about the introduction of new measures, changes to measures and so on. While we would not argue that a Minister for Finance should be required by law simply not to introduce a measure which might have an impact on poverty, we would say that this information should be out there very clearly as part of the public debate around the budget in order that compensatory measures can be taken.
The way the scheme was originally designed was to identify the impact, positive or negative, of particular measures on people experiencing poverty. With a change in social welfare entitlement, it is relatively easy to assess in advance in the broad sense what the impact of that is likely to be and also to look at compensatory measures. If there are environmental cases for introducing a particular type of utilities charge, we need to look at what are the compensating measures in the tax or welfare systems to ensure it does not have an impact on poverty. To take just one example, we are talking about information but we are also talking about using that information as part of the public debate. As I said, in the past we have had quite a strong data collection system around poverty proofing and the national anti-poverty strategy, but none of that came out in the political debate, in the public debate or in practical policy-making. It became a box-ticking exercise or simply a matter of monitoring changes when it was already too late.
I will group my last two questions. With regard to Ms Fahy's work with the Society of St. Vincent de Paul, what role does personal debt play in the whole situation? Obviously, many people who rely on support from the St. Vincent de Paul are experiencing unemployment and are in very low income households, but not all I suspect, and many would have very high mortgages, credit union loans, credit cards and so forth. To what extent is Ms Fahy meeting people who, because of their determination to pay the mortgage and pay other forms of debt, find they simply have no money to pay the energy bills, groceries and so on?
On the issue of the social welfare appeals office, Ms O'Sullivan highlighted the very high number of appeals, which reached 53,000 live cases last year, the highest since the office was founded in 1990. She said the success rate on appeal, at 55%, was an indicator of poor standards of decision-making in the first instance. I did not realise the success rate was that high in the social welfare appeals office. Surely having such a high rate of success through appeals is providing an incentive to people who get refused at the first hurdle to appeal, and this is just clogging up the system.
Ms Caroline Fahy:
The role of personal debt is a very important one in terms of what our members are seeing. People may prioritise loans from, for example, moneylenders over and above paying for their food and utilities, and they will come to us for help with those. It often does not emerge until after a few visits, having looked at a person's income and outgoings, that we find there is a grey area, which is often the debt people are trying to pay off. Our colleagues in the Vincentian Partnership have found that the majority of people on a social welfare payment and many of those in low-paid work do not have enough income for a minimum essential standard of living, so there is a gap between the money they are taking in and what they need. Again, that results in debt.
Those who would traditionally never have expected to go to the Society of St. Vincent de Paul for help are often those who have lost businesses or lost employment and who have debt left over as part of that. People really do want to keep a roof over their heads.
That would often be their main concern.
One of the issues that arises in respect of, for example, utility debt is where people do not have a say - in terms of the accommodation in which they live - in using prepay meters in order to pay off their debts by €2, €3 or €10 per week. Individuals are almost being coerced into taking on repayment plans for energy debt which lead to them not having enough money to manage the remainder of their household expenses. Again, such plans can fall apart, the utility companies will not be paid and people's energy supplies will be placed at risk. As a result, they end up coming to us for assistance. Debt is one of those issues we need to consider addressing in a more comprehensive fashion.
Ms Yvonne O'Sullivan:
Yes, it is significantly high. It is especially so when one considers the long delays that exist within the process. Those 55% of appellants were entitled to payments prior to entering the appeals process but they were obliged to wait six to nine months to have them restored. Some individuals were obliged to wait even longer and this reflects what is stated in both the annual report and parliamentary questions with regard to the average processing time. Obviously, some people are obliged to wait a lot longer for their appeals to be heard in circumstances where they are entitled to payment in the first instance. It comes down to the initial decision made by the deciding officer, a poor standard of decision making and the lack of compulsory accredited training for front-line staff, deciding officers and designated staff within the Department and its offices. When the law changes and new payment criteria are introduced as a result - the habitual residence condition is one example in this regard - a training course will eventually be developed but, again, this is voluntary. This means that members of staff make the decision as to whether they want to learn how new criteria are going to affect people's payments. They are not obliged to attend such training course. As a result, the level of decision making is highly inconsistent and this is reflected by the figures contained in the annual report.
I thank our guests for their very detailed submissions. They contain a wealth of information and statistics and are presented in a very understandable fashion.
Irish Rural Link's submission contains a number of interesting proposals. I wish to focus, however, on the issue of a stimulus for villages and towns. The submission refers to the closure of Garda stations, post offices and banks. I live in a small rural town and I have seen evidence of this and the impact it can have at first hand. Will Mr. Claffey outline the form a stimulus for villages and town would take and indicate how it would be delivered?
Mr. James Claffey:
I return to my original point and the structures that are needed in rural areas in order to drive the economy. We are targeting towns on which the economic crisis has had the greatest impact by trying to stimulate residents to come up with ideas and seeing if these can be translated to national level. In certain towns we have studied, there have been huge increases in employment in, for example, the creative economy. We are of the view that it is necessary to discover the kind of skills that are available in a particular area and the demand that exists there. By doing this, it would be possible to target individual towns and villages in the context of driving forward or stimulating that economy.
Mr. James Claffey:
As stated at the outset, I am delighted that a Minister of State with responsibility for rural affairs has been appointed. The need for such a Minister of State was highlighted in the CEDRA report. We are of the view that the new Minister of State should establish a committee that will concentrate on rural regeneration and rural job creation. That is the main focus of our pre-budget submission.
One of Irish Rural Link's other proposals - this is also contained in a number of the other submissions made to the committee - relates to the cut the Government introduced last year in respect of the telephone allowance. Almost one year on, how big an issue is that for Mr. Claffey's organisation? I note Irish Rural Link's submission contains a call for a reversal of the Government's decision.
Mr. James Claffey:
I cannot underestimate what we are hearing from our members with regard to their telephones. For many elderly people, their telephones represent a lifeline to their family and friends. We held two seminars on rural isolation this year, one in Donegal and the other in Ennis, and this issue was raised numerous times. As stated earlier, it links to the issue of home security, Garda stations and the fact the elderly individuals' telephones are connected to security systems. What was done last year has not only affected these people's ability to communicate with their families, it has also had an impact on their sense of security within their homes. They cannot connect and do not feel safe as a result. In addition, it is no longer possible for them to have their security systems in place.
One of my constituents recently contacted me via Facebook and informed me that their parent is elderly, vulnerable and lives in an isolated area. The elderly individual in question was affected by the cut to the telephone allowance but has accessed a 24-7 alarm service from the FOLD Ireland housing association. I understand FOLD Ireland has written to all of its customers in the Twenty-six Counties to indicate that while up to now it believed the service to be VAT exempt, this is actually not the case. As a result, the cost of providing the service is going to increase by 21%. Should services of this nature, which are made available to elderly and vulnerable people in rural areas, be exempted from VAT?
In the context of the HCCI's submission, this committee is always interested when someone puts forward proposals relating to savings. The suggestion is made that the private sector could deliver home-care packages for 30% less than the public sector. In addition, the submission states that the system should be loosened up, that there should be more transparency and that the private sector should be able to compete with the public sector at a higher level in the context of providing this service. Is that the basis of what is proposed?
Mr. Michael Harty:
Not exactly. We have no problem with direct State provision of care by the HSE. We are of the view that this is important but we also believe that the funding in respect of it - at present, approximately 70% of the total amount available - should not be at the level it is now. We are of the view that any other funding which is available should be allocated in respect of open, transparent and accountable procurement services. In the main, I refer here to the section 39 funds that are allocated to home help organisations. Many internal audits carried out by the HSE have highlighted some serious inefficiencies and poor management within those organisations.
Mr. Michael Harty:
No sector is regulated. Unfortunately, there is no regulation whatsoever within the home care sector. We are regulated from the point of view that in the context of any work we do on behalf of the HSE through the home-care package scheme, we must adhere to internal HSE standards. Our members also have their own internal standards. Before any organisation becomes a member of the HCCI, it must undergo an independent audit by an independent third party in order to ensure it reaches those standards. One of the big issues within the sector is the fact that there is no regulation.
Mr. Michael Harty:
There needs to be more transparency and accountability. We are saying not that the work should be given to private organisations but that it should be given to organisations that are efficient and fully accountable and so on. It is important we remain conscious of how home help organisations grew up, with many having been set up by religious orders, local community groups and the forerunner to the HSE in the 1970s.
I am familiar with the history. The courts have rightly enforced on the HSE that it end the exploitation of its home care workers through the use of zero-hour contracts, which followed on from a successful campaign by SIPTU in that regard. In my view, HSE home care workers are no longer being exploited. Are the 6,000 Home and Community Care Ireland, HCCI, staff still being exploited through the use of zero-hour contracts in an effort to keep down costs or has the company ceased that practice?
Mr. Michael Harty:
That is an interesting point. First, I should clarify that the court decision was in relation only to HSE directly employed home help staff and not home help staff employed by section 39 agencies, who do not have guaranteed hours. The HCCI is in favour of moving away from these so-called zero-hour contracts. The biggest issue we face going forward is the sourcing of quality home care workers. As evident from our demographics, demand in the sector is going one way. Our concern is from where in the future we will get suitably qualified carers to meet this demand.
It is easy for the HSE, as the provider of funding, to guarantee hours to its workers. The problem with zero-hour contracts is one of funding and the structure of that funding. With more visibility around the care we are being asked to provide and more access to funds we could also move in that direction. In comparing private providers with the HSE one is comparing apples with oranges. The HSE can reserve hours for its staff to ensure that they are doing their seven to ten hours and so on. We cannot do that.
In Mr. Harty's view private providers, whether providing applies or oranges, are unsure of how many customers will come across their thresholds and that until such time as they can be satisfied with the situation in terms of supply and demand zero-hour contracts are necessary. However, they are exploitative to workers. That is the reason the High Court ruled against the HSE. This is wrong. I welcome that Mr. Harty has acknowledged that he would like to move away from that practice. However, in terms of his suggestions to the committee in regard to how savings can be made, in my view it is in the area of zero-hour contracts that savings could be made.
Mr. Michael Harty:
I accept that. However, zero-hour contracts are also used by section 39 funded home help organisations. There is a general perception that private providers pay low wages. Private providers tend to structure wages based on the complexity of the cases in respect of which they provide care. In some cases, private providers pay up to €16 per hour.
I appreciate that but I need to move on.
Mr. Hanan spoke about an adequate minimum income for all and put forward a proposal in this regard for this year. Perhaps he would elaborate on what in his view is an adequate minimum income and how it would be structured.
Mr. Robin Hanan:
A number of speakers have referenced the work by the Vincentian Partnership for Justice, which is increasingly being recognised as a way of establishing a basic minimum essential standard of living. The European Anti-Poverty Network Ireland proposal sets out short and long-term objectives. We see it as being really important that this year's budget, as we come out of recession, lays out not only what needs to be done next year but a longer term programme for building a more social inclusive society. In this regard, we are proposing a five-year transition towards a minimum income level, namely, the lowest level of non-contributory welfare payments which would bring everyone within that minimum essential standard of living. Of course, this has implications for all other benefits because to maintain that standard without increasing poverty traps - and rid ourselves of current poverty traps - one needs to look at ways through which other more conditional benefits are retained. We spoke earlier about the rent supplement scheme and the fact that its withdrawal on a progressive basis rather than slowly as people move back into work and so on is leading to the creation of poverty traps. The sudden withdrawal of rent supplement is a serious disincentive to people returning to work.
In regard to the term "minimum income" as part of debates across Europe on how to build a social element into the two pack, six pack and fiscal regulations to which the chairman referred earlier, we are trying to find a common basis of what is required to live a dignified life in any country across Europe. In terms of the figure suggested for the first year, we see this as being a first step as part of a five-year programme.
It is sensible to allow for the required level to be reached over a particular number of years.
I thank the Society of St. Vincent de Paul for its presentation. Reference was made in the presentation to water poverty and the introduction next year of water charges disproportionately hitting low income groups. Reference was also made to the introduction of measures to protect low income households from water poverty. In Ms Fahy's view, at what point should the cut-off be set and how would the society's proposal in this regard be rolled out?
Ms Caroline Fahy:
A point being missed in the debate around water charges is the need for more information on water affordability and so on. We have been calling for publication of the ESRI report on affordability and consumption. Without information on how much a household is likely to consume and its impact on affordability it is hard for us suggest what people earning under a particular income or families of a particular size should pay. We cannot put a figure on that. What we are asking for is more information on the consumption and affordability issue. The figures floating around in terms of what the Government needs to take in by way of water charges, what Irish Water needs to invest in infrastructure and what it is proposed households will pay do not appear to add up. This leads us to believe water charges will increase significantly over the next couple of years, which again will impact hugely on people on low incomes.
