The rationale behind the changes referred to in the recommendation was explained on Committee Stage, and officials in the Department of Finance furnished further information to Senators Darragh O'Brien and Mark Daly, as requested. I reiterate that the employment and investment incentive, EII, is targeted at job creation and retention and is available to the majority of small and medium-sized trading companies. As it is a state aid scheme, we were required to make changes to the qualifying company criteria in order to comply with new European Commission guidelines that came into effect recently. Failure to do so could have resulted in the scheme being in breach of state aid rules. In such a scenario, the Commission could have requested the suspension of the scheme in its entirety and launched a full investigation into its compatibility with Internal Market rules.
The revised guidelines from the Commission take account of the fact that SMEs may face difficulties in gaining access to finance, particularly in the early stages of their development. The Commission notes that business finance markets may fail to provide the necessary equity or debt finance to newly created and potentially high-growth SMEs, resulting in a persistent capital market failure which would negatively affect SME growth prospects. The Commission has made changes to the qualifying company criteria in recognition that newer SMEs find it more difficult to raise funding via traditional routes. Such companies typically create more employment than companies that have been operating for longer periods, which further justifies the targeting of the relief.
It is unfortunate that some companies will no longer qualify for the incentive, the conditions for which are laid out in the regulation from the Commission. As I said, that information was provided for the Senators. The Government had to ensure compliance with these conditions in order to retain the EII as an approved state aid. In essence, we had to make a choice between risking the whole scheme being disqualified by the Commission on state aid grounds and introducing it with a narrow set of qualifying criteria and, consequently, a narrower base of application. We are following the latter course and, for that reason, I cannot accept the recommendation.