Ms Patricia Callan:

I thank the Senators for the opportunity to be here today. The Small Firms Association represents companies that employ fewer than 50 people, which make up 98% of the 238,000 businesses in the country.

We account for half of the jobs and one third of the value of the total Irish economy.

The UK is a key marketplace. It is essentially where all small companies have traditionally learned how to export - same language, same culture, many of the same tastes - and this requires a dramatic change from them going forward. Those in the marketplace are already dealing with the fallout of Brexit, even before it has happened. As the committee has already heard from Enterprise Ireland, there is a real push now to look at diversification and in trying to move into new markets. However, taste, for example, in the food sector, is one of the key considerations and that may not be possible. Companies are going to have look at other, more dramatic options.

I would also flag at the outset that despite the fact that the main focus is on export at this stage, only 6.4% of all exports are accounted for by small firms because most businesses and most jobs are in the domestic economy. In our discussions around this, we need to have an eye to what might be the impact for those businesses. My real concern is those businesses think that they are immune to this because they are not in the front line. There is an exercise about trying to get people to start planning and thinking within and outside supply chains of what could be the knock-on implications. For example, tourism will be directly impacted, as will the retail spend and sectors such as the hospitality sector. Moreover, I would say simply that when the UK economy is doing well Ireland is doing well. Therefore, the biggest issue is that if the UK ends up in recession then we will have to move dramatically here in terms of trying to prepare our own economy to withstand that.

In the statement I submitted, I have shared data from the surveys we conduct six-monthly. This one is from November last. We will be conducting one shortly and I will certainly forward the current data on to the committee because I know it will be continuing to meet. In November last, 41% of our members stated that this already had a negative impact on them, with 68% expecting it to be more negative in the next six months. Only a minority of 10% of our businesses felt that it would be positive in any way whatsoever.

In real terms, the biggest implication we have seen is that one-in-two businesses immediately postponed investment decisions. Some are firing ahead going into the market but others simply stated that they needed to wait and see, that this is too uncertain. Some 37% stated it already had a negative impact on their sales in the UK, but the most surprising finding, particularly in the run-up to Christmas, was that 30% of businesses stated they had lost share here at home, with retailers substituting cheaper imports from the UK onto retail shelves here. Before Christmas, we ran a campaign with Love Irish Food that was all about trying to create this whole sense of buying Irish because that will be critically important.

Another change that we have seen, also in their supply change, is that people have started to move to source more raw materials from the UK to act as a natural hedge against the exchange rate and that is having an impact further down the line. We have also seen a minority of 4% make plans to move operations fully or partially out of Ireland and into the UK because it is their biggest market and it makes sense for them to do so. We are beginning to see a trickle effect on employment. Some companies have had to move to redundancies but more have had to move to short term and lay-off, as they have had to drop orders into the UK market.

In terms of the most significant challenges, the exchange rate volatility has been the biggest impact. Only 15% of the small companies would use financial hedging products and they were completely exposed. Nobody expected this to happen. The investment confidence piece is the second challenge. That is why we are seeing a lag in the national growth figures compared to where we would have expected to be.

Finally, companies very much want us to focus on cost and tax competitiveness, going back to this idea of issues that are in the locus of our own control. In much of what is happening, we are one of 27, we are on the negotiating team - to be fair, we have enjoyed a lot of success in our positioning to date - but we need to be getting match ready in terms of preparing ourselves for what lies ahead.

In my submission, there is a testimonial from a member that is a food company in the midlands. They outline that in their business, which is a low margin business of 3% to 5%, when the exchange rate moved against it, by 11%, 20% or 24% at various times, this meant simply that they had to drop over €3 million in orders and that had an impact on their job times. So far, in reality, the Government has not moved at all to help those sorts of businesses. We have talked about it a lot. What I would like to say today is that we need to be moving to action the aid package. We have certainly seen good initiatives for raw agriculture, but not into prepared consumer foods and into the broader business community. I will leave the committee to read that statement in its own time.

In terms of the priority actions, as I stated, we need to move now. My concern is that we are more uncompetitive at this time than we may necessarily be post Brexit. Once Britain is outside the market one would assume it will become more negative for it whereas at present it has an exchange rate that is in its favour, it has already a very attractive tax package for entrepreneurs and for personal tax compared to what we have here, and its cost base is much lower. We need to ensure that our businesses can survive during these two years.

Critically, we also need to keep lobbying the EU to introduce temporary state aid rules, as it did in 2009. We met the EU Commissioners and raised this, and their attitude is that was a financial crisis that affected everyone. This is a crisis of equal scale for our country and they need to accept that. We are beginning to hear that they might be considering it a bit more than they would have.

The Strategic Banking Corporation of Ireland has been working on low-cost finance measures for six months. We expected an announcement early in January. We have seen nothing. We need to see those measures out in the marketplace. We need to see specific export trade finance, which is available in most countries but not here, come back as a product too.

The work Enterprise Ireland is doing has been good and it has taken the right approach. However, we must remember that it represents only a small portion of the exporters. Many of our members are not Enterprise Ireland clients. What struck me with all of the new announcements, the new Brexit tool and the associated funding to do a Brexit plan, is that these are only available to Enterprise Ireland clients. We need to stop having these demarcation lines and to think that all affected businesses need these type of supports. If they are exporting, they should be entitled to it regardless of their client status.

As I mentioned already, a public awareness campaign to raise conceptually the issue of buying Irish is important. In the context of the move to online trading, the committee may be aware that we have an online trading voucher scheme for micro-enterprises - companies with fewer than ten employees - and we would argue the category needs to be raised up to 50 employees. We need to allow all businesses - retailers are on the sharp end of this - to gain a web presence to understand that market. With such practical measures that are already in place, it is simply about investing more funding and ramping up the delivery of them.

We have already been working closely over the past number of months. In terms of the negotiating teams in the UK and the EU, there has been good recognition of Ireland's issues, including the land border with the UK and the issues around customs - physically, getting one's product around the place. The freedom of movement of people is also viewed as critical. Our common travel area has to be protected at all cost; it is the top priority for SFA members in that more strategic longer-term frame.

We need to focus on cost competitiveness. That goes back to labour costs, the minimum wage, joint labour committees and public sector pay deals, all of which have knock-on implications in the private sector. Other committees of the Houses are working on insurance, where we have seen increases of over 33% in the cost of motor insurance. If one looks at issues such as the commercial rates review that is causing havoc around the country and the 2% differential in aid, through to public sector pay, all of these issues act against our companies and are issues the Government can move and act on. I encourage the committee to tackle them.

I repeat my plea to Brexit-proof budget 2018. That involves man-marking the UK in terms of what it is offering already. Post Brexit they will probably become even more attractive. If we do not have a CGT entrepreneur's rate of 10% up to, as they have, £10 million - our limit is €1 million - and if I am deciding today to set up a software company, would I set up here or would I go to the UK? We must start thinking about how to make it more attractive for people to set up in business.

Clearly we advocate a soft Brexit, trying to keep Britain as close to us as possible, and in the Single Market and customs union. Equally, strategically we need to be planning about our future and working with other European countries in terms of gaining new allies. We have been on the coat-tails of the EU on many issues, in particular, on regulatory issues. We, as an organisation, and the Government will have to step up to that into the future.

I thank the members of the committee for their attention and I am happy to discuss matters they may wish to raise.