We welcome the reference in the statement of Government priorities to the household benefits package being used to compensate some households. We are also seeking compensation for the many other households on the same level of income who will not benefit from that.
I thank Ms O'Sullivan for her excellent presentation on behalf of FLAC. I agree with her remarks in regard to how the budgetary process is dealt with. When is FLAC's shadow report expected to be published? Ms O'Sullivan might also comment on the important or unimportance of the move in the Houses of the Oireachtas to equality budgeting.
Ms Yvonne O'Sullivan:
FLAC is carrying out a shadow report under the Committee on Economic, Social and Cultural Rights, similar to the examination that has taken place over the past two days. The shadow report is based on a process of engagement and consultation with civil society across the country. It is hoped that the first draft of the report will be available in the next few weeks, with the final report compiled and sent to the relevant committee by the end of September. As I understand it, 1 October is the official deadline. While a date for the final examination has not been set it will most likely take place in May 2015.
On equality budgeting, FLAC favours a human rights approach to budgeting.
We are a human rights organisation seeking access to justice for all. Equality is definitely part of this. We held an event last year in conjunction with the equality budgeting campaign so many budgeting elements overlap in these concepts. We believe the framework of human rights law already exists and only needs to be used and implemented in the budgetary process. The process needs to be more open, transparent and participative. We feel impact assessments are necessary to ensure better decisions are made and see that a particular group in society is not affected disproportionately by budget cuts. We hope all Departments will carry out social impact assessments, as the Department of Social Protection currently does. Unfortunately the Department of Social Protection does this after the budget, more as a statement than as a process.
I always enjoy the statistics that illustrate just how far Ireland really is from being a low tax economy and a good table was provided that supports this as it shows the billions of euro required from additional taxes. Refundable tax credits present a reverse option because they mean less income for the State from tax. Have the criteria for refundable tax credits that were published by the witnesses some years ago changed? Do the witnesses still believe they should apply only to people over 23 years of age? Should there still be 40 weeks of paid employment for refundable tax credits to apply? Has the cost of this measure been modelled on more recent data, given the changes since the proposal was made?
Ms Michelle Murphy:
In terms of criteria at the moment, we are looking at the same as previously. We await updated data because the number of people in employment has dropped and one might infer from this that the cost of refunding tax credits has also dropped. In terms of personal tax credits, relating to minimum annual income from employment-----
Ms Michelle Murphy:
At present, the criteria remain the same. We will look at new data in terms of the number of people at work and then re-examine the criteria. The tax gap was highlighted and if we were a low tax economy, as defined by EUROSTAT an extra €4.7 billion to €5 billion extra per year could be reaped. On the refundable tax credit proposal, a research and development, R&D, tax credit with a payable element is open to corporations at the moment. If corporations do not pay enough corporation tax they get a cash refund from the State and, at present, this accounts for 42%, or €112 million, of the total cost of the R&D tax credit. We are making cash payments to companies that cannot claim their full credit but we are not providing refunds to very low income workers.
Ms Michelle Murphy:
We carried out a study in 2010 and discussed this with Department of Finance officials, Oireachtas researchers, committee members and Revenue. It can be implemented easily but requires a person to decide to implement refundable tax credits. It raises no new administrative burden as all the necessary data already exists and has been collected.
To me that seems an attractive proposal. If we find there is a surplus this could put much needed money in pockets.
Ms Fahy spoke of the transition from unemployment to employment and the need for further assistance. We have examined the youth guarantee, Tús and JobBridge but what is required, further financial supplements or education?
Ms Caroline Fahy:
We seek the reversal of changes to the one-parent family payments. The Department's approach to one-parent families is now less passive and more active so employment will be a bigger feature than previously in the lives of those parenting alone. An earnings disregard was put in place to allow people to earn a certain amount from employment and keep a certain amount of the one-parent family payment but this has been eroded. It will be more difficult for lone-parents who have made the move from social welfare payments to employment because their incomes are falling every year due to the changes.
Ms Caroline Fahy:
Low pay is prevalent among lone parents. We tabled a parliamentary question on this last year to see what happens when a person loses the one-parent family payment. At the start of this month around 5,000 lone parents lost the one-parent family payment because of the age of their youngest child. A lone parent in employment earning net €200 per week has lost €70 per week because of the change. The worst part is a person who earns a low income from employment will be worse off than a person who earns a bit more. The sum of €70 per week is not insignificant and would probably cover a part-time child care place. These changes undermine the Government's priority of supporting people.
Ms Caroline Fahy:
The cost of child care is part of the problem but another issue is simply making ends meet when other costs, such as electricity, rent and so on, are factored in. People combined low-paid work with social welfare support, perhaps seeking to increase working hours as a child got older, but we fear many such parents will leave their jobs because it is not possible to make ends meet.
How many of the people with whom the St. Vincent de Paul deals had small and medium-sized enterprises that closed and now seek assistance form the organisation for the first time? When people mention debt, do they mention gambling and addictions?
Could Ms Fahy elaborate on the issue of moneylender loans? The Central Bank representatives spoke of the issue before this joint committee and the fact moneylender loans have such a high rate of interest is a pet hate of mine.
Ms Caroline Fahy:
There was a recent report by the Central Bank that recorded very high levels of satisfaction among customers of moneylenders. Despite the fact that interest rates are so high, they provide a service that people who cannot access credit from another source need because they have such a low level of income and cannot make ends meet. Having said all that, the cost of moneylender loans is extortionate and people tend to prioritise such loans over others because they often have a good relationship with the moneylender and want to maintain it to ensure access to future loans.
Ms Caroline Fahy:
Again, it is not an area for which we would have figures, but it does concern some of our members working with households. Much of the time, these issues are not mentioned to us because people fear it might affect the assistance we give them. Addiction is an issue for many of us. It is hard to know how to handle it because we assist people in a non-judgmental way. We are not going to stop assisting a household because of an addiction.
Is there any guidance on how to deal with it? I have some proposals, including the use of technology for credit cards, with the Government deal with the issue.
Will Ms Murphy elaborate on the proposed collar of 6% on corporation tax? The IFSC claims the effective rate of tax paid by its companies is over 20%, largely due to stamp duty and capital gains tax. Is there a more detailed analysis?
Ms Michelle Murphy:
As we are proposing a minimum effective rate, it would not affect the headline rate. This minimum effective rate would take into account the various loopholes and write-offs companies can use. There is a variety of reports with a variety of figures. One will have a certain lobby group claiming it pays a certain proportion of tax. We have European Commission and OECD investigations into this issue, as well as some modelling by us. We argue that an effective rate of 6% would bring in up to €1 billion. What really needs to be done is the creation of an evidential base by the Department of Finance and the Revenue Commissioners. One could then look at the rates paid and the benefits the companies were getting through various loopholes which are being examined in the BEPS, base erosion and profit shifting, process. One can also look at the other benefits these companies get through having an educated workforce and infrastructural provision through office blocks from NAMA at knock-down rates. We are providing a lot for these companies.
Those on the lowest incomes have actually lost the most throughout the crisis. Our position has always been that those who benefit most from our economic system should contribute the most. A minimum effective rate of 6% does not seem to be untoward that the corporate sector would be expected to pay.
Has Irish Rural Link looked at the idea of a rebalancing fund from agencies such as IDA Ireland and Enterprise Ireland owing to the fact that most of their spend circulates around Dublin, Cork, Galway and Limerick but not in areas with the highest unemployment levels?
Mr. James Claffey:
We have not really looked at a model to deal with this issue, but we know that there is a disproportionate disadvantage in rural areas in this regard. Between 2006 and 2011, 81% of small to medium-sized enterprise closures occurred in rural areas. These areas need significant investment. There were businesses which at some stage were successful, but in times of economic crisis, they did not get the support they needed. We want the industrial agencies to look at these businesses to see what could have saved them such as short-term loans to tide them over.
Irish Rural Link might look at it in the future. I have proposed to the Departments of Social Protection and Jobs, Enterprise and Innovation that they examine platforms whereby people could upload their CVs and jobs skills in rural areas.
My next question is for Ms O’Sullivan. I nearly called her Deputy O’Sullivan, but perhaps she would like to be a Deputy someday.
On the idea of a different budgetary process, how does Ms O’Sullivan believe it would play out if the committees played a more vital role? Does she see it like the German model where the finance committee plays a more pivotal role in agreeing to the overarching figures with committees then voting on them? How long would the process be?
Ms Yvonne O'Sullivan:
I am not necessarily an expert in this area and it is not easily identifiable like equality budgeting in Scotland. In Finland a specific committee is dedicated not only to finance and education but also to compliance with human rights standards. If social impact assessments are first carried out by each Department, they should be provided for the relevant committee to be debated, not only by committee members but also by the wider public and relevant stakeholders. We stated in our submission that the Irish Human Rights and Equality Commission should play a central role in ensuring human rights standards were protected in budgetary decisions. In Scotland, when the budget is being drafted, alongside it is the equality impact assessment which is publicly debated in its advisory grouping dedicated to equality budgeting in the Scottish Parliament. It is such a closed process here that any step toward opening it up would be very welcome.
I apologise. We are seeing a recovery and people have come through very difficult times since 2008. What is the most up-to-date symptom of the pressures under which people are operating that the organisations see? What two priorities would each of them like to see reflected in the budget?
Ms Yvonne O'Sullivan:
As a non-profit organisation providing legal information and advice across the country, we have seen a dramatic increase in the use of our services. Our annual report shows 27,500 people accessed our services last year. Many of these were complex legal queries, not just about family law issues but also about debt and family law and social protection and family law. They are putting undue pressure on people and leading to mental illness and financial hardship.
Our submission looks at the budgetary process and how it could be improved. Accordingly, one of our priorities would be making the process more open and transparent. That would involve key stakeholders and people affected by budget decisions, as well as the human rights institutions already in place.
The impact assessments are central to ensuring budgetary decisions do not disproportionately affect one group over another. This is a key element of human rights budgeting. It is a question of reforming the budgetary process.
Ms Caroline Fahy:
Society of St. Vincent de Paul members are seeing pressures stemming from more complex needs in households and a significant increase in volume of more than 100% since 2009. We spent €52 million in 2008. We are now spending €80 million a year in helping people in need. This indicates-----
Ms Caroline Fahy:
Mostly. The main categories are food and energy costs. I will cite two priorities, the first of which is tackling the housing crisis. It is unacceptable that families must stay in hotels. Our members are exercised about this problem and it is difficult to know how to help a homeless family being housed in a hotel for an extended period. There has been a failure to provide social housing; affordability problems are arising in the private rented sector, while the poor quality of housing is an issue, in that a house can be difficult to heat, leading to greater energy bills and more pressure on people. In a broad sense, the housing issue needs to be tackled.
There have been extra charges and an increase in the cost of living for people in work and those in receipt of social welfare payments, but this fact has not been reflected in social welfare payments and secondary benefits. Low paid work is taxed more than it ever was.
Mr. Robin Hanan:
Of the different symptoms we could reference, I will add the increase in precarious and low quality work. Many people are in work that is more insecure, lasts for fewer hours and affords them less protection from unemployment. Among our members, there has been a crunch due to service cuts across the board, including in education, and reduced incomes, which affects what people can buy.
It is difficult to choose just two priorities among the complex of measures that need to be taken, but one is a five year programme to increase the minimum social welfare payment to meet the minimum essential living standards in order that people can live with dignity. This would be linked with a tapered withdrawal of secondary benefits as people return to work, thereby removing some poverty and employment traps. The availability of social housing is well recognised in public debate as being a crisis issue. However, there has been no investment to provide the answers.
Mr. Michael Harty:
The significant increase in demand for home care services that we are seeing is in line with the CSO's demographic figures. Of the two priorities we want to see included in the budget, one is an end to the ring-fencing of funds for one form of care over another, as this has created an artificial demand for residential care. Let us assess people and allow them to decide whether the money should be spent on home care or residential care. We would also like to see an end to section 39 funding in the home care sector. It has been shown to be a poor-----
Mr. Michael Harty:
Home help organisations receive section 39 block funding to provide home care services with little transparency or accountability. Various internal HSE audit reports have shown considerable wastage in that regard. It is a bad way of commissioning home care services. They should be commissioned in a more transparent and accountable manner so as to ensure the companies providing the best service in the most efficient manner are getting the funds with a view to meeting the ever increasing demand for home care services.
