I move: "That the Bill be now read a Second Time."
I am pleased to bring forward the Credit Guarantee (Amendment) Bill 2020. This is another important piece of legislation that is part of the Government's efforts to help the wider enterprise sector meet the enormous challenges presented by Covid-19. I thank our colleagues for their co-operation in helping to bring the Bill to the House this week so that we can get through it as quickly as we possibly can. We have discussed this as part of the debate on the Microenterprise Loan Fund (Amendment) Act 2020. I thank colleagues for their co-operation on that measure too. It is important we respond as quickly as we possibly can to the needs of businesses and employees who want to get up and running and sustain their jobs.
The purpose of this Bill is to make certain amendments to the Credit Guarantee Act 2012, as amended, in order to help businesses access essential finance through their banks and other financial institutions. Finance is needed as a result of the Covid-19 crisis, which as we all know is having a devastating effect on communities, villages and towns in every county. It is having an impact on jobs and businesses and we are responding in numerous ways with many interventions. The Credit Guarantee (Amendment) Bill 2020 will really help us to facilitate that response and help us to help those businesses that need our help.
I will start by explaining why this Bill is so necessary. Covid-19 has had a devastating impact on all parts of our society and our economy since early this year. Our enterprise sector has been dealt a severe blow. Many businesses have had to close their doors for months, with revenues drying up overnight. Hundreds of thousands of people are out of work and many are seeing their wages reduced. We continue to introduce measures to avoid mass unemployment and a wave of insolvencies.
Due the unprecedented nature of the shock to the business environment caused by the outbreak of Covid-19, my Department and its agencies have worked hard to help businesses in meeting the enormous challenges presented by the pandemic both locally and globally. Apart from my own Department and all the other Departments that have come together, I want to thank all the business organisations and business representative bodies across many sectors that have worked with our Departments in recent months. They have suggested ideas and interventions and worked with us on how to manage the back-to-work protocols and get their doors open again. These bodies have been around the table from a very early stage, helping our Department and other Departments. I thank the various organisations for their effort. It is in the nature of business that we will not agree on everything that comes forward, but the co-operation and the response in all sectors has been immense.
All our Departments and agencies have been focused on various initiatives that were announced by the last Government. The credit guarantee was one of those announcements, along with legislation we are bringing forward this week. All of those Departments and agencies have also been contributing to the July stimulus plan, which will hopefully be announced in the next couple of days.
The work has so far included the roll-out wide of a range of measures and advice for businesses, engagement with stakeholders, economic analysis and the provision of evidence to the Government on the needs of business and the impacts in the wider economy, while also continuing with our regulatory and governance functions. While the number of people on the Covid-19 pandemic unemployment payment thankfully continues to fall week on week, the scale of the crisis is unprecedented. Despite the challenges we have faced to date and those yet to come, with returning customers comes renewed hope for our businesses and their staff. Different towns and villages have given varying feedback on the rate of return, but we know that many sectors are still under immense pressure and will be for the foreseeable future.
As society and the economy start to prudently reopen, businesses need support to restart. Initially they may have to operate at lower levels of activity than before but hopefully over time they will be able to increase activity again and ultimately expand. As was said in the previous debate, this is about trying to survive and to be in a position to grow and thrive as we recover from Covid-19. There are already some welcome signs of improvement in business activity and the economy. However, sectors that employ many people, such as tourism, hospitality, the leisure industry, arts, entertainment and other services that rely on social interaction, remain in serious difficulty and their recovery prospects are uncertain.
Getting smaller businesses like hairdressers, barbers, cafés, play centres and restaurants back open is not just vital for our economy. It is also important to the emotional well-being of our people. The impact on small and medium-sized enterprises, SMEs, has been enormous. SMEs are the backbone of Ireland's economy, representing 99.8% of business activities in Ireland. In May 2019 there were 238,000 SMEs in our economy, employing more than 1.3 million workers at a time when overall employment stood at 2.3 million. These enterprises are spread throughout the country, in both urban and rural areas, and represent a vibrant and diverse range of economic activity. Our SMEs have already faced huge challenges in dealing with previous economic difficulties and more recently in preparing for Brexit. They have shown that they are adaptable, innovative and agile in their responses to many challenges, but they also have specific needs when compared with other areas of the economy. These needs are what we are trying to address.
