Small and Medium Enterprises: Motion.

I move:

That Dáil Éireann:

seriously concerned at the crisis situation now facing many small and medium sized enterprises arising from the credit famine and which is contributing very significantly to the massive increase in unemployment levels;

condemns the refusal of the banks to make available the normal credit streams which are the lifeblood of such companies;

deplores the failure of the Government to either ensure the banks make credit available or to provide alternative sources of credit;

expresses its further concern that failure to take urgent action will result in the collapse of many such companies within weeks and a further serious increase in unemployment;

calls on the Government to:

establish a Small Business Operational Fund to ensure that credit streams are made available to small and medium sized firms, drawing on the €15 billion Small Business Operational Fund established in September by the European Investment Bank, which Irish banks have so far refused to access;

assist such firms by ensuring that Government departments and agencies settle their bills within ten days, rather than the current 30 days;

establish a monitoring group made up of representatives of the Government, small and medium sized enterprises and the banks to monitor the lending practices of the financial institutions; and

strengthen the role of the County Enterprise Boards by removing the limitation on the type of enterprises the Boards can support and raising the limit on the number of jobs they can create above the current figure of ten, as well as a significant increase in Measure 1 funding to maximise their potential for job creation.

This is a simple motion in its content and intent but it addresses an issue that is pressing and vital. Small businesses in Ireland are facing a credit famine. The banks are not extending credit to small and medium sized enterprises. Instead, they are taking every opportunity to tighten terms and impose serious charges and restrictions upon existing customers. What chance do new customers have of getting a penny when they are behaving like that with existing customers?

This problem is not new. It has been going on for months but it was not addressed and is now at crisis levels. Had action been taken when this problem first came to light, we would not now be in this extremely difficult position.

What is at issue in the Labour Party motion is the survival of hundreds of businesses and possibly tens of thousands of jobs. What we are now facing is not businesses closing because they are not profitable, although that will happen, but profitable businesses closing down simply because they cannot get access to credit. That is a shame, and the Government must take responsibility for that along with the banks.

All businesses rely on credit. One needs credit to fill the gap between completing a job and getting paid and between paying someone for necessary supplies or meeting one's payroll and getting paid oneself. It is as simple as that. It is about cashflow, not profitability, yet across the country small business is finding it increasingly more difficult to access credit.

A recent ISME survey found that 54% of companies surveyed had been refused applications for new finance and-or the extension of existing credit lines. A striking feature of the results is that a similar survey in August revealed that 20% of companies at that stage had difficulties, confirming the escalation of the crisis in less than three months. In less than three months, therefore, we can measure the extent to which the crisis escalated and, in parallel terms, measure the apathy and lack of conviction of this Government to tackle a crisis that was as apparent as the nose on one's face. Of the 46% of successful firms, 38% could not meet the conditions attached by their banks to secure additional funding. Some banks are engaging in acts of usury. They are adding €40,000 or €50,000 for rearranging finance. That type of action drives people out of business. They are putting 1.75% on loans when people are already struggling.

It is time to call a halt. The Government helped out those banks in their hour of need but those of us in the Labour Party did not support that because we wanted to attach conditions to that guarantee to ensure they would not behave as they are currently. We wanted to make sure that in terms of the liquidity they were being guaranteed, that money would be made available to small and medium sized businesses but it has not happened and no amount of distortion of the figures can obliterate that fact.

These are not new businesses we are talking about — some 50% of them are in existence for more than ten years, with 74% in existence for 20 years or more. The Minister should know there are no mushrooms here. They are long-standing businesses that are suffering as a result of the credit crunch. The problem has reached the stage where the Small Firms Association estimates that up to 800 jobs per week are being lost in the SME sector. That is a phenomenal figure. What will happen next year if there is not immediate intervention? That is the reason we have tabled this motion.

The question that now must be focused on is one which the Government has an obligation to directly address. Why is it the case that the Government, after riding to the rescue of the banking sector on behalf of the Irish people, has not yet prevailed upon the banks to loosen the purse strings and make credit available to small businesses? Why has the Government, which rushed legislation through the Houses of the Oireachtas to protect the economy from the havoc that would be wrought from a banking system collapse, not exercised its muscle to put in place a plan to combat the recession and provide the necessary stimulus to reflate the economy and take a leaf out of our neighbour's proactive and positive attitude adopted in its pre-budget report yesterday? Is it ineptitude, inertia or indifference that gives rise to this perplexing state of affairs?

I refer to a local business to illustrate the points I am making. It concerns a local man, Johnny Owens, of Owens Concrete Limited, Gaulmoylestown, Knockdrin, Mullingar, County Westmeath, which is situated in a small, beautiful rural area outside Mullingar. It is home to my Labour Party colleague and land agitator, Councillor Dan McCarthy. The Minister should know that if Dan McCarthy were here, the roof would be gone. Johnny Owens started his business in 1972 and, with his family, built it up in the past three decades. It provides up to 140 jobs but in recent days he had to let staff go. These were people whom he said he knows well and with whom he worked hands-on for many years. It pained him to have to tell them last week, with just four weeks to go to Christmas, that he could no longer keep them on. He is deeply concerned that if things do not loosen up, of the 85 or 90 people remaining, he will have to let another 50% of workers go as he will have no work for them.

This is an area in the heart of rural Ireland, and the Minister can imagine the heartache and turmoil those unfortunate people will suffer in the next few months. These are people with commitments to mortgages, car loans, school fees and other household expenditures. Is there any concept on the Government side of the magnitude of what is happening in the real economy, which is not sheltered in any shape or form?

In the local newspapers Johnny Owens stated: "I am expecting to be forced to get rid of more workers when the Government's Farm Waste Management Scheme comes to an end in December." I visited him at his home last Saturday; I wanted to know if I could use his name in my contribution. I know him and his family since my early childhood. The man could not fathom how the Government could not see its way to extend the deadline for the farm waste management scheme, for which farmers were also calling. It affects 8,000 farmers, some of whom have work that is ready to start. Does the Minister know we had a bad summer? There were three months in which one would not put a duck out on the land, let alone machinery. We want that scheme extended because of the three months of inclement weather during the summer.

Is there any pretence of joined-up thinking or integrated Government operating on the Government benches? Surely any money expended comes back into the Exchequer through income tax — keeping workers employed, VAT and through helping protect other downstream jobs, especially in a challenging environment for the rural economy.

What Johnny Owens has to say represents what one hears from the thousands of small businesses across the country who provide the backbone of employment in so many of our communities. It is what one hears from Patricia Callan on behalf of the Small Firms Association, from Mark Fielding on behalf of ISME and other leaders of these industries. I want to quote Johnny Owens in full from statements he made to the local newspapers, theWestmeath Examiner and the Westmeath Topic. He stated:

After spending your life building a business from nothing, starting out with just 40 pounds, and not sparing yourself, and to go where we were, and borrow a lot of money along the way, it is very hard to tell people who have helped build up the business that you've no work for them [this is the punch line so the Minister should listen carefully] especially when you look at so much money squandered in so many other directions. Banks lending over 100% in mortgages, and now unwilling to lend money at all, and instead acting like the ‘grim reaper' towards those who got the money. Why is there no accountability from the people who lent the money recklessly, and how should we arrive at a situation where the Government, a year or so ago, predicted a €9 Billion surplus, and now we are being told there is likely to be at a minimum a €11 billion deficit? Can someone tell me where the €20 billion is gone, or what it was spent on?

I would like someone to explain just how this country got so far into the red. We are bailing out the banks for the mistakes they have made, but they are showing us no mercy when it comes to the crunch, they will still have to get back their pound of flesh.

