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Small Business Policy – Report Card

An assessment of the Government's perfomance, 2011-2016

In its Programme for Government, no less than 25 small-business-specific commitments were identified. This recognition and focus in and of itself has been significant, and is justified, as the economic importance of small firms in Ireland cannot be overestimated.

Even more problematic has been the championing of the trade-union-backed €11.50 “Living Wage” by some Government Ministers. Despite the fact it’s “not Government policy” and is “voluntary”

Firms with less than 50 employees account for 44% of employees and 49% of total private -sector employees. Young and new firms in particular account for the majority of employment growth, with 106,000 net new jobs created between 2008 and 2012 by firms in existence less than 5 years (at a time when total private sector employment fell by 264,000). They make up a third of the total value of the economy and are responsible for 35% of business investment. They are crucial to regional employment, representing over 80% of the jobs in ten of our counties, for example. They play a central role in domestic-facing sectors such as construction, tourism and retail.

On balance, this Government has listened to the concerns of business and has put us on a sustainable path to future growth. It is important to note that many of the opposition parties have been hugely supportive of small business policy issues and have used their influence effectively in helping us to achieve our goals.

Report Card – Small Business Policy

PROGRAMME FOR GOVERNMENT COMMITMENT
ACTUAL PERFORMANCE 2011 – 2016
Credit
“We will ensure that an adequate pool of credit is available to fund small….businesses in the real economy”. Undoubtedly this has been the biggest imperative for small firms during the lifetime of this Government. Most small-business finance in Ireland used to come from mainstream bank debt. With the banking crisis and lack of liquidity, the banks became much more risk averse and with balance sheets shot, it was also more difficult for small firms to have the necessary equity investment (now a 30% requirement) from their own cash reserves.
Credit guarantee scheme
“We will implement a temporary, partial credit guarantee scheme that will provide a level of insurance to banks against losses on qualifying loans to job-creating firms to get banks lending again to industry and entrepreneurs”. All of these items were delivered, but with a varying degree of success. The partial credit guarantee scheme was implemented early in the Government’s term, but it proved to be difficult for the banks to utilise and thus had to wait two and a half years to make it back into the legislative programme, with the new enhanced scheme just passing in the last few weeks. This is an important tool to have in your arsenal as it moves the bank’s risk pendulum, specifically for those that don’t have adequate security and/or are in innovative businesses that it is difficult for the bank’s lending staff to comprehend.
Microfinance
“We will construct a€100m Microfinance Start-Up Fund that will provide start-up loansand equity that draws funding from the NPRF and private institutional funds”. After a rocky start, Microfinance Ireland is making a significant contribution to start-ups and micro-businesses and hit its target of €12mn loans approved early this year. It provides loans of up to €25,000 to micro-businesses (with less than 10 employees), who have been refused or do not want to engage with a mainstream bank. Various VC funds have been supported by the Government and albeit coming from a low base, they are slowly gaining traction.
Venture Capital
“We will support the development of a more dynamic, venture capital industry in Ireland by seeking to attract top tier venture financing and investment companies to Ireland, such as Silicon Valley Bank”. Equally important is the Government’s work on areas that weren’t mentioned in the Programme, including the formation of the SME Finance Review Group within the Department of Finance, which included bank representatives, business representative organisations (including myself for the SFA), relevant state agencies and Government departments as a forum for dialogue and monitoring. Out of discussions there came important developments such as the quarterly and now six-monthly reports on SME demand for credit, the setting of lending targets by the Government for the pillar banks, the establishment of the internal pillar banks appeals processes, and ultimately the Credit Review Office for appealing bank declines and ongoing work around reviewing the credit scoring mechanism and developing new forms of finance.
Investment Bank
“We will establish a Strategic Investment Bank”. This was a key pre-election promise and while this bank did not materialise as expected as an alternative bank to compete with the incumbents, its objectives have been somewhat achieved by a variety of other instruments, such as the establishment of the Strategic Banking Corporation of Ireland (SBCI) to act as an intermediary for lower-cost funds and longer-term loans to existing banks and helping new alternative providers to enter the market. Although recently established, it is certainly having an impact. The ISIF funds have been significant for more medium size businesses and for infrastructure investments.
Investment Programme
“The Government will put in place a parallel, commercially-financed investment programme [NewERA] in key networks of the economy to support demand and employment in the short-term, and to provide the basis for sustainable, export-led jobs and growth for the next generation”. Jobs have been this Government’s greatest mantra and on that front, it has had remarkable success. Five years ago, unemployment was above 15%, now it’s beneath 9% for the first time since 2008. The Government’s self-imposed target of 100,000 jobs by 2016 was exceeded 21 months early and we now have more than 135,000 additional jobs in place. The development of the annual Action Plan for Jobs process, with clearly identified measures to be implemented by named responsible Departments/Agencies in a given timeframe has been hugely significant. There is good engagement by all Stakeholders, including small firms (through the SFA) in identifying the types of policy measures that will help firms create jobs, because ultimately its business, not Government, that actually creates jobs. It’s all about having the right environment.