The Economic and Social Research Institute, ESRI, recently published new analysis of data from the Central Statistics Office, CSO, which shows the vital importance to the economy of the domestically-owned sector as a whole. We have touched on this in recent debates in both Houses of the Oireachtas. The contribution from all sides recognised the importance of SMEs to our economies, communities, towns and villages. Members noted the effort they put in on a daily basis not only to provide goods and services, but to respond to our community needs. The overall contribution of the domestically-owned sector to net national product, NNP, in 2018 was just under €117 billion, accounting for 79% of total NNP, with foreign-owned enterprises contributing €31 billion, or 21% of the overall total NNP when repatriation of profits to their foreign owners is taken into account.
In the three weeks since we took up our new roles in the Department with responsibility for enterprise, trade and employment, the Tánaiste, Deputy Troy and I have mainly focused on preparing the July stimulus package along with other Departments. As the Government has previously said, it will be radical, of scale and far-reaching. It is part of a package, building on supports that have already been announced in recent months. More long-term interventions will be introduced as we develop the three-year economic plan along with the budget in October of this year.
Before I move on, I would like to thank those Deputies and Senators who offered their ideas on the July stimulus plan in writing, in conversation and during the debate in both Houses on the Microenterprise Loan Fund (Amendment) Act 2020, which was held two weeks ago. As I noted at the time, they may not all be workable and some may take more funding than is available or may take a long time to put into motion. However, all were noted and reviewed to see what additional steps we could take together. If suggestions do not feature in the July plan, we can work on them as part of the budget or the three-year plan in October.
In considering the various analyses, we see five areas which we should focus on in helping our enterprises in the future: income support; direct grants for businesses; cheaper finance; new opportunities for future job growth; and support for the hardest-hit sectors. This will include a specific focus on youth unemployment. It was said in previous debates, predominantly in the Seanad, that we have to focus on getting our young people back to work and ensuring they are not left behind.
I recognise that many of the Members in the House today were here when we brought forward plans in the period from 2008 to 2011, when it was very difficult to get young people back into work and education and keep them close to the system. It took longer than it should have done to address those issues, and that cannot happen again. This time, we are very clear on the need to make sure that our response deals with potential youth unemployment.
My Department and its agencies have worked hard since the arrival of Covid-19 to help businesses overcome the challenge presented by the pandemic. The impact on SMEs in particular has been enormous. We have, in effect, had an economic pandemic following on the heels of a health pandemic. So far, the Government has introduced, on behalf of the taxpayer, a €12 billion package for firms of all sizes. We have already implemented a range of measures and schemes, including wage supports, advice, grants and loans for enterprise. We recognise that this is not enough. Groups representing the SME sector and businesses in general explained the need for assistance early in the Covid-19 crisis, with a particular focus from an early stage on liquidity. Today, we are debating legislation that will make the amendments required to implement part of that liquidity approach by way of implementing a specific Covid-19 credit guarantee scheme. This will help many more SMEs than the existing scheme because it is much larger and because the State is guaranteeing 80% of the loans included in the scheme.
The Covid-19 credit guarantee scheme will expand the cohort of eligible businesses to include primary producers, namely, farmers and fishers, located throughout the country. It predates my time in this Department but food producers and farmers in my own area, in counties Meath and Westmeath, were always saying they would like to have access to this type of support if they ever needed it. We recognise that there was not such a big call on the existing credit guarantee scheme over recent years. The scheme was there if it was needed and there was always a demand from other sectors to be able to avail of it. They wanted to be able to access it if they ever needed something to fall back on. I am glad that this legislation is responding to that request for inclusion.
