Joint Committee on Business, Enterprise and Innovation debate

Cost of Doing Business in Ireland: Discussion (Resumed)

Chairman

I remind members, visitors and those in the Visitors Gallery to ensure their mobile phones are switched off completely or left in flight mode for the duration of the meeting as they interfere with the recording and broadcasting equipment, even when left in silent mode.

By virtue of section 17(2)(l) of the Defamation Act 2009, witnesses are protected by absolute privilege in respect of their evidence to the committee. If they are directed by the committee to cease giving evidence on a particular matter and they continue to so do, they are entitled thereafter only to a qualified privilege in respect of their evidence. They are directed that only evidence connected with the subject matter of these proceedings is to be given and they are asked to respect the parliamentary practice to the effect that, where possible, they should not criticise or make charges against any person, persons or entity by name or in such a way as to make him, her or it identifiable.

Members are reminded of the long-standing parliamentary practice to the effect that they should not comment on, criticise or make charges against a person outside the House or an official either by name or in such a way as to make him or her identifiable.

I welcome our guests, Mr. Tom Parlon, director general of the Construction Industry Federation; Ms Jeanette Mair, policy executive; Mr. Martin Stapleton, chairman of the IFA national farm business committee; Mr. Damian McDonald, director general of the IFA; Mr. Adrian Cummins, chief executive of the Restaurants Association of Ireland; and Mr. Liam Edwards, president of the Restaurants Association of Ireland. They are all very welcome and I thank them for taking the time to come to the meeting to discuss the cost of doing business. This is the committee's fourth meeting on the topic and we plan to hold one more meeting in the new year.

I remind our guests their presentations should be no more than five minutes. Members have received the presentations. I ask Mr. Parlon to make his presentation to the committee.

Mr. Tom Parlon

I thank the committee for the opportunity to highlight some of the issues which the Construction Industry Federation sees affecting costs within the industry. At the outset I will give a picture of the industry which might not normally be appreciated. In our industry, 97% of entities are very small players employing fewer than ten people. The committee will see the big sites and big players but the bulk of the industry is small. Small players have extra challenges in dealing with different issues. The industry is in a pretty good place at the moment having come through a torrid time when it deteriorated to almost one quarter of its size with massive job losses, massive companies going out of business and so on. The industry is growing now. Generally when the economy is doing well the construction industry does well. CSO figures suggest that for the past 30 months, we have employed an extra 1,000 people per month. We have not heard the Minister or a Minister of State saying it is wonderful. The industry has been taking people largely off the live register, including many foreign people. Many people who were forced to leave the industry are coming back to take up good jobs again. It is a very competitive industry and is very labour intensive. Traditionally, it was very simple to look at the costs of building. One employed labour and bought the materials and put them to work as efficiently as possible. It was very straightforward.

I will go quickly through the tendering costs. Practically all the work done, whether in the private or public sector, is put out to tender. Very often the cost of tendering for projects is disproportionate to the probability of winning. There might be a pre-qualification tender and six or eight people might pre-qualify who have to employ a fairly substantial team of surveyors, engineers, designers and so on. Particularly if it is a design build, they have to go into a lot of detail in terms of coming up with the plans and so on. There is only one winner, which has to be factored into the cost. We have been negotiating with Government for more effective and fairer public works contracts. We are making some progress there but there is still a lot of work to do.

Building and material costs are a big factor. We had a decade of declining and flat building costs. The wholesale price index recently showed that in the year up to December 2017 costs increased by 3.2%. The most notable increase was glass, which went up by 21%. Sand and gravel prices increased by 8.9%. Stone prices increased by 7.8% and structural seal prices increased by 6%. Timber pipe fittings also increased in price. One of the biggest costs is insulation, which is a big factor in new quality builds now. There has been big inflation in costs.

Planning and development costs are another major issue. Regulation has increased substantially in that area. The whole process is extremely slow and expensive. Lead-in times can be slowed down massively and that all adds to cost. We have had some fairly positive amendments to planning legislation, including the fast-tracking of applications for developments with more than 100 housing units. We have LIHAF and extension to planning permission in some cases. It is still a major cost and can cause a big slow down.

The costs of building a house is a very big issue at the moment. It can be divided between the cost of providing the house and building the house. The Society of Chartered Surveyors Ireland recently did an in-depth survey of the cost of providing a house. The hard construction costs are just 45% of the total costs. Development finance, the cost of land, the design and taxation elements, levies, VAT and all of that are very big costs. While I am saying there is inflation on the building side, it is still a small part of the overall cost. We met with the IDA yesterday. A big concern is the lack of quality apartments in Dublin particularly for the big workforce of foreign workers we have here. The Minister, Deputy Eoghan Murphy, is reviewing the proposals with regard to apartment building and he is looking at parking provision. Previously one was obliged to put in very expensive underground parking. With regard to lifting the height caps, we have very restricted height caps in the city centre. With regard to build-to-rent policies, the dual aspect requirement is an issue. One cannot build an apartment unless it looks out east and west or north and south. There is also the issue of units per lift core. That is practical stuff that we hopefully will get a positive view on.

Finance is a big cost and a big constraint on the industry. Can the Chairman see the clock? She is looking over my head. Do I have time left?

Chairman

Yes.

Mr. Tom Parlon

Finance is a major cost. When the industry got into trouble ten years ago, the problem was the ease of getting finance. Now it is a different story altogether. We did a survey recently and despite the chronic under-supply of houses, 63% of our builders mentioned their difficulty in securing finance. Senior debt is maxed at 60%. No matter how good one's standing with the bank is, it will only give a maximum of 60% for a project. Very often our members, after coming through ten hard years, do not have the balance sheet to fund much so they depend on mezzanine finance which is generally in double digit figures. It can be up to 15% or 16%. When that rate is blended it can be 8% or 9%. It is a substantial cost. The Government recognised this in the last budget and has talked about setting up home building finance Ireland, which will have a fund of €750 million. The details are being developed at the moment and we are in consultation on that. If it came on a hare's back it would not come quickly enough because the industry needs access to that finance.

Labour is a big factor. Generally across the board labour accounts for about 40% of the total cost of any project. In October a sectoral employment order was written into law by the Minister of State, Deputy Pat Breen. It provides a set standard rate for the different grades of skilled people across the country, which is good, and it means everyone has a level playing field. It provides for a 10% increase in the rates as well, which is a very substantial increase that the industry has to live with. It is adding to the costs. There is also a scarcity of workers now. Our unemployment rate has dropped substantially. The number of potentially skilled people within the ranks of the unemployed is scarce. There is a lot of competition for skilled people. That is adding to inflation.

Energy and transport costs are a factor. Unfortunately, the bulk of construction work is happening within the M50 and the greater Dublin area. Anyone who travels to and from the country, which I and many of the people around me do, will know there is a massive clogging of the roads with traffic. Much of that is made up of construction workers with their vans and tools and their gear coming to work in Dublin. That adds substantially to the cost. Many of our firms have to provide vans for people because they commute long distances. Unfortunately the option of living in Dublin is not a viable one. That is probably another major player.

Construction and demolition waste is the next cost. The new children's hospital is under construction.

The first part of this construction project involves the digging of a massive basement several storeys deep to accommodate services, plant and car parking. All the material taken out will have to be disposed of. There is a strict and highly regulated waste policy in place, and rightly so, because it is important for the environment. The bulk of demolition waste has to travel up to 100 km outside the city for disposal. One can imagine the cost of that, as well as travelling through congested traffic. We are negotiating with the Environmental Protection Agency, EPA, and the Department of Communications, Climate Action and Environment to reduce costs in this regard.

We all have to live with taxation. However, the issue of VAT on residential housing is a thorny subject which we have raised with the Department of Finance for quite some time. There is no VAT in Northern Ireland or the UK on housing. However, in the Republic, there is a 13.5% VAT rate on houses, which adds €40,000 to a typical €300,000 starter home in Dublin. Some of my colleagues beside me today negotiated a reduced VAT rate when the industry was in difficulty in the past and it appears to have worked extremely well. A reduction of even €10,000, 4.5% of the rate, would make a house much cheaper for a first-time buyer.

