Vol. 816 No. 3
6. Deputy Willie O'Dea asked the Minister for Jobs, Enterprise and Innovation the way the venture capital fund he recently announced will operate; the process to ensure it does not suffer from a slow take-up similar to the microfinance fund; and if he will make a statement on the matter. [42737/13]
Last May, I announced a new call for expressions of interest under the €175 million Seed and Venture Capital Scheme 2013-18, which will see the continuation of the Government’s support for innovative Irish SMEs. The scheme is targeting an additional €525 million in funding from the private sector, which will mean a total fund of €700 million available for investment over the lifetime of the scheme.
This new Seed and Venture Scheme 2013-18 will proceed by way of a series of calls for partners to establish individual funds tailored to different sectors and strategies in line with Enterprise Ireland targeted areas. These are competitive calls and funding partners will be selected based on sectoral expertise, track record and supporting networks which they bring to the funds.
Venture capital schemes tend to have a ten year time horizon during which drawdowns of funds investing in high potential companies are rarely linear but become easier to forecast after the initial investments have been made. Different funds have different timelines depending on the release of calls for expressions of interest and come on stream as and when fund-raising is completed.
I am confident the venture capital funds will be fully utilised. This scheme builds on EI’s engagement with seed and venture capital which goes back almost two decades. It has been successful in assisting the growth of high potential start-ups, attracting leveraged funds, bringing top level managers to Ireland, and attracting interesting first-time international money to the Irish SME market.
Investments under the predecessor funds numbered 159 in 2012 with an investment of €81 million. This compares with 134 in 2011 when it was €60 million, and 107 in 2010 when it was €42 million. This is encouraging progress and justifies the commitment to this new scheme to sustain investment in enterprises with high growth potential.
The Minister mentioned 150 investments in 2012 worth €81 million. How many jobs are they currently sustaining? I am concerned that it will go the same way as the microfinance and loan guarantee schemes in terms of ignorance. What specific role will Enterprise Ireland have in this regard or will it be using its high potential start-ups client base to promote this scheme? What kind of system has the Minister put in place to review the scheme in order that my first concern does not happen, viable long-term jobs will be supported, and supported companies can continue to draw on and access other sources of finance?
These programmes, of their nature, take time to evaluate. An evaluation of the scheme that is coming to an end would not be complete at this stage. However, sample indications from 69 companies suggest a total employment of 691 to date. Typically, these companies are export oriented. Total direct employment in companies in 2009 was 9,733. Generally speaking, these are high growth companies and it is only at the end of the fund that one can undertake a commercial evaluation. All or most of the high potential start-up companies have a target of delivering ten jobs within three years. Their performance is encouraging. Enterprise Ireland and Forfás regard the programme as being their best in terms of providing a return to the taxpayer. This is a source of continuing mixed source funding for these high growth companies.
The Deputy's question did not focus on evaluation, although I could assemble some more data for him. By and large, these companies have been successful and we can prove the leverage from the money we put in. It started out as 50:50 so we had to put in a euro to get a euro, while now we have to put in a euro to get three. Therefore, the leverage is improving as it goes along.
Under the heading of microfinance schemes or venture capital funds, there is a more efficient way of using that money to get greater returns, which is through peer-to-peer financing or credit funding, about which the Minister knows a lot. We talk about new financing models for SMEs, but this financing model does not involve banks or the Government.
It will provide greater returns for the lender and borrower. It is an efficient way of getting funding for SMEs. There is a role for Government supports from somewhere.
There is a huge market in the UK for peer-to-peer financing. The UK Government has done a little to help this market through changes in the taxation laws and by way of funding. For example, where certain borrowing arrangements are met through peer-to-peer financing and the Government provides a top-up, on which it gets a return. Will the Minister consider the introduction of similar measures to assist the peer-to-peer financing model in Ireland?
I support Deputy Murphy's proposal. Many of the high potential start-ups, HPSU, companies being targeted would be comfortable with the model of financing he suggests. While I welcome the venture capital scheme, again it focuses on the export orientated sector, which is fine, but our home grown businesses are still a little lost in terms of financing initiatives. There is no home for them in terms of the continued emphasis being placed on other sectors. While I welcome that emphasis our home grown industries, which do not necessarily have or will ever have an export orientation, are still being ignored. We must collectively ensure supports are put in place for them.