The new scheme will also include small mid-cap companies with up to 499 employees. This is something which we can do under flexibilities available from the European Commission under its temporary framework on state aid, which was introduced to respond to the Covid-19 pandemic. The Microenterprise Loan Fund (Amendment) Act 2020, which was debated and passed by both Houses two weeks ago, was introduced to increase lending to the very smallest enterprises, coming directly from the Slate through Microfinance Ireland. I noted during that debate that we were effectively discussing a State-owned bank, because that money is channelled through Microfinance Ireland and the local enterprise office, LEO, system, whereas the credit guarantee scheme applies to all retailers, which are on every street in the country, enabling them to reach out to the different companies and access the different loans once the guarantee is behind them.
The Bill before us today is aimed at putting in place a State-backed guarantee so that businesses which employ up to 499 people can go to the banks and other participating financial institutions that are lending across a range of financial products. As part of state aid requirements, the businesses will pay a fee to the State for a guarantee related to their borrowing. If a business defaults in its repayment of those loans or overdrafts, the lender can then call in the guarantee from the State, which will cover 80% of the outstanding debt. The lender will still have to carry 20% of the default itself. The State is providing significant certainty to the banks with this guarantee as we also propose to remove the portfolio cap for the financial institutions, which will see the removal of what was previously seen as a barrier and enable the banks to put more money through the system.
Given these measures, the Tánaiste has been clear in recent meetings with the chief executive officers of the three main banks, namely, Allied Irish Banks, Bank of Ireland and Ulster Bank, that the Government expects a significant reduction in the interest rate charged to enterprises for the loans and other financial products covered by the scheme. As I indicated, a range of products will be covered. At the moment, only those offered by the three main banks come under the scheme, but it will be available to all other lenders. We have focused at the start on the three main banks because they cater for approximately 90% of all lending to SMEs.
I will go through the Bill quickly section by section. Section 1 provides that the Act of 2012 refers to the Credit Guarantee Act 2012. Section 2 amends section 2(1) of the 2012 Act to provide for the inclusion of a new definition of a Covid-19 credit guarantee scheme in that Act, which is required in respect of changes made elsewhere in this Bill.
Section 3 amends section 3 of the 2012 Act to allow for the extension of classes of enterprises which can qualify for the Covid-19 credit guarantee scheme to include small mid-cap companies. Primary producers - farmers and fishers - are also to be included in the scheme, but this will be done through the extension of classes of SMEs which qualify for the scheme through the statutory instrument establishing the Covid-19 credit guarantee scheme
Section 4 amends section 4 of the 2012 Act to include the new credit guarantee scheme within subsections (1) and (2) of that section, thus giving the Minister the power to give guarantees. This section also disallows subsections (3) and (4) of section 4 of the 2012 Act for the purposes of the Covid-19 credit guarantee scheme, as different provisions are being made for those aspects through the new section 4A which is being inserted by section 5 of this Bill. The existing scheme is subject to a portfolio cap of 13% under the current legislation, but there is no portfolio cap for the Covid-19 scheme. I understand this change is of great significance for a lot of my colleagues in the House. The existing scheme also has a maximum yearly credit amount which can be guaranteed of €150 million, whereas the Covid-19 scheme has an overall maximum credit amount of €2 billion. This is a major increase in the amount of funding being put behind the new scheme. While it is important to create as much flexibility as we can for the Covid-19 scheme, we do not want to interfere with the terms and conditions of the existing scheme as it will continue once the new scheme has expired and must continue to comply with the normal EU state aid rules.
Section 5 introduces a new Section 4A into the Act of 2012 which gives power to the Minister to give guarantees in accordance with the Covid-19 credit guarantee scheme. The new scheme will be open for guarantees to be put in place until 31 December 2020 or a later date, not later than 31 December 2021, as ordered by the Minister with the consent of the Minister for Finance and the Minister for Public Expenditure and Reform. This allows for flexibility if the European Commission extends its temporary framework on state aid, allowing us to extend the scheme as required. The temporary framework is in situ until the end of this year, but we will monitor it carefully and react if needs be. The guarantees will not extend beyond six years in duration, which is a requirement of the state aid rules. The maximum amount of credit to be covered by the guarantees will not exceed €2 billion and the Minister's liability in respect of those guarantees will not exceed €1.6 billion, in line with the 80:20 risk share.
