Vol. 739 No. 2
19 Deputy Willie O’Dea asked the Minister for Jobs, Enterprise and Innovation if he has satisfied himself that the measures in place to counter unemployment and immigration are adequate; and if he will make a statement on the matter. [21221/11]
The Government is acutely aware of the scale of the challenge we face in combating unemployment and emigration, with more than 440,000 people on the live register. This crisis was created by years of bad economic policies and it will take considerable time to correct. The new Government is committed to getting people back to work. As the Deputy will be aware, on 10 May the Government launched a range of measures under the jobs initiative to improve the competitiveness of the economy, to support the maintenance of existing jobs and the creation of new ones, and to assist those who are currently unemployed to return to work. It includes the creation of an extra 20,900 activation places for the unemployed. These places will be delivered by the Department of Social Protection, and the Department of Education and Skills.
In addition, the Government is actively working on implementing the commitment to establish a new national employment and entitlements service which will focus our system on structured activation designed to help people develop their potential and avoid losing contact with the jobs market.
The jobs initiative also included several measures to boost the domestic economy, including: the reduction of VAT on restaurant and catering services, hotel and holiday accommodation and various entertainment services; the halving of the lower rate of employer's PRSI on earnings up to €356 per week; the focusing of the State's capital expenditure towards more employment-intensive projects in the areas of education, local and regional roads, sustainable transport projects, energy efficiency schemes and so on; and the development of proposals for a partial credit guarantee scheme to improve access to finance for SMEs, and for a microfinance start-up fund.
Much more needs to be done. Job creation can only be built by growing more successful enterprises. This requires strategies to improve cost competitiveness, improve access to credit, streamline competition and regulation, improve the uptake of innovation and develop the capability of enterprises. This will be the focus of continuing work by the Government and by my Department.
There is also great potential for job creation in several emerging sectors such as cloud computing, digital gaming and a number of others listed in the programme for Government. I am working to develop the potential of these and other sectoral opportunities.
I thank the Minister for his response. Will he accept that many of the 20,900 activation places he mentioned were in the pipeline and had been budgeted for by the previous Government? When will the new national employment and entitlement service, which seems to be a central piece of the Government's employment policy, be available? On numerous occasions I have asked the Minister for Social Protection about this and she has been unable to give me the slightest hint of when we might hope to see it emerge. The VAT reduction is central to the Minister's employment policy. Is he aware of anecdotal evidence suggesting that the VAT reduction is not being passed on? When the Government is deciding whether to continue this relief in the next budget, what criteria will it use? How will it judge whether it is being passed on? If it decides to discontinue it, what does it propose to put in its place?
I regret the 21,000 proposed activation places were not included in the budget and they are entirely new. As the Deputy knows — he was very critical of this — they needed to be funded by way of new sources of revenue. So these were not planned. The programme had an additional 5,000 places under Tús, which the Minister has now put into practice. That would be 5,000 in addition to the figure I gave in the reply and they were the only ones provided for.
Obviously the Minister for Social Protection is responsible for developing the national employment and entitlements service and I know she is actively working on that, which will represent a significant break. The OECD has been trenchantly critical of Ireland's approach in the past of not matching payment with activation policies and having a streamlined approach, and the Minister is determined to address that gap.
I am aware — the Deputy, himself, drew my attention to anecdotal evidence — that the VAT cuts are not being passed on. While detailed criteria against which a decision will be reached as to whether to retain this have not been drawn up by Government, we will want to see it is having an impact in terms of the competitiveness of our tourism product, activity rates in these sectors and a reduction in price. I am monitoring it closely and am asking the National Consumer Agency to monitor it, so we will gather evidence.
No additional funding has been provided for the enterprise agencies. The Minister will realise that their record in net job creation in recent years has been pretty poor. There has been no appreciable improvement in the economies of the countries from which we attract much of our foreign directive investment, FDI, in particular the United States. Given the Government's projections of what is expected of those agencies during the coming years, what changes in policy or organisation does the Minister propose to get them to move from creating in net terms a couple of thousand jobs last year to creating the 100,000 or 150,000 planned for the next three to four years?
