Mr. Seamus McCarthy:

I thank the Chairman. I will confine my remarks to Vote 38 and to the report on the IBTS pension issues. I will comment on the children’s hospital at the later session.

In 2014, Vote 38 for health received Exchequer funding to meet the cost of salaries and expenses incurred by the Office of the Minister for Health, to provide grant funding for a number of bodies under the aegis of the Department of Health, and to meet the cost of certain other services. Members will be aware that for 2015, the Vote for health includes Exchequer funding for the Health Service Executive. In 2014, this did not go through Vote 38, the HSE had its own Vote. As a result, the structure of the Vote for health will be radically different in the future.

Gross expenditure of €194.8 million was incurred on Vote 38 in 2014, against an estimate of €205.9 million. The underspend of €11.1 million, combined with higher than budgeted receipts of €800,000, resulted in a surrender of €11.9 million to the Exchequer. By 2014, most Votes had moved to presenting information on a programme basis. The objective of that format is to try to present financial information in a way that facilitates a focus on the objectives of spending, rather than on inputs or on spending types. Vote 38 was an exception; grouping spending under headings related to administration, recurring grants, capital grants and a miscellaneous other services category, which accounted for 55% of the overall vote expenditure.

At an individual subhead level, the most significant Vote expenditure in 2014 was on: recurrent grants to development, consultative, supervisory, regulatory and advisory bodies for the health sector, totalling €47.8 million; research grants totalling €34.9 million; payments totalling €27.2 million related to ongoing compensation for victims of hepatitis C contamination of the blood supply, and payments totalling over €17 million in relation to inquiries, legal fees and settlements. Administration costs incurred by the Department totalled €26.9 million.

A primary aim of appropriation accounting is to report and explain variances between the sums voted by Dáil Éireann and the outturn. Explanations for significant variances in expenditure are given in note 3 and for variances in amounts receivable by the Vote in note 4. The main areas where the expenditure outturn was significantly lower than the amounts provided were in respect of administration costs, which were some €4 million less than the estimate. Amounts of recurrent grants paid to health sector agencies was €8.8 million lower than budgeted - this was largely due to unfilled posts in agencies, including the Health Information and Quality Authority HIQA and the Mental Health Commission. The lower than budgeted expenditure in these areas was partly offset by higher than budgeted expenditure of €6.9 million under subhead D, which is provided to cover the cost of inquiries, legal fees and settlements. The Department noted that the excess on this subhead arose largely as a result of higher than expected payments made under the Lourdes Hospital and symphysiotomy payment schemes, and in relation to medical negligence claims.

The Irish Blood Transfusion Service is a statutory body established in 1965 and operating under the aegis of the Department of Health. Its primary functions are the collection, processing and supply of blood and blood products. The safe supply of such products is a critical element in the provision of health services in the State - the importance of this activity is underscored by the number of citizens who in the past suffered serious infection through the blood supply, and the ongoing cost to the taxpayer of compensation payments and of the provision of services to them.

The IBTS does not receive State funding by way of an annual grant. All of its recurring income is derived from charges in respect of the supply and testing of blood and blood products. The charge out rates are decided by the Minister for Health. In 2009, IBTS earned income in the region of €118 million. By 2013, its income had fallen to approximately €66 million, reflecting the transfer of responsibilities to St James's Hospital, changes in demand for certain products and price reductions.

The Report on the Accounts of the Public Services 2013 includes a chapter in respect of a long-standing dispute between the Department and IBTS about amounts deducted from staff salaries in respect of pension-related deductions.

I should point out here that pension-related deductions are not the same as employee pension contributions. In effect, the deductions are a salary reduction measure. The 2009 FEMPI legislation provided for pension-related deductions from the remuneration of public servants from 1 March 2009. Between 2009 and 2013, IBTS deducted €8.7 million from staff remuneration in this regard, but at September 2014 had not paid over any of these amounts to the Department of Health as provided for in the legislation. The 2014 financial statements indicate that the amount due to the Department at the end of that year had increased to €10.3 million. As a result, funding of that amount receivable by the Vote for health has not been received, and the provisions of the FEMPI Act are not being complied with in that regard.

The second issue in dispute relates to IBTS pension funding. IBTS operates a funded defined benefit pension scheme for its employees, which is contributory. In common with many other funded defined benefit schemes, the IBTS scheme is a balance of cost scheme. This means that while the contribution rate for employees is fixed as a percentage of salary, the contribution IBTS, as the employer, is liable to pay into the fund goes up or down as required to ensure that the funding will be sufficient to meet the liabilities when they fall due. Between 2011 and April 2014, IBTS made additional contributions of €9.3 million to the pension scheme. Notwithstanding the additional contributions, at the end of 2013 the pension fund deficit was estimated at €42 million. By end 2014, this had increased to €92 million. The movement year-on-year illustrates the volatility of pension liability estimation, which can be seen in the accounts of many State bodies. At the time I reported, discussions were ongoing between IBTS, the Department of Health and the Department of Public Expenditure and Reform on the resolution of both of these matters.