I agree that crowd-funding is an interesting area. I am aware of one such initiative in Ireland and recently met with the sponsors of it. It is beginning to have a track record. What I found interesting was that much of the funding came from the local customer base rather than from remote locations. As such, a community of interest was built around a business so that people were not only using it but were investing in it. I will look at how the Government can better support this idea. It can form part of the picture which, as Deputy Calleary rightly said, will be a mosaic. Banks internationally and globally are retreating from some areas. Our dependence on banks as a source of funding is pretty high. We need to construct a mosaic of sources of funding. I am aware that there are a number of the initiatives referred to in the field and that they have the potential to grow further. We have not reached any conclusions in terms of access to finance. The suggested area is one that we can develop. The Government is open to credible suggestions from Deputies on this issue. As stated by the Minister of State, Deputy Perry, the establishment of the local enterprise offices as one-stop-shops will provide us with a better window on the needs of these companies. We have created a centre of excellence in Enterprise Ireland. It is a two-way process and it is hoped we will get better intelligence to mould effective policy instruments.
7. Deputy Clare Daly asked the Minister for Jobs, Enterprise and Innovation the action he will take to assist small businesses in this current economic climate in view of the fact that they are the largest employer in the country. [42576/13]
The Government recognises that small and medium sized businesses are a key component of the Irish economy and the backbone of employment in Ireland. SMEs make up over 99% of businesses in the enterprise economy in Ireland and account for almost 70% of people employed. Supporting SMEs in the current difficult economic climate is a key Government priority. Government action to support small and medium sized businesses in the domestic economy have been set out in the Action Plan for Jobs 2012 and 2013 and work will continue in the context of the Action Plan for Jobs 2014.
Significant initiatives have been taken in a number of areas, including improvements in access to finance through the credit guarantee and microenterprise loan fund schemes; tackling of the issue of late payments through the transposition of the EU late payment directive into Irish legislation; development of a single licensing application portal in respect of 159 licences across all sectors of the Irish economy, 35 of which are in the retail trade and are provided by 13 different authorities; reform of the county enterprise boards through the establishment of a first-stop-shop for small business through the new local enterprise offices, mandated by an effective service level agreement with Enterprise Ireland; improvements in the competitiveness of the business environment; expanded supports for start-ups, first time exporters; and new schemes to help small businesses recruit via JobBridge, JobsPlus, Springboard and Momentum.
The Action Plan 2014, which is currently being finalised, will seek to build on the progress already made and is set to deliver a suite of actions to support enterprise. The focus of the budget will be very much on entrepreneurship. SMEs will continue to be a key element of this process and a number of proposed actions are currently being examined, the focus of which will be aimed at supporting this vital sector of industry.
The Government is also committed to ensuring that ongoing dialogue with the small business sector is facilitated to ensure that business and Government work together to identify the necessary actions to support SMEs in Ireland. This is being done through the Advisory Group for Small Business and the High Level Group on Better Regulation, which includes representatives of ISME, construction companies and so on. I am encouraged by the progress in employment creation by small business in the last 12 months. Most of the 39,000 additional jobs in the economy have come from the SME sector. However, we have a long way to go. The high level group on better regulation, which brings together senior Government officials, representatives from local authorities, business and trade unions, also serves as a forum for Government to connect with business. The Government is working to reduce the burden of red tape on companies.
The problem is that the Minister of State's response is that what the Government is doing is in the plan. However, the reality is that for many small and medium sized business on the ground life is still incredibly difficult. Despite the initiatives listed by the Minister of State they are still struggling. It is not good enough that some of these initiatives are only coming on stream two and a half years into the lifetime of this Government.
There are 408 rateable properties in Swords, which is in my constituency. Some 120 of them are empty. One of the key pressures on small businesses is that of council rates. Councils are also under considerable pressure because of the precarious nature of Government funding. In many instances, the pressure being put on small businesses to pay rates is driving them out of business, leading to premises lying idle. I have not seen anything from Government to address this scenario.
Businesses are also being squeezed in other ways. I am currently dealing with a case involving a medium sized sub-contractor who has done work for a major construction company that has a contract with a local authority. The main company concerned, SIAC, has been paid by the local authority but refuses to pay the sub-contractor who is a small to medium sized business providing employment. Main contractors who engage in the sweating of sub-contractors in order to get a lower price should be prevented by Government from accessing any future public contracts. This type of behaviour is jeopardising employment in the small and medium sized sector.
