I thank the committee for the opportunity to meet and to discuss the many obstacles that currently exist for enterprise in Ireland today. As the chief executive of ISME, the Irish Small and Medium Enterprises Association, I note we are the independent body representing owner-managers of small and medium businesses in Ireland. Our members constitute more than 98% of all business entities in Ireland, numbering more than 240,000, and employ just under 1 million people.
Our concerns and observations are primarily focused on SMEs and, in particular, owner-managers, the risk takers in the economy. Proper recognition of the entrepreneurs' contribution to the economy is long overdue. I wish to touch on the role of SMEs in the economy, the consultation or lack of same and I request the State to "think small first". I also wish to raise the proportionality of the burdens that are specific to the SMEs.
Small businesses play an important role in the economy and society and are at the centre of the social model. In general, owner-managers are more responsible towards their employees and more integrated into local society. They play an important role in stabilising society and have a bridge-building function between workers and capital.
On consultation, while at official level Irish-owned enterprise is praised for its important economic contribution, in reality, enterprise is increasingly stifled with wholly excessive and expanding bureaucracy and regulatory regimes. Decisions that add significant costs to small firms are made without consulting the sector. Talking to IBEC, the big business organisation, is not consulting the SME sector. Chambers Ireland is dominated by big business and the banks and the Small Firms Association is a division of IBEC, doing what it is told by big business, banks and semi-State organisations. ISME is the only truly independent representative body for SMEs. We are independent of big business, big unions, banks and big Government. ISME is owned and run by entrepreneurs and owner-managers for owner-managers. We respectfully request that the consultation on SME matters include ISME. As part of that, I thank the committee for the invitation to attend today.
SMEs have a major role in rescuing, revitalising and helping recovery in the country over the coming years. ISME believes we can do this as long as the correct environment is created. One of the major parts of that environment is the regulatory regime, of which this committee has oversight.
The key objectives for an agenda for recovery through entrepreneurship in Ireland must be to place entrepreneurs and their requirements at the centre of policy making. I respectfully request that legislators consciously take a "think small first" approach when drawing up new policies and legislation. This approach will have a direct benefit for 98% of businesses in Ireland and will manifest itself in greater productivity and job creation.
Much of Government policy in the social, fiscal and economic policy areas is deliberated upon without due consideration being given to the impact upon competitive enterprises, the vast majority of which are small or medium in size. In spite of acknowledgements concerning the role and function of competitive SMEs, our legislators and administrators generally have little concept of the demands they place upon these small businesses. The full implications of this must be viewed in the context that in excess of nine out of ten enterprises employ fewer than ten people but are still regulated as if they were employers of thousands, with all the attendant paraphernalia of HR, taxation, research and development, health and safety and compliance departments. In a small business, the owner-manager is the HR, taxation, research and development, health and safety and compliance department. The full amount of work falls on his or her shoulders.
It is important to recognise that while there are costs associated with regulation, the impact and burden of regulatory compliance is not spread proportionately, with the impact much more onerous on smaller business. For example, several UK studies have confirmed that the average compliance costs fall as business size increases. It is estimated that small businesses in the UK with two employees spend over six hours per month per employee on government regulation and paperwork, while those with more than 50 employees spend less than two hours per employee. Separately, in another study, the OECD has estimated that the regulatory burden on businesses with fewer than 20 staff is five times greater than that on business with more than 50 staff. Another OECD report shows that in excess of 4% of turnover is expended on meeting onerous regulatory burdens in small and medium businesses.
To comply with legislation and regulations in Ireland, small business owners are forced to read, understand and implement almost 1,000 different major legislative items that impact on their businesses in areas including taxation, industrial relations, health and safety and environmental issues. Together with the amount of legislative reading, small businesses are expected to complete 110 — 111 as of this morning — core forms per annum to comply with the requirements of many State bodies, including the Revenue Commissioners, the CSO, the Companies Registration Office and several Departments. Many of these forms need to be filled out several times, including tax compliance forms, which take account of all employees, and a number of mandatory returns, and the number of questions per form can vary from ten up to 100 in some of the CSO forms. Most, if not all, of these forms contain a threat of prosecution, including heavy fines and jail for non-compliance. While ISME agrees regulations and legislation have an important role to play, there needs to be a proper assessment before decisions are taken that impact on the business community.
