knowledge 9 July 2020 |

The Programme for Government and Finance

What does the Programme mean for Finance?

Of the twelve missions set out in the Programme, those with the most relevance to credit-providers and their borrowers are likely to be:

• Re-igniting and Renewing the Economy
• A Green New Deal
• Housing for All
• A Better Quality of Life.

Mission:  Re-igniting and Renewing the Economy

In Re-igniting and Renewing the Economy, the overarching emphasis is on restoring employment levels as quickly as possible. The success of this aim is likely to have a significant effect on both the demand for new financing and the ability of existing borrowers to repay debt. The Programme contemplates meeting this aim in two main ways:

• a July Jobs Initiative to help businesses maintain and increase employment in the short-to-medium-term; and
• a forthcoming National Economic Plan (to be developed in line with the 2021 Budget) which will set out the long-term strategy for restoring employment.

In addition to this overarching aim, the following more specific measures are of interest:

• significant infrastructure development, using a “Recovery Fund” which is to be available in 2020, 2021 and 2022;
• increased State involvement in the provision of credit to small and medium sized enterprises (“SMEs”), including by enhancing the mandate of the Strategic Banking Corporation of Ireland and the introduction of a new €2 billion credit guarantee scheme (whereby the State guarantees 80% of a loan advanced to an eligible SME);
• measures to mitigate the effect on borrowers of the likely financial difficulties that will be suffered as a result of the restrictions needed to contain COVID-19.  These include a review of the regulation of receiver; the development of plans in conjunction with the Central Bank of Ireland (“CBI”) for the treatment of higher debt levels;  and considering increasing the powers of regulatory bodies such as the CBI to enable the greater use of its (already significant) administrative sanctions regime in relation to regulated lenders;
• the promotion of the Credit Union movement;
• the creation of a carbon-tax-funded Climate Action Fund that will be utilised over a ten year period for a variety of matters including the provision of (i) €5 billion to part fund a socially progressive national retrofitting programme; and (ii) €1.5 billion for a new iteration of the Rural Environment Protection Scheme;
• a fundamental review and reform of the insurance sector to address concerns around insurance fraud and pricing, with the aim of ensuring that the insurance sector can fulfil its intended role in the Irish economy;

The Irish Banking Sector

• introduction of the Senior Executive Accountability Regime to deliver heightened accountability within the banking system;
• prioritising green finance strategies that are developed in line with climate justice targets and the United Nation’s Sustainable Development Goals;
• seeking to enact the Investment Partnership legislation (which has been long-awaited by the funds industry);

Mortgages

• increasing the availability of long-term fixed rate mortgages and considering whether further State-backed mortgages supporting affordable home ownership should be introduced;
• examining the development of green mortgages and financial products to assist in the upgrade and retrofit of energy efficient homes (perhaps building on the green mortgage models already developed by certain lenders);
• introducing “the necessary reforms to Ireland’s personal insolvency legislation” (seemingly with a view to strengthening debtor protections) and ensuring that sufficient supports are in place for mortgage-holders with repayment difficulties;
• assessing the CBI’s Code of Conduct on Mortgage Arrears and ensuring that it has full legal effect;
• examining the introduction of a code of conduct on mortgage switching to make the process of switching mortgages easier and to underpin competition in the market; and
• strengthening the Mortgage to Rent Scheme and ensuring that it is helping those who need it.

Mission:  A Green New Deal

In keeping with the narrative throughout the European Union, the Programme clearly contemplates Ireland’s economic recovery being a green and sustainable one.  The intention is for green considerations to permeate every aspect of economic activity, promoting many new business (and associated lending) opportunities and re-emphasising the risk inherent in business models that are not considered environmentally-friendly.  Some of the more notable green initiatives include:

• Emissions: reducing greenhouse gas emissions by an average of 7% per annum from 2021 to 2030 (a 51% reduction over the decade) and achieving net zero emissions by 2050. This ambition is in line with Ireland and the EU’s aims under the international “Paris Agreement” on climate change.
• Renewable Energy: the Programme promises a revolution in renewable energy with a particular focus given to a “…major drive to realise the immense potential of Ireland’s offshore renewables” and the interconnection of the Irish electricity system with other countries (especially by completing the Celtic Interconnector between Ireland and France). This should provide significant project financing opportunities.
• Energy Efficiency: over 500,000 homes are to be retrofitted by 2030, partially subsidised by the new Climate Action Fund, and partially funded in a customer-friendly manner partnering with suitable finance-providers (An Post and Credit Unions are specifically mentioned). The Programme also contemplates a loan guarantee scheme to support access to finance for retrofitting.
• Transport: the transport sector is to be overhauled with the sale of new petrol and diesel cars prohibited from 2030, a transition to electric power for all vehicles, and the re-focusing of State spending on infrastructure for pedestrians, cyclists and public transport (rather than private cars).
• Natural Gas: doubling down on the development of renewable energy sources, no new licences for the exploration and extraction of natural gas are to be granted (this follows a similar ban on new oil exploration licensing in 2019).
• Stress Tests: interestingly for regulated financial institutions, this mission also contemplates the introduction of new stress tests which take account of climate risk in the assessment of economic portfolios.  This is to be in line the recommendations of the international Taskforce on Climate Financial Disclosures.