Our biggest concern is the cost of building residential apartment blocks. We are currently building well in excess of 100 acres of office space. This activity signifies 45,000 new construction jobs but we are not building homes for them. We need to accelerate the building of apartment blocks. One can secure viable finance to build an office block, a hotel or student accommodation but not for residential development. The Taoiseach made a commitment at our annual conference this year that he would set up a construction sectorial group, which would embrace several different Departments and be chaired by his Department, to look into problems with costs which are making certain developments unviable. The sooner that sectorial group is established the better.

It is not a tale of woe. The industry is doing well. However, we appreciate there is a void in the turnout of residential housing. It is the viability of those and high costs associated with that which is the problem. We will continue to underline those issues and see if we can make any policy changes in that regard.

Chairman

I call Mr. Adrian Cummins of the Restaurants Association of Ireland to make his opening statement. The last time he was before the committee, he was concerned about VAT rates. He must be smiling today.

Mr. Adrian Cummins

I thank the committee for the invitation to present to it today.

The Restaurants Association of Ireland represents 2,700 restaurants, coffee shops, gastro pubs and hotel restaurants. It would be remiss of me not to thank all Deputies and Senators for their continuous support for the 9% VAT rate for food and tourism attractions. The Restaurants Association of Ireland has long advocated that the 9% VAT rate for food and tourism is the correct one when benchmarked against our European Union colleagues. Since 2011, we have created over 50,000 jobs in our sector. Many of these jobs are in rural communities where tourism is very often the only employer.

Today's discussion is around the cost of doing business. It is widely known, with many reports outlining it, that Ireland is the costliest place in the European Union to open a business. Over the past several years, insurance premiums for businesses and the public have rocketed. In 2017, the average annual insurance premium for the restaurant sector rose by 45%. This is unsustainable for any business, let alone our sector. The problem lies squarely at the door of the insurance companies and the legal profession. We would welcome a full and absolute investigation into the outrageous insurance premium increases over the past two years and why payouts to claimants have increased by 400% in the past five years. The Personal Injuries Assessment Board has been totally bypassed by the legal profession to maximise profit for its industry to the detriment of small businesses and the general consumer looking for insurance. The time for action to deal with this issue is now. Otherwise, our sector will be forced to source insurance from outside the jurisdiction for our industry.

Before a business opens its doors, local authority rates will be the first charge for that business. Over one third of all local authority budgets come from commercial rates to the tune of just over €1.5 billion per annum. Small businesses, restaurants, coffee shops and pubs which serve food complain to our organisation that their commercial rates are not good value for money. For a restaurant, the calculation of rates does not take into account the ability to pay, the size of the premises, profitability, numbers employed or location. However, other licensed premises such as hotels and public houses are valued by reference to the trading data of their property. When a small business receives its commercial rates bill for a year, why does the bill not show where exactly its commercial rates are spent? Why is the payroll cost excluded from the percentage of the commercial rate given to a business? This should be investigated by the committee. Local authorities should be instructed to split out the payroll cost and it benchmarked between local authorities.

Water charges are another cost to small business which most consumers do not understand. Harmonisation of water charges for all businesses must be a matter or priority. Why do two counties, side by side, have the highest and lowest commercial water charges? It does not make sense.

Business improvement district levies were brought in through primary legislation in 2006. The levy is generally a 5% top-up on commercial rates, double taxation at its best. The measure is in use in Dún Laoghaire, Dundalk, Sligo, Sandyford and Dublin city centre but the Department of Business, Enterprise and Innovation is advocating its roll-out across the country. Business improvement districts are run by private companies and are outside the remits of the freedom of information legislation and the Standards in Public Office. For example, in Dublin city centre, €29 million was raised from this tax on businesses. We would like the committee to investigate this levy.

Another bugbear of our industry is the famous sunshine tax, otherwise known as outdoor seating charges. Outdoor seating charges are seen by businesses as a tax on their business. There is no benchmark or uniformity of charging with regards to this tax with some local authorities maximising it for profit. For example, for every €1 spent by Dublin City Council administering the charge, €4 is being raised from businesses. This makes no sense to a small business and is another example of double taxation.

The fats, oils and grease trap charge for restaurants is an environmental charge with an average annual cost of €1,000 per business. It is another example of double taxation. Any restaurant will have a minimum of 28 different licences, regulations or regulatory regimes with which it must legally comply. We were advised in 2012 that work would be conducted by the Department of Business, Enterprise and Innovation to streamline inspections for all businesses, utilising technology and reducing paperwork and form filling. For example, an environmental health officer could arrive in a restaurant in the morning to carry out a food safety audit. However, he or she would not be allowed conduct an audit of fats, oils and grease trap standards, even though he or she would be fully qualified to do so. That is two inspections, two regimes and two fees for that individual business.

Excise duty, specifically around wine, is the highest in Europe.

An increase in excise duty would be a retrograde step to the competitiveness of our sector. Other forms of taxation for restaurants around copyright, music performance and motion picture licensing are a major concern. We have three different organisations in Ireland collecting copyright fees from small businesses across the country in respect of three different types of copyright and these businesses must also have a standard television licence.

On the shortage of skilled labour in our sector, since 2012, the Restaurants Association of Ireland has been highlighting the shortage of chefs in this country. I will explain the reason for the shortage of not only chefs but all skilled labour in the hospitality industry. Each year, our colleges and institutes of technology qualify, on average, 1,800 chefs. As per the 2015 expert skills report for hospitality conducted by the Department of Business, Enterprise and Innovation, we require 5,000 chefs per year to have a functioning hospitality industry. The problem is that we do not have one organisation with sole responsibility for hospitality and tourism training policy in Ireland. This problem arose with the dismantling of CERT, which was the State agency for hospitality training and management in 2003. We are asking the committee for its support for the re-establishment of CERT or a small secretariat with responsibility for hospitality training policy and development in Ireland. Until we have leadership, we have nothing and, unfortunately, decisions are being made by State organisations to spend taxpayers' money in a way that will not benefit our sector. The tourism and hospitality industry is seeking this leadership as a matter of urgency. If one compares the tourism and hospitality industry to the agricultural industry this is akin to the dismantling of Teagasc as the training authority for farmers. Ireland is either serious about tourism and hospitality, or it is not. Unfortunately, the State agency for tourism development in Ireland, Fáilte Ireland, closed training centres around the country from 2010 to 2013 and it has no interest in re-entering the chef training space.

I thank the committee for listening to our concerns and we welcome any questions from members.

Chairman

I thank Mr. Cummins for his presentation and I invite Mr. Stapleton to make his opening statement.

Mr. Martin Stapleton

I thank the committee for this opportunity to outline the views of the IFA on the cost of doing business in Ireland. I am chairman of the IFA national farm business committee. I am joined today by Mr. Damian McDonald, IFA director general. Mr. Joe Healy, president of the IFA, sends his apologies for not being here today but he had to go to Argentina for the Mercosur discussions. I acknowledge the presence of our colleagues from the Restaurant Association of Ireland and the Construction Industry Federation, particularly our former president, Mr. Tom Parlon.

IFA is the representative organisation for over 70,000 members throughout the country and is the recognised voice of Irish farmers in Europe and internationally. The association promotes the ongoing development and competitiveness of Irish agriculture and the food industry which is making an important contribution to Ireland's economic recovery. Farming and the agrifood sector is Ireland's largest indigenous productive sector, exporting food and drink worth over €11 billion in 2016 and providing employment to over 300,000 people directly and indirectly. It has been a key driver in Ireland's economic recovery and it is the backbone of economic activity across the rural economy. A strong agriculture sector is critical to the achievement of a more balanced economic recovery in this country.

