We have a brief presentation to make and we will be delighted to take questions. IBEC is joined by representatives from industry who would be able to give a reflection of the impact of increased local charges on business.
The issue of business costs has become significant for Ireland. A survey of business costs that IBEC conducted last year showed that non-pay costs increased in the period 2003-2004 by 19% over the previous two years. Inflation over the same period was less than 6%, showing that business costs in Ireland generally were running at over three times the rate of inflation.
A range of factors contributed to those non-pay costs but of particular relevance was the issue of local government charges. Over that same two-year period businesses faced average increases of 18.4% in rates, 20% in water charges and 31% in waste charges. Those are average figures.
As the committee will be aware, there are a number of different councils. Among those councils, there were significant variations in costs over the past number of years. Our presentation provides a number of examples in the area of waste charges over the period 2000 to 2004. We highlighted the three local authorities with the highest percentage increases in that period and the ones with the lowest percentage increases. As the committee will see from the presentation, Cork City Council, Cork County Council and Limerick City Council applied increases of over 300% in waste charges over a four-year period. By comparison, South Dublin Council and Dublin City Council applied increases of less than 50%.
One can see from the presentation that particular authorities are charging business over €200 per tonne of waste while other authorities are charging less than half that amount. This inconsistency does not apply to waste charges only. If one looks at water charges, the water charges of a business operating in the Longford County Council area increased by 247% in the period 2000 to 2004, while the water charges of businesses operating in Wicklow or Monaghan increased by 11% over the same period. In terms of what one pays, a business operating in Cork city pays €9.23 per thousand gallons of water while a business operating in the Cork County Council area pays just over €3.
A similar case applies in the case of rates. The rate of valuation multiplier applicable to a business operating in Limerick city this year is almost €76, while a similar business operating in Kilkenny will pay just over €45. These increases highlight the variation and the difficulty for businesses.
Under the recently introduced planning development levies, an additional charge which is being imposed, a business building or extending its premises in the Dublin City Council area will pay an additional levy of €110 per sq. m., whereas one in the Waterford area will pay €12 per sq. m. There is almost a ten-fold difference in a levy being introduced across the local authority system since 2004.
We do not want to come to the committee today merely to highlight the problem. In putting forward a position, it is important to suggest possible solutions and what we feel needs to be done to deal with the matter. From a business perspective, we identified three key areas of challenge. The first of these issues is the accountability of local authorities. How accountable are local authorities compared to different organs of the State? The second issue is efficiency. We hear a considerable amount of debate about value for money and the issue of efficiency within local authorities. The third issue is fairness and transparency. I want to make clear that business does not have a problem with paying for services. Business accepts it must pay for water, pay for waste and pay rates to cover the costs of services being provided by local authorities. What business has a problem with is the fact that it is practically the only sector of Irish society that pays these particular charges even though everybody uses water, everybody produces waste and everybody needs to pay their local authorities for the services being provided. We need to be clear about this; the business community is cross-subsidising other sectors of the community to a considerable extent.
From where has the issue come? In terms of scale alone, in 2000 local government and authorities spent €2.4 billion in current expenditure. Last year that figure had increased to €3.6 billion. That is a 50% increase in spending by local authorities. Staff numbers within local authorities have increased over the same period. There were 30,000 employed in local authorities in 2000. There are 35,000 employed by them at present. On the Government contribution to current expenditure, 20 years ago the Government paid 65% of the costs of running a local authority. Last year that figure had reduced to 44%.
Local authorities are finding that their expenditure is increasing enormously, what they are getting from central Government is decreasing to an extent and, therefore, they must bridge the gap. They have two ways of bridging the gap: first, efficiency, which is what we would suggest and about which I have spoken; and second, increasing charges. We would argue that to date the route taken by the local authorities has been to increase charges.
The business community, as I mentioned earlier, is the only sector that pays rates. Last year it paid €1.4 billion. Charges to businesses represented 40% of the total income of local authorities. The problem with this debate is that while local authorities are spending more and businesses must pay more to local authorities, businesses are not in a position to pass on any of those extra charges.
Over the past three years 30,000 manufacturing jobs have been lost in Ireland. Currently 500 jobs are being lost a month. Every community and town in Ireland has faced job losses because businesses have had to face increased costs and have not been in a position to pass those on. Local authority costs are one of those significant increased costs.
A person operating a business producing goods or services in Ireland gets 13% less today for the product or service than he or she got in 2000. Such a person is getting less for what he or she is producing but his or her costs are increasing continuously. If a person cannot square that equation, the bottom line is that individuals will lose jobs and companies will close down and that is what is happening to a significant extent.
The business community would make a number of suggestions to resolve the issue. First, on the issues of accountability and efficiency, we would suggest that local authorities should be subject to the same controls as other entities within the structure. At present, the local authorities are not subject to review by the Comptroller and Auditor General and the Committee of Public Accounts. This is a sector of the State that is spending in the region of €4 billion a year and it is not subject to the aforementioned reviews. Why are there 34 city and county councils and 80 urban borough councils? This amounts to almost 120 different units around the country dealing with local government. Does a country with 4 million people need 120 structures to deal with such matters? There must be enormous opportunities to share resources, to consolidate, to have centralised functions, whether accounts or legal services, driving test centres or motor tax offices. Why does every single local authority have its own particular units?
There is no competition within local authorities in, for example, waste management. Waste is an enormous issue for Ireland at the moment. Local authorities own and regulate the landfill sites, they set the prices and give out the licences. There is not competition and landfill charges in Ireland are three or four times higher than in any other country in Europe.
