Oireachtas Joint and Select Committees
Tuesday, 30 September 2014
Joint Oireachtas Committee on Jobs, Enterprise and Innovation
Business Growth and Job Creation in Town and Village Centres: Discussion (Resumed)
I remind members, visitors and those in the public gallery to ensure that their mobile phones are switched off for the duration of this meeting as they interfere with the broadcasting equipment even when in silent mode. We will move on to a discussion with the Vintners' Federation of Ireland on policy options to support business growth, and job creation and retention in towns and village centres. I welcome Mr. Padraig Cribben of the Vintners' Federation of Ireland, VFI; Mr. John Nealon and Mr. Donall O'Keeffe of the Licensed Vintners' Association, LVA; and Mr. Adrian Cummins of the Restaurants Association of Ireland, RAI, to the meeting.
By virtue of section 17(2)(l) of the Defamation Act 2009, witnesses are protected by absolute privilege in respect of their evidence to this committee. If they are directed by the committee to cease giving evidence in relation to a particular matter and they continue to so do, they are entitled thereafter only to a qualified privilege in respect of their evidence. Witnesses are directed that only evidence connected with the subject matter of these proceedings is to be given and they are asked to respect the parliamentary practice to the effect that, where possible, they should not criticise or make charges against any person or persons or entity by name or in such a way as to make him, her or it identifiable. Members are reminded of the long-standing parliamentary practice to the effect that members should not comment on, criticise or make charges against a person outside the House or an official by name or in such a way as to make him or her identifiable.
I ask Mr. Padraig Cribben to make his presentation to the committee. We have all received the document, so there is no need for him to go through it in full.
Mr. Padraig Cribben:
I am joined today by my colleagues, Mr. Donall O’Keeffe, CEO of the Licensed Vintners' Association; Adrian Cummins, CEO of the Restaurants Association of Ireland; and John Nealon, chairman of the Licensed Vintners' Association, a publican in Skerries and a member of the thriving small and medium enterprise, SME, sector. We are here as representatives of the 92,000 people throughout Ireland who depend on the drinks industry for their livelihoods. This industry generates a significant return for the Exchequer both through excise duty and value added tax, VAT. We have been hit in recent times by two very significant budget increases in excise duty, which has had a large impact on jobs in the sector, on tourism and on the consumer.
The issue that we want to address is the effect of excise as a policy option on the drinks industry. It is fair to say that there are issues around the misuse of alcohol by a certain section of society. We in the drinks industry do not want to see our product misused. To that end, we signed a pledge earlier this year asking the Government to do three things: to address the issues of cheap alcohol; segregation and availability of alcohol; and price-based advertising. The Government will have our full support in addressing those issues. One of the proposals put forward to solve all those ills is to increase price. Alcohol costs are 78% higher in this country than the European average, so clearly pricing is not addressing the problem. The main reason prices here are higher is that we are in the top three in Europe in terms of excise duty on alcohol.
We in Ireland are ahead by a mile. The excise duty on a pint of beer is 55 cent whereas in Spain and Portugal, the countries with which we compete for tourists, the corresponding duty is between 5 cent and 8 cent. The excise duty on a bottle of wine in Ireland is €3.19, but there is no excise on wine in Spain and Portugal.
We represent small businesses, some of which are very small, that create jobs. In parts of the country these businesses are very important and some 92,000 jobs are dependent on the industry. The value of inputs in these businesses is €1.1 billion as they buy products from farmers, be it milk and cream, malting barley, apples and so on.
From the narrow perspective of the pubs I represent, excise increases are not something that these businesses can absorb but must pass them on to the public. These pubs do not have a raft of other products that can absorb some of the increase, whereas those in the supermarket trade have between 4,000 or 5,000 other items on which they can spread the increase by putting 2 cent on the price of the nappies or 1 cent on the biscuits. They can do this to absorb the excise increases. That drives a further wedge in price between what is called the on-trade and the off-trade.
Eight or nine years ago, some 60% of the alcohol consumed in the country was consumed in the pub and 40% was sold outside of the pub. The situation has now been reversed and the rate of change is growing at an alarming rate. Alcohol is being sold below cost and is highly marketed in supermarkets. This is portrayed as consumer friendly but is the opposite. Leaving aside the effect that cheap alcohol has on the consumer, the consumer is paying more for stables because the prices of stable products have been increased to pay for the fact that the supermarkets are losing money on alcohol.
My colleague Mr. Adrian Cummins from the Restaurants Association of Ireland will give the viewpoint of the restaurant association.