Ms Michelle Murphy:
Regarding the symptoms of the pressures we have been seeing, we published a poverty briefing in June that detailed increased levels of poverty, including child poverty, and financial stress, with the highest stress levels experienced by those on the lowest incomes who have lost the most. The social infrastructure has also been eroded across the country.
My first recommendation is to implement our two proposals on social housing which are contained in our budget choices document. My second recommendation is to implement a minimum effective corporation tax rate of 6%.
Mr. James Claffey:
I will outline a couple of figures relating to the symptoms. Between 2006 and 2011, unemployment levels in rural areas increased by 192% compared with a figure of 114% in urban areas. At 10%, people in these areas are also twice at risk of poverty compared with their urban counterparts. Rural areas have been under a major burden in the past five years owing to increased carbon taxes and so on. According to a study we conducted with the Vincentian Partnership, people in rural areas are spending €100 more per week just to live.
Mr. James Claffey:
Extra travel costs, health costs and so on, for example, in bringing their kids to school. In terms of two priorities for the budget, we would like to see the establishment of a committee focused on job creation in rural areas, regional demands and the skills available in each region, with a view to driving local economies. To turn two into one, the coverage of fibre broadband in such areas should be extended.
A second priority is education. The cost of education for third level students from rural areas should be analysed, particularly the issue of affordability for low income families. According to a credit union survey, one in four students has taken out a loan to attend college.
I represent many rural villages in County Limerick. Is there a magic bullet to ensure shops will stay open and other businesses will open in rural villages? Half of the houses in a village might be unoccupied and there are no businesses. Has Irish Rural Link considered specific measures to help people to set up businesses in their native areas?
Mr. James Claffey:
Infrastructure is an issue. To a certain extent, there is a reasonable level of transport infrastructure, thanks to the provision of improved roads; therefore, there is access to the areas in question. However, we need to ensure financial systems are in place if people are to be helped in creating businesses. Broadband is also necessary, if they are to develop. As we know, Internet sales have been a major part of most companies' business. There is considerable potential in the creative economy. NUIG is conducting studies of it and its benefits in areas of Connemara.
We are always looking for options that will work. Social housing represents a major issue and the feedback our guests are receiving is being reflected in our constituency offices. Many people in the lower income groups cannot make ends meet and have mortgages they cannot afford. It is a question of giving them some respite. Is this a fair assessment of what our guests, for example, the Society of St. Vincent de Paul, have been finding?
Ms Caroline Fahy:
The housing issue has become extremely prominent now as people lose their homes, both those with mortgages and those in the private rental sector. It is often forgotten that there is an increasing number of repossessions of local authority housing. Without tackling the housing issue it will be extremely difficult to tackle problems such as unemployment and so on. How can someone get a job if he or she does not have appropriate accommodation? For those who do manage to hang onto their tenancy the problem is the quality of the housing. Another problem we see is landlords who are not keen on taking tenants on rent supplement when there are many other people with a deposit and first and second month’s rent in their hand. Incentives could be put in place for landlords in the private rental sector to take those more vulnerable tenants and bring the accommodation up to minimum standards of energy efficiency.
I thank the witnesses for their presentations and for all the work they have put into their submissions, which are very helpful in informing our views for the upcoming budget.
My first question is addressed particularly to SJI - I congratulate it on all its detailed work on these matters. While I agree with much of it, I am concerned that SJI includes the €500 million to be garnered from water charges in its budget arithmetic. This will be very controversial, not just for SJI but for many as they frame their pre-budget submissions. It may not surprise the witnesses to hear that I am completely against water charges. To those concerned with human rights budgeting and so on, access to water is the most basic human right. To charge for it and make it accessible only to those who can afford to pay infringes that right. I am a little surprised that SJI includes it in its budget arithmetic and does not seek to raise revenue elsewhere because it is regressive. I would like to hear comments on that point.
Ms Michelle Murphy:
This is a controversial issue. We included it because the Government will include it in its budget arithmetic. We also included the carry-over of taxation. The expenditure carry over was not available when we were compiling this document. We made a very detailed submission approximately two years ago when water charges were being discussed, in this very room, on the number of litres that should be free to different households. The ESRI paper has not yet been published. We are very unsure of how this charge will work. One could add in the extra €500 million as coming from a minimum effective rate of corporate tax. Government, however, asks everybody to submit proposals in light of the budgetary deficit target it has to meet and of what it will include and exclude. That is why we included the water charges in our costings. We did it also to show that a budget adjustment of €2 billion will not be needed. There could be one of zero, as we have outlined.
Ms Yvonne O'Sullivan:
The right to water came up in the consultation process for the report we are putting together on economic, social and cultural rights. It could be a feature of next year too, if people make submissions on the right to accessible and clean water. That is definitely a human right. We do not focus only on that within our budget. We take a wider view of all economic, social and cultural rights. It is a double burden, especially if a person relies on the State for his or her income. We ask that there be a minimum core of the right to health, housing and education. That is the main component.
Ms Michelle Murphy:
We are discussing economic, social and cultural rights. With all due respect to everybody in the room, the fiscal compact will put paid to any economic, social and cultural rights if there are binding expenditure ceilings and taxation cannot be raised above a certain level, and any extra tax revenue has to be used to pay the debt. Ireland will not meet any of its economic, social and cultural targets if we are still constrained by the fiscal compact and if the push by the Italian Presidency of the EU does not loosen some of the articles in that treaty.
I take that point, which is a fair one but there was a major campaign across Europe about the right to water. If there was a line one could not cross that prevented water being used to generate revenue because people must have it, governments would have to find the money elsewhere, through corporate tax, financial transaction tax or tax on high incomes. Perhaps SJI does not wish to state its position on this but does it think access to water is a human right that should be free of charge?
Mr. Robin Hanan:
We were one of the organisations which organised the European Community initiative that collected 1.5 million signatures across Europe for the right to water, which is part of the right to live a decent life. We are not against the imposition of water charges but we are against charges on the basic supply of water and the level should be set reasonably high, taking into account all the problems of building design, families and so on. It must be structured in a progressive way, which the current water tax proposals are not. We are quite happy with the principle of charging for excessive use of water but the principle of the right to a basic supply of water and to other utilities, which many of our members in other European countries have battled for, is also a very important human right.
Even when these allowances are given initially they tend to disappear. That has been the experience.
There is a big danger of opening the door to a punitive tax.
I shall ask three or four questions and hope to get one reply from each of the relevant people. A minimum effective corporate tax rate is something that we have championed quite significantly, and figures of 6% and 9% have been put forward. I would like to hear comments and the amounts sought by the witnesses. The rate is a big area of dispute; 6% has been proposed. Judging by my calculations on the basic figures provided by the Revenue Commissioners, out of a total of €70 billion, the generation of €4 billion equates to a rate of 6%. Therefore, a minimum effective rate would not raise revenue unless it is increased to at least 9%, or as high as 12%. What figures were used to calculate a 6% rate?
I am glad every organisation has underlined the importance of housing, but there was signification variation in their submissions on housing. How much do they think the extra investment should be? Social Justice Ireland suggested €250 million to create approximately 2,500 houses, Threshold suggested €1 billion to create 10,000 houses, and Focus Ireland suggested €500 million to create 5,000 houses. I think we need the higher figure just to begin to make a dent in this issue. I would like to hear comments from the groups on the matter.
Some of the housing groups are pushing for REITs, or real estate investment trusts, to increase investment in housing. I fundamentally disagree with a REIT because it would incentivise speculation in property again. It would not incentivise investment in new housing but in the purchase of existing buildings.
Sorry; I did not realise the agency would be here. However, I ask the witnesses to make some quick comments on housing.
The next topic is rural links. Do the witnesses think planning issues, particularly planning permission for multiple discount stores, have an impact on small towns and villages? Dún Laoghaire is on the edge of Dublin but it has too many large supermarkets and discount stores, which have drained the life out of the town and village centre and thus affected small businesses. Do the witnesses think large multiples and discount stores threaten village and rural life?
Mr. James Claffey:
Such development can be perceived as a threat as it takes away from smaller shops. It has also had a massive impact on small and medium-sized businesses, with an 81% closure rate. In contrast, jobs are created and life has been made easier for people living in Dún Laoghaire. We cannot disagree with an investment that will create jobs, as we have a high rate of unemployment. As we said, jobs are our biggest focus.
Mr. James Claffey:
These shops can remain in a cohesive village. I am not that long out of college and I studied this situation as part of my thesis. I found that 90% of farmers spend their money within a ten-mile radius and people living in an area will still spend their money in a local shop or post office or whatever is available.
Ms Michelle Murphy:
With regard to the corporate tax rate, when SJI drafted its model, we made an assumption about an aggregate effective tax rate and the spread of tax rates above and below the figure. Assuming the aggregate effective rate is 6%, for example, that means one has to look at the spread of aggregate rates from 0% to 3%, 3% to 6%, 6% to 9% and 9% to 12%. We based our calculations on those rates and we looked at issues such as reductions in management, expenditure, capital allowance and all of these other things that companies claim before they pay their tax, and we came up with the figure of €1 billion.
In terms of social housing, we gave a figure of €250 million, which is the tip of the iceberg. We would also like to see our other proposal implemented. I refer to an agency taking control of the local authority housing stock and using it as collateral to borrow off the books in order to raise the billions of euro required to address the social housing crisis.
When other witnesses are responding, can they also comment on the housing assistance payment scheme? Some people have talked about it in positive terms while others are concerned about whether it will work, given that landlords seem to be moving away from rent support systems.
Ms Caroline Fahy:
Recently, the Society of St. Vincent de Paul made a submission on the development of a five-year social housing strategy. We sought a longer-term plan because we want to tackle the housing waiting list and ensure that people on very low incomes, plus the bottom 30% of earners, can access housing because their income may not be sufficient to purchase a home. These people need to have to have something a bit better than the private rental sector and everything that goes with it.
We are broadly in favour of the introduction of HAP because it is better than rent supplement in terms of allowing people to take up employment while not losing everything straight away in terms of housing support. As with rent supplement, we are concerned that landlords will not necessarily take on HAP tenants. Plus, HAP does not do anything to increase the State's housing stock, which is the big issue. The problem is that the building of social housing has stopped and we must now deal with the results. The private sector has a role to play in the provision of housing to low-income households, but we cannot rely on it because the sector has completely failed. These are our concerns.
I welcome the visitors. Recently in the Seanad we found that out of the first 5,000 houses offered by NAMA to local authorities, only 1,000 were taken up. It seems amazing that four fifths of housing that exists has not been taken. When the then Minister of State with responsibility for this area, Deputy Jan O'Sullivan, was in the Department, there was an amazingly slow turnover of local authority houses - so much so that some of them were vandalised - but money was voted and provided to speed up the process. Do the witnesses wish to make observations on those two aspects of the housing scene?
Ms Caroline Fahy:
Housing quality is one of the issues for the society. It is not enough to house people in accommodation that might not be appropriate, because it means one is only kicking the can down the road. I do not know enough about the NAMA issue to respond, but the take-up figure is very low. We need to look at increasing the State's stock in order to tackle the 90,000 households on the waiting list.
If all the Senators had been present for the vote on the extension of the universal medical card scheme, there would have been 59 votes to my one vote. It will cost the best part of €100 million for the two schemes - the over-70s, regardless of income, and children under six, regardless of their families' income. That means that the rich get richer, yet we still give them medical cards. What would the witnesses have done with €100 million? I am an endangered species in the Seanad because when I argued for poverty alleviation it did not have an impact on the vote.
Ms Michelle Murphy:
It is a political decision.
We need to provide universal access to health care, not universal medical cards for those over 70 regardless of their income. Given the pressures on our health services at the moment, I do not see how either children under six or the over-70s could be provided with such cards within the health service budget. With that €100 million, it would be possible to introduce refundable tax credits, which would benefit 113,000 low-income workers.
The chapter on housing in our socioeconomic review deals with NAMA and social housing. Approximately 1,900 properties have been deemed suitable. That is the issue. Those properties have to be evaluated and deemed suitable for social housing. Almost 300 more are being evaluated. Contracts have been signed on some and transactions are being completed. It is a time-consuming process. It is not that housing associations do not want to take up these properties, but they have to be evaluated and deemed suitable. It is then necessary to go through the process of signing a contract, completing the transaction and preparing the unit for release.