We are not only talking about taking action, we are delivering on it. Yesterday, officials from the Department of Public Expenditure and Reform dealt with the issue of rates and the valuation process. Current property ratings are based on 1986 values. A review of rates in Dublin and, possibly, Limerick is currently ongoing. Rates for properties constructed during the boom are also based on property values in 1986. The roll-out of the local enterprise offices will provide local government with the autonomy to work with local authorities in providing derogations in town centres. I agree with the Deputy that many companies are struggling and that many premises are vacant. We must encourage enterprise into these premises by way of rent reductions and derogations from local authorities.
There is a late payments directive in place. This requires all Departments to make payments within 15 days. There is also a voluntary code in this regard for the private sector, in respect of which there is a code of conduct. The Government has also launched the trading online and local employment office initiatives, which are important. Reform of the Companies Act is also ongoing. Many initiatives have been introduced. I agree it is about confidence and credit in the economy to encourage local spend.
Yesterday's report is encouraging as it shows that confidence is growing again. The review of the microfinance fund will enable people to apply for finance when starting up a company. I travel around the country and I am greatly encouraged by the number of enterprises being established daily. While the economic climate is difficult, opportunities are available.
Flexibility in the rates system is critical. I am not sure of the timescale the Department has in mind or how creative local authorities will be allowed to be in this regard. A fundamental departure from the current system is required to critically support companies that are struggling and may have been operating in an area for some considerable time. This issue needs to be addressed. The largest problem facing many small businesses is the lack of purchasing power among ordinary people. Unless the Government departs from the austerity policies of cutting wages, increasing taxes and taking money out of the economy, many businesses will not take flight and succeed. I concur with the Minister of State that there are many creative, innovative ideas and much expertise in the economy but unless people have money to purchase the products that companies and individuals want to develop, these ideas will go nowhere.
While the Minister has done well in meeting his responsibilities for exports, jobs and enterprise, the economy has suffered a great deal on the Government's watch. Besides the lack of action to address upward only rent reviews, which I do not propose to discuss now, lending to businesses remains a serious problem. I am aware from experience that banks are ending financial arrangements with companies in order that they can recommence them. A company will receive a letter stating the term of a loan has been cancelled and a week later the bank will indicate it is willing to re-open the loan. The reason for this approach by the banks is that it allows them to define such loans as new lending.
Many companies are borrowing from banks to repay loans to other financial institutions. Another significant problem is the lack of loans to companies in the domestic economy that are seeking to reinvest.
Rates are also a serious problem. I have five premises in Dublin which are being re-rated. We have been informed that the rates on these premises will increase by 47%. While we have appealed the decision, we are not sure what will be the outcome. I do not understand the logic of increasing rates which were already set at a high level.
There is no doubt the reduction in VAT to 9% in the hospitality sector has been of great benefit to the restaurant and hotel industry. For example, my companies have benefited from the measure. I am not sure what the Government plans to do in the budget but I hope the new rate will be retained. The level at which rates are set is creating a serious problem. If they increase further, as seems likely, it will be very challenging for the sector.
I concur with Deputies Daly and Wallace on the issue of rates. The Minister of State referred to local government reform. The abolition of town councils will result in higher rates for many businesses. No detail has been provided on rates equalisation. Many businesses in town council areas pay a lower rate than businesses in county council areas. Will their rates increase as a result of the abolition of town councils?
Has the Minister made proposals to the Department of the Environment, Community and Local Government on introducing an inability to pay mechanism for businesses which do not have the funds to pay the rent for a specific location?
I recently met representatives of the Waterford city centre business association. The re-rating project in Waterford is resulting in horrendous increases in rates for premises whose value has declined. Business in the city is not even at the level recorded in 1986, yet the rateable valuation of many premises is increasing significantly.
Deputies cannot ask direct questions about financing for small and medium-sized enterprises because they are redirected to the Department of Finance. Asking a question of that Department is akin to throwing a ball against a haystack. Surely the Department of Jobs, Enterprise and Innovation has a position on the possibility of establishing a bank to provide funding to domestic small and medium-sized businesses, as the former ICC Bank used to do. We are back in that space and I hope the Department acts as a champion in government for the case for having a specific focus on banking and an outlet for domestic companies.
