A balancing act with degree of pain on all sides

Opening of Insolvency Service of Ireland

Director of the Insolvency Service of Ireland, Lorcan O'Connor, at the launch of the Insolvency Service of Ireland public information campaign, at Government Buildings yesterday.  Photograph: Eric Luke

Director of the Insolvency Service of Ireland, Lorcan O'Connor, at the launch of the Insolvency Service of Ireland public information campaign, at Government Buildings yesterday. Photograph: Eric Luke


The opening of the Insolvency Service of Ireland marks a further effort to come to grips with the country’s personal debt crisis. Whether the initiative succeeds in providing an equitable settlement to tens of thousands of insolvent borrowers may prove crucial for the Government’s political fortunes.

Faced with a huge hole in the public finances, the Kenny administration has little choice but to continue its weary way down the hard road of spending cuts and tax hikes. The repudiation of the second Croke Park deal three days ago illustrates just how difficult a job that is. The same goes for the new property tax and other charges to bring money into the exchequer.

It is dirty work, and no one is going to thank the Coalition for its trouble.

The personal debt crisis presents a further set of problems: monumental in scale, fiendishly complex and a growing social blight. People trapped with mortgages and personal loans they cannot repay are stuck in economic limbo, their lives on hold, beset with worry and their finances in disarray.

Hence the insistent clamour for Government action to do something in response.

Two-part plan
Part one was a new plan last month to impose binding targets on the banks to settle their mortgage arrears, the latest in a line of initiatives to get the lenders to confront the problem. Part two came yesterday when the Insolvency Service, established under laws enacted last year, declared it will be open for business from June.

If the first move was supposed to prod ever-reluctant banks into action, the second gives insolvent borrowers the tools to achieve a settlement of their affairs. According to Insolvency Service chief Lorcan O’Connor, 15,000-20,000 cases could be disposed of in this way by the middle of next year.

These moves are a long time coming. Having endured the drama of the bailout, Nama, a hideously expensive bank rescue and an unforgiving austerity blitz, distressed mortgage borrowers might be excused for thinking their concerns were not a priority for the Government.

Any failure to deal with the issue definitively would open Ministers to claims that a solution to one of the most pressing social problems in the State is beyond them.

The flipside, of course, is that any effective move to settle matters presents an opportunity for the Coalition to demonstrate it is alive to the problems of the people it serves and capable of providing a solution. That this is a political necessity is a given.

If that’s the basic political logic behind all of this, the fundamental question remains as to whether the new approach actually works. Well-meaning plans are one thing. With insolvency settlements in every case subject to the agreement of banks and other creditors, only the accumulation of real cases in real time will demonstrate that the scheme achieves what it is meant to.

Moral hazard
Perceptible yesterday, however, was a clear effort to maintain a bulwark between equitable solutions for people in genuine hardship and anything that would give unscrupulous borrowers who can but won’t repay their loans leeway to exploit the system. Only time will tell whether in-built protections against moral hazard actually work.

Similarly, further questions centre on whether the scheme achieves the requisite balance between debt relief and a reasonable standard of living for participants. Flexibility on a case-by-case basis is the basic principle here, and there were plenty of soothing words from O’Connor and Minister for Justice Alan Shatter to emphasise the message.

Still, an outburst of controversy over draft guidelines that suggested some mothers would have to give up work if childcare costs exceeded their wage shows that this area is risky. While Shatter denied overt Government pressure to remove that from the final guidelines, the experience shows that interference in living standards by the public authorities is tricky. “These guidelines are not to force people out of their jobs. It is to give them a second chance,” said O’Connor.

At the same time, he stressed that a reasonable standard of living should not mean a person lives in luxury. “Nor does it mean that people should be punished and live only at a subsistence level.”

If that seems like a common sense approach, the problem remains is that one man’s unnecessary luxury may be essential for another to keep life on track. The vexed question of health insurance is a case in point.

There are no ideal solutions here, only degrees of pain on all sides. The prime interest for the Government lies in making it all hang together.