The other point that arose was about water charges. We tried to establish the price of water and the generous free allowance. There should be some consumer representation, and some people wanted the local authorities that had been performing that job up to now just to have representation.
I believe the meters will cost €600 million. In the UK, only a third to 40% of premises are metered. Why do we need meters if we know some people's consumption will be tiny, with only one person living in the house? Also, the fact that 40% of treated water goes to waste was being attributed to the consumers rather than to the engineers. I believe it was Ben Dunne who said that a person who owned a shop from which 40% of the stock was disappearing would not blame the customers but would investigate what was happening.
Many unsatisfactory things have happened with regard to water. We have heard a projected charge of €240 per household. Is that the number Ms Fahy is working on? We did not do it well, and that is the collective responsibility of everybody. The principle Dr. Hannon mentioned is sound, but we went all around the houses to do it. What would Ms Fahy recommend at this late stage? The Commission for Energy Regulation is looking at it. I do not know if anybody has made submissions. We still do not know what we will be putting before the public. What would the witnesses recommend?
Ms Caroline Fahy:
The Commission for Energy Regulation has had a number of calls for submission on this and it is becoming increasingly difficult to respond to it because of the lack of information. The ESRI report on affordability has not been published, which leaves us in the dark. As I said earlier, we have tried to look at it. If a household is to be charged €240, if Irish Water needs to invest a certain amount in the infrastructure and if the Government is going to gather €500 million from it, those figures do not add up. This leads to the likelihood that people will end up paying more than €240, and it is not-----
I wish to make an intervention; I will give the Senator back the time. Representatives of Social Justice Ireland appeared before the Oireachtas Joint Committee on Environment, Culture and the Gaeltacht when I chaired that committee. We produced a very substantive report on the future of Irish Water. Much of the discussion at that time broke into two areas. There was the universal allowance system that Dr. Hannon mentioned earlier - I am putting aside the people who were saying there could be no water charges and just referring to the debate around the structuring of it, so there was the issue of inability to pay rather than refusal to pay - and the other school of thought was that, as opposed to a universal allowance, a more structured, targeted, focused approach should be taken on a PPS basis. I remember this because I wrote the recommendation to move to a PPS-based system to ensure that we targeted the people most in need. Rather than having a universal allowance, the idea was to target the allowance. Has the thinking of the Society of St. Vincent de Paul evolved around that area, particularly with regard to the PPS, or is it very much where it was two years ago? I put the same question to Social Justice Ireland on the allowance system. Are the witnesses advocating for a universal allowance system or a targeted approach?
What prompted me to make the intervention is this. The difficulty with the universal allowance is that although Irish Water will never be privatised - it is in the legislation - it has to operate under a corporate structure.
The Deputy may disagree. The Deputy's problem is that every time he hears a fact he does not like, he disagrees with it. This is provided for in legislation, unless a government comes in and changes the legislation.
Irish Water must operate as a corporate entity. It must have books that balance at the end of the year and must comply with the requirements of the regulator. For me to say there is a universal allowance there is akin to saying, "Let's go to Doheny and Nesbitt when we finish here at 5 o'clock and every second pint is free, but the first pint will cost a tenner." This is what happens when one operates a structure such as this. There is a very serious flaw with universality, which gives the same benefit to the people who can afford to pay without any difficulty as to those who can only afford to pay less.
Ms Fahy does not need the information; she just knows corporatively that it is a fact. If Irish Water has a free allowance it will need to apply a cost to make the structure of the company corporatively sound.
Ms Michelle Murphy:
We have always been in favour of the concept of universality. Part of our proposal on water charges was a universal allowance. The other part of our proposal was a tapered charging system, because that is the only way to avoid a situation, for example, in which people moving into low-paid employment lose all of their benefits. Without the studies that have been done, it is very difficult, as Ms Fahy mentioned, even to make submissions to the Commission for Energy Regulation. At the time we proposed a tapered system of charges. Ireland might have difficulty in terms of economic, social and cultural rights if it did not also provide a universal allowance. We firmly back the concept of universality, accompanied by a tapered charging system. It is very difficult to analyse it if we do not have the information.
Moneylenders were mentioned. I believe Ms Fahy said these were quite popular guys in their local communities. The Seanad passed legislation on friendly societies which went to the Dáil and has not come back yet. The view on friendly societies in legislation was more or less dismissive: no new ones could be founded and those that did not already have loan funds would not be allowed to set up loan funds. We looked at the Public Service Friendly Society. There is a big movement in the UK also. I suppose it is analogous to credit unions. Our point was that it seemed a strange part of the financial system to shut down or curtail the growth of, because it was the one part that did not go on the rocks. Has the Society of St. Vincent de Paul made any submissions? Would they help people in their financial needs, as they seem to do in the UK quite successfully?
Ms Caroline Fahy:
We have looked at how people on low incomes can access affordable credit. In addition, people have reported that they are happy with such things as doorstep credit, which is what a moneylender provides when bringing money to the house and collecting it from the house. In the UK they found that even when a doorstep credit service is provided on a non-profit basis, without too much paperwork and things like that - just to wash its face, if one likes - the interest rate is still quite high because of issues such as non-payment of loans that have to be built into it when working with people on a low income.
The key point is that there has to be some way for people on low incomes to access affordable credit, because they need it to make ends meet, and we would not like to see anybody ruled out of accessing that. Despite the high levels of customer satisfaction which many financial services would like to have, the issue with moneylenders is just cost. We have made submissions to the credit unions about returning to that base of working in local communities with people on low incomes to try to encourage them to save. Sometimes the Society of St. Vincent de Paul will match the amount people are saving in the credit union to try to get people to have a bit of a buffer.
However, they also need access to credit.
Delegates from the Central Bank have appeared before the committee to discuss this issue, including concerns that Wonga and other companies might be targeting the Irish market. It was a satisfactory meeting in the sense that we were assured that the current licensing arrangements in this country are not attractive to Wonga because they are quite tight in comparison with those applying in some jurisdictions. The main concern is to avoid a situation here like what is happening in Britain, with these companies setting up on the high street and offering payday and one-week lending. Fortunately, the interest rates being applied by them are not obtainable in this country. The way the system works here is that a company applies for a licence to charge a particular interest rate, and no licence has ever been granted allowing for rates in excess of 450% or thereabouts. I understand Wonga and companies like it charge rates of 2,500% to 4,500%.
Thank you, Chairman. I have one final question for Ms Fahey. The shops run by the Society of St. Vincent de Paul are playing a vital role. I presume footfall and the number of shops have increased in recent years. How are the shops coping as they seek to assist people through a sixth year of recession?
Ms Caroline Fahey:
I do not have any figures with me, but our shops are a huge source of revenue for us and a source of affordable products for people on low incomes. Charity shops in general are doing quite well because of the recession. It should be noted, too, that our donations have held quite steady. While people might be donating smaller amounts, it seems the numbers donating have increased. That is very welcome.
I thank the witnesses for giving their time to the committee this afternoon. I am sure their pre-budget submissions will be taken on board by members Their contributions will form part of the report this committee will submit to the Department of Finance following the conclusion of our hearings tomorrow.
I propose that we suspend for half an hour before commencing the next module. Is that agreed? Agreed.
I welcome Mr. Patrick Davitt, chief executive officer, Institute of Professional Auctioneers and Valuers, IPAV; Ms Niamh Randall, head of policy and communications, Simon Communities of Ireland; Mr. Mike Allen, director of advocacy, Focus Ireland; and Mr. Bob Jordan, chief executive, Threshold. The format of the meeting will be a round table discussion on the environment and housing based on the pre-budget submissions received from the organisations present. The delegates will make their opening statements in the following order: Institute of Professional Auctioneers and Valuers, Simon Communities of Ireland, Focus Ireland and Threshold. A question and answer session will then ensue. Given the time constraints, I would like to give more time to the question and answer session than to the opening statements. If time allows, the delegates will have time to wrap up. I remind everyone in attendance, including those in the Visitors Gallery, that all mobile phones must be switched off as they create distortion in the broadcasting of proceedings.
By virtue of section 17(2)(l) of the Defamation Act 2009, witnesses are protected by absolute privilege in respect of their evidence to the joint committee. However, if they are directed by it to cease giving evidence on a particular matter and continue to do so, they are entitled thereafter only to qualified privilege in respect of their evidence. They are directed that only evidence connected with the subject matter of these proceedings is to be given and asked to respect the parliamentary practice to the effect that, where possible, they should not criticise or make charges against any person or an entity by name or in such a way as to make him, her or it identifiable. Members are reminded of the long-standing ruling of the Chair that they should not comment on, criticise or make charges against a person outside the Houses or an official either by name or in such a way as to make him or her identifiable.
Members are reminded of the long-standing ruling of the Chair to the effect that they should not comment on, criticise or make charges against a person outside the Houses or an official either by name or in such a way as to make him or her identifiable.
I ask Mr. Davitt to commence his opening statement on the pre-budget submissions and other witnesses can follow in the sequence I have outlined.
Mr. Patrick Davitt:
On behalf of the Institute of Professional Auctioneers and Valuers, IPAV, I thank the Chairman and the members for the opportunity to make this short presentation to them on our priorities for budget 2015.
By way of background, IPAV is the representative body for almost 1,000 auctioneers and valuers nationwide. Founded in 1971, the institute’s main aim is to promote the highest professional standards among members at all times. As we stated in the submission, IPAV believes that a properly functioning housing and mortgage market is essential for a properly functioning economy and a stable society. Most observers, including ourselves, believe that the industry is now beginning to experience a modest improvement, although there are signs of many tiers beginning to emerge. Central to making the market stable and sustainable is a proper and adequate supply of new housing, and that should be the Government’s main priority for the property industry. Incentives to purchase are of little use if there is not an adequate supply. The Forfás report on Ireland’s construction sector and Construction 2020both offer a number of worthwhile ideas and aims, but we believe now is the time for more immediate and concrete measures to be taken.
I will highlight a few of those measures. I believe strongly in the need for the creation of a national property authority. That should consist of representatives of all the relevant stakeholders and would advise the Minister and Government of the day. The lack of such advice was a prime cause of the property boom and bust, and immediate steps should be taken to ensure that never happens again. It is important to have a body of such experts on hand to identify and address problems and provide advice and guidelines to policy makers.
Demand for housing is at an all time high in Dublin’s inner city yet it is estimated that between the canals there are approximately 155 acres of land and some 300 vacant sites that could be used for building residential and commercial property. While NAMA and others have announced plans to restart various programmes, the introduction of a vacant site levy in budget 2015 would propel this drive to increase the supply of housing in areas where it is most needed.
Regarding NAMA property sales, NAMA is currently selling off large numbers of apartments in huge tranches. While this might have been understandable in the early days of the property downturn, IPAV believes it now makes sense to sell these units individually or in small lots. That would have the double advantage of securing more money per unit for the Exchequer and give young people and investors the opportunity to buy directly from NAMA, thereby cutting out the middleman, which is generally some foreign investment vehicle looking to make a quick profit.
The planning process clearly needs to be more flexible, notably with regard to getting the construction sector moving again. Most young couples like to buy houses eventually rather than apartments in Ireland and it seems logical that many of the planning permissions previously granted for apartments must be converted to housing. IPAV believes a fast-track approach should be developed for all local authorities. We can look to the planning process in greater London where planning applications have to be validated inside 14 days, with a further 30 days for planning.
Regarding universal mortgage insurance, some measures are clearly needed to help first-time buyers get on the property ladder. Mortgage lenders are currently under pressure to rebuild profitability and reduce the size of their balance sheets. Hence there is no incentive to engage in high loan to value, LTV, lending. IPAV believes the creation of a universal mortgage insurance model would provide an incentive for such lenders to engage in high level LTV loans and to provide relatively low interest loans to borrowers. This model already operates in many other countries, including the United Kingdom, and we believe the Government should give it a high priority in the October budget.
With regard to renting directly, the rent a room scheme has been reasonably successful but it needs to be extended. Currently, if a property owner earns €10,100 or more in gross income, the whole amount of income is taxed. It would make far better sense if only the excess above €10,100 was liable for tax. I thank the members for listening and I will be happy to take questions later.
Ms Niamh Randall:
I thank the Chairman and the committee for inviting us to appear before them today. As the Simon Communities in Ireland, Focus Ireland and Threshold are working to tackle homelessness and the housing crisis, we have agreed to share our time to be more informative and useful but also to avoid repetition for the members. I will set the scene briefly, examine some of the solutions and then hand over to Mr. Mike Allen from Focus Ireland and Mr. Bob Jordan from Threshold.