As the Deputy knows, the Government is developing several initiatives designed to get companies that have not been exporting to access the export market. That the Government has also taken great strides to improve access to credit for small to medium-sized enterprises, SMEs, is a significant element. The Government is examining the potential for a strategic bank to provide new sources of capital to focus on infrastructure and enterprise development.
The Government is preparing a range of proposals to address the need to drive more sustainable enterprises. It is not just about spending more money. If that were the solution, we would have solved our problem. Much of it has to do with becoming more effective and competitive, improving regulatory systems, increasing access to credit and refocusing banks on business rather than property. There will be considerable structural change in the economy. It is not just about spending more money, as key issues must be addressed.
20 Deputy Peadar Tóibín asked the Minister for Jobs, Enterprise and Innovation the cost to businesses in view of the recent gas and electricity price increases; the number of jobs he expects that will be lost as a result of the price rise; his strategy to off set these costs; and the expected job losses. [21435/11]
23 Deputy Peadar Tóibín asked the Minister for Jobs, Enterprise and Innovation the cost to Irish businesses of the recent and proposed increase in interest rates; the number of jobs he expects that will be lost in the economy; and his strategy to off set these costs and job losses. [21436/11]
I propose to take Questions Nos. 20 and 23 together.
As the Minister for Jobs, Enterprise and Innovation, I am keen to ensure that the cost base for business is competitive to enable enterprises to grow and to support job creation. While there has been a welcome improvement in cost competitiveness in the past two years, including in the energy field, any reversal of these trends would be most unwelcome. However, the Government has no role in setting electricity prices and only certain segments of the market are regulated by the Commission for Energy Regulation, CER. I recently met the CER and asked that there be a clear distinction made between the elements of energy pricing within our control and those that lie outside it.
Last week, Bord Gáis Energy announced that it is to increase its residential electricity prices by 12% from 1 August due to the significant increase in the cost of commodities on the wholesale markets. As this increase relates to residential customers only, it does not require the CER's approval.
The Sustainable Energy Authority of Ireland, SEAI, published a report earlier this week on electricity and gas prices in Ireland based on EUROSTAT data. This report includes an analysis of the most recent trends in energy costs for businesses. While the report is detailed, the main findings are that, following reductions in electricity costs for businesses in 2009 and the first half of 2010, there was upward pressure on prices during the second half of 2010, with prices rising slightly faster than in the EU in general. Notwithstanding the increases, Ireland's electricity costs remained below the EU average for medium to large business consumers, but above the average for small business consumers. Gas price increases for businesses also increased in the second half of 2010, but remained below the EU average for all business customer levels.
I do not have data on the specific impact of increases in gas and electricity prices on business. The impact will vary depending on the size of the company and the nature of its activities. However, indicative data published in the National Competitiveness Council's "Costs of Doing Business in Ireland" report would suggest that, in the manufacturing and services sectors, utility costs, including water and waste as well as energy charges, account for less than 5% of companies' total costs.
It is important to point out that business and domestic customers can avail of competitive offerings from a number of electricity and gas suppliers and should seek the best value on offer in the marketplace to suit their circumstances. Competition helps to put downward pressure on energy prices, but businesses can also focus on mitigating energy costs through energy efficiency measures. The SEAI can provide advice and, subject to available resources, financial assistance in this respect. In addition, extensive tax relief is available to businesses under the accelerated capital allowances scheme for energy efficient technologies. Enterprise Ireland also works with its client companies on improving productivity and efficiency and offers a range of programmes in this regard. The home page of my Department's website includes links to the main supports available to businesses for job creation and productivity, including supports available from the SEAI and Enterprise Ireland.