Agriculture provides employment and generates earnings across the country not just at farm level but in the thousands of regionally based jobs dependent on and linked to the sector. Many of these jobs are located outside of the main urban centres. For those of us who live and work in rural Ireland, it is a really good place to live and work. However, there are many challenges facing farmers, in particular the challenges of Brexit and CAP post 2020. Consolidation of farm holdings and increasing the scale of farms are necessary to operate efficient and competitive businesses. It is, therefore, important that this would be taken into consideration in the new review of agri-taxation measures due to commence in early 2018. The IFA has identified key areas where barriers exist for farming enterprises to doing business. First, access to credit at a competitive rate is critically important to support farm investment and improve efficiency. There is an ongoing market failure within the Irish banking system which is placing Irish farmers at a competitive disadvantage to their EU counterparts. The lack of competition between the financial institutions and the legacy of historical banking losses is resulting in higher interest rates being charged on new lending. The high demand in 2017 for the agri cashflow loan scheme demonstrated the need for competitively priced working capital on Irish farms. The funding of €25 million in budget 2018 for a low-interest loan package for farmers provides some recognition of the market and income difficulties facing farming enterprises in 2017. This fund needs to be rolled out as soon as possible. The high costs of registering a legal charge is resulting in a barrier for customers to move between banking institutions, further contributing to a lack competition between the banks. Another area of concern to farmers is the new Central Bank requirements around the valuation of farm land that is being used to secure funds. IFA understands that such valuations may have to be reviewed every two to three years, and that valuations must be obtained from a list of auctioneers selected by the bank. This has the potential to add significant unnecessary cost to the finance being borrowed.

Second, Ireland faces significant challenges in delivering on 2020 EU renewable energy and climate obligations, which may result in fines over €400 million being imposed on Ireland. Farm businesses are considerable users of energy. In recent months, IFA has developed a clear strategy to displace fossil fuel use in the agriculture sector with energies from renewable sources. In a recent submission to Government, the IFA called for 20% of the public service obligation, PSO, levy paid by all consumers, which is equivalent to €100 million, to be ring-fenced to support the development of farm scale, roof-mounted and farmer led community energy projects. The current strategy of exclusively using this levy to support the construction of thousands of large-scale wind turbines across our natural landscape is no longer acceptable to rural communities. It has also resulted in the transfer of millions of euros paid by Irish citizens to enrich multi-national energy companies. The IFA's proposal to ring-fence 20% of the PSO levy would contribute to energy savings for the sector by displacing fossil fuels and will, in turn, assist in addressing climate and renewable obligations. Over time, the competition this would create among service providers must deliver further energy cost-savings for Irish businesses.

Third, a shortage in labour supply has emerged in the last number of years in the agriculture sector due to a number of factors, including the fall in unemployment in Ireland, which is leading to a labour supply shortage, particularly for lower paid employment. This is particularly relevant for the horticulture sector. There is an increased demand for skilled farm workers, particularly in the dairy sector, arising from the expansion in milk supply and the dairy herd since the abolition of milk quota in 2015. A recent Teagasc survey indicates that there is potential for 6,000 extra jobs to be generated on dairy farms in the next few years. The improvements in the economies of newer member states has reduced the supply of workers who have traditionally filled jobs in the horticulture sector since EU accession over a decade ago. There is an increasing demand for skilled farm workers in the pigmeat and poultry sectors arising from increased output and increased scale in these operations. The shortage of labour supply at farm level is restricting the ability of the sector to achieve its growth targets over the next decade. We urgently need a scheme to facilitate the issuing of work permits to non-EU workers in the agriculture sector. The IFA has raised this serious issue with the Minister for Business, Enterprise and Innovation and the Department is currently reviewing the criteria for non-EU work permits.

On the earned income tax credit, the failure of the Government to increase the earned income tax credit to match the PAYE credit to the level committed to in the programme for Government maintains the inequity in the income tax system between employees and the self-employed, including farmers. The €200 increase in the earned income tax credit does not go far enough. The Government has chosen to continue the discrimination between employees and self-employed in the income tax system for yet another year. It is simply not right that a farmer earning €16,500 will be paying €500 a year more in income tax than a person in employment.

It is simply not right that a farmer earning €16,500 will pay €500 a year more in income tax than a person in employment. The Government has reneged on a clear commitment in the programme for Government that the PAYE and earned income tax credits will reach parity, at €1,650, by 2018.

I refer to incentivising apprenticeships in rural SMEs. A skills shortage is emerging due to the lack of availability of trade-based vocational training programmes. The IFA recognises the commitment in the programme for Government to double the number of apprenticeships by 2020, with a significant increase in the number of traineeship places and the development of a mechanism to recognise a person’s practical work experience and expertise to qualify him or her to take on an apprentice. The IFA has proposed to the Government that SOLAS and the Apprenticeship Council should target a specific number of apprenticeship places and provide the supports required for small business employers who take on apprentices in an approved programme.

With regard to the rural fibre broadband network, while some progress has been made, the Government needs to swiftly conclude the tendering process for the new rural broadband scheme. It must ensure every home, school, farm and business in rural Ireland will have access to high-speed fibre broadband, no matter where they are located.

The vast majority of rural businesses are micro-enterprises, employing ten or fewer people. These businesses struggle with administrative costs and regulations which often act as a disincentive to increasing the number of employees. The IFA has a number of recommendations to make to address these issues. The Leader programme has an important role to play in supporting enterprise development and job creation in rural Ireland. However, the current programme is proving to be inappropriate for administering and progressing the approval of project funding. The Government needs to undertake a review of the application process for Leader funding, with the target of simplifying the process for applicants and significantly reducing the turnaround time between project proposal and approval. In addition, a review needs to be undertaken of the new local community development companies, LCDC, structures at local authority level to determine what their impact has been to date.

The Commission for Regulation of Utilities, CRU, as Ireland’s independent energy and water services regulator, has important economic and customer protection responsibilities. The timelag in reducing retail energy prices when wholesale prices are declining is a significant source of concern for farmers. We call on the committee to consider granting legislative powers to the CRU to intervene in energy pricing policy where it is clear that wholesale price savings are not being passed on businesses and domestic consumers.

Insurance and transport are two sectors that need to be monitored to maintain competitiveness. I hope what I have outlined demonstrates some of the key areas where farmers find difficulty and meet barriers in their day-to-day farming activities which prevents them from doing business in the most efficient way.

Chairman

I thank all three delegations for their submissions. The common denominator is the skills shortage and the lack of skilled labour.

Deputy Niall Collins

I thank the delegations for their presentations, two of which referred to work permits. I am contacted from time to time by representatives of the transport industry who experience difficulties in recruiting drivers. I have never been contacted by someone in the agriculture and construction sectors. What is the experience of the organisations in dealing with the Department of Business, Enterprise and Innovation? What refusal rate are they experiencing?

Water charges are linked with the issue of commercial rates which has been mentioned by other groups that have appeared before the joint committee. Local authorities vary the rates hugely, which impacts on farming, as well as business. The delegates have said they are seeking uniformity, which makes sense. Are they looking for the pricing model to be transferred to the new utility regulator? In doing so, they need to be mindful that their members will experience a lift in the areas of the local authorities that charge less if the rates are averaged out.

The upcoming legislation to amend the Planning and Development (Strategic Infrastructure) Act 2006 has been flagged by a number of groups, including at last week's meeting. It came up in the context of the proposed data centre in Athenry. We have kicked around the concept of data centres. Wind energy was also mentioned. What else would the CIF recommend that should be considered in the proposed legislation?

What interactions have the organisations had with the Department on the apprenticeship scheme? The shortage of chefs is an ongoing issue, but I am particularly interested in shortages in the agriculture sector.

Mr. Tom Parlon

With regard to the granting of work permits in the construction sector, the whole of Europe is a massive resource. No matter where one goes in Ireland, there are people from every corner of Europe working in the construction sector. We do not see it as an issue. We have got back approximately half of the professional and skilled workers we lost and we are still encouraging others to come back. The big issue in the construction sector is taking advantage of new technology and faster ways of engaging in off-site production and so on. The amount of labouring work done on a site is much lower than it ever was.