This is not Labour Party propaganda but reports from the local newspapers under the headlines "Concrete business owner hits out at ‘squanderers'" and "Mullingar job losses cause heartache". This is not black propaganda against the Minister. These are direct words from a man who started out with his family in a cottage. I, too, come from a cottage. Mr. Owens's father, the Lord be good to him, was a county council worker with my father. I was very proud of his achievements, building up an industry in a rural area with 140 jobs, plus at least another 80 indirect jobs. This is a rural area. He contributes to everything and is a tremendous community man. Stories like his litter every village, constituency and community in this country.

This calls for one simple, little stroke from the Minister for Finance, instead of allowing the finance mandarins to run amok over him. If I were Minister for Finance the farm waste management scheme would be extended until next June. They are extending it in Northern Ireland. Forget about the eurocrats. Tell them that is why there was a "No" vote in this country. Tell them looking for a green cover six weeks after tilling was the reason there was a "No" vote in this country. I would not allow bureaucrats anywhere in Europe to tell a sovereign country how to behave. We are capable of running our business. The farm waste management scheme is one of the reasons there was great reluctance. The rural community knows this. I visit the houses of rural people. They know this scheme is being terminated without all the jobs being completed and all the necessary farm work completed, and that is why people are being laid off.

In this motion, rather than engaging in rhetoric, we have decided to let the real people be the mouthpieces through which we convey the seriousness of the situation. This seriousness underpins the cases upon which we mount the call for the very minimum, the four point plan of action which forms the core of this motion. We expect the Government will have no difficulty implementing it. I saw the blasé amendment and nearly fell off the chair. We are doing this in an effort to combat the recession and ignite a spark of recovery.

In the context of the plan unveiled by the British Government yesterday, especially regarding the 2.5% reduction in VAT, much more is required if we are not to witness thousands more jobs being put a risk. The disadvantage in VAT rate impositions is now a clear six percentage points and will lead to a further significant boost in cross-Border shopping and see shops of all sizes across the country suffering further falls in revenue, leading to a vicious cycle of further job losses. Lower prices in Northern Ireland and a favourable sterling exchange rate represent further challenges for this economy.

We must recognise these factors and not just say that is the way of the world and attribute them to the global economic recession. There is a recession but we are a sovereign country and we can intervene and take steps. We must be proactive in coming up with a plan to win back our competitive advantages. Old solutions dusted down and pressed into new bottles will do nothing for us, so the Government must rethink its strategy, which appears to focus purely upon fighting the recession. My colleague, Deputy Burton, who is an expert in this area, found 17 additional taxes in the Finance Bill. How many pages of the Finance Bill dealt with efforts to breathe life into our clearly ailing economy? We had a visionless budget lacking in imagination, with all the hiccups we saw over the last number of weeks. This is clearly the hallmark of a tired, jaded and, most important, out of touch Government.

As Mr. Pat Crotty, the chairman of the Small Firms Association, SFA, recently said, small businesses are created, mostly, by ordinary people who do extraordinary things. They have the vision, determination and willingness to take risks to deliver on their ideas, and they extend their business, create employment and, hopefully, generate the profits that enable the Government to generate tax income to redistribute. Thus they fulfil the social needs of our society, a noble concept which we in the Labour Party wholeheartedly endorse and applaud. Those concepts go back to our very foundation. Without a normal, functioning financial system, Irish small businesses have no hope of surviving this recession, and the jobs that will be lost as a consequence have absolutely no guarantee of being replaced.

As well as access to finance, which is critical for all businesses at every stage of their development, and which is especially important in the current climate, the issue of late payments across industry generally is also critical. This is the root cause of most businesses' problems, and the reason they require assistance from the banks more than usual. The Prompt Payment of Accounts Act has a lot of merit, but it does not work in practice as well as anticipated, as businesses are unwilling to apply its terms for fear of damaging long-standing business relationships and recourse through the law in terms of enforcement is too expensive. Perhaps the legislation should be renewed with the possibility of strengthening it and make the 30 day payment period mandatory. Some sort of buffer would have to be agreed by way of transition to the new arrangements; perhaps we should consider the establishment of a small claims court for business similar to the Small Claims Court for consumers. That could be a way forward.

Management capability is another area that requires immediate action because if managers are not given the skills to deal with a recession, they have little or no hope of coming up with or delivering a plan to ensure their businesses' survival and potential expansion into the future. Even in the good times, 40% of small businesses were failing during the first five years. The OECD estimated that the primary reason for this was lack of management capacity. The SFA National Centre of Excellence was set up in 2006, and it is imperative that it becomes a top Government priority that adequate funding is allocated to this centre.

We need to concentrate on securing new markets. It is clear we have been over-reliant on construction and domestic demand over the past decade or so, when there was surplus cash in the economy. This has meant that many businesses have not looked overseas for new markets. This is now an imperative due to the small size of our domestic economy. Given that two out of three people are employed in domestic services, the internationalisation of our service industries must now become a policy priority. Enterprise Ireland has recently set up a unit for such services.

Government supports must be specifically targeted. The difficulty, as we in the Labour Party point out in our motion, is that county enterprise boards, which have been very effective, can deal only with entrepreneurs or companies employing fewer than ten people. We want to remove the limitation of the type of enterprises the boards can support and raise the limit on the number of jobs they can create significantly above ten, which is totally inadequate in the current climate. This will necessitate a significant increase in measure one funding to maximise that potential for job creation. The vast majority of companies in the country have no State support, other than training through FÁS or Skillnets, so we need to look after all companies that have the capacity to grow and create vital and much needed jobs for our citizens.

The cause of small businesses has not been helped by this Government's actions or, more correctly, inaction over the past decade. Is it not time a self-employed allowance was considered and that the PAYE allowance be given to proprietary directors? In the context of recent developments in Britain the level of indirect taxes and other forms of stealth taxes imposed over the years assume even greater importance in terms of competitiveness, and their possible impact on the distortion of economic activity must be addressed.

Our fuel and energy costs are way out of line with our EU counterparts, especially for SMEs, which account for almost 36% of total electricity consumption and have borne the burnt of these increased costs. The Government has achieved windfall gains through higher VAT receipts on fuel, electricity and gas, as these prices increased, as they also did for the consumer.

The level and depth of bureaucracy imposed upon businesses, which effectively strangles them and often prevents them getting off the ground, is another bugbear. People in small businesses have told me they often have to employ a specific person to formulate replies to all the queries and documents, some of which run up to 100 pages, received from various Departments and agencies. It is time to consider a significant reduction in red tape especially at this point in the economic cycle. A standard form could be developed to allow businesses to reply to queries from the Revenue, the Departments of Enterprise, Trade and Employment and Social and Family Affairs, the Chief State Solicitor's Office, CSSO, county enterprises boards, Leader boards and the Health Service Executive. The CSSO form is dropped into the letter boxes of small businesses and they must reply within a certain number of days. What is the CSSO? It is another imposition. This would cut out the duplication and unnecessary, but time consuming, questions. We must make it simpler for businesses to get on their feet and stay there. I commend this motion to the House.

One question needs to be addressed regarding this banking crisis, namely whether the Government guarantee will result in the writing off of private debt and turning that into public debt for which the Irish citizen will ultimately pay. In that context, should we be contemplating the writing off of private debt to avoid a probable recourse to the taxpayer? In September of this year, the Central Bank published data showing that the M1 money supply — the physical currency circulating in the economy and the moneys held on deposit accounts — is shrinking rapidly. What does the 11% year-on-year decrease in the M1 money supply tell us? Irish businesses have less money in their accounts. They have become stifled, they cannot repay their debts and they cannot access credit. If Irish businesses are not able to repay their debts or access credit, the banks will incur further losses. Who will cover such losses? The bank guarantee scheme provides for the Irish taxpayer to cover losses to banks through shrinkage in the economy. If banking activity is shrinking, then bank losses are inevitable.

