Brian Lenihan Jnr (Dublin West, Fianna Fail)

While the review body concluded it was constitutionally precluded from recommending a reduction in judicial pay, it pointed out that were it not so precluded it would have considered a downward adjustment. As I told the House last week, the Chief Justice and the presidents of the courts have urged all judges to pay the pension levy and I will make provision in the finance Bill to facilitate these payments.

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

The Government has accepted the review body's recommendation that there be no increases in the pay of the higher public service groups, including any adjustments that might otherwise arise under national agreements, before the end of 2012. The Government has also accepted the recommendation that performance-related award schemes in the public service should be suspended. The body remains in favour of moderate performance-related awards when economic circumstances permit.

Table 3 of section 2 of the Bill sets out the rate of reduction to public servants who do not earn more than €125,000. They will have their salaries reduced with effect from 1 January 2010 as follows: a reduction of 5% on the first €30,000 of salary; a reduction of 7.5% on the next €40,000 of salary; and a reduction of 10% on the next €55,000 of salary. The effect of this approach is to provide overall reductions ranging from 5% to just under 8% for the higher paid in that group. The salaries of Oireachtas Members will be reduced in accordance with the recommendations.

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

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

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

I shall outline the main features of the other sections of the Bill. Section 1 defines terms used in the Bill, including the terms "public servant" and "Public Service body". Office holders or employees of the Civil Service, the Garda Síochána, the Permanent Defence Force, local authorities, the Health Service Executive, vocational educational committees, primary and secondary schools, third level institutions and the non-commercial semi-State bodies will be subject to the reductions. In order to avoid any doubt, certain bodies are specifically excluded in the Schedule because of their commercial status or the nature of their mandate which means that public service pay rates do not apply to them. I intend to introduce some amendments to this section tomorrow to ensure it covers the appropriate public service bodies, including the Central Bank and the Financial Services Authority, following a decision by the board of the Central Bank to take account of the proposed general adjustment to public service pay rates in determining remuneration levels.

Given the recent public discussion about pay rates in commercial State-sponsored bodies, I will clarify their position. Pay cuts in commercial State-sponsored bodies such as Bord Gáis and the ESB will have no impact on the public service pay bill because the pay of those bodies is funded through their own commercial efforts. With the exception of chief executives, the Minister for Finance does not control the pay of staff of these bodies. They have not been covered by the public service element of pay rounds in the past and have taken an independent approach to controlling their pay bills, as happened in RTE, where voluntary reductions were agreed by the staff, or in the ESB, where there have been a number of voluntary redundancy schemes. While these companies must be allowed to act commercially and in accordance with the normal industrial relations process, the Government is of the view that pay restraint in these companies fulfils a long-term national interest - namely, ensuring competitive pricing for energy and other goods. However, the market and the regulators will impose such discipline on those bodies.

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

I have already outlined the main content of section 2, which provides for reductions in pay rates by amendment of all provisions - including statutory provisions, circulars, instruments and contractual arrangements - which currently fix the remuneration rates of public servants. Section 3 enables the reductions in salary rates to be disregarded for the purpose of calculating pension entitlements for those public servants who have retired or will retire in the period from 1 January 2010 to 31 December 2010. Having considered the potential legal, superannuation and personnel management issues and their impact on the public service, the Minister may extend this period beyond the specified date. A managed retirement rate for older and more experienced public servants over the course of next year, and beyond if necessary, will help avoid disruption of service delivery.

Section 4 affirms that, other than as provided for in the Bill, any purported amendment of a provision fixing the remuneration of a public servant which would increase the remuneration of a public servant has no effect unless it is by a future Act of the Oireachtas or is necessary to reflect a legal entitlement of the public servant or servants in question - for example, because of an equal pay claim under European law. Under Section 5 a public servant has no entitlement to receive a higher rate than that provided for under the legislation, and the employing public service body has no entitlement to pay a higher rate. Any overpayment should be recovered by the public service body concerned; otherwise, the overpayment amount may be withheld from any funding provided to the body concerned.