I concur with previous speakers' comments on rates, which are a noose around the necks of business. The system must be reformed. The broadening of the tax base through the introduction of the domestic property tax and water charges has created scope for carrying out a review of the manner in which rates are collected from business. I have always maintained that rates on business should be linked to the performance of the business as opposed to the value of the premises. Under such a system, businesses which can afford to pay will pay and large rates bills will not block new entrants to business.
We have heard a great deal about the 9% VAT rate for tourism related businesses in the context of the budget. Not only should we retain this beacon for the economy, but we should extend it to other sectors. The introduction of a 4.5% rate of PRSI for people earning €350 per week or less was a proactive measure, which has helped many employers bring people into employment. I urge the Ministers to seek to retain it in next Tuesday's budget.
Of the 39,000 jobs created, more than 19,000 were created in the domestic economy. On the issue of purchasing power, consumers have benefited from greater value for money in the retail trade, which has become extraordinarily competitive. Expenditure on shopping has declined significantly, although I recognise that people have limited budgets.
Deputy Wallace raised the issue of rates. Ultimately, a company's customers will pay the rates as they are built into a business's stacked up costs. Rates have been in place for decades and are factored in when calculating one's profit margin. Current rates are based on 1986 property values. People have been advised to appeal or seek a review of decisions on rates. The information provided to us yesterday indicates there should not be any substantial increases in rates. Businesses also have available to them a mechanism for reviewing decisions.
On the issue of banking, we have a State-owned bank and two pillar banks which are committed to lending €8 billion that has been ring-fenced by the Government for that purpose. Securing funding from banks is not the only issue. Many retailers are collaborating with their suppliers and availing of alternative mechanisms. I meet many young people who are starting businesses. The issues they face are not only securing loans, but also developing a business plan and company profile. While one can blame the banks, lending is a two way street. If a loan application is viable and stacks up, it makes good sense for a bank to approve it because banks are in the business of lending money. They want customers to grow on the basis that they must satisfy their shareholders. The domestic banks need business.
We are encouraged by The Gathering. Those who visit Dublin at weekends will see no sign of recession in the capital. One will see confidence in city centre businesses, especially restaurants. The new VAT rate has been of great help in that regard.
8. Deputy Dara Calleary asked the Minister for Jobs, Enterprise and Innovation if he will request a review of the decision that the Border, midlands and western region will no longer qualify for preferential regional aid from the European Union from 2014; and if he will make a statement on the matter. [42706/13]
I am pleased the Deputy tabled this question because the Irish Presidency fought with some success on this issue. The regional aid guidelines enable the State's industrial development agencies to pay grants, at enhanced rates, to businesses to support new investment and new employment in productive projects in Ireland's most disadvantaged regions. This helps the convergence of these regions with the more advantaged regions of the Union. All such grants come from the Exchequer, in other words, there is no EU or other external funding.
The new guidelines were adopted by the Commission on 19 June 2013. There are no provisions or means for a review of the content of the guidelines.
European regions eligible for regional aid are divided into A regions which are the most disadvantaged within the Union in terms of economic development and C regions which are also disadvantaged, but to a lesser extent. All Irish regions are classified as C regions, both for the current 2007-2013 regional aid map and for the upcoming 2014-2020 map.
For the current 2007-2013 map, the BMW region was designated as an economic development area because it had moved ahead of the A status that it had in 2000-2006. The guidelines stipulated that areas such as the BMW region would be granted economic development status for the 2007 to 2013 period only. As a result of this designation, the BMW region was effectively given a derogation to grant slightly higher aid rates to assist the transition from A to C status.
Both the current 2007-2013 regional aid guidelines and the upcoming 2014-2020 guidelines outline that the aid intensity in standard C areas must not exceed 30 % for small enterprises, 20% for medium-sized enterprises and 10% for large enterprises.
Additional information not given on the floor of the House.
These rates are all 5% less than currently available in the BMW region, but as I have stated, that region cannot be afforded special economic development status under the next map.
My Department is consulting stakeholders on the drafting of the 2014-2020 Irish regional aid map. Economic data such as unemployment and gross domestic product for all counties, including those counties in the BMW region, will once again be analysed afresh when deciding which counties will be included in the next regional aid map.
The initial regional aid guidelines proposal from the Commission, published in May 2012, presented significant challenges for Ireland. This proposal prohibited aid to large enterprises, reduced our population coverage from 50% to 25% and reduced aid intensity rates. Following sustained engagement with the Commission and like-minded member states at ministerial and official level, Ireland secured entitlement to maintain regional aid qualification for areas accounting for 50% of the country’s population, with coverage actually slightly increasing to 51.28%.
