I welcome this opportunity to update the House on the Government’s work to protect jobs and support business during this pandemic. This is precisely my focus as Tánaiste and Minister for Enterprise, Trade and Employment: to lead our country through the economic crisis and to help people to get back to work. There are no rules and no manual for this crisis. It is a public health and economic crisis like no other we have seen in our lifetime. Until a vaccine or treatment is widely available, physical distancing, testing and isolating will be the main instruments to fight the spread of the virus.
The Government yesterday published Resilience and Recovery 2020-2021: Plan for Living with Covid-19. It sets out how we plan to keep the virus under control, how we can anticipate and understand the virus and how to live our lives for the next six to nine months. It is designed to protect our families, friends, communities, jobs and businesses. I know that many people are feeling frustrated, but we must remain vigilant.
Irish businesses have shown remarkable grit and the Government will do everything it can to help businesses to open and to stay open and to keep people in employment. We have sought to protect jobs and back business by pumping billions of euro into the economy through wage subsidies, the pandemic unemployment payment, cash grants for businesses, low-cost loans, targeted tax cuts and commercial rates waivers, as well as increased Government spending on public services generally and public infrastructure specifically. The €9.5 billion deficit recorded at the end of August demonstrates the extraordinary nature and scale of this Government intervention.
The economic hit has been severe. GDP contracted by 6.1% in quarter 2 of 2020, but this masks a much more severe impact on the domestic economy, with modified domestic demand falling by 15% year on year. However, the economic figures that matter most are those relating to people staying in work or returning to work and these are now starting to go in the right direction, with the number claiming the pandemic unemployment payment falling every week. The monthly unemployment rate, adjusted to include those in receipt of the pandemic unemployment payment, has fallen from 28.5% in May 2020 to 15.4% in August.
We are under no illusions that the recovery will be smooth. There may be multiple hits to the economy, matching the multiple waves of the pandemic over a protracted period, which makes responding to the crisis all the more difficult. We know that the economic impact of Covid-19 has not been the same across all sectors of the economy. For those sectors where remote working had been already part of their operation, making the transition to remote working has been much easier. For other sectors, especially those that require personal contact with customers, it has been more difficult to adapt to distancing requirements.
The July jobs stimulus was, as promised, a financial package of a scale that demonstrated the Government’s commitment to save enterprises, limit the damage to our economy and get people back to work. Indeed, it was bigger in scale than most annual budgets. It is being deployed at speed and is monitored by the Cabinet subcommittee on the economy which I chair. Building on the extensive enterprise and employment schemes that have been already deployed, the additional €7.4 billion announced in the July jobs stimulus will have a wide reach across the economy, resolve some of the limitations of existing schemes and be of sufficient scale and longevity to help our businesses and economy through the worst of this pandemic.
The temporary wage subsidy scheme and its successor, the employment wage subsidy scheme, have provided critical assistance to impacted businesses across the economy. For the most heavily impacted sectors such as hospitality, the schemes have given businesses a chance to resume activity and operate under the constraints demanded by public health requirements by heavily subsidising their largest variable cost, that is, labour. Without this support, it is likely that many businesses in this sector would have remained closed.
We have introduced a temporary reduction in VAT from 23% to 21% to boost employment and encourage spending. This tax cut will assist the retail sector in particular, but also benefit many other sectors of the economy, including fuel and personal services. The stay and spend initiative which will take effect in October will see consumers benefit by up to €125 each for expenditure on hospitality during the traditional off-peak season for this sector. We also allocated €10 million to a restart fund for the tourism sector. We have waived commercial rates for six months for many impacted businesses and, again, this waiver helps those business most in need. We will examine extending the rates waiver in the context of the budget in October.
Although these schemes are wide-ranging, they will, by their nature, be of most assistance to the most severely affected firms and sectors.
We have provided substantial restart grants of up to €25,000 to a broad category of businesses such as hairdressers, sports clubs, cafes, restaurants, bed and breakfast accommodation, and independent hotels. This grant is helping businesses cover the other fixed costs which continued throughout their enforced closure and, importantly, provides funding to help cover the cost of steps taken to ensure a safe environment for staff and customers on reopening. By Friday last, approvals to the value of €156 million were approved under the restart grant and €145 million under the restart grant plus. A total of 62,700 approvals have been made under the two schemes to date in every county in Ireland.
Last week, we announced the opening of the new €2 billion Covid-19 credit guarantee scheme to provide businesses with access to low-cost loans over a five or six year term as they respond to Covid-19. It is the biggest ever State-backed loan guarantee in Irish economic history.
A large number of non-bank finance providers, including some credit unions, have also applied to participate in the scheme as part of an open-call process. These applications are currently under assessment by the Strategic Banking Corporation of Ireland, SBCI, and my Department. I welcome the demand from finance providers to be part of the scheme, as it will mean more choice for Irish SMEs in being able to borrow from institutions other than the traditional banks.