Taxation and Welfare
“The Commission on Taxation and Social Welfare will examine and make recommendations on the interaction between taxation and the welfare system to ensure that work is worthwhile”. Specific Outputs from the Programme for Government such as the restructuring of the social welfare/training/job placement supports into the Pathways for Work initiative and the new Intreo service have been welcome.
Internship Scheme
“We will develop a new graduate and apprentice internship scheme, work placement programmes and further education opportunities for our young unemployed providing an additional 60,000 places across a range of schemes and initiatives”. JobBridge, the national internship scheme was vital to keep people in contact with the labour market and to retain their skills, as well as offering young people the opportunity to gain valuable work experience. Despite some negative media commentary, its impact on the employability of participants and indeed the job growth in companies has been significant. After many years of lobbying for removal of the complexity surrounding job creation supports through the tax system, the Government eventually changed the system to a simple monthly payment to help companies meet the wage bill if they hired long-term unemployed people. Relaunched as JobsPlus, this has been significant at addressing long-term unemployment. The recent initiative to launch at least 15 new modern types of apprenticeship is also welcome, given the high levels of drop out from third-level education, we’re experiencing.
Minimum Wage
“We will reverse the recent cut in the national minimum wage”. The establishment of the “Low Pay Commission” was welcome in taking the decision about National Minimum Wage (NMW) reviews out of the hand of politicians and into an independent body. But when it issued a recommendation to increase the NMW by 5.8% or 50c in 2016, (a figure halfway between our advocacy of €0 and the unions of €1), it was clear that none of the economic criteria had actually had an impact, such as 0% inflation and still-high unemployment. Even more problematic has been the championing of the trade-union-backed “Living Wage” by some Government Ministers. Despite the fact it’s “not Government policy” and is “voluntary”, when you hear the words €11.50 an hour often enough in general commentary, employees begin to think it’s actually an entitlement. Where is the recognition that we need to balance moderate pay increases with real tax decreases, so we can maintain our competitiveness? Small companies have been hit with a raft of changes to labour law, including whistle-blowing, collective-bargaining, changes to the third-party institutions, increased entitlements and nonsense around zero-hour contracts – the issue that isn’t an issue – but they’re still making an issue! When you’re too small to employ a HR professional, this really can be the biggest blocker to job creation, and is probably the real reason that 50,000 of our 200,000 small firms remain simply self-employed.
Public Procurement
“We will reform public procurement to become a tool to support innovative Irish firms and to allow greater access to Irish small and medium sized businesses”. Public Procurement is now more centralised, using largescale national contracts, which are all about price, not value. During this government many small suppliers throughout the country have gone under as a result of these policies. The promise to “legislate to end upward only rent reviews” proved to be undeliverable and decimated the retail sector. None of the proposed regulatory burden reducing measures ever happened. Issues such as developing a Unique Business Identifier, actually writing and publishing good quality Regulatory Impact Assessments (RIAs) on the impact of proposed government legislation on small firms, introducing a single business inspection and licensing authority, would actually have huge benefits for small firms but unfortunately are unlikely to grab headlines, so are not prioritised.
Bankruptcy
“We will fast-track the substantial reforms needed for our bankruptcy legislation to bring us into line with best international standards, focusing on a flexible personal bankruptcy system that reduces discharge time for honest bankrupts”. On the plus side, the final reform of the bankruptcy system (reducing it to one year), which made it through just at the end of last year, is welcome and should assist in developing a culture of second-chance entrepreneurship in Ireland.
Rent Reviews
“We will legislate to end upward only rent reviews for existing leases”. The Attorney General appears to have controversially advised this could be unconstitutional.
The promise to establish a “Tax and Social Welfare Commission to examine the entitlements of self employed and the elimination of disincentives to employment” was an important measure but unfortunately delivered little tangible results. However, the commitment by the Government to accept the principle to stop the discrimination in the tax system against self-employed and proprietary Directors in its last Budget is historic. This has been a long-fought battle over the past 20 years and it is great to see that the risk-takers and job-creators in the economy will now be treated equally by the tax system.
Self-Employed
“We shall establish a Tax and Social Welfare Commission to examine the entitlements of self employed and the elimination of disincentives to employment”. The promise to establish this Commission was an important measure but unfortunately delivered little tangible results. However, the commitment by the Government to accept the principle to stop the discrimination in the tax system against self-employed and proprietary Directors in its last Budget is historic. This has been a long-fought battle over the past 20 years and it is great to see that the risk takers and job-creators in the economy will now be treated equally by the tax system.