Subsection (5) includes definitions relevant to the scheme. I understand colleagues have submitted amendments in respect of the six-year limit, but to be clear, that limit is a requirement under the scheme as it stands. That is what we have to work with under the state aid rules. There are other schemes, such as the future growth loan scheme, which allow for longer term loans, and they have been quite popular. As I mentioned earlier, the Government is working on making sure there are a range of different measures available to help businesses according to their different needs. I am conscious of the case being put forward to have a longer term than six years. We are trying to make sure there are different products on the market which will cater for that. We recognise that for many businesses, there will be a need for finance beyond the six-year mark and we will tweak the different schemes to respond to that need. Where there is demand in certain areas, we will try to respond to that as well.
Section 6 amends section 12 of the Credit Guarantee (Amendment) Act 2016 to ensure that the maximum liability of the Minister in regard to the existing credit guarantee scheme will remain as not exceeding €15.6 million and for a separate provision for a maximum liability of €1.6 billion in regard to the Covid-19 scheme. Again, we need to differentiate clearly between the two different schemes. The Covid-19 scheme is temporary in terms of its ability to respond.
Section 6 is the final section and deals with technical matters concerning the Short Title, commencement arrangements and citation.
As businesses reopen, we need a plan of sufficient speed and scale to repair some of the damage that has been done and to restore confidence. Businesses need to know that the Government and this House have their backs and that we are there to help them through this process. The Government asked businesses to close in response to Covid-19. Many of them could have continued to trade very well and might have expanded only for the intervention of the pandemic. We are trying to respond to the challenge they face through a range of different measures, such as the wage subsidy scheme, the rates rebate and the enhanced guarantee scheme, which will make money available more cheaply through loans and so on. We recognise that there is a demand for different types of finance and different combinations of grants, and we will try as best we possibly can to get the money into businesses to enable them to continue to flourish.
The July stimulus package will be the next element of our response, as promised in the programme for Government, and we hope it will be announced later this week. That job stimulus plan, building on previous announcements, will help to save jobs and create new ones and will, we hope, get the majority of our people back to work. It is a matter of enabling our SMEs to return to capacity where possible and, more broadly, strengthening the resilience, productivity and innovation of SMEs. As we adapt to this pandemic, any future pandemics and other challenges that may face businesses in this country, we will see a lot of them show their innovative streak and the particular Irish quality of being able to change and survive.
We wish to build on that resilience and strengthen the position of companies. It is about getting through this period. It is also about building on the lessons from Covid-19 in order to be in a stronger position to allow companies to continue to prosper into the future.
All Members recognise that SMEs are the backbone of our economy and of communities across the country. Large numbers of people are employed in small firms in all parts of Ireland. We must appreciate that SMEs account for more than 1 million employees or slightly more than 68% of total employment in the Irish business economy.
A Deputy stated earlier today in the House that all the Government is doing is responding to the needs of business. That is not the case. When we support business, we support jobs, and that affects everybody. It is not just money for businesses, it is money to save and create jobs and to support the economy. That, in turn, provides the taxes we need to run all the other services.
It is important that we respond to the needs of businesses and, most important, our SME sector. Through enacting the Bill, we will ensure that financial institutions can provide these businesses with access to liquidity at more affordable rates and, more important, that firms can access funding. Those working in small firms in the private sector have borne the brunt of the pandemic and that is why we need to focus our efforts on them. The Government will continue to do so.
The Bill is one of a suite of measures the Government has implemented and will implement to help SMEs in their recovery. I look forward to hearing the views of Members on the Bill and hope that we can work together to get it through the Houses this week if possible.