With regard to water services, the issue for the construction industry is securing a water supply connection. There is quite a delay in that regard. When our house builders sit down to engage in internal discussions with the IHBA, they are more agitated by the difficulty in securing connections with the ESB or Irish Water than by other issues because it is a nightmare. For an individual unit, it costs €5,000 up front to have a water supply connected. That is a direct cost which is passed on to the first-time buyer. An ESB connection costs much less as customers will continue to pay on a monthly basis though their electricity bill.

We know from our recent discussions with IDA Ireland and our big players who deal directly with FDI and other infrastructural projects that the planning process is horrendous. I am annoyed most by the respect afforded to vexatious objectors who live 100 miles away from a proposed project and choose to throw their oar in. When the proposed amendment to Planning and Development (Strategic Infrastructure) Act 2006 is examined, that factor has to be taken into account. Clearly, people who have genuine objections and concerns about a future development have a right to express them.

Earlier this week I attended the launch in Grangegorman of the new apprenticeship scheme by the Minister for Education and Skills. The bulk of the apprenticeships are not in the construction sector. We still have a good pipeline of fitters, plumbers and electricians coming through, but the number with wet skills such as block laying and plastering is scarce. The intensive house building that will have to happen in the next few years will be a struggle. It will be difficult because we are competing for workers with farming and the hotel and catering industries. I have read commentary that workers are leaving these sectors to work in the construction industry because our pay rates are substantially higher, but that is putting pressure on the industry because we are subject to a sectoral employment order. We used to have a registered employment agreement to set pay rates, but now we have a sectoral employment order. The Minister made a commitment to direct 20% of school leavers to apprenticeships in the next few years.

It is a major challenge to get those school leavers into apprenticeships because the system has been designed to encourage them to move towards third level colleges. Third level colleges have a vested interest in attracting them because they are their bread and butter. However, that has led to many square pegs being put in round holes. If someone wants to enter an apprenticeship, he or she must first find an employer and go through his or her local SOLAS office and so on. Many changes could be made to make apprenticeships more attractive. A challenge for our industry and others is encouraging people to enter it. It is very positive for young people coming out of school and so on that they have choices. Our challenge is to sell the construction industry as one which offers a good long-term career to them.

Mr. Adrian Cummins

I will start by addressing the issue of work permits. We have made a submission on work permits to the Department every six months since 2010 during the window of opportunity and each has been refused because the Department does not want to deal with the issue of work permits for our sector. Some 210 were received in the sector in 2016, but the road haulage industry, a far smaller sector, received 350. New Zealand which is of a similar size to Ireland has a functioning work permit system involving a two-year permit. It targets specific countries to attract skilled labour in a similar manner to how many nurses in the health care sector in Ireland come from the Philippines. The same could be done in our sector if we followed a similar system to that in place in New Zealand, involving a quota system for 1,000 people in the hospitality industry which would be cut off for two years. The country is approaching full employment and our industry is crying out for staff. There are the same issues across Europe in terms of the need for skilled labour.

Our industry will benefit from the commis chef programme, one of the new apprenticeship programmes. It is to be welcomed that it was picked as one of the new programmes and that it was recognised that it should be developed. That is the only good thing about it. There is a very poor take-up and very poor marketing of apprenticeships outside the construction industry in Ireland and a proper marketing programme must be developed in that regard. In terms of how it is structured, organisations such as FÁS and its replacement, SOLAS, do not have expertise in certain sectors. They were heavily involved in the trades and construction industry, but the hospitality sector is very new to them. A sufficient level of expertise was and is not present in these organisations. Education and training boards are not hospitality trainers per se. Fáilte Ireland which previously had responsibility for hospitality training has ceased to provide it, even though the legislation states it must do so. It is not doing what it is supposed to be doing.

I take Deputy Niall Collins's point on the harmonisation of water charges. We have met Irish Water on the issue which is going or has gone to the regulator. However, we should look at the lowest common denominator, ensure there are efficiencies and best value for the customer.

Mr. Martin Stapleton

Like our colleagues in the hospitality industry, we have been seeking permits to bring in non-EU workers. For the past ten to 15 years Irish farms have been given a supply of workers from eastern and south eastern European countries, but that supply is no longer sufficient to match demand. Like my colleagues, we have hit a stone wall in the Department of Business, Enterprise and Innovation in getting permits to bring people in. The downside is that it will limit the capacity of our industry to grow in accordance with the projections made.

On apprenticeships, we need a pathway for people to enter agriculture, to secure an apprenticeship to become trained managers and have an opportunity to go on and become farm business owners, which is different from the low-skilled workers we are hoping to bring in from outside Europe. That can only be done through having a proper apprenticeship scheme in place. An opportunity is needed to set it up whereby people would be incentivised and given the wherewithal to take on apprentices in order that they would be able to build a career in the farming sector and have an opportunity to fulfil their ambitions.

As regards water charges, it is about harmonisation and making sure everybody gets fair play. It is a source of particular frustration that those involved in community water schemes are still paying for water, which is not fair. I do not know how long Deputies and Senators will allow that to continue, but it is unfair that although water charges have been rescinded for everyone else, those involved in community water schemes still have to pay. Most of those involved in large-scale farm businesses use their own well water, which involves a significant cost in pumping and supply, but it is more competitive than having to pay for community water schemes. Those whose farms are fragmented often have to pay for the connection of two, three or four water meters. If one is connected to the supply line, one should only have to pay for one connection.

Deputy Niall Collins

On a point of clarification, what other items of significant infrastructure would the delegates like to see under the Strategic Infrastructure Act?

Mr. Tom Parlon

Motorways are key. The Government has promised that a motorway will be constructed between Cork and Limerick and given a commitment to provide funding for its design and planning. That is a factor.

As regards big infrastructure plans, the country's reputation has been damaged by the Athenry issue and other big players may now think twice about deciding to spend €1 billion or $1 billion here. All of the big foreign direct investment infrastructure should be included.

We are being told that the fast-tracking of developments of more than 100 housing units will halve planning time, but that will involve a reduction from two and a half years to a little over a year, which is still far too slow and will put pressure on An Bord Pleanála and its resources. Local authorities will continue to have a role. Whatever about efficiencies, resources must be committed to ensure success. A proper pre-planning meeting on any issue, be it for a €1 billion data centre or a private house, ensures one gets to know the parameters and what one should do, which is a wonderful help. People very often have to wait between three and six months for a pre-planning meeting, which I assume is a resource issue. Many practical things could be done.

Senator Aidan Davitt

I noted that in the presentation made by Restaurants Ireland it was stated its members might have to look outside the country for insurance cover. The cost of insurance has been repeatedly raised as an issue before the committee and it is, with rates, one of the two biggest issues. Has Restaurants Ireland done any work in that regard or on associated problems?

Although it falls slightly outside the remit of Restaurants Ireland, an issue raised previously before the committee which will feed into the number of visitors to towns and cities is that of the cost of hotel rooms. The number of visitors from the United Kingdom fell last year for the first time, which is quite shocking. That may be related to fluctuations in the strength of sterling and so on, but I am curious as to at what point Mr. Cummins or Mr. Edwards think the cost of hotel rooms will harm the city and the tourism industry.

Mr. Parlon made a very good point about the shortage of apartments in cities. The American Chamber of Commerce made a similar point about people not being able to find apartments for their staff to enable them to expand their businesses and the impact it was having. Although Mr. Parlon has mentioned a few issues already, what does he think it will take to move the bigger construction firms on from building offices? As he alluded to, all of the cranes on the skyline are being used to build offices. What will the biggest factor be?

We talked about the planning process. The big developers involved in construction have calculated what they are able to get out of their investment and evidently it all comes down to business. What do the witnesses believe would help to push development in the direction of building apartments and to help those big job providers in Ireland?