The Government will do all it can to reduce the cost of doing business. We have been working on several elements, including rents, wages, commercial rates and other charges. The European Central Bank, ECB, announced an increase in interest rates on 7 July. An independent organisation, the ECB has sole responsibility for monetary policy decisions in the euro area and the Government has no control over setting interest rates. However, we have taken many steps to improve access for SMEs to credit, including restructuring the banks, a partial loan guarantee that is in development in my Department and other measures.
Cost competitiveness is a major issue for small businesses throughout the State. It is often the case that the Government parties focus intently on the cost of labour when considering various costs. One reason for asking this question was to try to open the Government's mind to the fact that other costs affect small businesses. High inflation is doing significant damage to the ability of such businesses to function.
Could we have a question, please?
Most of this inflation is because of increasing utility costs, not demand. The Government has control over many of these costs, but the Minister stated that it has no control over the pricing of electricity for small businesses. Can the Government start to effect such control? What mitigating activities is the Government taking to address the increasing price of oil, which is due to the weakness of the dollar? Given Germany's focus on ridding itself of the nuclear aspect of its energy resources, there will be major pressure on gas. It is important that the Government focus on a proper competitiveness policy in respect of utilities for the near future. I would like to discuss interest rates shortly.
I agree with the Deputy. Cost competitiveness is an issue across the range. For example, the Government is committed to tackling rents, to which end the Department of Justice and Equality proposes legislation to address the issue of upward-only rent reviews. While the cost of professional services has been decreasing, the National Competitiveness Council, NCC, has highlighted the fact that legal services are bucking the trend and their cost is increasing. The Government is committed to addressing this issue. The Government is also examining the potential for a reduction in the cost of rates, a matter I remember the Deputy being concerned with during my last Question Time.
The Government does not regulate any of the energy sector. That is the responsibility of the CER. Most of the sector, including the entirety of the electricity market, has been deregulated and the commission no longer sanctions individual increases. The only segments that remain subject to sanction by the CER are domestic gas users and, until October, small business gas users.
The policy of this and the previous Government has been to foster competitiveness in these sectors. However, costs such as the world prices of gas and oil are not within the control of the regulator or the providers. I asked the regulator to make distinctions between the elements of the cost structure that can be controlled within the State and those that cannot. As the Deputy suggested, perhaps greater attention can be applied to the elements of the energy mix that are controllable within the State. Some of these are long-term in nature, for example, the development of alternative sources.
The Government is a capable one and I understand that it will not be able to control international oil prices, but certain measures, such as creating an interconnector between Ireland and Britain and improving the grid on this island, would make the liquidity of energy more competitive and cheaper for local businesses.
The interest rates issue is a massive one for Ireland. Individual businesses are encumbered, meaning they are suffering as a result. Small businesses are not receiving loans, with 79% finding it difficult to get them. With rising interest rates, businesses consider the future will be worse; therefore, expectations are holding them back from getting loans. The ECB is providing a pro-cyclical policy through its interest rate rises. It is bad enough that the Government is standing back and stating it cannot do anything about it; if this is such a key element of the economy, it should go to the ECB and state the economy must be taken into consideration, not just the German economy, when considering interest rates in the future.
The ECB, under statute from the European Union, decides its interest rates policy with an eye on inflation across the eurozone.
With an eye on inflation in Germany.
Politicians may express their views that current interest rate policy is inappropriate for Irish circumstances — there is no doubt that rising interest rates do not suit us — but, on the other hand, the ECB is clearly established under legislation.
We can look at the issue the Deputy raised of the difficulty for Irish SMEs in getting loans. That is why the Government restructured the banks and we now have two pillar banks which are well capitalised and have low loan to deposit ratios. They are capable of advancing €20 billion in loans to SMEs in the next three years. It is important that the Government ride shotgun on the delivery by Irish banks of these loans to SMEs. We must focus on the things we can control, and that has been the focus of the Government. We recognise there has been a market failure, which is why the partial loan credit guarantee scheme will be developed later in the year.