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

Section 7 requires the provision of an annual report to each House of the Oireachtas reviewing the operation, effectiveness and impact of the legislation and considering whether any or all of the provisions of the Act continue to be necessary, having regard to its purposes, State revenues and the public service pay and pensions bill. The first such report must be submitted by June 2011 at the latest. Section 8 is a standard regulatory power. Section 9 permits disputes as to whether any public servant is affected by the reduction provided for under the Act to be finally determined by the Minister. Section 10 states the Short Title of the Act and provides for its commencement.

The Government's decision to reduce the public service pay bill is no slight of the quality of our public servants, who work hard every day to provide the essential services that underpin our daily lives. Some parts of the public service work better than others, and some sectors need to update their way of working and of dealing with their customers. Not all civil and public servants reach the high standard that is, by and large, the norm. As in all human endeavour, there is always room for improvement.

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

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

It must be remembered that the Government and the public service unions agreed that the public service pay bill would need to make a significant and proportionate contribution to the necessary adjustment in the public finances in 2010 and subsequent years. We had agreed about the need for a radical transformation of the way in which public services are delivered. Some weeks ago, the Government entered discussions with the trade unions, represented by the public services committee of the ICTU, in response to its proposal that the necessary adjustment could be found by means other than cuts in rates of pay. Parallel discussions took place with the representative bodies of the Garda Síochána and the Defence Forces. I have already acknowledged in the House the efforts made by both sides to reach agreement. Both sides were very open and honest with each other about the basis on which they entered discussions.

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

The unions' proposal was based on pursuing payroll reductions through the accelerated implementation of an agenda for change and transformation of the public service. Savings were to arise over time from a more flexible and integrated public service, with easier redeployment, changed work practices and the facilitation of further reductions in numbers through increased productivity. Given that such changes would take some time to put in place, the staff side suggested that an interim approach be taken by deducting 12 days' salary in 2010 on the basis that staff would be required to take 12 days of compulsory unpaid leave in 2010 and later years, with the minimum impact on service delivery. The Government estimated that this could save up to 4.6% of the payroll, or about €750 million, in 2010. The unions estimated a slightly greater saving, although not the figure of nearly €1 billion that is sometimes quoted.

Unfortunately, those proposals did not provide an acceptable alternative. The Government was clear that a basis for agreement would only exist if the scale of the reduction in the public service pay bill was sufficient, and it was not. The reduction needed to be permanent in character, but the compulsory leave proposal was for 2010 only. In addition, the Government made it clear that any transitional arrangements could not have a negative effect on services to the public; but under the unions' proposal, even with close management, some impact on services would inevitably occur. Therefore, the Government was unable to agree to the terms proposed by the unions and took the decision to reduce public service pay. However, I will not apologise for entering into discussions with the public service unions. Any responsible employer would have done the same.

I emphasise that the Government wants to continue its dialogue with the public service unions to deliver the change that all sides know is needed. Public services are about the people that use them. What the public wants is proper delivery of services and for high-quality service delivery to be central to the work of public servants at all levels. To achieve that, we need a public service that is highly productive, applies world-class technology and adapts constantly and with flexibility to underpin the smart economy and sustain full employment and high living standards across the whole community. The performance of organisations and individuals will be better managed and there will be greater accountability, especially for managers. In the public service of the future, public bodies and individual public servants must work across sectoral, organisational and professional boundaries when designing and delivering services and move across those boundaries when need arises. That is the only way we can continue to deliver the necessary services to the people over the next few years when resources will be constrained, even as the economy starts to recover.

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

The Government's approach to the transformation of the public service has always been one of consultation and agreement. The Government has a long record of investment in the national partnership structure and, despite the considerable difficulties that we face, we continue to favour a process of dialogue where possible. I hope that, on reflection, the unions will recognise that the Government had to take action to stabilise the public finances and, as an essential element of this, make reduction in the public service pay bill.

I commend the Bill to the House.

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