As everybody is aware, we are in the middle of a homelessness and housing crisis. More people are at risk of homelessness, more people are becoming homeless, and more people than ever are turning to services for support. The Simon Communities of Ireland has reported a 24% increase in the number of people turning to our services in our most recent annual report, and the numbers continue to grow. There are approximately 90,000 households on the social housing waiting lists. Rents have increased by about 9% nationally and at different amounts in terms of urban centres; it is about 14% in Dublin. The number of properties available to rent has declined sharply to just under 6,000 properties on 1 May this year. Rent supplement levels are proving insufficient to meet the cost of many rental properties.
With this lack of available social housing and barriers preventing people accessing houses in the private rental sector, it has become much more difficult for people to secure affordable and appropriate accommodation. That is not just causing homelessness. It is also preventing people leaving homelessness, with people who are homeless effectively trapped in emergency accommodation for far longer than is appropriate.
Cutbacks to funding for housing support, health services, probation and welfare, education and training, etc., have knock-on effects that contribute to homelessness. That combination of factors can trigger homelessness in the first place but can also prevent people moving out of homelessness because they do not have the necessary support.
It is clear that austerity budget measures are having the biggest impact on the people who are the most vulnerable. A significant policy shift is required to address the growing social housing and income adequacy needs. The reliance on the private sector to provide social housing only has demonstrably failed. We need sustainable investment in social housing and a large provision in the private rented sector. That needs vision, decisiveness, political will and commitment on the part of practitioners and providers to deliver quality social housing but it also needs to be resourced.
It is in this context that the Government has committed to ending long-term homelessness and rough sleeping by 2016 using a housing-led approach. Housing-led approaches are extremely effective in addressing and ending homelessness for good. That is Government policy, and we wholeheartedly support this approach, but housing-led approaches are also predicated on the availability of support appropriate to each person's needs. That might be support to live independently with regard to cookery skills, budgeting and tackling loneliness and isolation but for some people it also means helping them to address mental health issues, physical health issues, and drug and alcohol issues.
Resources must allow for the diversity of needs but also the fluctuation in needs. For example, if somebody reaches a mental health crisis it is vitally important that the level and intensity of support can be increased just for that period to help them get through the crisis and remain in their tenancy. The level of support can then roll down once the crisis has ended. It is clear that ending homelessness requires more than just housing, but housing is a central piece of this jigsaw and remains the single greatest barrier to implementing a housing-led approach.
The Government must reappraise the upfront investment required to generate the flow of accommodation that, along with support, will enable people who have been homeless to take up sustainable housing options. Responses must be nationally driven but locally delivered to ensure people can remain in their communities where they have family and support networks. This is especially important when people run into difficulties, be it housing or income difficulties.
We need to find more options and better, more sustainable ways to house people in the longer term. Critical to that is preventing people becoming homeless, and then supporting people to make the smooth transition out of emergency accommodation to independent living. Crucial elements to achieving this are income adequacy, housing, rent supplement, and health and social care supports. The Department of the Environment, Community and Local Government, the Department of Social Protection and the Health Service Executive, along with other Government Departments, play a vital role in ensuring access to housing, social welfare, and the critical support services that offer the most effective means both of preventing homelessness but also supporting people to move out of homelessness.
To address this housing and homeless crisis, we urgently need access to housing and access to support in housing, but also action to prevent homelessness and the recurrence of homelessness. We urge the members to support us in our call to ensure that the Government takes on these issues in budget 2015.
Mr. Mike Allen:
I represent Focus Ireland. I thank the committee for the opportunity to put forward our views on the forthcoming budget. The Government's national policy on homeless, and that of the previous Government, is probably the best policy that has ever been developed and is outstanding at European level. Unfortunately, the reality on the ground is completely different. We have the best policy and some of the worst outcomes we have ever faced. The reason for that paradox is the failure by successive Governments for several decades to address the question of supplying housing at an affordable rate for people on low incomes, as is the decline of social housing.
As Ms Randall eloquently pointed out, homelessness is more than an absence of housing. Nothing that homelessness organisations do to help people re-enter housing can achieve anything unless there is a supply of homes for people to move into.
In a crisis, there are a number of steps to be taken immediately that would not normally be taken. They have disadvantages one would not wish for but they are required in emergencies. I will mention one in a moment. First, we need to say something about the long-term solutions. While they are long-term solutions, they need to be implemented now. The primary long-term solution that needs to be put in place is a major investment in social housing. The reason for the problems we are facing, most dramatically in respect of families becoming homeless, is that we have ceased to provide affordable accommodation for families or to subsidise their accommodation in the way we used to. We have always failed in this regard with single people, particularly single men but also single women. As a nation, we always had a very good track record of ensuring families were protected but we no longer do. While there are some reports that family homelessness is declining, our experience on the ground indicates 39 families were recognised or registered as homeless in Dublin last month, June, representing an increase on previous months. There is a continuing acceleration.
The investment in social housing needs to be very substantial. At this stage, everybody recognises it needs to be through an SPV and should not affect Government debt. There is a sense that we have sorted out the economics and mathematics and that it is now time for the Government to move on and actually deliver. It is worth saying that the shift in the Cabinet is in some ways welcome. What we were told initially, which was that there was to be Minister with responsibility for housing, was very welcome. However, it is deeply confusing that, a few days after that statement, a Minister of State responsible for housing was appointed who is not a member of the Cabinet. Now there are two individuals responsible for housing, one of whom is a member of the Cabinet and the other of whom is not. The division of responsibilities seems to be such that one is responsible for social housing. What is the other responsible for? Is it other people's housing, real housing or the construction industry? We do not need confusion at this point; we need the Government to do what it said it was going to do, namely, treat this matter as a high priority, move on energetically and provide clarity. We are saying €0.5 billion needs to be invested in social housing this year to deliver 3,000 homes. This needs to rise to €1 billion per year in subsequent years. We are saying €0.5 billion at present because that is all the system is capable of absorbing in the first year.
My final point is on the immediate actions that need to be implemented. Threshold will deal with some of them. The main one to which I want to refer concerns tax reform in the private rental sector. There are many things that need to be done in that sector, and they need to be done urgently. At present, we are addressing the need to get people into homes in the private rental sector through rent subsidy. There is reluctance among some landlords to accept that, and there is a shortage of housing. We propose that there be a number of tax reliefs for landlords who accept people who are currently on the homeless list. This would create an incentive for them to take people from this category. It would save the State money in that people would no longer have to be kept in emergency accommodation, and it would be socially beneficial. This should be achieved in a tax-neutral way through the adjustment of other tax reliefs.
Mr. Bob Jordan:
I will address the crisis in the private rental sector. To some extent, the private rental sector has been used as a solution or alternative to social housing in the past decade. Unfortunately, we are now in circumstances in which the sector itself is in crisis and creating problems.
It is worth reminding ourselves that one in five families in Ireland lives in the private rental sector. It is not the Cinderella of housing anymore. It is not a waiting-room for home ownership but a place where people are putting down roots. Ten years ago, we decided people would have security in the private rental sector for up to four years. That is quite basic security. It is being undermined at present by rocketing rents. This really means people are being economically evicted from their homes. Unfortunately, it is not only single people who are ending up homeless but also families with children.
Let me focus on what we regard as three solutions, to be implemented in the period before the social housing supply really comes on stream. Rent supplement is a problem. The rent supplement budget has been cut quite significantly over the past couple of years. On the question of whether rent supplement limits are too high or low, we know they do not control the market. They do not represent the real rents because up to 50% of people coming to us in receipt of rent supplement are paying top-ups. People are not protected by the limits. In other words, if one's landlord decides to increase one's rent above the limit, one is not protected by the law. That can happen and the PRTB will stand over a rent review.
In the forthcoming budget, rent supplement limits need to be increased. We need to protect the budget. Obviously, that needs to be done in a targeted way, particularly in urban centres, bearing in mind the most vulnerable household types. Much rigidity has crept into the system over recent years during the period of austerity. The staff who are meeting people at risk of homelessness and who work for the State need to have greater flexibility to give people more rent supplement where they need it to remain in their homes. Obviously, savings are being made in the rent supplement scheme. The pertinent figure has reduced from approximately €0.5 billion to €344 million this year. This is partly attributable to improvements in the economy and people getting jobs. Any savings that are made in the rent supplement system for that reason should be ring-fenced to provide flexibility for others who need the support. The money should not go back into the main coffers.
We would like to see the housing assistance payment rolled out as soon as possible because it deals with some of the flaws in the rent supplement system, particularly in terms of direct payments to landlords, verifying the standard of the property, and one's opportunity to take up work while still getting some help with housing costs. We support the housing assistance payment as a measure because, to some extent, it offers some of the benefits of being in local authority housing to people who are currently in the private rental sector.
The big argument that has been put forward against increasing rent supplement limits is that the State should not be chasing the market. The State is either in the market paying market rents or it tries to control market rents. Therefore, the issue of rent control is on the table. It is certainly a practice we believe needs to be introduced to protect people in their homes. People are facing rent increases of 30% to 50%. Clearly, welfare payments are not increasing to that extent, nor are salaries. We need to have protectable rent increases. Thus, when people enter a tenancy and pay the market rent, they will know the rent increases they will face. We believe this arrangement should be introduced.
Countries that have or which we refer to as having a much better private rental sector, including Germany, the Netherlands and France, are all considering rent control measures at present. There is a study taking place in Camden on rent control. This is an issue across the table in Europe. Most people would agree that Ireland's property market is in a much worse state than that in many of the other countries that are introducing rent controls.
I was very pleased that this committee launched a report last week on the mortgage arrears resolution process. Within that, there are two recommendations on the buy-to-let sector. One is that where receivers are appointed to buy-to-let properties, both the letter and spirit of the residential tenancies legislation should be applied. In other words, people's rights should be upheld in terms of notice periods, getting back their deposit, repairs, etc. People's conditions in their property should not deteriorate. I ask the committee to support what we believe needs to be done to operationalise what I propose. This involves an amendment to the residential tenancies legislation stipulating receivers must step into the shoes of the landlord. In other words, they must take on all the responsibilities for the landlord. This must be explicit in the legislation.
We will organise the proceedings into periods of 15 minutes or so. I welcome the delegates again. The reason we are meeting at this time of year, when we should be winding down for the summer, is because the budget is now in October. I very much appreciate the adjustment the delegates made to their schedules in submitting proposals at this time of the year. In the past, they might only have been considering the outline draft at this time.
Despite the massive economic crisis and the collapse of the massive housing bubble, and irrespective of trends in Germany and other countries where large numbers rent their homes, we may operate on the assumption that Ireland will continue to be a home-purchasing nation. All indicators demonstrate that. As we now move into a new space, I am struck by the difficulty that rents in the private sector are increasing quite quickly. Whether rents are chasing the market is a debate for another day, but we know for a fact that there is an increase. Perhaps there are two reasons, the first of which is that, with the legacy of the housing bubble, there has not been appropriate construction of purchasable houses for the past 18 months to two years.
A legacy of coming out of a housing bubble has been a lack of appropriate construction of purchasable houses for 18 months to two years. That tends to push people out who should be buying but are not. That group is stuck in there significantly. Mr. Davitt indicated his concern about the issue of loan-to-value difficulties as we see the property market begin to escalate in some areas again. Why did rent-to-buy not take off over the last couple of years?
Mr. Patrick Davitt:
That is what I mean. At the start of the recession, the scheme was put forward by many builders on the basis that people would buy a property having rented it for so many years. There was an agreed rent for the time. What many people found was that the price of the property went down during the term they were renting it. At that time, when the three or four years moved on, they could buy properties cheaper than they had agreed to buy one at in the rent-to-buy scheme. That is what they did. Even though some people were tied into contracts, they could not and did not complete them. They bought other, cheaper properties.
I could understand that in 2008 and 2009 when the market was bottoming out. However, if someone was renting in 2009 and paying €15,000 per year, it made more sense to keep doing that due to the fact that depreciation in the value of properties of €300,000 was running faster than that. One would be out of pocket €30,000 by buying the building as opposed to renting it. Up to 2011 and 2012, perhaps, that continued to be the case. However, rent-to-buy would have been a very attractive option around 2011 and 2012. One would have seen that the market was bottoming out and that even if one was to take a temporary hit, it would come back in the future.