Mr. Liam Edwards

Regarding the Senator's question on the rising cost of hotel prices, I would say the position is different for restaurants. Reference was made to the issue of supply and demand for hotel accommodation in Dublin city where there is not enough supply and too much demand. However, the opposite is the case in much of rural Ireland. There is a fear among restaurants owners about increasing prices for consumers. Many restaurant owners have been soaking up their overheads to stay competitive and in business, and their profit margins have been decreasing. There is a fear among them, if they increase their prices, about whether consumers will still frequent them. We are monitoring the competition all the time. At this stage, I believe the consumer will see an increase in prices. We cannot do anything about that. We have to stay in business and maintain employment. It will not be anything of the order of the increase in hotel prices but there will be a creep up in prices because we have to stay in business. That is affecting rural Ireland.

We have seen the immediate effect of Brexit in the off season. Many small towns in rural Ireland have lost business from short trip visitors from the United Kingdom. That has been lost. The peak season was very good in Ireland. The number of American visitors was exceptional. We did not feel the effect of Brexit in the peak season, but in the off season we felt it straight away. I live in Kinsale, and if one was to go into the town tonight, one would find that 70% of the restaurants would be closed. We do not have the volume. It is cheaper to close one's doors in the off season than to remain open. It is worrying for those operating in the industry in rural Ireland in the off season.

Mr. Adrian Cummins

I will reply to the Senator's question on insurance costs. Every day of the week our association would get a telephone call about the rising cost of insurance. We are actively looking at going outside the jurisdiction to source block insurance for our sector. The vast majority of our membership has not had a claim in the past five years, and those who have not had a claim have seen an increase in their premia of 40% on average. It simply does not make sense. They have got a 40% increase in their premia in 2017 and they are wondering what the increase will be in 2018. They have said that enough is enough and that they need to work together to get 2,500 businesses to come together in this respect. A vast majority of others are also in support of the idea of looking outside the jurisdiction for insurance cover. If they can get cheaper insurance that covers them, they will go for it. That is what they are currently examining.

Senator Aidan Davitt

I also asked about the construction industry.

Ms Jeanette Mair

The Senator asked about apartment developments. There are a number of issues, which Mr. Parlon outlined, around some of the reasons the viability of apartment developments, particularly in the Dublin area, is fairly limited such as the building height, the number of lift cores per floor and issues around dual aspect. It is to be hoped the working group of the Minister, Deputy Eoghan Murphy, will examine that and come up with solutions to amend the 2015 guidelines for apartments. On the other hand, there is the investment side. With the change in the types of tenure among apartment dwellers within the city and across most urban centres in Europe and the world, an increasing focus on urbanisation and the requirement for a change of tenure, we are moving to a build-to-rent model.

Current providers of housing within the urban centres are largely focused on housing units, three-bedroomed developments and so on. Even where large developments of apartments are taking place, they are often being built by larger companies, and even where they are able to pre-sell some units, it is being done on a phased basis. One of the problems about getting the finance in place to undertake the significant site infrastructure works that are needed to begin to develop an apartment building of significance, say, within the city area, is that there are site restriction issues, accessibility, and all the site infrastructure works that have to take place. Developers have to put together a model which their lenders will support. Lenders which are currently in that space come from international sources largely and some international firms are operating in this area.

As Mr. Parlon mentioned, we have received large investment in commercial office space, the hotel sector and student accommodation. Unfortunately, there has not been the same appetite to invest in the residential sector, although it is changing. There is also the matter of the viability of being able to build units that a developer will know will be rented or possibly sold. Unfortunately, it is very difficult to pre-sell apartments. Even within housing developments, very liquid builders are only getting the finance to build ten or 20 houses at a time. They must have contracts signed and agreements in place before they will be given the next amount of development finance to proceed with the remainder of the phase in a development. That is the current environment, but obviously market demands will probably dictate that. We will slowly see a maturing sector within the construction industry moving into that space in time. It is to be hoped the amendment of the standards, if that is to happen by the end of the year as promised by the Minister and the Department, will go some way to aiding the build prospects and the viability of entering into that, which is quite a high-risk investment in the first place.

Senator James Reilly

I thank all the witnesses for their presentations. We were especially keen to have them appear before the committee on this issue, especially the Irish Farmers Association, IFA, because often people do not accept it is a major part of Irish business, but this committee fully acknowledges that it is and we are pleased that its representatives have come along to this meeting.

I apologise as I will have to leave to go to the Seanad in a few minutes and I will therefore quickly ask my questions. One of the recurring themes has been finance and access to it. All three presentations alluded to that. We have discussed previously the need for examining the opportunity to bring a third and different type of bank into this country. I am sure the witnesses have heard of a Sparkasse, and its representatives are coming over to talk to us next year. I would like the witnesses to comment on that. Would they welcome a third force that would be of the old-style banking, and while this group is a not-for-profit one, it will lend anything from €5,000 to €50 million. They will come and walk one's land and visit one's business to understand one's model. It has a very much a personal approach and is run through offices in a region. There is talk of perhaps the credit unions collaborating with it, but we do not know if that will happen. Would the witnesses welcome such a model and the capacity to access finance in a more face-to-face fashion?

The witnesses' issues around insurance costs are well made and everybody who has come to this committee has made the same point. We had representatives of the insurance industry at our last meeting and we agreed that we will have them back for a more robust exchange. I am particularly interested in what one of the representatives of the Restaurants Association Ireland said about going outside the country to look at other possibilities. I would welcome that because that is what is needed to shake up the industry here. Nobody can understand why the costs have gone up. There are always rationale, reasons, legal costs etc., but nonetheless we heard of one small restaurant-food company in Galway whose insurance was €10,000 ten years ago and it is now €110,000 and little has changed. We are all very much concerned about that. As an aside, I would mention where the reverse occurred years ago when GPs in this country found it ridiculously expensive to be insured by English companies and we set up our own company. While the restaurants association will possibly be doing the reverse, more competition is needed in the insurance sector.

How would the witnesses address the Irish Music Rights Organisation, IMRO issue in regard to that? I would agree with comments made by people around greater transparency on how rates are spent. I would not have an issue with that.

On the labour shortage, I would point to the number of people who had jobs in the agriculture industry that were created in 2011, 2012 and 2013 as the building sector was collapsing. Many people who had been engaged in farming had gone into the building sector and then moved from it back to farming and now the building sector is struggling to attract people back. Nobody has mentioned the minimum wage but they have mentioned labour costs. We will need to have wages competition to attract people into any element of labour, whether it be in the building sector or restaurant sector.

Work permits etc. are an issue that we have dealt with here under a different guise where there was ferocious abuse. Will the witnesses comment on how they would protect people from that? We have had plenty of stories here of people having passports taken from them and basically living a life of indenture.

I am interested in the apprenticeship issue. I think we place far too much importance on going to university. In these other trades, people make as much money or more money and have as good a life and they are just as critical to the well-being of our society as any university degree. How would the IFA communicate to us or the powers that be in educational facilities its needs vis-à-vis where it sees a need for apprenticeships? The same goes for the building trade and the restaurant industry.

I will comment on the issues with renewable energy. It has always struck me that we have all these amazing agricultural buildings with roof space and we are not using it for solar energy and photovoltaics. There are newer possibilities too. We have asked the Minister for regulations because a number of local authorities have declined planning for farms for solar energy on the basis that there are no national guidelines. My main question to the witnesses is about the finance issue and what their feelings would be if there were a third banking force.

Mr. Adrian Cummins

I will take that. We would welcome it. Having grown up in a post office, I think that would have been a prime opportunity to have had a post office outlet as a point of contact for a third banking force. It might be a missed opportunity. It could possibly include credit unions too. We have set up our own microfinance. We have a €30 million fund for peer-to-peer lending through grid finance. It is a form of leasing for our industry. If a restaurant wants to lease equipment, the payback is through credit card payments per day based on its levels of business. If it takes in €1,000 in a night, it will pay 10% of €1,000 as opposed to having a flat fee across the year.

