Niall Collins (Limerick, Fianna Fail)

I thank the Ceann Comhairle for selecting this topical issue for discussion. We are all aware of public disquiet in recent weeks and days concerning the failure of banks to pass on a reduction in the European Central Bank interest rate, although Allied Irish Bank changed tack after several days. This is an issue of major concern because members of the public appreciate that the purpose of the ECB decision to reduce the cost of its funds was to help people who find themselves in distress and stimulate growth and spending in the European economy.

Most of the debate on this issue has centred on distressed mortgage holders and others who find themselves under pressure as they try to discharge their mortgage obligations and liabilities. An important issue has, however, gone under the radar, namely, the decision by Bank of Ireland to notify business people who hold commercial mortgages and properties of a change in policy. The change gives effect to one of the terms and conditions in the small print of the original mortgage. As a result, the bank has changed the basis on which the interest rate is calculated from the Euribor rate to what is known as a "cost of funds" rate. The net effect of the decision has been to increase the interest rate being charged to commercial customers of Bank of Ireland by 0.7%, which is a significant amount.

Those affected are primarily business people and farmers. I have been informed by individuals working in the banking sector that many people acquired large mortgages when they purchased or extended their farms in recent years. Business people, who are under pressure as a result of problems accessing credit, declining footfall and a reduction in spending power, are being squeezed again by the decision of Bank of Ireland to enforce a clause in the small print of mortgage contracts for commercial customers. Was this matter discussed when the Economic Management Council met representatives of the banking sector last week? While I appreciate the Minister of State, Deputy Hayes, did not attend the meeting in question, I am sure he has been briefed by the four members of the Government who were present.

This issue is significant for another reason. There is a lobby to eliminate tax shelters for people who hold commercial mortgages. Many people invested and planned their businesses around the various tax shelters which were offered in the past. The Department of Finance is carrying out an impact assessment on the effects of any measures which would abruptly eliminate or phase out these tax shelters. If these shelters do not run for the lifetime envisaged for them, business people will come under more pressure as tax liabilities not foreseen in their business plans will be triggered.

What engagement, if any, has the Government had with the banks from the perspective of business people and farmers? The House has correctly had extensive debates on personal mortgages and debts. The decision by Bank of Ireland to increase the interest rate which applies to commercial customers will cost a significant amount. An example given by the bank showed that the monthly repayment on a seven year mortgage of €480,000 would increase by approximately €350, a significant amount of money that will drag on cashflow.

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