The Microfinance Ireland Covid-19 loan scheme also recently reopened. Under the first phase of this scheme, 687 loans were approved to a value of nearly €19 million. This represents three years of normal lending volumes for MFI in a period of just over four months.
Importantly, with 80% of the businesses receiving the loans based outside of Dublin, MFI provides an essential assistance for businesses that are hoping to boost their economic activity over the coming weeks and months in every county in Ireland. I expect this new tranche of funding will provide a lifeline to even more micro-enterprises enabling them to reopen, stay afloat or expand. It is worth bearing in mind that in Ireland nearly 60% of small and medium-sized enterprises carry no debt at all and have the capacity to borrow if they choose to do so.
The Government has also expanded the future growth loan scheme to make €800 million in lending available for terms of seven to ten years. Funding under this scheme helps businesses as they seek to make long-term strategic investment. This includes businesses that have been or will be impacted by Covid-19 and Brexit. Demand for this scheme has been high and has continued throughout the pandemic. As of the most recent report on 4 September, there have been 1,372 loans approved under the scheme, to a total value of almost €300 million.
We have also devoted some funds to specific sectors in order to take advantage of particular opportunities. One good example of this is the Covid life sciences fund which will see us set aside an initial €25 million of a potential €200 million in the form of state aid to enable enterprises, primarily in the pharmaceutical sector, to significantly and immediately ramp up production to help the EU efforts to Covid-19. The opportunity being presented to those firms by this funding will generate a significant return to the State in due course in the form of additional jobs and taxes.
One must remember, as we all do in this House, that a job provides more than an income. It can provide a sense of self-worth and well-being. While we will continue to help our businesses, we are also assisting those who have lost their jobs as a result of Covid-19 or whose jobs continue to be in a precarious position, getting staff back to work and creating new opportunities for those unable to return to their old jobs.
A €200 million investment in education and training was announced in July. A new apprenticeship incentivisation scheme has also been announced to assist employers to continue to recruit apprentices during the immediate Covid-19 period. This is in addition to 60,000 places in further and higher education, skills training, and work placement and experience schemes that will be funded. In fact, this autumn more people than ever before will enter higher education in Ireland.
A clear timeline as announced for the continuation of the pandemic unemployment payment will provide assurances to those who lost their jobs. While the headline figures are being reduced, it will continue in place at least until April and will remain open for new entrants. It is in marked contrast to the payments made north of the Border, for example, with the universal credit, which is close to one third of what is paid in this jurisdiction.
Young people have been disproportionately affected by Covid-19 and we must ensure they are not left behind. The JobsPlus scheme provides subsidies to encourage employers to take people on if they are under the age of 30 and they are on the live register or receiving the pandemic unemployment payment.
Many people who have lost their jobs in some of the sectors living with the long-term effects of closures and other restrictions, such as aviation and events, have moved into other sectors where they have additional or transferable skill sets. This shows the importance of continuing upskilling and reskilling for all workers, especially as the transition to a digital and low-carbon economy, which we know is likely to significantly change and in some cases even make obsolete certain roles, is still ahead of us. The advantages of a dual-qualification cannot be underestimated.
While we cannot keep every firm and job alive, I believe our emphasis should still be to preserve these insofar as we can within the fiscal constraints. We need to ensure that firms that can survive do.
We also need to examine why those in receipt of the pandemic unemployment payment are disproportionately young, from migrant backgrounds and work in the private sector. These are people whom we relied on during the pandemic - shop workers, delivery drivers and cleaners. They tend not to be well paid or well protected. In the future, we need to value their work more and do better by them.
The next steps in our recovery journey will be mapped out in the October budget and the subsequent national economic plan. The national economic plan will set out a vision for what our post-Covid economy will look like. While the focus of Government action up to now has been on protecting workers, households and firms, the plan will look to the future and show how our economy can be positioned to exploit opportunities for growth in emerging sectors and in areas such as new ways of working, while also addressing how we will prepare for the transitioning of enterprises and workers in response to technology and climate change developments.
Unlike the response to the recession ten years ago when we lost the confidence of the European institutions and the international markets, we will be in a position to continue to borrow in the near future and that will allow us to continue to increase capital budgets and spending on public infrastructure in the coming years under Project Ireland 2040. We will be able to go ahead with the planned €1 billion increase in capital spending on public infrastructure next year - an increase of more than 12%. This, in itself, will generate employment and economic activity when we need it most. We can afford to borrow cheaply to invest in infrastructure and we will do so.
Covid-19 has forced us to take a step back and think about the way we live our lives. We do not want to return to the same society we had before. It gives us an opportunity to make fundamental changes for the better – for a better quality of life, a better economy and a better environment.