Mr. Patrick Davitt:
Currently, Dublin City Council believes that between the two canals there are 155 acres across more than 300 derelict sites which could easily and should be developed. They are owned by people who for different reasons are landbanking the sites and not doing anything with them. This is happening when buildings and sites in Dublin are very scarce, and it would be good to get them back into production and to start building. We are hoping the site levy will do that.
Mr. Patrick Davitt:
They could be commercial or residential sites or they could be used for both. There is a shortage of large commercial buildings in the city centre also. We hope this will make people use their sites to ensure that someone who buys a site will buy it to build on rather than to leave. If someone buys a property and its value goes up by 5% or 10%, only one person is making money. However, if the property is sold to a builder, the builder will build and many people will be able to take advantage of the site. In the event that the sites are brought back into production and being built on, speculators will not buy such sites as are offered for sale as they know there will be a levy where they fail to build or decide to build within a year, depending on the size of the levy. I did a presentation for the Lord Mayor of Dublin some time ago and a builder in attendance recommended the size of the levy should be between 20% and 50%. That is probably a bit high and a great deal more than the Lord Mayor was considering. However, 3% or 5% will automatically mean people will not buy the sites. Builders will get to buy the properties at lower prices.
I have looked at this in the United States of America and there is a significant difference between a vacant site levy and derelict site legislation. There is a great deal to be offered in those terms as it deals with many things the derelict site stuff does not deal with. In the United States of America, this has been quite effective and had a secondary benefit where a property is in dispute between a bank, an owner and an organisation like NAMA. As soon as the levy starts to be applied, one finds out very quickly who actually owns the property. As it happened in the USA, it acted in some situations like a compulsory purchase as the levy became so cumulative on a compound basis over a number of years that the state ended up grabbing it like a derelict site for nothing. We should look at that as it has a pro-activity to it and operates in the national interest.
Mr. Patrick Davitt:
Many of these sites are vacant as opposed to derelict sites. They are brownfield or greenfield sites which can be built on very quickly. House prices go up because of site values. The only difference in the cost of building between Dublin and a place like Sligo or Longford is the site value. If sites in Dublin are very expensive and increasing all the time due to demand and speculators get into the market, the cost of the house at the end will go up. If speculators are not involved in sales and it is only builders, site values will be kept at the right price.
The next question is for Ms Randall and Mr. Jordan together. In the midst of the catastrophe and as legacy issues play out, is there an opportunity for two things to happen which are not being looked at? The Irish private residential market has involved an individual owning two or three properties in a dispersed mode - a flat, a house and something bought recently; one mortgage-free, another negative equity and the other performing as it was bought at the right time. How many private rental properties are there?
I met with a group last night and it is not the REITS programme but another way of looking at the problem. Properties could be institutionalised and put into long-term pension funds. The active side of the loan could be put into something more structured and the legacy debt dealt with through a pension fund. If the approach was taken of an institutionalised, private rented sector, could we have standards applied, uniformity across the market and a rent structure if not rent control? I would be interested in the comments of all witnesses on whether there is an opportunity for that to happen.
Mr. Bob Jordan:
Institutional investment in the private rented sector is the Holy Grail to some extent. The private rented sector internationally tends to be very fragmented. Up to 80% of landlords in Ireland have one or two properties. It is a real cottage industry. The main reasons institutional investment is looked at are increasingly professional management practices and increased scale. A further consideration is that where the State is using the sector for schemes like RAS, HAP or long-term leasing, one of the bugbears of local authorities is having to deal with so many individual landlords. Where a landlord owns one property, the local authority must come up with contracts for that and then deal with the next landlord. It is very hard to scale up these schemes. The opportunities are there. Pension funds are looking at the private sector. In Ireland, rents fell from peak by 20% to 30% whereas property prices fell 50% to 60%. On balance, it is not a bad bet. There is better information on the rate of return in the private rented sector while ultimately, REITS have looked more at the corporate side of things.
Mr. Mike Allen:
I agree with Mr. Jordan that this is the Holy Grail for which we are looking.
Over the past several years, all of the approved housing bodies dealt with a large number of investors who said they had money to put into the system. We have spent a huge amount of energy and money, in terms of experts, and came out with nothing. There is a fundamental problem with this proposition for social housing because it is one thing to make the investment but somebody has to pay it back. The nature of social housing is that it needs to be subsidised because the tenants do not have the capacity or income to pay the full cost. The State does not have the capacity to repay the money and it has made it clear that it cannot rise to that challenge.
In regard to the way in which the Chairman characterised the matter, in the sense that existing housing stock in the private rental sector might be taken over in that way, I do not think that is likely to happen. People would be looking at new housing stock. In respect of existing housing stock, we should consider a number of mechanisms, including in particular social rental agencies. The Chairman will be familiar with a pilot project that Focus Ireland, Simon and Threshold have developed in Cork, in which a body acts as an intermediary to take responsibility for letting the property away from the private landlord and ensures that the landlord gets all the rent and that the property is handed back afterwards. That seems to be a more likely option in the Irish context and a small landlord might feel comfortable in such a situation because he or she knows the investment is being looked after and can see it as he or she walks home in the evening.
Ms Niamh Randall:
I concur with Mr. Jordan and Mr. Allen regarding the challenges with institutional investors and, particularly, the time and effort that already underfunded organisations have invested without achieving the results we hoped for. In terms of social rental agencies, the Cork rental project has been very successful and this model has also proven its success in other European countries. The implementation plan for the State's response to homelessness allows for the development of a social rental agency but it is a Dublin only initiative. We are concerned about the potential for an urban centred response to these issues. Clearly, these problems are more acute and visible in Dublin but they are also impacting on areas outside of Dublin. We argue that the agency should be national in focus.
I suggest that the land banks NAMA has amassed in recent times have, perhaps through a process of default, overcome the constitutional difficulties identified in the Kenny report. It is now possible for an agent acting on behalf of the State to control the release of land to the market, as opposed to what occurred with developers in the past. Is this something the witnesses have considered in terms of ending up with sustainable provision of housing? If Ireland continues to be a home buying nation, every other aspect remains contingent on that irrespective of whether it is the right or the wrong option. Is it possible that NAMA is in a situation to implement aspects of the Kenny report without the constitutional difficulties?
Mr. Patrick Davitt:
I firmly believe it should be released. We all know that the price of property and houses have increased. If we do not build more houses, there is only a certain amount of supply. It is simple arithmetic to determine that the price of houses will increase in the absence of supply and if there is supply prices will not increase, or certainly not as fast.
Ms Niamh Randall:
We made a submission to the social housing strategy on this issue. Clearly there is a real opportunity in regard to releasing land. The challenge to date in dealing NAMA has been the slow roll-out of units and getting them over the line.
I am referring to green and brown field sites as opposed to units. NAMA's extensive holdings of green and brown field lands brought us to the position set out by the Kenny report, albeit not by the route we would have preferred to have taken.
Mr. Mike Allen:
We would have to ask why NAMA would do so because the experience thus far is that the provision for a social dividend which was included in the NAMA legislation establishing has been completely ignored. At one level NAMA appears to be relatively successful but a more public debate is needed on what the social dividend should look like as we reach its closing stages. In regard to the release of land for the public good as opposed to a return to the taxpayer, sometimes they are not the same.
Mr. Bob Jordan:
I completely agree with Mr. Allen. The land should be released. When we built 93,000 houses in 2006, approximately 6,000 or 7,000 of them were for social housing. Last year we built 8,500 houses, of which 750 were for social housing. The percentages were the same, however. My concern is that a substantial amount of new supply should be ring-fenced for social housing purposes and to deliver on the social dividend to which Mr. Allen refers.
Simon has presented figures on the Government's estimate of 4,500 units from NAMA which indicate that 518 of them were transferred to social housing. This demonstrates the painfully slow rate of progress that has been made on an issue we have been discussing for quite some time. We are probably watching the wind-down of NAMA as we speak, even though that is not the best outcome. In terms of the quantity of land suitable for social housing needs, have the agencies investigated how many units of social housing could be accommodated? The focus on NAMA has been on the number of units under its control and whether they could be handed over to the local authorities for social housing but it has also been involved in innovative ways of providing finance to developers to manage its assets. If it has a half-built construction site, it provides vendor finance at very low rates. It is acceptable to it to make a return of 2% on its financing in order to finish a development or to build roads to enhance it. NAMA can be used in a way that not only provides land but also finances the construction or refurbishment of housing stock to meet social housing needs. Has this potential been investigated by the agencies?
Mr. Bob Jordan:
We have not investigated the matter. An audit of the units held by NAMA found that approximately 4,000 could be used for social housing purposes. The local authorities have indicated a willingness to take approximately 2,000 of these units because they do not want over concentrations of social housing. A similar process could be used to audit the lands owned by NAMA to determine what can be used. We have not done such an audit.
Mr. Mike Allen:
This is the type of work that the large housing bodies, such as Cluid or Túath would do. The one example with which I am familiar in terms of completing estates involves 40 units in Clare Hall which are about to be provided to a housing association, with support from Focus Ireland, to accommodate families currently occupying emergency accommodation. This is a very welcome development but it is on a scale inappropriate to the nature of the problem.
It is not a social dividend. All are being transferred at the commercial price after all other commercial avenues have been followed. A social dividend would move them from the arm of the State that NAMA represents to public use without pushing the approved housing bodies into debt in order to achieve this.
I agree in terms of the social dividend, but it was a late night clause included in the NAMA legislation. It was a sop to the Opposition to be able to say NAMA would be used for the social good. The Houses of the Oireachtas set up NAMA and will dismantle it when it believes its time is up. We can actually change the priorities of NAMA if we want to do so, given the fact that everybody has come to the conclusion that we have a housing crisis, including a social housing crisis. Could we amend the legislation to allow NAMA to be used to deal with this issue? We are dealing with budgetary issues, but NAMA is an off-balance sheet vehicle. If it spends money on social housing, it is not accounted for in our deficit ratios.
Mr. Mike Allen:
In the sense that it is a sop, the speech the late Brian Lenihan made when he accepted the amendment and the book written by the current Attorney General which analyses the amendment suggest it was not a sop, that it is just something that has not been used or mobilised. If it does not work and the Oireachtas wants the law to be different, it has to change it. If we are not going to get a social dividend under the current legislation and the Oireachtas, or public representatives, want a public dividend, as they should, the Oireachtas should change the law urgently.
Ms Niamh Randall:
In terms of the inventory price, there is a recommendation in the implementation plan on the State's response to homelessness, the March 2014 publication looking at an inventory of State land only. Part of the process is recommended. I do not have an update on where it is at. We are all involved and engaged in the national homelessness consultative committee and the cross-departmental team on homelessness. It is something we can bring back to that forum, that is, we should look at NAMA lands aso. This is something we, in Simon, have not considered to date, but it is something at which we should look. In terms of a social dividend, we should push and enforce it. Whether it was popped in at the last minute as a sop, we should push it and try to leverage something for the public, particularly if we are in the wind-down days of NAMA.
The Government announced a revision of Part 5 of its 2020 strategy. My fear is that it will be watered down. In some of the submissions it has been stated it should be revised and strengthened. Is any of the delegates concerned that Part 5 could be diluted? It was diluted many years ago. How important is it in dealing with the problems?
Mr. Mike Allen:
There is a joint submission. The three organisations represented here and the Society of St Vincent de Paul came together and made a submission. We were very concerned that Part 5 would be watered down. It is fundamental in delivering social housing that Part 5 be retained. Clearly, in the delivery of social housing, it was extremely frustrating and officious and got a bad name because of some of the delays. All of this needs to be sorted out, but the fundamental idea that there should be a public return in the building of housing is something that needs to be maintained and delivered effectively.
I refer to the tax incentives for landlords who make their properties available to those deemed homeless. I am not against tax incentives, but the Irish way of dealing with things is that if there is a problem, we throw a tax incentive at it to see if it will work. This is not a good way to deal with the issue. On the tax incentives identified such as capital gains tax, capital acquisitions tax and company tax, will this have the benefit of dealing with the issue because I presume - correct me if I am wrong - this has to be focused and concentrated and that somebody buying a house where I live cannot apply? There should be a need identified in a particular area. The facilities and resources should be available for somebody who is in a vulnerable position. The assistance needs to be targeted. The properties being bought and sold could be few and far between; therefore, the tax incentive would not work. My initial view is that this is a distraction from the real problem, that is, suggesting a tax incentive will sort out the issue.