Mr. Adrian Cummins:
The drinks industry is a vital part of the economy with more than 92,000 jobs created in local communities throughout Ireland, be it in the local restaurant, pub, the farmer supplying products to breweries and distilleries, the local hotel and independent off-licence. Let me put it into perspective, the reduction of VAT to 9% created 31,500 jobs in totality, and some 21,600 of these jobs were in food and accommodation. Restaurateurs have been hit on two successive years by increases in duty on a bottle wine. There was a 1 euro increase two years ago and the increase last year was 50 cent. About 30% of the turnover in a restaurant is alcohol based. While we benefited from the reduction in VAT to 9%, we lost out from the increase in excise duty. Since 2012, the tax on 1,000 cases of wine, which is roughly 20 cases of wine each week, has increased by €18,000, a cost that has to be borne upfront by Irish restaurants, and other businesses in the tourism and hospitality sector. Given the situation with access to credit, the €18,000 increase has to be soaked up in cash flow, leaving less money for small businesses to invest.
What we can see from customer and tourism feedback, what tourists say when they are asked what they think about their trip to Ireland, we seem to have got it right with the value for money on food, but in the past two years when Fáilte Ireland look at the statistics, it sees a growing trend that tourists find the cost of having a drink in Ireland becoming more expensive. We are trying to compete in the international market for people to visit Ireland. There has been a low level growth in the past number of years. We have a long way to go to recover our competitiveness.
We had 1 million more tourists in 2007 than today and we have a long road ahead before recovering that lost competitiveness. We understand that excise duty is central to budgetary issues within Government. We would like excise duty reversed, however, to grow tourism and to assist the restaurant and hospitality industry in the forthcoming budget.
The 9% VAT rate has proved that tax measures can stimulate jobs through improving our image as a tourist destination. At the same time as the Government boosted the hospitality sector with this policy, it saw fit to take with the other hand through levying further excise increases and putting small businesses such as restaurants, pubs and hotels under severe pressure.
A reduction in excise can have the same job creating effect as the VAT cut. The extra 50 cent increase on wine last year, according to customer feedback, meant that they were hit two years in a row. This damages consumer confidence in the marketplace. A reduction would give a boost to consumer confidence and, more than that, it would help curb cross-Border activity, which is in real danger of taking off once again. It would also address one of the few negatives that tourists identify with holidaying in Ireland.
I will hand over to Mr. Donall O'Keeffe from the Licensed Vintners' Association.
Mr. Donall O'Keeffe:
I thank Mr. Cummins. I will cover just three points. Given that we are speaking to the Joint Committee on Jobs, Enterprise and Innovation, it is important to think about the job numbers. There are 52,000 people employed in the on-trade, up and down Ireland, and they are located in every parish and village in every county. Those jobs matter to those people. They play a critical role in the local community, local business and local tourism. There are seven jobs in the on-trade for every one job in the off sector. Excise hits the on-trade disproportionately and hurts employment.
According to CSO data, not our data, there has been a 36 cent increase in the national average price of a pint in three years. The Government has taken 28 cent or 78% of the increase in tax. The brewers have taken 4 cent and publicans have taken 4 cent. We are operating in the discretionary part of the economy. The industry is moving might and main to hold prices down. We compete for customers and Government tax policy is hindering our competitiveness directly. As a consequence, there is an impact on employment, turnover and the overall tax take. We must always remember that the VAT intensity is in the on-trade. If we sell a drink at €5, the Government gets 23% of it. If a can of beer is sold in an off-licence, the Government gets 23% of €1 in the off sector. Excise hurts the on-trade disproportionately. Our key message to this committee is that as a policy instrument, taxation is directly damaging our competitiveness.
The final factor on which I wish to focus is our role in tourism. We represent publicans in Dublin and we benefit enormously from tourism. We see a rapid recovery in the Dublin market with which we are delighted. Obviously tourism is all over the country. I am from north Clare, an area which has many tourists in the summer. Publicans there need to compete the same as publicans in Dublin. According to Fáilte Ireland, 80% of tourists rate visiting the pub as a core positive experience. In our view, it is where they meet the people. They meet Irish staff and other Irish customers. That is where we generate much of our positive warm welcome for which we are rightly famous.
The tax policy, which also hurts the businesses in the domestic economy, hurts our competitiveness from a tourism perspective. While we have a very positive initiative on VAT to bring it to 9% to stimulate hospitality and tourism, at the time excise on alcohol goes through the roof. Our key point is that taxation, principally through excise on alcohol in our sector, is damaging our competitiveness. Our policy recommendation is around reversing the trends that have been apparent in the past two budgets in excise duty on alcohol.