The national minimum wage will go up in January. We have wage inflation. The Low Pay Commission looks at it but I think this morning's report from the National Competitiveness Council has raised red flags about competitiveness, and wage costs are part and parcel of that.

On work permits and the abuse of work permits, we fully endorse that the laws should be adhered to and anyone found in breach of those should be prosecuted. The Oireachtas could bring in what is called a trusted partner scheme for work permits. That is where companies such as Google or other large tech companies are seen as trusted partners, whereas small microenterprises are not allowed into that because of scale. It is easy for the Department to deal with one large organisation that has 1,000 people working in it as opposed to dealing with a small to medium-sized enterprise with ten people that is trying to find one staff member. We need to look at that and roll it out. When a company is seen as a trusted partner, it is allowed to get permits fast-tracked, but if it steps outside the scheme, its trusted partner award is taken off it so it may not be able to look for a work permit in the future. I will defer to our president about the Irish Music Rights Organisation, IMRO, Phonographic Performance Ireland, PPI, and copyright.

Mr. Liam Edwards

On IMRO, Mr. Cummins mentioned that we are paying fees for 28 different licences. We are paying for three different licences for background music for restaurants. We are also paying for a television licence. It is just another hidden cost that the consumer does not see and it is just another burden on the restaurant. The consumer may see it at some stage when the prices are increasing and wonder why.

Senator James Reilly

Have the witnesses any suggestions to deal with the IMRO issue?

Mr. Adrian Cummins

My suggestion is to have it all under one licence. Why are there three organisations collecting? Three administrative regimes collect three different licences.

Senator James Reilly

It is helpful for the committee to have a suggestion as to how it could be addressed.

Mr. Martin Stapleton

On finance, our big campaign for the past year, which will be ongoing, is to make sure that competitive finance is available to farmers. It is clear to us that rates are, on average, approximately 2% higher in Ireland than they are in north-western Europe and those are the people we compete with on the European market. It is a significant charge. There are different types of finance, as I am sure the committee knows, including finance for capital investment, for increasing the size and scale of a farm and purchasing land, and for working capital. On the question of Sparkassen, we would welcome its participation in the Irish market to provide a new source of funds. The most important part is that if Sparkassen is to come here, it will have to be competitive. It will have to help drive down rates. The funding model for Sparkassen may mean that it will not be available for long-term capital investment but it should certainly be a big help at the level we are talking about with working capital. Traditionally and currently, banks' overdraft rates are between 7% and 9% and merchant credit is often charged at as high a rate as 1% a month, which is compounded to 13% to 13.5%. Any time that we see an opportunity to increase competition in this market is a benefit not only for our sector but for all of our economy. That has to be seen as being a good thing.

I agree with the Senator about renewable energy. The time has come for investment at farm level to produce renewable energy in this country. For far too long, we have let our contribution or investment into renewable energy be put into huge companies. One can see that with wind farms. It is also the case with solar panel development where solar farms at the moment are run by big businesses where farms have been leased long-term and solar panels have been installed. It would be innovative for us to incentivise farmers to put solar panels on the roof and to get involved in community projects such as putting in anaerobic digestion which has the potential to reduce our carbon output significantly and so allow farmers to play their part in meeting our renewable targets. I will defer to Mr. McDonald.

Mr. Damian McDonald

On the work permit issue, there were obviously bad experiences before in how work permits were operating and nobody wants to be associated or to have anything to do with that type of behaviour. This is an issue we will have to grasp. As some speakers have said, even if we were to roll it out on a fixed number basis for a start, there are models that could be looked at. A seasonal horticultural workers scheme operated before where workers came in and were placed through a body, which was Macra na Feirme at the time, that was authorised by the Department to provide oversight to the scheme. It brought in the workers and placed them on farms. If there were issues, that organisation could intercede in those and make sure that if workers had any problems, they had options to come back into the system and be moved to another farm. Problems arose where somebody was tied to a particular employer as a condition of getting his or her work permit. That works in most cases, but unfortunately the bad cases get highlighted.

We are open to looking at innovative ideas to do this but it is a nettle that we have to grasp quickly because it is an increasing problem in our sector and in other sectors as well. We had more positive engagement by the Department of Business, Enterprise and Innovation when we last met but we need to get on with it. I know that farms face huge problems this spring, particularly dairy farms. In our sector, cows have to be milked. We are dealing with animals. Some businesses can close down for the summer. For example, a construction business might not build an extra unit. In our case, however, we have cows, they will calve, milk will be produced and, even from a farm safety perspective, relief labour is a huge issue on farms now. Something could be done pretty quickly with a bit of innovative thinking, and mechanisms to give additional safeguards are available.

Mr. Tom Parlon

The lack of finance and its cost are major factors in the construction industry that are holding up the necessary residential building. I have met Sparkassen and its model looks good. I can understand that our Government has a vested interest in allowing the pillar banks to rebuild their balance sheets, but it should not be at the cost of a chronic undersupply of housing with all the social and other effects. One of the latest reports of the Central Bank stated that Irish households have more than €100 billion on deposit. We feel we are a very indebted country, but there is €8.2 billion more in deposits than there is in loans to households at the moment. There is a wall of cash there. The credit unions are awash with cash, or all of the good ones at any rate. Unfortunately, a few have difficulties, but they are a minority. A friend of mine works in a credit union in a very small country town which I was astonished to discover has more than €30 million. His job is to find someone who can take a loan. The credit unions are very restricted in what they can do and they have to lodge their deposits in pillar banks which charge them for minding their cache of money.

The challenge for this committee and for all of us will be to find a way to release the money. Representatives of foreign funds telephone me every other day asking how they can provide funding. When I ask more, they are all looking for quite high interest rates. However, there is a large amount of cash around and there is a need to use that cash for infrastructure. I know that our Government is restricted by the fiscal rules in what it can borrow for our capital programme. I think there will be some flexibility there. There is a new vice president of the European Investment Bank and that bank is highly active in lending to our semi-State companies and is keen to invest money, but obviously the fiscal rules are restrictive.

This is a big challenge for us, right across the board. Everybody could do with more working capital at cheaper rates. The problem is that we are not able to get access to it at the moment.

Senator Kevin Humphreys

I would like to comment on the issue of work permits. One thing we have to ensure is that our long-term unemployed have an opportunity to get back into the workforce. I compliment Mr. Parlon and his association on their engagement with the local employment service, LES, in focusing on upskilling and training people who have been out of the workforce for a long period. A lot of that has been done in the inner city. I must say, not everyone has been as good. I have seen quite a few blank faces when I have tried to discuss access for the long-term unemployed and for older people, that is, those over 50 years of age. There seems to be a resistance in those organisations to seeing those people as possible good employees. However, I compliment Mr. Parlon on the work his organisation has done in partnership with the LES, and I encourage other organisations to copy some of its initiatives.

Where apartments are concerned, the issue is one of quality. I am still dealing with the problems of the 2000s when so-called reputable developers left mayhem and destruction across this city with so-called quality-built apartments featuring cold bridging or downright dangerous construction. I am still living with the problems, and so are the residents. We cannot go back there. I totally accept that finance is a factor and has to be dealt with. In the construction industry, I am slightly nervous about finance. We should start looking at equity uptake rather than opting for 90% and 100% borrowings as we did in the 1980s. Sometimes we hear that sound very loudly.

I have a couple of questions about business improvement districts, BIDs. Having worked on the business improvement districts, I would urge people to be careful with their language. The ratepayers were given a full list of services provided by the local authority, down to the number of times a stop sign on a particular street would be cleaned. The business improvement district scheme consisted of additional services on top of that. That was my experience of BIDs. That was the contract arrived at. The additional levy was for additional services. There may have been a problem during the recession, when the council could not provide the basics, but we need to return to that. The extra payment in a business improvement district should provide additional services. In Dublin city, that extensive consultation document is still there, so we should get the local authority to fulfil its side of the contract.