Mr. Mike Allen:
It is an emergency response to the crisis we are seeing. I agree that in general throwing a tax relief at the problem is not good economic or social policy. What we have is a person whose income is insufficient to pay the market rent. Therefore, the State needs to provide a subsidy. Currently, it provides that subsidy through a cash payment - rent supplement - but it is not working for a number of reasons. We suggest another form of subsidy through tax relief. It needs to be seen in that context. It is different from subsidising a person on a low income in terms of his or her inability to purchase a good, in this case a roof over his or her head at market rents. It is not what we consider to be a long-term solution, but we will have two years or, if we are lucky, many more, given that there is simply not enough social housing which is subsidised in a more effective way available. It needs to be very closely linked with other programmes such as Slí and so on in order that we would not have someone going in and failing in that tenancy. There are tenancy sustainment systems which have to be linked to be effective. To be given one, one has to be on the homeless list. There has to be the involvement of the local authority, which would trigger these support systems.
I am not 100% convinced by the IPAV proposal, but we would need to look at it more deeply. This is all about throwing out different ideas to examine them. My party examines all options. On the rent-a-room scheme, I am not sure how successfully it is working. Perhaps the IPAV might enlighten us. The proposal suggests anything above the €10,000 limit should be liable for tax. If one looks at one room, one is talking about a weekly rent of approximately €200. One would have to be above that figure not to be able to avail of the tax exemption. If one had two rooms, that could present a problem if the rent was anything above €100. One would not be able to avail of the scheme. A concern I have is that this would allow people to increase the rent and still avail of the tax exemption.
Mr. Patrick Davitt:
The Government's model is not clear, but it seems it would guarantee part of a loan which is between 75% and 95% of value. This insurance is to mitigate against high lending. It is taken by a private insurance company on the basis that if somebody seeks a high loan to value mortgage a percentage is taken by the insurance company. Based on figures from a report launched this morning, between 2001 and 2011 the largest mortgage insurer in Ireland had approximately 70,000 high loan to value ratio loans with some of the main lenders. More than €70 million in claims have been paid to lenders to date. These 70,000 loans represent approximately 5.5% of the overall residential mortgages taken out in Ireland during the period. If one extrapolates the figures and looks at the basis of a universal mortgage scheme, which is what we are discussing, it could reduce by approximately €300 million the liability of these mortgages on a long-term basis. If any percentage over 75% exists in Ireland today, and assuming one in three mortgages go bad or default at some point, it could reduce this by a further €1.7 billion over the life of those mortgages. This has many advantages, including the cost of capital to the banks, because they would not have high loan to value ratios of 95%, as opposed to what they would have if there was no insurance to buy it.
I would love to go into more detail with Mr. Davitt but the Chairman is pressing me for time. What should be the appropriate loan to value ratio for a mortgage? It is probably the basis for a wider debate. Should it be 95% regardless of who insures it? This is the real question.
I wish to touch on several other major issues identified in one of the presentations. Serious concerns have been raised about the capacity of the case-by-case approach to deal with the systemic problem of rent supplement levels. The discretion of deciding officers, which has existed since the mid-1970s, was noted. The witnesses are not clear about what additional benefits the new policy announced might offer in responding to a systemic problem with regard to inadequate rent supplement levels. Will the witnesses speak about this and what needs to be done if it is the case?
Another point, on which I had not picked up, is the issue of young people becoming homeless and I ask for details on the percentage involved. Between 50% and 75% of the €100 a week they can receive in social welfare would need to go on emergency accommodation. A call has been made to allow them to avail of the full over-26 rate of social welfare provision.
Mr. Mike Allen:
The Deputy has referred to our submission but I know the other witnesses will wish to speak about it also. We welcome the initiative, which Threshold immediately operates and on which Simon and Focus Ireland co-operate. Anything being done to try to stem the tide is welcome. Systemically, rent supplement levels are just not high enough for families and others, particularly in Dublin but also in other cities and towns. It is like a boat has sunk and everybody is drowning but we are asking them one by one whether they are all right. We know they are not all right because they are all drowning. We need a system to lift rent supplements overall. This is not to attack the system, which is an attempt to do something useful, but to recognise its limitations. It is a systemic problem and we all agree and have stated there needs to be an increase in rent supplement. Community welfare officers have discretion to vary it and it is regrettable that additional protocols need to be put in place to achieve this end. However, sometimes one needs to do things which are regrettable if one wants to prevent people from becoming homeless.
With regard to young people on the half rate, I cannot provide exact figures because it is difficult to keep track of it, but since it was first introduced all of the homeless services throughout the country began to see young people. Young people who grew up in care are protected and get the full rate if they are unemployed. The policy relies on the notion that if one gets into trouble one can return to someone in the family. The small number of young people who do not have a care background but do not have a home to return to are locked into homeless accommodation. There needs to be a system or protocol whereby community welfare officers link to the homeless service to help people get a higher income, move out of homelessness and be supported into a home. We have been speaking to the Department of Social Protection about this for more than two years and I am very frustrated about the failure to get a response.
Mr. Bob Jordan:
We made a presentation today in the AV room about the tenancy protection service. There has been an impasse with the Department of Social Protection; their representatives have discretion to go above the rent limits but they do not do so even where people are clearly at risk of homelessness. The protocol moves this up the decision-making hierarchy in the Department of Social Protection and makes the Department make a decision. The service is only available in Dublin, which is an issue, but since it was established the freephone line has received 1,200 calls and dealt with 460 families at risk of homelessness, all of whom are still in their homes. In many cases Threshold has salvaged the tenancies and kept people in case. We have referred cases to the Private Residential Tenancies Board. We have also referred approximately 55 people to the protocol. It has only been up and running for several weeks. Of the 55 people 20 have been approved and receive an amount above the rent limit. The deadlock has been broken. It is not ideal because this flexibility should exist throughout the system but I hope it will lead to a loosening up of the system across the board.
I wish to put on the record that I am the chair of Threshold. With regard to the housing market generally, the National Economic and Social Council, NESC, stated in its 2004 report that up to one third of all Irish people would require assistance with their housing in the future, either through the provision of social housing, assisted purchase or another format. In its most recent report this year it reiterated this point. We cannot depend on the market to provide housing for at least one third of Irish people and this is the bottom line.
Given that we are dealing with pre-budget submissions, as opposed to this being a general chit chat on housing, this discussion is on exactly what the asks are. My questions will be based on a three-pronged approach and I would like all of the witnesses to focus on it. My first question is with regard to what can be done in the short term. We acknowledge there is a crisis, so what are the most important measures to deal with it as it stands? I accept we are speaking about fingers in the dyke, but in the opinion of the witnesses what measures must be included in the next budget to stem the crisis?
Ms Niamh Randall:
In terms of the very immediate crisis, and homelessness in particular, the Senator may be familiar with the homelessness oversight group, which reported in December 2013. It recommended that the budgets for social protection, health, the HSE and the Department of the Environment, Community and Local Government be increased to 2013 levels.
We recommend that two of the budgets be brought up to 2013 levels, but without a shadow of a doubt the Department of the Environment, Community and Local Government budget must be increased in light of the problems, particularly homelessness.
Before coming here, I was chatting to colleagues and there must be investment of €250,000 or more in social housing. While we must move on in terms of having some output, which will take two years, some of our focus is on what we can do with the existing social housing provision. We recommend an wider inventory of voids and some of it could be liaising with approved bodies or the voluntary sector regarding taking some of them on if the local authorities do not have the funding or resources to do so, and examining allocations and transfers. We should seek a mechanism to ensure people who are most vulnerable, and the homeless in particular, are prioritised.
I do not want to focus on social housing supply because it is a longer-term measure that will not deliver in less than 12 to 18 months. I am more interested in focusing on exactly what measure are necessary today to assist in this crisis.
Ms Niamh Randall:
We need to consider rent control. Although there has been enormous reluctance in this country to consider it, we have recommended it in our pre-budget submission. It should happen. It would allow some kind of rent certainty for tenants and service users. A study on it is under way and we recommend that it be fast tracked.
Mr. Mike Allen:
Yes, but it has gone without doing for too many years to go without saying now. The people at the bottom of the heap - those who are homeless or at risk of becoming homeless - need a greater share of the existing housing supply, which means people who are slightly less vulnerable will be squeezed. We need to face this situation by giving people the tools to price themselves into what is primarily a private market. This means giving them enough money in rent supplement and improving the delivery of rent supplement to make it less unattractive to landlords, and the tax relief idea is part of it. We also need to ensure the very substantial amount of empty social housing is rapidly made available to people, primarily to this group.
We probably need to consider the local authorities offering housing that is smaller than desired. It is unacceptable to tell a person he or she has to sleep on the street or in an unsuitable shelter for a long period of time because the local authority housing is not good enough, because the person would not make the same choice. Over the next two years, we must do things we would not wish to do in order to make short-term housing available to people. We do not need to build more shelters and create an institutional system based on the assumption that families and individuals will have to live in unsuitable and unsustainable emergency accommodation for years. That is where much of the thinking is going.
Mr. Bob Jordan:
Regarding immediate measures, rent supplement limits must be changed. They are a very blunt instrument covering wide geographical areas. There is plenty of information available on localised rents so it can be targeted at particularly high-demand areas. The issue of chasing the market is real, and rent supplement limits must be reviewed in parallel with introducing rent controls. The model we have put forward is that people pay open market rents at the beginning, but that their security would be protected, as it is in the legislation. This means they would face predictable rent increases over at least a four-year period.
The National Economic and Social Council, NESC, report stated that we needed 200,000 social housing units by the end of 2012. Given that we have only 150,000 units, we need to catch up. The average annual need for housing in Ireland is approximately 25,000 units We need approximately one third of those for social housing purposes. Our submission stated that 6,000 were needed and it needs to happen soon. Regarding immediate measures using the existing supply, we need to bring voids into use as quickly as possible. This is a bugbear for everybody. As discussed previously, up to 2,000 NAMA units could be used for social housing and we should fast-track them. The housing assistance payment, HAP, should be introduced because the rent supplement system was designed in 1977 and is out of date with the modern private rental market and needs to be overhauled-----
It is difficult. We could talk about it all night. I note the comments on tax reform and I agree it is important. We gave tax incentives for people to build multi-storey car parks down in the ass end of Killarney or wherever. No disrespect to Killarney.
I apologise to Senator Paul Coghlan. I will have to explain myself. I love the area. My point is that in 2003, Threshold produced a report that stated that only one third of landlords were willing to take rent supplement tenants. This is not a short-term problem but has been with us for a long time. If we are going to depend on the market to supply housing to people in need - which I disagree with in principle - we must ensure they do not get the crud at the bottom of the market but good quality properties. Could Mr. Jordan expand on how the tax system could be brought into play to bring about better quality housing for people in need?
Mr. Bob Jordan:
Other countries have used the tax system to attract social landlords. The issue has been that a certain type of landlord has specialised in the rent supplement market, and these are not always the most desirable landlords but those with houses of flats and bedsits. Now that the market has changed, landlords have turned away from rent supplement because of how the scheme has been administered. To some extent, the Department of Social Protection has asked tenants to break the law and break their leases. It annoys people in Threshold that the Department of Social Protection asks tenants to provide leases in order to prove that they have bona fide tenancies, although one does not need a lease to live in the private rented sector.
However, the Department then turns around later and tells them to break the lease in order to seek a rental reduction with the landlord. This is what has alienated landlords from the rent supplement scheme - good landlords in many respects - who were willing to take that payment. Unfortunately, if we are to attract them back into dealing with State social housing supports, we cannot merely increase rents to chase the market but also must provide some incentive, for a limited time perhaps or to keep it under review, to attract them in for social housing purposes. They are in it to make a profit and are not operating on behalf of the State.
Ms Niamh Randall:
To come in on the point on the administration of the rent supplement scheme, everyone is aware the new housing assistance payment, HAP, will be administered by a different Department. However, I refer to some lessons learned on administration problems and landlords' frustration. As we have a big problem with encouraging landlords back, this is very important. While we all have been working with the Departments involved, it is really important that this is acknowledged in the course of the development of the new scheme.
May I ask a final question regarding approved housing bodies? Were the remit of such bodies to be expanded, might there be a role for them in cross-subsidising their activities? In other words, they could have their social remit while at the same time being able to provide housing into the private sector or in other words, cross-subsidising their social housing provision with private rented provision.