I thank the witnesses for attending. This is the conclusion of a report on how to sustain our towns and villages, keep them vibrant, keep them as places people want to come into, whether aesthetically by having nice civic places or places to have a nice experience. We are all about the experience these days.
I agree restaurants have become quite competitive. People often think it is almost free to eat in the Dáil but it is actually cheaper to go to a restaurant off Grafton Street and get an early bird for which a person could still have change out of €20. It is not possible to get that in the Dáil restaurant.
As a consumer, I have a particular pet hate. In May, RTÉ's consumer show did a programme looking at the marked-up price of beer and soft drinks in pubs and restaurants. It found that the average marked-up price of a pint of lager was 98% and the average marked-up price of a 200 ml soft drink was 407%. It was cheaper to have a pint of beer than a rock shandy. I ask for a comment on that. That is a lot of money for a soft drink. I recognise that there may be disparities throughout urban and rural areas but the reality is that if I go for a pint tonight in a street close enough to here I will pay close to €6. If I go to my local I might pay €4.50 for it. We are talking about how to get consumers into our towns and villages. Startling figures like that - paying €5 for a rock shandy in a pub - to people who are finding it hard to make ends meet and maybe still want to live a little are ridiculous when they can go elsewhere. It is the public that needs convincing.
Mr. Padraig Cribben:
I took part in that programme. If the Deputy recalls the detail, the research on which it was based was flimsy. It appeared to be a quick "phone around" to certain sectors. It appeared to me that very few long distance telephone calls were made. I will not put the matter any further. The reality is - the Deputy talks about towns and villages - the average price of a pint in the country is slightly more than €4. Soft drinks are a small percentage of the business for pubs. Pubs - like any other business - have a range of products and a range of margins. If the margins were excessive, the country would not be losing the thousand pubs lost in the last number of years. We do not have an input on prices. That would be illegal. There are cases where some of the soft drinks prices may be excessive. However, a person can go into a bar and get a soft drink for €2 which is not a huge outlay in today's climate. A rock shandy can be obtained for a lot less than €5 in a lot of pubs around the country.
Mr. Donall O'Keeffe:
May I just point out, the Deputy added a second element to his question - on price range - and his accusations were generally levelled at the Dublin pub trade which I represent. There are prices in Dublin ranging from €3.50 to €7.50. A person can buy - within a couple hundred yards of here - pints for between €5 and €6. The publican has to offer value for that. There are prime, centrally located, expensively kit-out, highly staffed pubs charging relatively high prices which people are happy to pay. A quarter of a mile away are relatively cheap and cheerful pubs. That is the market in operation. The price in the suburbs is lower than the price in the city centre. The price in the city centre is lower than the price in Dublin 2 and Temple Bar. We have 740 pubs in Dublin. There is one there to suit everyone. We are very comfortable that there is a range that suits the market.
If one has the capacity and is of the mind to go to a high-priced pub, that option is there but if one wants to find a lower-priced pub that is available too.
We are always going to disagree on this issue. Is it not fair to say about the centre of Dublin and tourism, that as much as pubs may offer craic and ceol, tourists are ripped off in pubs and restaurants in Temple Bar. That is not value for money. Tourists go to Temple Bar. They do not go to the pub I know. Tourists do not know the other places. I know that my own local struggles and if it did not serve food every day it would not survive. That is what keeps it afloat.
I recently attended the British Labour Party conference in Manchester. It would have been hard to find beers there as expensive as those in Temple Bar.
Mr. Donall O'Keeffe:
I reject the Deputy’s allegation. We do not see it as a rip-off. It is there. That is the proposition. They chase a very specific market. They are outstanding businessmen. They run terrific pubs. They are highly profitable and good luck to them. They pay a lot of tax, directly on profits. They pay commercial rates. A total of 23% of every drink they sell goes directly on value added tax, VAT. There is excise duty on top of that. That is the proposition they make and people choose to go there or not. They get high enough levels of repeat business to tell me that people are happy to go back there.
Gabhaim buíochas leis na toscairí as a gcur i láthair suimiúil os ár gcomhair inniu.
The pub industry is a significant element of the Irish economy, social fabric, health and the law and order system. Public policy has resulted in a proliferation of alcohol on sale at petrol stations and supermarkets over recent years which has had a negative effect on the four elements I have mentioned. More alcohol is consumed in private homes which reduces the social fabric and there is less control over the amount sold. The Government needs to discriminate between the unit sold in the pub and that which is sold in the off-licence. It needs to use taxation and excise policy to promote the pub sale.