In terms of indicators, there is an issue as to how efficient the local authorities are. The truth is that we probably do not know how efficient they are. A range of 42 performance indicators was introduced by the Minister two years ago. All of them related to the relationship between the council and domestic home owners. Not one of the 42 performance indicators relates to the relationship between the council and the business community, even though the latter provides 42% of local authority income, while domestic consumers provide 6% to 8% of the total fund.
Businesses have been paying substantially more for their local authority services in the past few years. There is a strong case to be made for local authority charges not to be allowed to increase by more than the rate of inflation. In fairness, one of the country's local authorities has decided to look at a five-year strategy, whereby it will not increase rates by more than the rate of inflation. That should be the system across the board.
The people sitting here have not been able to increase their costs even by the rate of inflation. Yet local authorities have been increasing their costs by 10%, 20%, even 300% in some of the examples I gave. We have said that business is prepared to pay, but in fairness there has to be equity. There are large sectors of Irish society which do not pay for their local authority services. Business continues to cross-subsidise. We strongly urge that we should operate the principle that the user pays. If one gets a service one should pay the appropriate price.
Take the position on benchmarking. The Government agreed to this and it imposed additional costs on the local authorities. That should have been met either by local authorities seeking efficiency measures or alternatively they should have been funded for that particular cost. Similarly, where local authorities provide services or facilities for Government Departments or agencies, these should be paid for. If I have a business premises I pay rates. No such charges are paid for Government or local authority facilities. Dublin City Council estimates it loses €25 million a year because Government Departments and various other State agencies pay nothing in terms of rates. The local authorities have to provide those services. Who pays for the premises of a Government Department? The people sitting around this table pay for them.
Finally, we suggest that in terms of efficiency the local authorities need to be incentivised. We are calling for an efficiency fund, whereby a sum of money will be put by and if a local authority can demonstrate clear efficiencies, it will be rewarded by being able to draw down some funds from it. This is an absolutely critical issue for business. We are not talking about this from IBEC's viewpoint alone. The Small Firms' Association, the Construction Industry Federation, the Irish Retail and Newsagents' Association, the Irish Exporters' Association, the Irish Tourism Industry Confederation, the Vintners' Federation of Ireland, RGDATA, the Restaurants' Association of Ireland and the chambers of commerce are all supporting this issue. It is not a case of one particular organisation but is spread right across every segment of Irish business.
I will give the committee an example of what this means for actual businesses. Some of my colleagues will give relevant examples from their perspectives. Take a small company in Dublin with eight employees. Its commercial rates this year were €107,000. The average industrial wage in Ireland at present is €38,000. Just to pay the rates is the equivalent of three jobs. This is a small company with eight people. The rates have increased by 20% in the last two years. Water and waste charges have increased by 81%. Has that business seen an 81% improvement in service? I doubt it very much.
A good-sized manufacturing company in Cork with 400 employees had a rates bill this year of €1.2 million. Waste charges have increased by 45% in the last two years, water charges by 21% and rates have almost doubled.
The final example is a manufacturing company in Sligo, employing 85, which paid €35,000 in rates. Waste charges have increased by 27%, water charges by 17% and commercial rates by 21%. The same level of increases is not evident there. Why would a company set up business in Dublin or Cork when it could set up in Sligo? These variations between local authorities are throwing up major questions in terms of businesses being able to survive.
The key point that IBEC wants to make is that in our view funding of local authorities needs to be fair. At present local authorities are seeking excessive revenue from business and this cannot be sustained indefinitely. Local authorities are major spenders of money. They spent €4 billion this year. They must be encouraged to operate to the highest level of efficiency. They must operate as efficiently as the people sitting around this table do in running their businesses. If we continue to operate on the basis that business will pick up the tab for all local authority expenditure, there will be fewer businesses. If there are fewer businesses, there will be a reduced workforce. If there are fewer workers there is less tax and the local authorities — and other arms of Government — will find themselves worse off as a result.
Let us be clear that businesses will pay the appropriate amounts. However, they operate in terms of national and international costs. It is no good saying, in effect, to someone with whom one is doing business in Germany, France or America, that one's water charges have gone up by 25% this year and one has to increase prices. They do not want to know. That business will be lost if one attempts to pass on such costs. If one is operating in Ireland, exactly the same situation pertains. A small company here that pleads it must pass on its local authority charges to a large client will be told it cannot do any further business. That is what is happening.
We are talking about jobs being at stake, not just businesses but people's livelihoods. Some 30,000 jobs have been lost in manufacturing in the past three years. It is particularly difficult for small companies. They find it extraordinarily difficult to survive at present. How can one run a business if one does not know what the charges will increase by? People are telling us their rates increased last year by 5% and next year the increase will be 20%. Their water charges increased last year by 10% and next year it is 40%. How can one budget or explain to one's corporate headquarters? In a small company the finance manager must inform the managing director. There is enormous uncertainty and no consistency. At least if we arrived at a system whereby local authorities were restricted to increasing rates to the rate of inflation, people could at least budget and some certainty could be brought into the system.
If I were a foreign investor looking at Ireland as a location of choice and did my homework in terms of what was contributing to costs and saw how local authority charges had increased relative to their counterparts around the world, we would be bottom of the league. This ultimately will affect our international reputation. We have benefited enormously in this country because we have been able to attract large numbers of foreign companies. We have a large indigenous sector built on that. If we continue this spiral of rapidly increasing costs, fewer foreign companies will come here. The companies that are already here will not expand. They will not get new projects. They will go into decline. Ultimately, this is not just a problem for the business community. It is a problem for everybody.
We ask the committee to take up this issue in its work programme and examine it in detail so that it does not simply hear one side of the story. While we have provided the committee with the business community's perspective, this will be an important issue for Ireland in the future. We urge the committee to examine the issue to establish whether we can deal with some of the problems we have tried to highlight in our presentation.