Mr. Mike Allen:
That is the way to go and as I am sure the Senator is aware, Clúid already has a project which looks like that. One should think through the consequences within the sector of doing this, in that a not-for-profit organisation engaging in profitable market activity must do a great deal of thinking about how it sets its wage levels, its governance levels and a range of similar issues. If private landlords are a cottage industry, so too are approved housing bodies in Ireland. They are doing excellent work on a voluntary basis and to place such an expectation on them without thinking through seriously the governance and regulatory issues would be somewhat premature. While we must think through these matters, in principle it is a good way to progress, once one makes sure the bodies stay true to their ethos.
I welcome the witnesses. My colleague, Ronan Lyons of Daft.ie, states the problem is the construction industry in Ireland still operates at a higher cost than does its counterpart in Germany. In effect, what one is trying to do, after a massive decline in income, is to make this product affordable. Do the witnesses have views on whether this is because the construction industry had a strong political say in the past or because it was bailed out repeatedly? Why is it not yet competitive?
Mr. Patrick Davitt:
The construction cost of houses in Ireland has been very expensive in recent years, right through the recession and right up to date. It is something that is mystifying. If one is looking at a survey, most auctioneers would look at a survey of three-bedroom properties, because they are to be found throughout the country, be it in Sligo, Dublin, Galway, Mullingar or wherever. The price, value and cost to build such a property in 2006 would be anything from €70 to €100 per square foot. That price has not changed today. Moreover, this is not due to wages in total but to the actual cost of the products one uses, which appear not to have reduced at all. That building cost is there and it remains quite high. I acknowledge that much of the value and price of property in 2006 was way above builders' profit on top of the actual cost of building houses. At present however, if for example one takes a three-bedroom semi-detached house in Longford, for which one might get €60,000 or €70,000, there is no way in which a builder could build one of those houses for that sort of money. Until such time as builders can build properties and get a reasonable amount of money for what they build, such properties will not be built. Consequently, what will happen one day is that when the existing stock of property runs out, the property market will move on quite rapidly and its price will move considerably.
Mr. Patrick Davitt:
Up. One could be looking at an increased price of many percentage points if the old stock that people are buying at a particular figure runs out and if that figure is not close to the cost of building them. One could sell a three-bedroom semi-detached house for €70,000 throughout the country - I do not refer to the city - because there is a many-tiered market in the country. Even towns on their own-----
Let us speak straight, as that is a case of supply and demand. We have houses in Roscommon and my research on this matter shows that back in 2006 and 2007, we were building 60% more houses than actually were required by the market. Moreover, we also were building them in the wrong places. In cities such as Cork, Limerick and Dublin, there is no vacant build such as exists elsewhere and what is needed is for such vacant build to come into the market. However, I believe Senator Barrett's point concerns the scenario in which we were to return to prudential lending and to apply what Mr. Davitt was saying about loan-to-value and all the rest. Incidentally, I understand his model because I looked at it quite extensively. This was done by Genworth in Canada, where a property bubble was avoided because they triangulated the purchasing of houses. The insurance company would not allow one to buy a house that was overvalued by a bank because it would be underwriting it.
However, the question Senator Barrett is asking is very simple. It does not matter whether one is living in Leitrim, Cork, Dublin, Donegal or anywhere else. One simply takes the national industrial wage and applies it to that area in the country. The committee heard disputes on figures yesterday, when IBEC and others appeared before the joint committee, stating the national industrial wage is either €36,000 or €42,000. Let us split the difference and make it €40,000. Prudential lending practices will state that four times the national industrial wage will be €160,000. If one operates on the basis of a loan-to-value rate of 90% and all the rest, along with prudential loans of perhaps three or four times one's income with a partner contributing, this means that a standard three-bedroom house for an entry couple must be somewhere around €160,000. However, Mr. Davitt is suggesting the existing business model in the construction industry cannot build a house for €160,000. There is something radically wrong if prudential lending suggests such a figure but the industry is unable to produce the product at or below that figure.
Mr. Patrick Davitt:
They can do so in respect of basic three-bedroom semi-detached houses. They can produce three-bedroom semi-detached houses in most parts of the country, depending on the value and price of the site because that is where it all starts, as well as levies imposed by the county councils to go with it. Before one begins to build, one obviously must buy the site and must put in place levies and everything else. However, even at that, I believe one can build such houses for between €100,000 and €120,000. The Chairman is correct in that it is a case of supply and demand. It is not in the interests of auctioneers that the price of property runs up because we must sell the property whether it is high or low. That is our job and we are not-----
Mr. Davitt is suggesting that a potential bubble is coming down the line. My response to is to ask how can there be a potential bubble, if one maintains prudential lending practices? This bottle I have to hand can be worth as anybody is willing to pay for it. However, were the bank to tell me it can only give me three times my income to buy this bottle, so doing would contain the market. Consequently, how can we have a property bubble if the banks do what they should have been doing over the last couple of years?
Mr. Patrick Davitt:
I am not saying there is a property bubble coming down the line. I actually am saying the opposite, which is that when supply of the property that currently is available has all gone, people must then adjust to a situation of reality, in which builders must build properties at a price at which they can afford to build them. If I sell a three-bedroom semi-detached property today in Roscommon for instance and I get €80,000 for it but if a builder down the road cannot build a house for less than €120,000, the next house to be sold after the last house is sold at €80,000 will be priced at €120,000. This is not a property bubble but is a property price that is matched to the price for which the builders actually are building the properties. While people talk about property bubble in Dublin, it is not a property bubble but is a property spike. This property spike exists obviously because of supply and demand and the money is available at present. I believe a property bubble will only come into place when it is all being done on finance.
Mr. Patrick Davitt:
The costs are there. The cost of a site is there and we could easily stretch out these costs, have a look at them and see where they are. However, I can tell the Senator that amazingly, the cost of building the houses has not changed. Nobody can understand why the costs have not changed because if one takes one particular component, such as for instance laying blocks, people who were building a block house in the good times in 2006 could have been paying between €1.10 and €1.15 to build a block and are now probably paying €0.60.
The wages have come down to a certain degree but the actual cost of building the houses has not come down greatly. It should have come down to match but it has not done that and we are aware of that fact.
Senator Hayden is always raising the NAMA stock in the Seanad. We have the numbers. A total of 5,000 were offered and only about 1,000 were taken up. My impression of NAMA is that it is there to keep asset prices up to make banks look better. If the prices had fallen, we would not have this problem. I have paid enough for banks already without having a property price still distorted by the fact that NAMA will not put them on the market and when it does, the local authorities will not take them.
Mr. Patrick Davitt:
I and most auctioneers believe that if all the properties the banks hold at the moment are put on the market, property will find its own level and properties will be sold regardless of whether one is in Roscommon or Dublin. If there are many properties in Roscommon and they have to be sold at €30,000 or €50,000, there is a value for those properties and we believe there are people out there to buy them. Until such time as those properties are put on the market, the property market will never get to a level where it is an actual property market we are looking at. At the moment, NAMA and the banks are holding off so many properties and we hear about all these buy-to-let properties that are not being put up for sale because they are afraid they will flood the market. We do not believe as auctioneers that this will flood the market. We believe that those properties would be sold if they were put on the market. They should be put there and sold and after that, we should see where the property market is in building properties and rebuilding new properties to see where we go from there. We do not see any point in agencies like NAMA holding these properties and NAMA selling massive amounts of properties to international buyers who, in turn, will sell them to Irish people two or three years down the line and inflate the price of the properties. We do not see any reason for that. We believe the properties are there for Irish people to own and should be sold to Irish people. I am sorry for using the example of Roscommon but if somebody was to buy a house there for €30,000 or €40,000 because that is the market price today, so be it. That is what should happen and they should be able to buy it at that price. Auctioneers are not into running up the price of properties. We are into selling them. That is the only way we get paid.
Mr. Mike Allen:
There was a big question about the offer from NAMA of social housing not being taken up by local authorities. That process is quite non-transparent so it is quite hard to give an answer. From the extent to which we are able to see what is going on, a number of those units are being offered. For example, we have had a lot of State investment to move away from having large concentrations of social housing in one place and to create multi-use and mixed communities. A number of the units that were being offered around the country were right beside or adjacent to existing areas of concentrated social housing or were built to a standard which the local authorities thought was suitable for selling to the private market but if which, if they were in their ownership, would result in extremely high maintenance costs. Both those decisions by local authorities to turn those down, to the extent that they are true and I do not know whether they explain the whole thing or not, are perfectly rational decisions. It is reasonable that local authorities should not be taking into public ownership large tranches of poorly built housing right beside existing high levels of social deprivation because we would be building problems for the future. While we want a clearer and faster process, I would be wary about putting pressure on local authorities higgledy piggledy just to accept these units.
Due to the fact that there is some development, partly through NAMA, of half-finished estates and so on, areas where local authorities were previously turning down units for social housing because of the high density of social housing use are now beginning to pick up in terms of owner-occupiers so if the local authorities take them up, they would be mixed tenure areas. That is opening up opportunities for some of these units which were correctly turned down before but which might be worth revisiting. I think that the Department has asked that they be revisited.
I think houses were sold recently in Tuam for €20,000, which is even lower than the numbers Mr. Davitt mentioned. That is fine. Compared to living in Salthill, one can live in Tuam and visit Salthill with the money one has saved. Why is Longford regarded as Siberia? All the NAMA houses are in the wrong place. Those commuting distances from Longford to the M50 would not be large compared to those in London so I would like to see that supply opened up just to see what the market price is. It might suit people to work around the M50 and to commute to a house with a far lower price than to opt for join in the prices in Dublin which have appreciated by 24% in the past 12 months. How do we get that supply into the market?
Mr. Patrick Davitt:
As Mr. Allen said, putting pressure on county councils to buy different properties is something that could be done at the moment. As better properties become available, the council can obviously get out of those properties, sell them and move on to better properties because the housing need the Senator is talking about is there at the moment. If councils get into the market and buy these properties right now, there is nothing stopping them from selling them in four or five years time and getting into better properties as they are built. It is the ideal solution.
Longford and Edgeworthstown have rail lines so they are towns with trains which many country towns do not have. I know this because I am from around there myself. I live in Mullingar so I know the area quite well. We are all trying to get trains to go here, there and everywhere. We all believe the train is the way to travel. I travel by train myself and find it is very good. Property prices in some areas on the south side of Dublin have probably gone up by as much as 40% in the past two years. We see people like Ronan Lyons talking about this on the basis of what they see on websites. Auctioneers can tell one what is actually happening in the marketplace. What is happening in the marketplace is far higher than what Mr. Lyons, daft.ieand myhome.ieare talking about. In Edgeworthstown alone, one could have bought a three-bedroomed semi-detached house for €40,000 in January 2014. One could have bought one in bad condition that was possibly rented for quite a while for €25,000. Today, that house that was worth €25,000 would cost someone €50,000 and the house priced at €40,000 would probably cost one €60,000. In Edgeworthstown, which is one of the Siberias spoken about by the Senator, if one looks at the value of these houses, the price of property has gone up by 100%. I know 100% on a very small amount of money does not seem an awful lot but 100% in Dublin when one is looking at the price of properties that go up by 20% or 30% seems an awful lot. That is all we look at because it is in the capital but one looks throughout the country, one will see property prices in different places that have gone up considerably because they went down an awful lot. Why do county councils and people who are in the market-----
I will be very quick. I apologise for being late. I was caught in another meeting. I welcome Mr. Davitt, Ms Randall, Mr. Allen and Mr. Jordan and thank them for their contributions insofar as I heard them. I very much agree with the IPAV submission. I am a member of IPAV so I would say that, wouldn't I? I was very taken with what Mr. Allen said about NAMA. I know there is pressure on it to sell off a lot. I am against that from a taxpayer's point of view. Mr. Allen was quite right. Why should local authorities increase social deprivation and ghettoisation in, for example, Tallaght by taking on an awful lot of stuff that is wrongly sited? As he said, houses were built in the wrong places. Things must find their own level. Like Mr. Allen, I would be on the side of the councils in that respect. I thank him for what he said.
My point relates to what county councils can and cannot do. If we lived in an ideal world, county councils would buy when properties were cheap and release them on to the markets when they were expensive. The difficulty is that because county councils' borrowing is on the State books and the State is limited in what it can borrow, it is not in a position to do that. I do not think we should be talking as if local authorities have all this freedom when they do not.
I will bring matters to a conclusion. I thank the witnesses for coming here today. It has been a constructive and worthwhile discussion and certainly has assisted the committee in its series of meetings with different sectoral interests as part of our pre-budgetary considerations. I thank the witnesses for their submissions and engagement with the committee.