The Labour Party is proposing a set of practical measures, as outlined by Deputy Penrose, to stimulate the economy. The European Investment Bank, rather than the private equity capitalists, has to become our saviour. Private equity capitalists do not care about the future of the Irish economy. As soon as they get their pound of flesh, they move on to the next target. It should be noted that the Carlyle Group, which is currently flirting with one of this country's banks, was funded by Osama bin Laden's family at one stage of its history. I wish to make it clear that we are dealing with people of that kind. We should be very careful about who we flirt with when we are looking for people to invest in the Irish economy and the Irish banking infrastructure.

The Labour Party is in favour of sustainable and responsible investment. That has not been a mainstream feature of this country's banking culture. Having a sustainable and responsible approach to investment is not part of Irish banking culture. There is no proper risk assessment of lending and there is no proper model of corporate social responsibility. As Deputy Penrose has said, we need to change the culture of banking in this country so that we begin to lend in the real economy. Irish businesses should not continue to be stifled, as they have been stifled to date. The new type of lending we advocate will,inter alia, champion social capital. The former Taoiseach, Deputy Bertie Ahern, used to speak about Mr. Putnam’s book, Bowling Alone, in the context of the need for volunteerism and investment in social capital. Why should we not use the banking guarantee scheme that the Government is sponsoring as a means of ensuring that we enforce change in this country’s banking culture and thereby enhance investment in social capital? Why should preferential lending rates, below the ECB rate, not be offered to community organisations, sporting clubs and schools for any measure that involves effort that enhances our communities?

The banking crisis has given us an opportunity to set up an ecological loan book, whereby preferential lending rates can be made available to commercial and domestic projects that seek to reduce our dependence on carbon. Such loans would be offered in respect of everything from residential solar panels to biodiesel plants. Such a system would help us to offset some of the obligations we have under the Kyoto Protocol. We need to be imaginative in our approach to lending and getting out of this crisis. Nothing I have seen from the Government benches gives me confidence, as a Member of this House and as a citizen, that this country is in safe hands and that our banking infrastructure is secure for the future.

I support everything Deputies Penrose and Sherlock have said about how we should deal with the serious crisis that is affecting the Irish and international economies. It is hitting Ireland a little harder than other countries, unfortunately. From the outset, most people said that our economy could not keep going the way it was going. However, the Government did not think the day would ever dawn when it would have to deal with a serious issue.

The human face of this crisis is the plight of the unemployed. I will speak about the unemployed in the area I know best. I am sure the Members of the House can tell their own stories. According to the most recent figures, some 11,575 people in Cork city are unemployed. I am sure that number has increased since those figures were compiled. The figures in question represent an increase of 46% on the same period last year. When I try to imagine what large numbers of people might look like, I take a look around this Chamber. While it is a fairly small enclosure, it is significant in that it houses 166 people. In that context, one can imagine what 11,500 people would look like. It is the size of a small town. Most of the people in question have mortgages, children and dependents. They probably have a mother or a father in a nursing home. They have to make their car repayments and send their children to school. We do not have free education in this country. They have many responsibilities. One can imagine what happens when they are made unemployed. When they go to the social welfare office, they are told that staffing difficulties mean they will have to wait up to three months for their first payment. The office in Cork was always under-staffed, even in good times. Their next port of call is the community welfare office, which has not benefited from an increase in staffing. Community welfare officers will have to deal with all of those people until the Department of Social and Family Affairs gets its act together. What is happening is quite incredible. This is the human face of the problem.

I am frightened by some of the measures the Government put in place in the recent budget. I wish to refer to the letter one is handed when one becomes unemployed and presents oneself at the desk in one's local social welfare office. Under the heading "duration of payment", the letter states that if one has paid less than 260 PRSI contributions since one first started working, and if one continues to satisfy all the conditions for receiving unemployment benefit, which is now known as jobseeker's benefit, one will be paid for 312 days. One will be paid for 390 days, or 15 months, if one has paid 260 or more PRSI contributions. I ask Deputies to note the 312 and 390 figures, in particular.

I wish to refer to the Social Welfare Bill and the budget fact sheet which have been published by the Minister for Social and Family Affairs, Deputy Hanafin, and her Department. The section of the fact sheet dealing with jobseeker's benefit — once again, I note the change in its title — states that the benefit will be now paid for 12 months, rather than 15 months as it was previously, to people who have paid 260 or more PRSI contributions. According to the fact sheet, this change will apply to new claimants and those with an existing duration of less than six months on jobseeker's benefit on budget day, 14 October 2008. Jobseeker's benefit will be paid for up to nine months, rather than 12 months as it was previously, where fewer than 260 contributions are paid. This will apply to new claimants and those with an existing duration of less than three months on jobseeker's benefit.

The whole point of these changes is to ensure that people who are claiming what is now known as jobseeker's benefit will not be able to avail of the terms outlined in the original letter to which I referred. Such people are under the impression that they will receive the benefit for 12 or 15 months, depending on the level of contributions they have paid. What will happen to them? Is this the first time the Government has introduced a social welfare payment instrument retrospectively? Will the people in question be given a further letter, telling them that the conditions under which they paid PRSI contributions and first claimed jobseeker's benefit have now changed? If such a change is to be made, it will be through no fault of the people to whom I refer. The change is resulting from the mismanagement of this Government. Are the people in question to be told that the conditions have changed, and they will not get the final three months of jobseeker's benefit payments they were expecting? I do not think that would be legal. I do not think the Government will be allowed to do that. I ask the Government to use the Finance Bill to restore the conditions under which those people paid PRSI contributions and first signed up for jobseeker's benefit. It was Warren Buffett who once said that it is only when the tide goes out that one sees who is swimming naked. The tide has gone out on the Government and it is not a pretty sight.

I thank the Labour Party for sharing time and I welcome the opportunity to address the motion. The roof structure was threatened a number of times during Deputy Penrose's contribution but he did well.

We broadly support the motion and urge the Government to show leadership in what is becoming an increasingly dangerous situation for small and medium-sized enterprises. The financial drought facing such enterprises is clear for all to see. We have all had representations from local small and medium-sized enterprises desperately trying to find capital. The latest ISME survey shows that more than half of its members are being refused new finance or extensions to their existing credit lines. These are not unknown or high risk companies without a credit history but well established enterprises, as Deputy Penrose said, that have been trading for more than a decade and have a long-standing relationship with their banks.

The reason for this almost blanket refusal is clear. Having recklessly given billions of euro in loans to developers, the banks, which are faced with whopping debts, have responded in an ultra conservative way, virtually shutting up shop and rejecting even the most solid enterprises. The response from the banks demonstrates senior managers have buried their heads in the sand and are devoid of any forward thinking. Having bailed them out in the first place, the Government must ensure the banks live up to their responsibilities and provide credit to our enterprise sector. The consequences of allowing banks to refuse loans to SMEs will be dire.

A shortage of credit coupled with delays in payment from customers invariably leads to serious cashflow problems for even the most financially healthy enterprises. This means companies will find it increasingly difficult to pay the wages of their employees, ultimately resulting in lay-offs and even liquidation. Companies that are otherwise structurally very sound will be forced out of business with the consequent loss of crucial employment. Like Deputy Penrose, I refer to the Johnny Owenses of this world. SMEs form the backbone of the economy and they are one of our best hopes of economic recovery. If the Government does not act, the credit drought will perpetuate the recession and lead to immeasurable economic and social problems.

The banks created this credit crisis through reckless behaviour and the Government and the Fianna Fáil Party, in particular, blinded by their love affair with dubious developers, turned a blind eye to irresponsible lending practices. The crucial difference between then and now is this time the public are acutely aware of every move the Government makes and will recognise any failure on its part to act properly. The Government will have to abandon its hands-off approach and play a leading role in providing credit for SMEs because our economic future relies on taking radical measures.