There is a general level of increased regulation and criminalisation of owner-managers and company directors with regard to the Health and Safety Authority, the National Employment Rights Authority, the Director of Corporate Enforcement, Revenue, the Environmental Protection Agency and so on. Owner-managers are now seen as guilty until proven innocent. There is also a "one size fits all" attitude to legislation in most instances. There is much to be done as a matter of priority before Irish businesses become completely immersed in paperwork.
While we commend the work being done by the high level group on business regulation under the Department of Enterprise, Trade and Employment, there is more work to be done and more resources should be placed at its disposal. If I read it correctly, there is just one person looking after it in the Department and it pulls in other people as required. For such a massive amount of regulation in Ireland and given the 25% reduction that is required and which the Government has set as a target, I would have thought more than one person should be part of that resource.
While we talk about reasonable regulation, which is a vital part of the economic, business and social life of the country, the fact that the entire banking system has had to be guaranteed by the taxpayer, with one bank nationalised and two more on the brink, and all receiving billions of euro from taxpayers, is a salutary lesson in light regulation proving to be inadequate in dealing with the lying bankers and leading to regulatory failure. They have done untold damage to the argument on light regulation for SMEs. While everyone agrees that more relevant and stiffer regulation must be imposed on the banks, and Mr. Elderfield and Professor Honohan seem to have made a good start, it is imperative that this regulation is overseen by, and benchmarked against, international comparators. The history of banks and bankers in Ireland is that, in the long term and in the short term, they cannot be trusted. They have an ability to spellbind and draw into their clutches any perceived interloper, as can be seen from recent history, where new arrivals on the banking scene have gone native. I refer to Bank of Scotland Ireland, which came in with much fanfare and was going to do all kinds of things. It was brought into the cosy cartel. Public interest directors must come under scrutiny and, vis-à-vis the banks the price of liberty is eternal vigilance.
I have a number of recommendations to the committee listed in the submission we made. All legislation under the remit of each Department should be assessed under the standard cost model used in many other jurisdictions. Consultation with stakeholders is not as good as it should be. We hope for more risk-based assessment and enforcement, which is feasible with more co-operation between Departments and increased use of ICT. More emphasis is needed on advocacy and mediation within the regulator's office. When NERA was originally set up, its emphasis was on prosecution. The e-mail address was prosecution@nera.ie. That gave a sense of togetherness from the SME perspective. That has changed now and we have had a great deal of discussion and consultation with NERA. The advocacy and education of NERA has improved and it is doing a very good job. More resources should be employed under the higher level group on business regulation in the Department of Enterprise, Trade and Employment. Regulatory impact assessments should be enforced on all legislation and regulations imposed on small businesses. Although it may not be under the remit of this committee, late payment legislation was introduced in 2002 and is a total and utter waste of time and energy. It has the opposite effect to what was intended. It was intended to reduce the delay in payments from 52 days in August 2002 but has succeeded only in increasing this to 76 days. The legislation has had this effect and if there was a proper regulatory impact assessment and consultation had been taken into account, this would not have happened.
Two quick wins are available. The estimated cost of the requirement under the Organisation of Working Time Act is €68 million. This is being ignored by the vast majority of people and is of no major benefit. If scrapped, it would not make a whit of difference to business. Although the cost is substantial, we must also consider the nuisance value that creates the impression that regulation is worse than it is.
The second quick win concerns the requirement to submit the annual returns of directors and secretaries of limited companies even if there is no change of directors. If there are no changes, the existing return should be sufficient.
At the announcement of the regulatory system at the new annual regulatory forum, the Taoiseach said we need to ensure that the "economic regulatory system in Ireland is "fit for purpose", robust and responsive to changing economic, environmental and social needs". ISME agrees with this and suggests regulators consider the consequences of their far-reaching decisions on the beleaguered SME sector. ISME also suggests they consult more widely with the SME sector than has been the case to date.