I must also ask about sunshine tax. I live in the city centre. Outdoor tables can be a blessing and also a disaster. I like outdoor tables for reasons of passive policing and things like that. It is all counted as additional services. However, in the part of the city in which I live, a charge is normally applied for the renting of space in a public area. I would not deem it a tax if a business is renting public space to put tables out. I do not count that as a tax. It is a business proposition. The business is renting the space, for use as a commercial entity, from the citizens of the city through the local authority. It is referred to as a sunshine tax, but I do not buy into language like that. We have to be honest, precise and fair with each other. The charge should reflect the possible business return on that table. Accordingly, I would agree with Mr. Cummins on standardisation. Outdoor seating has different economic returns in Kildare town and in Dublin, and that should be reflected in different charges.

I totally accept the point on water charges and their equalisation. All organisations must be honest with their membership and with citizens and small businesses. In many cases that will mean an increase in water charges for small businesses. That is the reality. Some of those will be the most vulnerable small businesses.

Mr. Parlon has advocated the 9% VAT rate for the construction industry for a long time. I often listen to my colleagues, and the biggest argument is that if a 9% VAT rate is introduced as a temporary measure, the rate will never go back up again, as we saw in the hospitality sector. I supported the 9% VAT rate in hospitality when it was introduced as a targeted measure, and I think it worked as such. It now needs to be refined further. Hundreds of millions of euro in tax has been forgone to assist the hospitality sector. Some of that sector no longer needs that targeted intervention, yet some other areas do, such as rural Ireland. With regard to the hospitality sector, I would be interested to know if there is a way of targeting that forgone tax to particular areas that are in trouble. Some restaurants in the capital are doing extremely well, and their prices have not been controlled. I have seen restaurants not too far from Mr. Parlon increase prices by 20% or 25%. Mr. Parlon has probably paid the prices himself when visiting.

Something that costs hundreds of millions of euros in forgone taxes must be targeted properly. I am not talking about a reduction in assistance to the industry. However, in the hospitality sector, I would certainly like to see that forgone tax targeted to assist businesses that are still being challenged by Brexit and the performance of the American market, which has suffered. If we consider how best to spend hundreds of millions of euros in forgone tax, I am not too sure that the 9% VAT rate is the proper way to assist the industry. We need to target it much better, and speaking as a Senator that comes from Dublin, we must target it to assist industries outside of Dublin.

I remember being lobbied extremely hard on visas when I was a Minister of State. Since I had access to the information, I enquired about the number of people with the required skill sets in a particular sector of the industry. Those skill sets were available. Suitable people were on the live register and their skill sets were still new. As the recovery kicks in, we must ensure that those who lost their jobs at the beginning of the recession have an opportunity to get back into employment. I will give Mr. Parlon credit where it is due. The construction industry has stepped up in that area, but not all the industries have.

Mr. Adrian Cummins

Senator Kevin Humphreys

Mr. Cummins is misunderstanding my question. I accept there are EU rules on VAT. However, if one puts the value of the 9% rate in real terms it comes to hundreds of millions of euro. If the rate were returned to 13.5%, it would yield between €500 million and €600 million. In turn, that could be spent in a more targeted manner in assisting growth in the tourism industry in rural areas. For example, assistance required by Border counties to deal with Brexit issues or investment in the Wild Atlantic Way and Ireland's Ancient East could come from this tax take. We have to be much smarter in how we spend our money to make the best hit.

There are hotels near where I live which are running at a 92% occupancy rate and management have to put on a night-time shift to turn rooms around. However, that is not happening across the country. The hotel in Dublin with 92% occupancy rates is benefiting from this foregone tax yield when hotels in west Cork or Clare may need targeted financial assistance to ensure they can stay open. We may have to be more intelligent in how we spend a foregone tax of €600 million. One of the biggest arguments against the reduction of the VAT rate is that once it is introduced, it is hard to go back on it.

Deputy Tom Neville

I welcome the delegations.

The Construction Industry Federation, CIF, referred to the lack of finance in the market resulting in pent-up demand. The CIF referred to 60% of funding raised by builders. What has the CIF done seeking the remaining 40% of funding from venture capitalists and investors? We have seen investors from outside the State buying up existing property. With pent-up demand for property, from a potential private investor's point of view, there is a market.

Is there a percentage point above 60% at which the market would tip? Has there been any statistical analysis of this to present to financial institutions?

They are considering their commercial interests as well but that does not take away from the huge number of people on the housing list who need houses and the economic effects of the issue.

In terms of the Restaurants Association Ireland, RAI, and the recruitment of staff, has the shortage of staff forced any of its members to consider the employment models in operation? There is a mixture of permanent, part-time and casual staff and flexibility arrangements in the sector. When I worked in the hospitality industry my co-workers and I were on minimum wage. Has there been any industry pressure on employers to consider productivity? Productivity has increased in recent years with the improvement in the economy, which has created staff shortages. The sector has hit a kind of ceiling but productivity has increased and I assume that, for some organisations, profits have also increased. Companies are out of the situation they were in during 2011 and 2012, if they were lucky enough to survive those years. Has that forced them to consider profit sharing, commission or such schemes that have worked in order to attract staff?

As regards the IFA, as a rural Deputy representing County Limerick and dairy farming being the backbone of my constituency, I am particularly interested to hear more about the skill shortages mentioned in dairy farming and whether there has been any thought on the specifics of apprenticeships that the IFA would like to be put in place. Could that be pushed back onto Government to make that happen because in education there is an increasing consideration of apprenticeships, broadening apprenticeships and moving towards the German model, which provides a broad range of apprenticeships, and growing that part of the economy? That was neglected in the past, both culturally and by Government. From a dairy farming point of view, and as one who worked on a dairy farm in my younger years, what is the minimum requirement for a person to be employed on a dairy farm who does not necessarily wish to pursue it as a career? Has any thought been put into putting training modules or courses in place that could be run through Teagasc or a similar organisation but would have Government backing, or any way to expand in that regard in order to incentivise staff to come in? Eastern Europe was mentioned but there are probably other parts of the EU that may need to be targeted as well as outside the EU because I am all for underpinning the industry that kept the country going through the recession.

Mr. Tom Parlon

In response to Senator Humphreys, who raised the issue of the legacy of poor-quality work that is a difficulty for the industry and is still being dealt with, thankfully much has been done and the industry has moved on. The new Building Control (Amendment) Regulations, BCAR, have been in place since 2014 and set a very strict statutory certification whereby every build, be it a single house, extension or any other scale of construction, must have an assigned certifier with insurance cover who must be a chartered surveyor, chartered engineer or an architect and must sign off on all aspects of the build. We have moved on, as we clearly needed to do, and we are in a good place. The industry, together with the Department of Housing, Planning and Local Government, has set up the construction industry register of Ireland, CIRI. That means that in order to be a construction professional or involved in any element of the sector one must be registered and tick all the boxes with regard to one's experience, quality, insurance, tax compliance and so on, which will take the cowboys out of the industry, who, unfortunately, were among those involved in such poor-quality work, which was also due to the lack of implementation and scrutiny of the regulations at the time.

As regards the 9% rate, I understand exactly where finance comes from. It annoys me that the calculation is done and it is said that if 4.5% VAT is taken from the industry whatever number of hundred million euro will have to be found. However, that does not take into account that construction, in particular residential building, is a massive economic boost for the Exchequer. Almost 40% of the cost of a house goes directly to the Exchequer and the extra cost, therefore, would be less than is represented. As regards it being a temporary measure, I appreciate that has been a problem. In fairness to my colleagues from the Restaurants Association of Ireland, they are holding on very strongly to the 9% rate. It has been said on many occasions that a particular year would be the last year for the 9% rate but woe betide the Minister who follows through on that. He or she would need to be fairly well galvanised or would not want to be going out for a meal around the country for a while. That is a problem but we need to be innovative about how it will be done. The issue about targeting is a difficulty because the EU lays down the rules and one either does or does not do it. The Government is quite entitled to target the construction side for a 9% rate as it would qualify in the same manner as the hospitality sector. However, we have to be innovative and find a way that we can do it temporarily or otherwise. If there was a window of opportunity of two years, for example, we would make a major dent in the housing deficit.