Options are still available to access finance. One option is the European Investment Bank small business operational fund. The fund was launched a month ago to address the difficulties facing smaller enterprises and, since then, lending institutions in 22 EU member states have joined. Ireland continues to be one of only a handful of states yet to access this fund through its financial institutions. Under the fund, the bank has earmarked up to €15 billion for 2008-09 with a further €15 billion for 2011. This is something we will have to get the banks to adopt if SMEs are to have any chance of surviving in the current economic climate.

While banks form one part of the cashflow problem, the late payment of bills is another serious matter. Small and medium-sized enterprises have been highlighting this problem for a long time. Small businesses are waiting, on average, 65 days for payments, which is a two-week increase since the adoption of legislation aimed at reducing the delay. The 2002 late payments legislation, for which a number of the Government parties are responsible, did nothing to improve repayment of bills. Rather than addressing the cashflow problems of smaller businesses, the legislation exacerbates delays in payments between small and larger companies, resulting in higher dependence on credit streams. While obliging the banks to join up to the EIB fund will have a positive impact, we firmly believe that the late payments legislation will have to be revisited in the short term if business transactions are to be radically improved.

Trade between enterprises comprises the bulk of business transactions and we will have to do something more concrete than simply calling on Departments to settle their bills within 10 days, though that would be useful. I have doubts about the practicality of the suggestion and whether it can make a significant difference when SMEs are waiting for other bills for up to 120 days. Enforcement of the 30-day rule is lacking and the establishment of proper mechanisms to ensure companies comply with the rule would be the most effective remedy. This could be achieved by examining a number of proposals that have been suggested, such as a type of small claims court for business debts, to which Deputy Penrose alluded. That would be a practical, worthwhile solution. This legislation needs to be revisited as a matter of priority as companies will continue to be overly reliant on credit to meet their cashflow problems.

I support strengthening the role of county enterprise boards. Such boards will continue to play a crucial role in supporting our smaller companies while encouraging new enterprises into business. We are in a fundamentally different economic climate but many businesses are still trading and many entrepreneurial opportunities exist if the right structures are in place. The support structures of enterprise boards should be enhanced to meet these new challenges. The current grant structure for boards, which has been in place for more than a decade, has set grant aid levels that are too low and quotas which are too rigid. Employment grant aid has remained at €7,500 for the past decade, despite increases in, for example, the minimum wage, whereas quotas relating to the number of businesses that are approved for funding is too rigid. County enterprise board support schemes should be revised with increased employment grants, stock grants and cashflow support grants. Overall, boards need more flexibility and the Government must ensure they are properly resourced going forward.

The problems facing SMEs must be met by a rapid response from the Government. The Government cannot continue to just sit back and do nothing while SMEs go to the wall. It is time for the Government to re-engage and it is also time for a proactive, realistic response to the credit crisis, particularly, if businesses such as Johnny Owens's and thousands like his are to be survive.

I move amendment No. 1:

To delete all words after "Dáil Éireann" and substitute the following:


that the global banking crisis is impacting on economic activity across the global and Irish economies;

that small and medium sized enterprises are experiencing a more challenging environment for business;

the importance of ensuring that credit, including short term credit such as overdrafts and current account facilities are made available to small and medium-sized businesses;

that the purpose of the EIB facility for SMEs is to provide medium to long-term funding for investment projects through the commercial banks; and

that the Government has taken decisive action to stabilise the banking sector to maintain credit facilities across business sector including SMEs;

commends the Government for:

bringing forward the Credit Institutions (Financial Support) Scheme which:

secured the stability of the major domestic credit institutions and the Irish financial system overall in the face of unprecedented international financial turbulence;

promotes confidence in the economy by ensuring the stability and sustainability of our financial system;

promotes through the realisation of the objectives of the Scheme sustainable lending practices and the appropriate availability of credit for the enterprise sector of the economy; and

facilitates the structured dialogue initiated with the covered institutions to ensure that the Irish banking system continues to be able to access liquidity and funding to meet the credit needs of the economy;

requesting the banks to avail of the facility for medium to long-term lending to SMEs from the EIB;

the very considerable progress made on the implementation of the recommendations of theReport of the Small Business Forum to assist small business;

its decision of March 2008 to set a 25% target for the reduction of administrative burdens on business arising from domestic legislation, to be achieved by 2012;

its schemes and supports already in place to assist SMEs through the enterprise development agencies;

the very significant 16% increase in the capital allocation for 2009 to County and City Enterprise Boards in recognition of the importance of the micro-enterprise sector to our economic development;


expresses its confidence in the Government to take further appropriate, concrete measures to assist small and medium-sized business through the current difficult period."

I wish to share time with the Minister of State at the Department of Enterprise, Trade and Employment, Deputy Kelleher, and Deputy Calleary.

I am pleased to have this opportunity to put to the House the Government amendment, which sets out the urgent and serious action taken by us to assist business in these present difficult conditions. All Members of the House appreciate the global nature of the financial turmoil which has impacted on the financial system across the developed world. The scale of the dislocation being experienced in international financial markets has been unprecedented in recent historical experience. Ireland, as a small, highly open economy with a significant domestic and international financial sector, could not expect to be immune from such developments.

It has been necessary to respond to a rapidly changing economic and financial environment. The Government took swift and decisive action at the end of September last to safeguard the Irish banking system so as to ensure our financial system continued to meet the needs of the economy and, in particular, the needs of small and medium-sized enterprises, which have been a key driver of our economic success and employment growth of the last decade, and have a crucial role to play in underpinning the competitiveness and future growth potential of the Irish economy.

Over 250,000 small businesses operate in our economy and employ about 800,000 people. The development of the strength and depth of our indigenous sector will be critical if we are to return to the levels of prosperity achieved in recent years. We will need to foster the emergence of significant numbers of new indigenous businesses that are export-driven and, above all else, productive and sustainable. We will only be able to foster the emergence of such enterprises if the operating environment for business, particularly small business, is supportive. This has been, and will continue to be, a key focus of Government policy.

Access to credit and finance, including short-term credit, is the engine of the small and medium-sized enterprise sector and the Government is very conscious of the need to ensure that credit lines continue to be extended to viable businesses and this sector in particular. To support this objective and to secure the stability of the major domestic credit institutions and the financial system, the Government moved decisively to introduce the credit institutions (financial support) scheme. The focus has been to promote confidence in the economy and to ensure the Irish banking system continues to be in a position to access liquidity and funding to meet the credit needs of the economy. I must underline this was, and continues to be, the strategic objective of the scheme.

Let us be clear about one point. The guarantee scheme is not about protecting the interests of the banks; it is about safeguarding the economy and everyone who lives and works in this country. The objective is to reinforce the strength of Ireland's economy by supporting the financial sector in a manner that protects the interests of the taxpayer. This support is being provided in the public interest to protect the real economy from the consequences of the severe financial disruption that would otherwise have arisen.

The provision of the guarantee in the first instance and the access to the liquidity it has provided for our banks and building societies is an important benefit in ensuring finance is both available and affordable throughout the economy. As has been pointed out by many commentators, the availability of finance is of course a critical element of our overall competitiveness and a key part of our national economic and financial infrastructure.

The Government's guarantee has already helped ensure that credit institutions in Ireland have access to the normal liquidity and funding they require to fund their business. The Government, on behalf of the Irish taxpayer, has performed a major service for the banking community. The boards and senior executives of the banks now must meet the legitimate financial needs of business and assure the general consumer that their needs will be facilitated. Indeed, the first priority of the banks should be to ensure the flow of funding is channelled appropriately to support and underpin sustainable economic activities on the necessary prudent and responsible basis that is clearly in the interest of the bank, the borrower and the wider economy.

This is what the Government expects and the boards and senior executives of the banks must ensure they can meet this expectation. The banks are very conscious of what is expected of them under the guarantee in so far as business lending is concerned. They have confirmed to me that, notwithstanding the challenging economic and financial environment with which we all have to contend, they remain open for business for creditworthy customers and will continue to support sound business projects.