21 Deputy Shane Ross asked the Minister for Jobs, Enterprise and Innovation his views on the fact that the cost per job in Enterprise Ireland supported companies has increased from €4,278 in the years 2000 to 2006 to €12,254 in the years 2004 to 2010; and if he will make a statement on the matter. [21595/11]
As part of the Forfás annual employment survey, the overall cost per job is calculated each year by reference to the cost of jobs created during and sustained to the end of a seven-year period. The accepted accounting measure for the cost per job is cost per job sustained. This is calculated by taking into account all direct agency expenditure on all Enterprise Ireland client companies in a seven year period. Only jobs created during and sustained at the end of each seven year period are represented in the calculations. The cost per job calculation takes the total grants paid to companies to undertake development projects at both start-up and expansion stages and the new jobs that arise from these projects.
Enterprise Ireland's investment policy facilitates a grant and-or equity mix. Equity investments would typically be made in early stage companies where a greater level of risk is posed. Funds realised from the sale or repayment of equity related investments are deducted in the cost per job calculations. Over time this funding policy has been a driver of the declining cost per job sustained up to 2006. This declining figure was primarily due to the impact of large financial support in 2000. Such refunds were largely attributable to the sale of shares in one company that resulted in a refund of over €100 million in 2000 and that formed part of the calculation up to 2006. The financial supports from 2000 are no longer relevant to the calculation for cost per job sustained in the subsequent seven year period.
Since 2006 the cost per job sustained has increased. Other factors resulting in the increases in recent periods include that Enterprise Ireland provided additional supports such as the Enterprise Stabilisation Fund to ensure Irish-owned companies were in a position to withstand the worst recession in decades. The fund which was introduced in 2009 made payments of €79.2 million in the period 2009 and 2010. Also, additional supports relating to dairy, beef and sheep funds were introduced in 2008. These are administered by Enterprise Ireland on behalf of the Department of Agriculture, Fisheries and Food and form part of the calculation. A lower number of jobs was sustained for 2004-10 compared to earlier seven year periods in the context of the severe recession. The jobs sustained figure for the 2010 period was 43,800, while for the earlier period it was 48,029.
Additional information not given on the floor of the House.
Enterprise Ireland is focused on the objective of increasing exports and consequently employment through a range of interventions such as driving sustained research and development and innovative activities through direct supports for in-company research and development and collaboration; international sales, including supports to drive sales and marketing capabilities of companies and the support of 31 overseas offices; building leadership and management capabilities, encompassing Enterprise Ireland's Leadership 4 Growth programme designed and run in conjunction with Stanford University; embedding competitiveness improvements through a tailored programme of lean initiatives; and financial supports which can take the form of grant aid to support business development activities in established companies. In innovative start-ups Enterprise Ireland takes equity positions to support the start-up business plan.
We must champion the cause of companies which can create good jobs in sustainable activities. Enterprise Ireland will play a vital role in contributing to the building of a strong, sustainable and innovative enterprise sector.
To paraphrase the Minister, it seems that post-2000, particularly in the last two years when the curve got very steep, Enterprise Ireland has been supporting companies it has already supported in the past with the new Enterprise Stabilisation Fund which amounts to €80 million this year. The fund is being used to back up Enterprise Ireland's earlier judgment. What it refers to as viable but vulnerable companies have been supported. Does that not call into question the earlier judgment made? It has supported companies which would now be in trouble if it had not put more money into them. There is a new fund of €80 million for companies Enterprise Ireland has already decided to support, which was certainly a questionable judgment. Because of its Exchequer funding increases from €396 million last year to €420 million, is Enterprise Ireland costing too much to finance? Why is the Exchequer continuously putting money into this State agency which, in turn, has to put that money into companies which it has already backed and which it refers to as viable but vulnerable?