Mr. Adrian Cummins

Not for food safety inspections by EHOs but there are fees for fats, oils and grease traps payable to the inspecting company that goes in. Our argument is this could all be done by the State in one inspection. As the president of the association outlined, we have to deal with 28 different licensing or regulatory bodies. In 2012, we were promised that this would be studied to try to amalgamate the inspections into one inspection that might cover four different regulatory regimes, use of technology to reduce paperwork and form filling and some thinking outside the box that would ultimately reduce costs for a business. However, there is a reason for the 28 licensing or regulatory bodies but why can they not be merged to ensure only one inspection?

With regard to Deputy Neville's question about employment models, productivity and profit share, my colleagues will speak about productivity and profit share. The average number of staff in a small business in our sector is 15 full-time equivalents. It is usually busy between Thursday night and Sunday afternoon, which is a short window to maximise profit at the end of the day. Businesses tend towards casual labour at the weekend, usually students or those looking for part-time work. Many of our businesses do not open on Monday or Tuesday because it is not worth their while opening. Many also close on Sunday evenings. The committee is examining the cost of doing business and we need to examine how we can reduce costs and give people more work. According to our balance sheet, 36% of expenditure is on payroll and that is the average throughout the industry. If payroll costs exceed 36%, one is entering the drop zone of a non-profitable business. Our businesses are people businesses and customers will vote their feet. They expect good service and they expect to meet good staff. We are not into lean technology similar to a manufacturing plant. We are different from other sectors. It is about utilising people in our business but we have to make a profit at the end of the day.

Mr. Liam Edwards

The RAI's big gripe with EHOs is the inconsistencies in their reports. The reports do not cost money directly but they result in indirect costs. There is a great deal of inconsistency even within counties. For example, many members have a couple of restaurants.

That is why the pilot scheme was put in place. Does it need to be expanded to other areas? I am sceptical that it has the capacity to solve the problem we have. Our door is open for people to come and learn the skills required to manage cows. We would be delighted to see people coming in.

Senator Kevin Humphreys

Is the IFA engaging with the Intreo offices?

Mr. Damian McDonald

The answer to the Senator's question is that I do not know. The pilot project was a major effort in an area where we thought there were opportunities to draw people in and the numbers that went through with it were not at the anticipated level. Farmers are making huge efforts in villages and towns to try to get people to work on farms. Working on a farm is a cultural issue. It is not for everybody. It is probably not practical, realistic or ideal in a lot of situations for a person who grows up and lives in a town all of his or her life to go out and work on a farm. While a lot of the work might be seen as manual, one needs a fair degree of experience and skills.

It involves looking after animals. People would say one can teach a person to milk cows but it is not that simple. It is quite a technical operation. If one makes a mistake milking cows, I will not go into the nitty gritty of it but it is a very specialised job.

Senator Kevin Humphreys

Mr. McDonald's argument regarding work permits would be much stronger if he were to formally engage on a larger scale and show that people with the necessary skills are not available here and neither is their potential to employ such people here. The association has to engage on this on a larger scale other than a pilot project. The same applies to the argument regarding the expansion of a work permit. There have been nasty experiences regarding work permits.

Mr. Damian McDonald

While undoubtedly there is certainly a demand for workers all year round, there is a seasonality factor. There is a precedent both here and in the UK, where it has worked very well, for a seasonal workers scheme. The frustration expressed by our members relates to the fact that we have had a very rapid expansion on the dairy side and farmers are trying very hard to get people to work on farms. They cannot get people. It is probably a bit unfair to say that the work permits solution is the first option because farmers have tried very hard to get people, but some response is required. We would suggest having a more supervised type programme for people to come in and work on Irish farms would certainly be worth piloting. We believe there are many people from countries outside the European Union who have a latent skill in agriculture who would have a great deal to contribute if they came to Ireland to work and they would also have the potential to get involved at managerial level on farms. There is a great deal of frustration among farmers. Someone else made the point that farmers are essentially sole traders. They do not operate like a big company that has an advertising department and human resources department to seek to take on somebody. This is a complex enough operation for a sole trader. I believe we need to intervene if we are going to make it work.

Deputy Tom Neville

I must concur with that comment. Culturally, we have been moving towards an increasingly more urbanised environment during the past 20 to 30 years and it has been much harder to attract people into farming. The sons of farmers who I would have gone to school with back in the day would have grabbed the opportunity to take over the family farm but they were given an education, choices and options to do different things. Culturally, we have changed and we are grappling with all of that as well in rural Ireland.

Mr. Martin Stapleton

It is much easier for the farmers I know to bring in somebody who would speak their language to operate in their business so it is out of desperation that they want to bring in foreign workers. I would regularly hear farmers who have taken on workers from eastern European countries speak about the difficulty they have not only in teaching them the business but in trying to teach them the language, but it is far better than not having anybody to do the work. We would be delighted if we had Irish workers who were interested and wanted to pursue a career in agriculture and it is because we cannot get them that we are looking for foreign workers. That also applies to European workers. The supply of workers that traditionally came from Poland, Lithuania and from down as far as Romania has dried up in the past year or two.

Mr. Damian McDonald

We understand that in Poland they are bringing in many Ukrainians to do some of manual work and those people were traditionally a source of employment to probably all of our sectors here. The dynamic is moving. This is not only an Irish problem. The improvements in the European economy are causing knock-on problems all over the place. I cannot stress enough how big an issue this is for some dairy farmers because of the stress involved. Cows must be milked twice a day and that is a huge tie. Farmers not being able to get relief labour is an increasing point of concern that we pick up at all our meetings around the country.

Chairman

I thank all the witnesses. That concludes our discussion for today. I thank all the witnesses for coming in and engaging with the committee. The exchange was very informative. We will invite the witnesses back when we produce our document, which I believe will happen at the start of February. We will have the launch on Thursday of our document on the non-EEA crew in the Irish fishing fleet under the atypical workers scheme and I ask everybody to be here for that.

Senator Kevin Humphreys

That was quite a mouthful.

Chairman

The joint committee is now adjourned until January 2018.

The joint committee adjourned at 6.35 p.m. until 4 p.m. on Tuesday, 16 January 2018.

Joint Committee on Business, Enterprise and Innovation debate - Tuesday, 12 Dec 2017

Cost of Doing Business in Ireland: Discussion (Resumed)

Mr. Tom Parlon

Mr. Tom Parlon

Mr. Adrian Cummins

Mr. Martin Stapleton

Mr. Tom Parlon

Mr. Adrian Cummins

Mr. Martin Stapleton

Mr. Tom Parlon

Mr. Liam Edwards

Mr. Adrian Cummins

Ms Jeanette Mair

Mr. Adrian Cummins

Mr. Liam Edwards

Mr. Adrian Cummins

Mr. Martin Stapleton

Mr. Damian McDonald

Mr. Tom Parlon

Mr. Adrian Cummins

Mr. Adrian Cummins

Mr. Adrian Cummins

Mr. Adrian Cummins

Mr. Adrian Cummins

Mr. Adrian Cummins

Mr. Liam Edwards

Mr. Adrian Cummins

Mr. Adrian Cummins

Mr. Tom Parlon

Mr. Tom Parlon

Mr. Tom Parlon

Mr. Tom Parlon

Ms Jeanette Mair

Mr. Tom Parlon

Mr. Tom Parlon

Ms Jeanette Mair

Mr. Adrian Cummins

Mr. Liam Edwards

Mr. Martin Stapleton

Mr. Martin Stapleton

Mr. Martin Stapleton

Mr. Damian McDonald

Mr. Damian McDonald

Mr. Martin Stapleton

Mr. Damian McDonald

Joint Committee on Business, Enterprise and Innovation debate -
Tuesday, 12 Dec 2017