The banks' principal area of focus is on their existing customers or new business customers with good, commercially sound projects. Of course, it makes commercial good sense for the banks to continue to support economic activity. In this context, the CEO of one of the main banks recently highlighted to the Small Firms Association that lending had increased to consumers and new small and medium-sized firms, and it had not changed its lending rules. He highlighted that the banks' primary focus was to support credit growth in key segments critical to economic recovery, including small and medium-sized businesses. It must be a priority for the Irish banking system as a whole to work to support the achievement of this objective to provide the basis for sustainable and balanced economic growth and the long-term commercial success of our banking system.

The Government will also use whatever other instruments are available to support access to credit to business. Deputies will be aware that the European Investment Bank, EIB, recently announced it was making €30 billion available to small and medium-sized enterprises in the EU member states to fund medium and long-term investment projects. The money is to be made available in two tranches, with €15 billion up to the end of 2009 and a further €15 billion for 2010 and 2011. It will be lent by the EIB in the first instance to commercial banks who will in turn lend it to small and medium-sized enterprises.

This is a very valuable facility and I understand the EIB has already been in discussion with a number of Irish banks about participation in it. I have urged the banks to utilise the facility to the maximum extent possible so funding can be made available to small and medium-sized enterprises as soon as possible. This is a source of funding that will, I am confident, be of interest to a considerable number of small and medium-sized enterprises but, clearly, it may not meet the needs of all such enterprises, particularly those for whom working capital is primarily the issue.

Access to finance has traditionally been a difficulty for small and medium-sized enterprises at start-up phase and development phase. In this context, grant schemes, seed capital schemes, business expansion schemes and venture capital arrangements all contribute positively to these enterprises' financial requirements. In particular, the Government's investment in venture capital funds of €175 million, promoted through Enterprise Ireland, has resulted in seven new venture funds which have raised over €500 million which is available for investment in the Irish small and medium-sized enterprise sector. All financial options for viable businesses need to be explored and exploited as we move forward.

The Government has put in place policies and programmes that encourage the emergence of new business creations and facilitate long-term business survival, including the following: the positioning of our tax system as one of the most supportive of business in the world, the development of Ireland as a knowledge-based economy through the dedication of significant Exchequer resources to the promotion of research and development and the introduction of the Better Regulation programme to tackle regulatory burdens, particularly those faced by the business community.

The adoption of new strategies to support the enterprise sector, including small business, is based on the report of the Small Business Forum. This report was published in May 2006 and contains a detailed analysis of the factors that drive the small business sector and has provided us with a blueprint for its further development. The Government has already made very considerable progress on the implementation of the findings of the report.

The ongoing implementation of the report also supports enterprise development and entrepreneurship. Recommendations implemented to date include the following: the threshold for the exemption from the requirement that companies have their accounts audited has been increased from €1.5 million to €7.3 million; the extension and radical improvement of the business expansion and seed capital schemes up to 2013 — the Revenue Commissioners data for these schemes show that 279 companies raised investments in this form since January 2007, amounting to a total of €80 million in the 12-month period; important increases in the VAT cash accounting threshold, which now stands at €1 million, and VAT registration turnover threshold, which now stands at €75,000, have been introduced in order to simplify administration and reduce working capital requirements on small businesses; changes to the preliminary tax obligations of certain companies so that small companies are now permitted to calculate their preliminary tax payments based on 100% of the prior-period tax liability if their tax liability for the prior period did not exceed a threshold now specified at €200,000; and new companies which do not expect their tax liability for the first year to exceed €200,000 are no longer obliged to pay preliminary tax in that first year. In addition, my recent budget announced tax relief measures for start-up businesses by way of remission in corporation tax and capital gains tax in the first three years for new and start-up businesses.

The "Tech-Check" programme was launched in April 2007 through the county enterprise boards. This programme provides small businesses with the opportunity to access a highly subsidised, independent technology check-up and helps them to identify ways to boost their productivity and profitability through the better use of technology. This programme is being delivered by the county and city enterprise boards and some 850 of these check-ups have, I understand, been carried out up to the end of 2007.

The enterprise development agencies are focused on helping Irish businesses through the current economic difficulties to develop and grow their exports by continuing to prioritise investment in science, technology and innovation. Enterprise Ireland recognises the varied challenges facing small and medium-sized enterprises in the context of the changing environment and partners with companies to address their needs. In line with its strategy, Transforming Irish Industry 2008-2010, Enterprise Ireland provides supports, including finance and advice, aimed at developing all aspects of the critical business functions. Financial supports focus on supporting start-ups with a high potential to grow, providing comprehensive funding for research and development, driving growth and innovation capabilities and supporting major projects for large-scale development.

After an unprecedented period of economic success, when Ireland caught up with, and surpassed, many of our fellow European nations, we are now facing an unprecedented set of unfavourable international factors, including the ongoing crisis in global financial markets, faltering economic growth in almost all the major economies, exchange rate shifts and the sharp changes in commodity prices. These conditions are placing the Irish and other economies under considerable pressure. Domestically, we are also facing contraction in the construction sector, which has suppressed the rate of economic growth.

These current economic circumstances are not exclusive to Ireland but are a feature across the European Union and the globe. These changed economic circumstances represent major challenges for Governments, the European Union and businesses, particularly small and medium enterprises. Ireland has actively engaged with our EU partners in developing co-ordinated responses.

The scale of the economic, fiscal and environmental challenges facing the country required the Government to take necessary decisions to ensure stability in the financial sector and to curb the public finances, while at the same time giving firm support to those aspects of the economy which continue to perform strongly. In this way we can ensure that Ireland benefits as early, and as fully as possible, when any improved international economic conditions arrive.

As my colleague, the Minister for Finance, has already mentioned, the first action needed was to safeguard the Irish financial system. Decisive Government intervention through the guarantee scheme ensured the continuation of our banking system. Intervention was necessary and justified given the pivotal role of the financial system in the economy and in the day-to-day lives of businesses and ordinary people. The aim was to ensure that we have a banking system that as a whole works effectively, efficiently and competitively in facilitating all the daily economic transactions of commercial, business, family and social life.

A second priority was to address the budgetary situation quickly and in bringing forward the budget for 2009 the Government again showed itself to be decisive. Tough decisions were taken to control public expenditure while also ensuring that priority sectors, including business supports and infrastructural expenditures, were adequately financed. Through sensible and balanced management of the economy, the Government has ensured that the people of Ireland enjoy living standards that are among the highest in Europe. The Government will protect the gains that our country has made by ensuring responsibility in the public finances. Public expenditure continues to be scrutinised and further actions will be taken when necessary.

Our economic growth will be dependent on our ability to compete in international markets. The challenge now is to ensure that the economy is sufficiently competitive to enable further export growth. For this reason maintaining our competitiveness is now more important than ever.

Ireland's competitiveness model is one where innovation, talent and flexibility are our acknowledged core competencies. We have been seeking to grow our innovation capacity and will continue to explore opportunities where innovation can be better exploited. Through the national development plan, our taxation policies and investment in innovation the Government is fully committed to putting in place an enterprise environment that remains among the most favourable in the world.

We are fully committed to strengthening the competitiveness and productive capacity of the economy. Our priority remains the creation of high quality, sustainable employment, driven by companies with higher profitability, that are technologically advanced and prove a better fit with the competitive characteristics of our economy. We have a strong support system for developing the capabilities of Irish companies to compete in international markets with innovative products and services. In terms of enhancing productivity growth, which is the cornerstone of our competitiveness, the Department of Enterprise, Trade and Employment has a capital allocation of €495 million in 2009 which will be spent on productivity enhancing investments by our agencies, namely Science Foundation Ireland, Enterprise Ireland, the IDA and the county enterprise boards.