On the key issue for Ireland, aid to large enterprises, a compromise was agreed with the Commission that will allow member states to provide investment aid to large enterprises for new economic activities and diversification of existing enterprises into new products or new process innovation. Aid intensity rates were also maintained at their current levels.
In essence, the final version of the regional aid guidelines negotiated by Ireland and like-minded member states represents an important step in ensuring Ireland, and the EU in general, maintain the ability to strengthen the EU economy and promoting cohesion between regions.
I thank the Minister of State for his detailed reply. While I acknowledge the progress that has been made, the reality is that everything has been different since 2007. The Minister of State does not need to be told that there are parts of the BMW region that would certainly qualify for A grade. The region itself has grown, with Galway city and parts of Louth having had substantial employment growth, but in other areas there has been no growth. In the north west, agency-assisted employment has fallen by a fifth since 2003, including another 1% drop. The whole regional aid policy needs to be reviewed at European level in light of the collapse in European economies in recent years. Many areas that may have been stronger in 2006 or 2007 have fallen back. We have discussed emigration and the flight of people from many of these areas. The way to get these people home is to promote industry, particularly home-grown industry. The change in state aid affects our ability to do that. We need to go back to these state aids at European level. The Government needs to use the influence it has gained in recent months to drive that campaign. We need to review this because the country as a whole will lose out, and if we do not do this, I suspect the European Union will lose out because investment will go to areas outside the EU.
More than 51% of the country qualifies for category C regional aid. It was originally proposed that large enterprises would not be funded in the regions. We got that included. The regional aid is not a funding scheme for the EU. It is just a set of guidelines for enterprise support agencies in Ireland to follow.
Following sustained engagement with the Commission and like-minded member states at ministerial and official level, Ireland secured entitlement to maintain regional aid qualification for areas accounting for 50% of the country’s population, with coverage actually slightly increasing to 51.28%.
On the key issue for Ireland, aid to large enterprises, a compromise was agreed with the Commission that will allow member states to provide investment aid to large enterprises for new economic activities and diversification of existing enterprises. The possibility of large enterprises not being supported was on the table. Companies that were previously supported and were to be excluded-----
I ask the Minister of State to conclude because Deputy Griffin wants to contribute.
----- included, in Louth, PayPal and eBay; in Mayo, Allergan and the Lafferty Group; in Sligo, Abbott; in Galway, EA Games, Mylan and Cisco; and in Donegal, Abbott Ireland and Seatem. The Deputy is talking about getting regional development and getting people into the regions. Dublin and other large populated areas do not qualify for any of this assistance so we have that advantage. We can still get up to 30% for small companies and 10% for larger companies, which was taken off the table meaning that the west would not have been entitled to any aid if the Minister, Deputy Bruton, had not fought for it to be included. People see regional aid as money; it is only the guidelines to qualify for funds. Ireland has done very well to secure the deal we did during our Presidency.
I commend the Minister, Deputy Bruton, on his work on this to date. Wearing my constituency hat, all along people in Kerry felt disadvantaged because we were left out of that region. In the future we feel we should have a level playing field with everyone else. We have suffered. Tralee and other parts of Kerry have large areas that are industrial wastelands at the moment. A large factor in that has been that we were left out previously. We need to look at this from both sides of the argument. There are counties such as mine that have suffered. In future we need to be given an equal opportunity.
I never heard a Kerry man say he was disadvantaged.
I am delighted this question was raised because it will come up in the European Parliament elections. People perceive regional aid as a pot of money from the EU. The Deputy has stated very clearly that certain areas of the country that were previously excluded are now included. The Minister, Deputy Bruton, is to be commended on his negotiations. If we had conceded, there was a significant possibility that no large enterprise would have been included in the regional aid map, which is not now the case. We have only dropped the marginal 5%. The BMW region benefited considerably through the companies brought into the region. There is still a substantial benefit - up to 30%, 20% and 10% for large companies. The fact that the area has been extended to include Kerry will enhance the opportunities. Deputy Calleary asked how we can attract foreign direct investment. We have a bigger map with bigger potential for aid to go into those regions. It is a huge benefit with regard to the employment grants for the employment of staff. It is a considerable advantage for the Minister, Deputy Bruton, in attracting foreign direct investment, given that more than half the country is included.