I do not think it is a fair judgment that these were bad choices. Internationally, the recession we have experienced has been unprecedented. Anyone who has part of his or her business in the Irish market has suffered a 20% drop, while world markets have dropped by about 10%. This has been an exceptional maelstrom for Irish business. While I was not party to the decision to provide temporary relief, if jobs were lost, each job lost would have cost the Exchequer €20,000 per person in jobs that must be judged viable before the fund is accessed. It is unfair to imply the original choices were bad; this has been an extraordinary collapse that has not stemmed from those successfully trading overseas, rather it is a domestically created crisis, coupled with the international recession. However, we could not call into question the selection of companies.
The Deputy has asked if we are spending too much on Enterprise Ireland and I do not believe we are. We must develop an engine of indigenous growth and it is a criticism of Irish industrial policy that only 10% still comes from indigenously owned companies. To be fair to Enterprise Ireland, it has dramatically reduced in size in recent years; employment in the agency has fallen by 40%. That is not say, however, we can afford not to be vigilant. We must ensure every line in every programme delivers value for money. I will be applying such vigilance to the programmes.
There are two interpretations and the Minister is taking the benign one, while I am taking the more critical one. There is a case for saying Enterprise Ireland is covering up its mistakes with the new money it has received in the rescue fund. It is difficult to find out what companies are involved. Enterprise Ireland costs about €94 million a year, about €2 million per week, including €4.5 million in travelling expenses. Does the Minister not view with concern that more than one third of its budget is used for administration purposes rather than for grants to SMEs?
This was not the subject of the question.
Correct.
My understanding is that the vast majority of Enterprise Ireland's staff are customer-facing. In other words, they are dealing daily with businesses, either on their research or marketing needs. This is not a huge, top-heavy administrative operation. Obviously, every section of this Department will have to be under scrutiny. We are under an obligation to reduce the numbers employed in every section. Enterprise Ireland, as well as the rest of the Department, will see its staff reduced in the coming years. I will be determined to ensure that this does not impact on the quality of the service going to Irish business. We need to be more cost-effective and I will look for that in Enterprise Ireland, as in every other operation. However, I do not think a prima facie case has been made that this is an ineffective use of an organisation that is not well managed. The contrary is my view.
22 Deputy Willie O’Dea asked the Minister for Jobs, Enterprise and Innovation if he is satisfied that the arrangements in place to provide credit to businesses, particularly small and medium enterprises, are adequate; and, if not, the measures he proposes to take. [21222/11]
The availability of credit to viable businesses is a recurring challenge that has hampered new or expanding firms from developing new products and markets, and thereby protecting or creating jobs. This is a challenge the Government is determined to address.
With my departmental officials, I continue to work closely with our colleagues in the Department of Finance to ensure that the interests of businesses are central to Government actions in the banking sector. The recently announced plans by my colleague, the Minister for Finance, to restructure and recapitalise the banking system is the principal response to this challenge. These plans are designed to secure an adequate flow of credit into the economy to support economic recovery, even as the banking system is down-sized.
As the Minister for Finance has confirmed, the banking system restructuring plan creates capacity for the two pillar banks, Bank of Ireland and AIB, to provide lending in excess of €30 billion in the next three years. SME and new mortgage lending for these banks is expected to be in the range of €16 billion to €20 billion over this period.
In each bank, a team of senior managers will be dedicated to the task of ensuring that lending continues to grow to support economic growth. This lending capacity is incorporated into the banks' de-leveraging plans which allow for the repayment of Central Bank funding through asset run-off and disposals over the period to 2013.
Both pillar banks regularly provide the Department of Finance with monthly figures on balance-sheet volumes, sanctioned facilities, and geographic and industrial breakdowns of their SME lending, and for sanctions and drawdowns by SMEs. The data is monitored to ensure that the banks are compliant with the terms of the Government recapitalisation as it relates to the provision of credit for SMEs.
As part of the jobs initiative and in accordance with the commitment in the programme for Government, I am working towards the introduction of a targeted, temporary partial credit guarantee scheme, which will be in operation later in the year. Work is also under way on the establishment of a microfinance fund to provide loans of up to €25,000 to micro-enterprises employing up to ten persons for start-ups and expansions.