To underpin long-term competitiveness, the Government's objective is to ensure that we build up the productive capacity of the economy though investing in people. We are doing this directly through the science, technology and innovation strategy and through our skills strategy. I am confident that the areas we have chosen to focus on are paying dividends and working well in terms of attracting and maintaining investment and growing jobs.

Ireland is now a critical international gateway to markets in Europe and beyond. Globalisation provides major opportunities for companies with international ambitions but it is also presenting unprecedented competitive pressures. Our strong outward looking enterprise culture has been built up in recent years and will help us through the more challenging times that we now face. We are a small, open trading nation, exporting all over the world. We rely on new market openings to extend the reach of our exporters and give them new market opportunities. Although most of our exports are to the EU, compared to other EU member states Ireland trades more with the rest of the world. The enterprise development agencies provide specialised assistance to Irish exporters to focus on developing into the euro area and emerging markets to win new export sales.

Maintaining the competitiveness of the enterprise sector in Ireland is a priority issue for my Department and our development agencies. To sustain and grow the manufacturing sector, Irish-based manufacturing enterprises will be encouraged and assisted to continue the progression to high value added sectors and activities, and continue to increase productivity through investments in human capital, technology and innovation. The productivity gains that flow from innovation are the new foundations for competitiveness.

The report of the high level manufacturing group, which was launched earlier this year, contains 26 recommendations directed at key areas of innovation and productivity leading to transformational change, re-skilling and management development which will ensure Irish manufacturers can continue to compete successfully on international markets and provide high value sustainable employment.

The social partners agreed, as part of the recently concluded review of Towards 2016 — I remind Members of the House who were not aware of it that it includes a pay pause for public sector workers — that a manufacturing forum should be established, in line with the recommendations of the high level group on manufacturing. This matter will be progressed by my Department in consultation with the Department of the Taoiseach and the social partners.

We continue to be one of the world's leading service exporting countries and are currently ranked the 10th highest exporter of services in the world. In 2008, the Tánaiste launched the report of the services strategy group, Catching the Wave: A Services Strategy for Ireland. This report sets out new policy proposals on how we can ensure the continued development and growth of Ireland's services sector and outlines how to maximise the future returns to the country from services activities in all enterprises, both current and potential. The implementation of these recommendations will enable Irish service companies to exploit new and exciting opportunities, such as e-learning, business and financial services, professional and consultancy services and others. My Department is working in conjunction with other Departments to progress the implementation of these recommendations.

We fully acknowledge the vital role that the services sector itself and the growing services element within manufacturing companies will play in Ireland's future economic performance. Last Wednesday, the Tánaiste launched Enterprise Ireland's strategy for internationally traded services, which sets out priority initiatives that Enterprise Ireland will focus on for the growth and development of the services sector. This strategy will focus on maximising the performance of companies already active on export markets, encouraging companies trading locally to expand their markets abroad and fostering a new breed of start-up services companies with exporting potential. Enterprise Ireland has analysed the needs of service companies and is responding by aligning its resources with these needs.

We are clearly focused on the needs of both manufacturing and the services sector and have the strategies in place to deliver growth, strengthened productivity and improved competitiveness. We recognise that many companies are under pressure. Slowing growth is also an opportunity for the public and private sectors alike to improve efficiency, productivity and adaptability. Growth of exports is conditional on sustaining the competitiveness of tradeable goods and services in global markets. A range of domestic factors are influencing our inflation performance, which can be influenced by national policy.

The Government is emphasising the correct economic priorities for this time; seeking low inflation, reducing red tape, promoting competition and promoting consumer awareness, managing labour costs and tackling a range of specific cost categories, including property costs, utility costs and waste management costs, are all important factors. We have recently witnessed a welcome easing in energy prices and I hope this will feed through to the end user. Moderating consumer prices will help to ease inflation pressures, while, in the mid to longer term, the introduction of the services directive and the cost benefits that will arise from the eventual conclusion of the world trade talks will strengthen competition in the Irish market.

The SME sector is critical to our economic prosperity. More than 250,000 small businesses operate in our economy and employ more than 800,000 people. The policies outlined above and the activities of the enterprise agencies directly support SMEs. The agencies have a clear focus on small and medium enterprises and offer a range of direct supports. The specific importance of the small business sector was clearly recognised in the report of the Small Business Forum. In implementing the report's recommendations, the Government has again confirmed the central importance of the small business sector and its commitment to promoting that sector.

I welcome the opportunity to address these issues. The Government is conscious of the importance of SMEs and of the necessity of ensuring they have access to credit. The decisive manner of the introduction of the guarantee scheme is an indication that we take seriously our responsibility in these challenging times to ensure there is stability in the banking sector. I support the Government amendment to the Private Members' motion. Members on this side of the House will explain, in the course of the debate, precisely what the Government is trying to achieve in the context of supporting SMEs.

I am pleased to support the Government amendment at this time of intense pressure for small businesses. I particularly welcome the commitment in the amendment to increases in the allocations to county and city enterprise boards, which have the potential to be the foundation of our economic recovery. There is a case for directing funding away from other less relevant enterprise agencies within the Department to the county enterprise boards, given their successful track record. Their support for and funding of small business has resulted in numerous success stories in recent years, many of which were unheralded. In our rush to attract foreign industry, we sometimes forget the importance of enterprise boards and the support they provide in terms of capital and training to small businesses.

I note the commitment in the amendment to reducing bureaucracy. This commitment must be strengthened. It is time the Oireachtas declared war, for once and for all, on bureaucracy and red tape. As State agencies are merged and subsumed, we must ensure to cut the bureaucracy that goes with them. The Minister should conduct a red tape impact assessment in respect of the interpretation of every Bill that comes from the Oireachtas into the various Departments and their impact on small business.

Both the Minister for Finance, Deputy Brian Lenihan, and the Minister of State, Deputy Kelleher, have spoken about the importance of the Credit Institutions (Financial Support) Act, known as the bank guarantee scheme. This is an opportune time to remind the banking sector that the Oireachtas placed great faith in it in passing that legislation in the manner we did. We have afforded unprecedented support to the banks participating in the scheme, which represented an international first. It is regrettable that, six weeks later, it is becoming increasingly clear that this show of faith on the part of this House and of the people we represent is being thrown back in our faces by some banks, especially in the manner of their treatment of small businesses throughout the State.

All of us in this House have had representations from business people in our areas in regard to the difficulties they are experiencing. Many businesses, some of which have been operating for decades, have had credit facilities that were available to them for many years and which they managed correctly withdrawn without proper notice and without time to avail of alternative facilities. This is being done without any regard for businesses, their employees or the services they provide. Others have been threatened with closure because of outstanding loans even though the relevant banks hold securities over all the owners' assets, both personal and business. This security is insufficient in the face of an apparent obsession with reducing loan books at the expense of small businesses. Many businesses have been notified in recent weeks of substantial increases in their bank fees and charges. It is almost as though the banks are passing the cost of the State guarantee directly on to their small business customers.

I note the initiative announced yesterday by the Royal Bank Of Scotland to freeze overdraft and contract charges. As the mother ship of a banking group in Ireland, I hope the latter will treat small businesses in this State in the same way and that other banks will take heed. It is important that breathing space be given to viable small businesses. We are not pleading for charity cases or for businesses that were managed recklessly. Rather, we are concerned that viable small businesses which have provided important services and employment for many years are treated with respect in these difficult times. The behaviour of some banks in their dealings with small business is akin to corporate bullying. I ask the Minister for Finance, in his ongoing discussions with bank management, to call on them to desist from this type of behaviour, to engage constructively with their customers and to respect the mandate we have indirectly given them to facilitate economic recovery through support for SMEs.