The majority of these initiatives (and other complementary measures) are to be introduced as legislation in the form of a Climate Action Bill, which is scheduled to be introduced within the first 100 days’ of government. 

Mission:  Housing for All

Since the 2008 global financial crisis hit Ireland, housing has been a core challenge for Irish Governments.  The Programme aims to develop more social and affordable housing and to significantly reduce rates of homelessness.  As housing development largely relies on the availability of both short-term finance (for development) and long-term finance (for purchasers), this element of the Programme should be of significant interest to credit-providers.  Some of the more noteworthy measures include:

• Affordable Housing: an overriding objective is to make home ownership more affordable.  This is to be achieved through a variety of State-backed schemes geared towards reducing development costs (eg using the Serviced Sites Fund to build necessary infrastructure on public land) and providing finance to first-time buyers (eg by expanding the existing Rebuilding Ireland Home Loan).
• Public & Social Housing: the social housing stock is to be increased by 50,000 over the next five years, with the majority of development effected by State agencies.  There will also be a focus ensuring vacant housing is put to good use and improving the rights of residents in social housing.
• Rental: the Programme plans to introduce a “cost-rental” model for the construction and management of new homes, in what would be quite a novel offering in the Irish rental market.  It also proposes improving security of tenure for tenants and a significant enhancement of the powers and role of the Residential Tenancies Board in the context of dispute resolution.  For banks and funds that have invested heavily in the rental sector in Ireland, the implementation of these new plans would merit close attention.
• Land Development Agency: an important tactic in implementing the new housing priorities will be the establishment of the Land Development Agency on a statutory basis, with the express remit of using State lands to develop affordable and environmentally sustainable housing.
• Planning: a wide variety of planning reforms are also contemplated eg the introduction of “use it, or lose it” conditions for planning applications of 10 units or more, reforming judicial review processes (including a new Planning and Environmental law court), and creating an independent Building Standards Regulator.  This could assist in speeding up construction time-lines by making the planning process more efficient.

Mission:  A Better Quality of Life

One of the key elements of this mission is a commitment to a “fundamental change in the nature of transport in Ireland”, which should bring with it a variety of funding opportunities.   The priority long-afforded to private cars will shift to the promotion and protection of cycling and walking with 20% of the transport capital budget ear-marked for this purpose for the life-time of the Government.  The new infrastructure that will be required to make cycling and walking safe and attractive is to be completed by the end of 2024. 

The prioritisation of cycling and walking will be complemented by a renewed focus on public transport and the de-carbonisation of Ireland’s transport fleet.  Proposed measures include:

• continuing and expanding on existing policy measures promoting the use of electric vehicles (and the development of the necessary infrastructure);
• legislation to ban the registration of new fossil-fuelled cars and light vehicles from 2030;
• promoting remote working and the staggering of start and end times for workers and those in education.

Comment

The Programme for Government runs to over 125 pages and includes a wide-ranging and overlapping series of policies.  While the Programme does not focus specifically on credit-providers and borrowers, taking that perspective the three main themes could be said to be:

• State involvement: a greater involvement of the State in a number of major and capital-intensive sectors, especially the development of housing and the provision of financing to prospective purchasers.  This will present opportunities for credit-providers (eg by partnering with State funding entities and using State guarantee schemes for SME lending) and also challenges as the measures taken by the State may impact on existing business and lending models, particularly in the context of real estate lending.  The balance struck between compliance with European Union competition law and making a meaningful impact in sectors such as real estate will be interesting to watch;
• Green/Sustainable: almost all aspects of the Programme contemplate green and sustainable considerations being stitched into how business is done and life is lived.  Amongst other matters a major change to Ireland’s transport infrastructure is planned with a clear imperative to move towards green and sustainable financing and business models.  The focus on the further development of renewable energy assets in Ireland, particularly offshore wind assets, should provide a number of sizeable project finance opportunities over the next few years; and
• Housing: in addition to the measures proposed by the State to support social and affordable housing, Ireland will continue to have a significant need for new (environmentally sustainable) housing, with the attendant demand for finance that creates.  Added to this will be the financing needs for the ambitious retrofitting of almost the entire housing stock in Ireland. 

If you would like to see the Programme for Government in full, it is available here.