Businesses having difficulty with credit refusals can use the services of the Credit Review Office. With effect from 9 July, the limit for loan applications that can be reviewed by the Credit Review Office has been increased from €250,000 to €500,000.
Additional information not provided on the floor of the House.
As a further assistance to improving the cash flow of businesses, all Government bodies — excluding commercial semi-State bodies — are now required from 1 July 2011, to pay suppliers within 15 days of receipt of a valid invoice. Given that the public sector enters contracts with suppliers worth €15 billion each year, the importance of such a policy for all the companies that do business with the State is clear. These actions already taken will enable businesses to access credit and benefit from growth in our economic activity. I am committed to the provision of an adequate supply of credit to viable businesses and I will continue to ensure that our heavily supported banking system plays its role in supporting our enterprise sector.
Did I understand the Minister of State to say that as a result of restructuring, the banks are now providing credit to businesses, particularly small businesses? The Minister of State must realise that there is a credit famine out there. The banks are not lending to businesses, particularly small businesses. The Credit Review Office is effectively a toothless tiger; it is just as good as the Press Council — useless. That is the reality, even though we set it up ourselves. The Government has various proposals concerning micro-funding for lending and taking equity in small businesses, and a credit guarantee scheme. Can the Minister of State say when we can expect both those to be in operation? The Government has been making promises about them for the past four months.
I agree with the Deputy in regard to the viability of small companies. In Mr. Trethowan's defence, his office's monthly reports are clearly bench-marked on lending by the banks, which have received €3 billion each. If the Deputy studied the reports, he would see it is quite apparent that the money is being loaned out.
I did, actually.
As regards the 250,000 small companies, however, spending in the domestic economy has dropped considerably. Many businesses that were viable are unfortunately not so now, which is the difficulty at the moment.
The temporary loan guarantee scheme has been designed to be rolled out and we are working decisively on it. We feel it is very important and will take some of the risk. It will not be a substitute for bank lending, but it will guarantee some sectors of the economy the possibility of getting money. It will certainly be rolled out by budget time.
The micro-finance fund is critically important as well and provides up to €25,000 for small and medium enterprises. From my own experience, I agree with the Deputy that it is disappointing that there is evidence to indicate that smaller companies are not getting loans.
That is true.
It is important that the State has invested heavily in the two pillar banks and is obliged to do so.
The Minister of State suggests that I should read the reports. I have read them in some detail. I would like to know if the Minister of State agrees with my conclusion from having read the reports, which is that there seems to be something of a balance-sheet paradox. The actual lending to SMEs has dropped quite considerably because much of the money being loaned out, as per the balance sheet, is simply replacing or rescheduling loans that are already there. Many of these loans are being paid on an interest-only basis. They are important because they are helping people to survive a difficult period, but they are not increasing the volume of lending to small businesses.
On the credit guarantee scheme, am I correct in saying that the amount, which the Minister mentioned in committee last week, is a guarantee of about €400 million? The Minister of State says he hopes to have that in place at or before budget time, which is next December.
By budget time, yes.
Has the Government factored in an annual figure for how much this will cost the State?
The cost will be offset by the benefits to the State. The final cost has not been fully determined, but it will certainly be value for money because the most important benefit is getting people back to work. From the level of inquiries to my Department about the lack of funding to small companies, I entirely agree with the Deputy on the role of the banks, which is a huge issue at the moment. I assure the Deputy that I will rigorously bench-mark the two pillar banks to ensure that money is loaned out.
With regard to the efficacy of the €400 million fund, it could potentially create 8,500 jobs. It is absolutely essential that we deliver it instantly. I agree that, unfortunately, small companies are not currently getting the essential finance required to generate confidence and credit in the economy. It is a point I will deal with.
Question No. 23 answered with Question No. 20.