The area of small business under the greatest pressure is the retail sector. The economic downturn is most evident in this sector, which is the one most prone to it. The retail sector can do without the hysterical promotion of shopping outside this jurisdiction, whether across the Border or internationally. RTE, our public broadcasting channel, could not get enough in recent years of shoppers travelling to New York and Boston. Now the obsession is Newry and Enniskillen. This agenda is also being driven by elements in the print media. They are quick to point out the price differentials and the apparent service differentials, but they are slow to point to the job losses that are resulting, the service losses that will result and the impact on small businesses and suppliers. Perhaps if we all started watching UTV or reading British newspapers because they apparently offer better value and choice, these media outlets might reconsider their coverage. Small business is struggling enough without this senseless promotion of shopping outside the jurisdiction.

This week a range of organisations lead by the IFA and the GAA have combined to encourage people to shop locally this Christmas. I add my voice to that campaign and encourage all Members to do the same. The Government can play its part by taking this message on board. I have spoken before in this House about the ridiculous rules regarding pre-qualification and the manner in which SMEs are disqualified from Government business. The Chairman of the Joint Committee on Enterprise, Trade and Employment, Deputy Penrose, recently arranged a presentation by the Irish Printing Federation to a meeting of the committee. Documents sponsored by this Government and made using taxpayers' money are being produced outside the jurisdiction and outside the island. For example, much of the literature provided by the referendum commission during the campaign on the Lisbon treaty referendum was printed in other European states, despite the existence of a vibrant and innovative printing industry in this State. We must urgently review our interpretation of EU tendering rules in order to give SMEs a chance.

The Government amendment reflects the work being done to support SMEs. However, we must take a more urgent approach. I am pleased to support the amendment given the track record of the Government to date.

I propose to share time with Deputies Clune and McHugh.

Is that agreed? Agreed.

I welcome the Labour Party motion. I commend Deputy Penrose in particular on his excellent and timely proposal, which Fine Gael can support without the need to propose any amendment. Small and medium enterprises employ 800,000 people, more than the public sector and multinational corporations combined. In terms of employment, therefore, SMEs are big business. Given the plans by the Government and my party to reduce the numbers employed in the public sector and in view of the decline in manufacturing, we will increasingly look to SMEs for job creation. It is also important to note the role of family businesses, which include GPs' practices, shops and undertakers. They are an important part of the social fabric of our society, in both urban and rural areas.

Small businesses are suffering as they face the combined pressures of high costs, difficulty in accessing credit and the problems caused by our creaking infrastructure. The Minister of State referred to labour costs and to the pay pause for public servants. I assume this was intended as a dig at my party. I do not intend to engage in that debate tonight. Workers, in both the public and private sectors, will not receive a pay increase for 11 months under the terms of the partnership agreement. According to the Minister of State, this constitutes a pay pause.

There is an alternative view that private and public sector workers covered by the partnership deal will receive a pay increase. This includes, for example, a general practitioner registrar, such as I was, who would have received a 2.5% pay increase in September, an annual increment in July, a 3.5% increase next November and another 2.5% increase next May, followed by another annual increment the following July. Similar increases will apply to some of the Deputies opposite who have not received a pay pause. For example, Deputy Cyprian Brady who has now left the House will receive two partnership pay rises and two pay increments, the LS1 and the LS2, in the next 18 months.

That applies to Deputies on all sides of the House.

The Minister may take the view that three to five pay increases in 18 months represents a pay pause. I do not, but people must use their common sense to decide who is accurate and who is not. Those who work in small and medium enterprises will face a real pay pause. Many will see a pay cut as they will lose their jobs. Some 1,000 jobs are lost every week, which is equivalent to one job loss every three minutes, all of which are from the private sector and most of which are from small and medium enterprises. We face a situation where owner managers or sole traders will experience a significant reduction in income and we will see a similar situation for many others. Given the Government decision not to increase the minimum wage, those earning it will face a pay freeze. There is one standard for poor people and another for the upper middle classes.

There is a cost to business with the Sunday premium, which has been debated in the House previously. This is causing the closure of pubs, hotels and restaurants and will close more without action from the Government. I realise the Minister of State at the Department of Enterprise, Trade and Employment may intend to act on this, but if not he will have an opportunity to vote on the matter by the end of February.

I refer to the issue of rising utility costs. Electricity and gas costs in Ireland are among the highest in Europe. We have seen very little action from Government to counter price increases in these areas. There have been increases in levies and rates. All local government councils will increase rates by 3% or 4% next year. The councils used to justify rate increases based on inflation, but next year there will be no increase in the level of inflation, there may even be deflation. However, there is another reason provided for the increase. The Government is increasing VAT and is set on destroying the retail sector in Ireland, to which Deputy Callery referred. This will set a significant price differential in the Border counties. My colleague, Deputy Joe McHugh will refer to this matter in greater detail.

Excise costs are also rising which puts more pressure on businesses. If the public finances were managed in a sensible way, or even in some kind of reasonable manner such as happened in Britain, we would not be in a position where we must raise taxes and increase excise duties. We are one of the few countries in that situation and it is because of Fianna Fáil and Deputy Brian Cowen.

Earlier, RTE and its role in encouraging people to shop in New York was mentioned in the debate. However, the Tánaiste has encouraged people to shop around and shop in Northern Ireland. The National Consumer Agency, a Government agency, has encouraged people to shop in Northern Ireland. We should not be concerned about RTE when there are national saboteurs such as the Tánaiste and the National Consumer Agency which encourage people to shop and spend their money in another jurisdiction.

The issue of regulation was mentioned. The Minister for Finance spoke of the effect of regulation on business. We all recognise the cost of regulation on business is very significant. The Irish Small and Medium Enterprise Association estimates one in eight employees spends time filling in forms. The Government made a verbal commitment in March to reduce the cost of regulation to business by 25%. The cost should have reduced by 3% or 4% at this stage, but a figure cannot be provided because the Government has not yet worked out to what all of the cost amounts. How can one reduce the cost of regulation by 25% if one has not worked out the base line cost in the first instance? I asked the Government how it would calculate this figure and if it would use the international standard costs model. The answer given was "No" and that it did not know which model would be used. It is like offering a 25% off sale when one does not know the cost of the goods in the first instance. This is why I refer to insincerity and verbal non-commitments from the Government.

A major focus of this motion is the banking crisis, which is creating significant problems for the viability of small businesses. Since we are in a recession, many small business will go under regardless of what is done in the banking sector. However, those which are or may again be viable need support, which is why it is very important there is action taken to address the problems in the banking sector very soon.

Earlier in the financial crisis we voted for the bank guarantee and we were told by the Minister for Finance that the problem in Irish banking was solely an issue of liquidity and that there was no capital crisis. We now know that is untrue. The guarantee was still the correct course of action to assist with the liquidity problems of the banks, but it has not made credit available to those who seek mortgages, those who can afford them and viable businesses. We need to recapitalise the banks and make credit available. Deputy Enda Kenny called for this some four weeks ago. For a considerable amount of time Fine Gael has called for public support for the recapitalisation of the banks and it should be done with public money from the National Pensions Reserve Fund. Private money could be used also, but it must come primarily from the National Pensions Reserve Fund and we must retain a properly capitalised solid banking sector in Irish ownership.

I endorse the views of the Irish Bank Officials Association, which expressed opposition to the Government proposals to, as the association put it, "do an Eircom" with the Irish banks. There must be swift action, which we have not seen to date on this issue. I hope we neednot wait until after Christmas for the banks to be recapitalised. If we wait until then, it will be too late and thousands of businesses will go under and with them will go tens of thousands of jobs.

Some progress has been made in terms of the European Investment Bank. The action and calls of the Small Firms Association was crucial and it is pleasing to see some progress made in that regard. Everyone in the House should recognise the importance of our position in the European Union. Never mind the European Investment Bank and its provision of credit for small businesses, where would we be now without the European Central Bank, propping up the financial services industry in the country at present through a capital injection of €65 billion? The answer is that we would be in Iceland. We should not forget the importance of the European Union in keeping the country afloat.

I refer to the settling of debts. In other jurisdictions a Government guarantee has been provided to allow debts to be settled within ten days. I believe there should be a similar provision here. The VAT increase should be reversed. It was suggested to me today that if Deputy Brian Lenihan was a superhero, he would be called VAT man, having increased VAT to the highest rate in the European Union, which is a serious mistake and which will make matters worse. The Government performance in paying debts to small business has not been bad, but a ten day measure is due.

I refer to a distinction in policy on the county enterprise boards. There are mixed feelings surrounding the boards, some are very good and some are not. A recent study of Enterprise Ireland, under which the boards fall, shows that more than 40% of the budget of Enterprise Ireland is spent on staff costs. It spends almost as much if not more on staff administration costs than on grants to business. While I do not believe Enterprise Ireland is in any way like the Minister's charge, FÁS in that regard, I will pay particular attention to the way it works in the new year. I will examine its costs and undertake a detailed review of the value of county enterprise boards with reference to the job they should be doing, namely, working for small businessmen, rather than what they do for themselves and on which 45% of the budget is spent.

I welcome the spirit of the motion. I hold grave concerns about what will befall the economy in the coming months. I have no confidence in the ability of the Government to rescue the situation. However, I plead that it should take the Christmas break to consider once more the policies being pursued. Hopefully the Government will return following the Christmas break with a U-turn in its economic policy.

I congratulate the Labour Party for putting the motion, the timing of which is of critical importance. The stark reality in the services, retail and manufacturing sectors is that people are struggling. Despite the bad weather, discussion on the economy and the credit crunch is taking precedence over the weather, such is the critical nature of matters. People are losing their jobs and businesses are unable to cope with the continued increases in costs. There are competition factors also. I am a Deputy representing an area on the Border, where there is an uncompetitive playing pitch, which will drive business to the wall in the coming months if nothing is done.

It is very important to remain in the real world. I have listened to the contributions of the Minister of State, Deputy Kelleher, and the Minister for Finance, Deputy Lenihan. They contained fancy jargon and buzz words. It does not mean anything to the person who lost his job in the last two weeks and who I met in my office last Friday. He pays €1,700 per month on his mortgage, and he has to set aside his children's allowance to pay for some of it and then figure out where to come up with the rest. That is the stark reality facing the people of this country.

I know this is not a motion on unemployment, so I will try to stick to the issue of small and medium enterprises. Last Saturday morning, the biggest retail store in Newry could not provide customers with trolleys. By 10.30 a.m. that business was faced with the choice of closing its doors. The manager of that store is expected to be under even greater pressure next Saturday. However, in the three Ulster counties on this side of the Border, there were stores faced with the prospect of closing their doors because they had no customers. It is not good for business in the Border areas outside of the Six Counties. There are swings and roundabouts, and petrol and diesel go up and down on either side of the Border. However, the commitment by the UK Government to reduce VAT to 15% is going to wipe out businesses over the Christmas period, because it provides an uncompetitive advantage.

We must face the reality that there are two separate currencies. However, we have bought into a democratic process under the Good Friday Agreement. In 1998, the Government led the Irish Republic into the Good Friday Agreement. Bertie Ahern, together with many colleagues who serve in the Cabinet today, sought and received from Northern unionism and the British Government a commitment to develop co-operation and action within the island of Ireland. That included everything from marine integration to transport integration, but the commitment was underpinned by the democratic decision of the people who voted for the Good Friday Agreement on both sides of the Border.

Part of the document envisages the integration of the Border economy with the economy of Northern Ireland. It also recognises the regional significance of Belfast to the province of Ulster, which obviously includes Donegal, Cavan and Monaghan. It acknowledges the importance of the fourth largest city on this island, namely, Derry city, as the critical hub for the north west of the Irish Republic. Under the regulatory, environmental and fiscal measures, and under the subheading of fiscal instruments, taxation is described as an important factor in economic competitiveness. Achieving the right balance between competitive taxes and the adequate provision of public goods is a challenge faced by both Governments. There must be co-ordinated policy intervention, including intervention to generate and improve the regulatory environment, including the use of fiscal measures. Companies should also be encouraged to redesign logistical strategies and treat Ireland as one commercial zone, rather than two separate entities. The two Governments are proceeding on the basis that any strategy should be cost effective, to the benefit of the producers for the citizens, and should be greater than the costs it will impose on the taxpayer.

Did the Minister for Finance discuss with the Chancellor of the Exchequer the financial ramifications of their diverging fiscal strategies for the province of Ulster? As far as I am concerned, the answer is "No". I accuse the North-South Ministerial Council of not following up on the democratic mandate given by people on both sides of the Border. There has been alaissez faire attitude to Northern Ireland on the pretence that everything is sorted. The Fianna Fáil Party wanted to create an alignment with the SDLP out of pure selfishness, which is the only movement it has made in the last four or five years. Since the Good Friday Agreement was signed, 83 peace walls have been erected. People in business are losing out seeing others cross the Border. We have created a critical problem in the Border areas that needs attention. The Minister for Finance should pick up the phone and explain to the British Chancellor of the Exchequer why we have a VAT rate that is 6% higher than in Britain.

I am happy to support this motion. It is a very important motion and I hope it will bring about some change in the Government's thinking in its support for small firms across the country. I particularly like the proposal that the Government establish a fund to support small businesses and avail of the funding available from the European Investment Bank.

Small firms are the backbone of this economy. Deputy Varadkar outlined how 800,000 people are employed by such businesses. People who operate small businesses, be they retailers, professionals, traders or entrepreneurs, are the people who are taking risks. They are taking risks when they lease a premises, employ people and buy in stock. In many cases, it would be easier not to take the risk. I am sure it would be easier to take a job as a PAYE worker and to let somebody else take the risk, but these people are providing employment throughout the country. The Government should recognise how important small and medium enterprises are to this economy. Many of them are hurting at the moment. They are worried about how they will trade coming up to Christmas and whether they can keep their staff. They are worried that the banks are not supporting them as they once did.

A report produced recently by ISME claimed that 54% of companies were refused applications for new finance or the extension of their existing credit lines. A similar survey in August stated that 20% of companies were at that stage. That is a huge difference in three months. The firms that were successful could not meet the stringent conditions attached by the banks to secure funding. Many of these firms have been in existence for ten or 20 years. They have a long commitment to trading and providing employment in Ireland, but at the moment they are finding out that finance is not available. Last week, we heard about a woman who set up a speciality tea shop, but who could not get finance to provide the stock to keep her going until Christmas. Anybody who knows anything about retail knows that to have access to that kind of finance——

She was only looking for €5,000.

That just underlines the difficulties that are out there for small businesses.

The Government is not helping in other areas. The cost of doing business here is high, as it is an expensive country in which to operate. An increase in commercial rates was announced last night in Dublin, which will affect small firms. I served with the Minister of State on Cork City Council. Coming up to the debate on the Estimates, we always needed to make an effort not to increase commercial rates, because it was seen to be the soft option, especially when no money was coming from the Government and we did not want to increase charges on ordinary citizens. In recent years, the rate has not increased beyond the level of inflation, but inflation is set to be reduced considerably, so the proposed increase will have a major effect on businesses.

The cost of electricity and gas has gone up since September. Nothing has been done to provide competition in the energy sector that would reduce charges. We also have water charges and a VAT increase of 0.5%, at a time when we are trying to encourage consumer activity. I appeal to the Minister to recognise the problems to which I refer. I hope this debate will bring home to the Government the serious difficulties and pressures facing small and medium enterprises in this country and I urge the Minister to adopt the very practical and worthwhile proposals before the House this evening.

Debate adjourned.