Do the witnesses agree that there is an opportunity in the North of Ireland for fiscal powers to be returned to Ireland by Westminster and that this could have a great effect in equalising tax and excise levels? Would the witnesses’ organisations start to focus on that opportunity as those discussions are happening and the changes are concrete?
Mr. Cummins gave a great presentation at this committee a year and a half or two years ago in which he stated that with the level of opportunity for work that exists in the restaurant industry, there was a complete lack of proper apprenticeships for trainee chefs. Could he update us on any developments?
Although it is not the only organisation that is involved with this, I would like to see his organisation do more about under-age drinking. There was a project in Belfast a number of years ago in which when a person bought a bottle or a can in an off-licence, the off-licence stamped its name and the time and date of purchase on the item and CCTV camera recorded the actual purchase. When a police officer found a person with a can of beer, they could then identify that it was sold at that time in a certain off-licence and go back to the CCTV footage to see if it was sold to an under-age person or an adult who then passed it on. This meant that all of a sudden people were very unlikely to pass drink on to an under-age person, and a young person was less likely to be sold the item because the shop knew that there was some level of traceability. A project like that would show great faith in trying to tackle the problem, although Mr. Cummins's organisation does not have sole responsibility for that.
Could Mr. Cummins also talk us through this bizarre situation where supermarkets get VAT back from the sale of below-cost products? They take hard-earned, much-needed State revenue out of our pockets and put it back into the Tescos and so on.
Mr. Adrian Cummins:
With regard to the chef training, we have had great difficulty over recent years in getting apprenticeship programmes up and running, so much so that we have a crisis in our industry. The success of the VAT reduction has led to jobs being created and, unfortunately, we have taken our foot off the pedal in terms of training young people and getting people off the live register and into training.
Mr. Adrian Cummins:
There are approximately 500 people per annum completing chef training. We need to double that. The Government has set a target of creating 50,000 jobs by 2020. We urgently need to create more training spaces. Unfortunately, our calls are going unheard.
A high-profile Irish pub in Paris will charge €10 for a pint of Guinness. Comparing the two capital cities of Paris and Dublin is to compare apples with oranges. These things need to be put into an international perspective.
The issue of below-cost selling affects restaurants when supermarkets offer so-called dine in for two promotions which include a bottle of wine and a meal for two people for €12.50. There are high-profile, high-visibility advertising campaigns, and restaurants cannot even purchase the product for the food, let alone for the alcohol, on that money. There is something radically wrong and I will defer to my colleagues with regard to the VAT and excise elements. When high-profile supermarkets conduct that type of advertising and offer these price promotions, it is obvious it is going to affect my industry - the restaurant industry - and ultimately the hospitality industry.
Mr. Padraig Cribben:
There are two issues. The VAT issue is a simple one. When a retailer buys a product, he or she reclaims the VAT, and when the product is sold, the VAT is passed back to the Exchequer. When the retailer buys at one price and sells at a lower one, he or she is passing back less VAT than he got back himself or herself. In essence, below-cost selling is subsidised by the State. It is as simple as that.
Under-age drinking is a major problem. Looking at the structure of the pub trade in Ireland, 93% of pubs are family owned and family run. In most cases, the customers are friends as well as customers because it is very much in the local area.
We have a responsible serving of alcohol programme, and at this point between 12,000 and 15,000 people in the on-trade have gone through it.
That is not to say there are not pubs in the country in which under-age drinking takes place. It would be wrong to say that, but it is still the safest place to consume alcohol, by a mile. There are measures in the pub but there are no measures at home, and there are controls on under-age drinking in the pub but none of those controls in the home. Much alcohol is consumed outside of the home, be it in parks or wherever, where 14 or 15 year olds are more likely to consume it. In 99.99% of such cases that alcohol does not come from the pub. It is coming from supermarkets, in particular. The way to solve that is to put alcohol in a segregated area in supermarkets. It should be borne in mind that new legislation is not necessary. This is provided for in section 9 of the 2008 Act which was introduced by the former Deputy Dermot Ahern when he was Minister for Justice, Equality and Law Reform, but it was never commenced. All it requires is somebody with a pen to tick a box and off we go. That will solve the problem. I am not saying it will solve it totally, but it will solve most of it and very quickly.
Mr. Donall O'Keeffe:
On the issue of under-age drinking, it is clear from a publican's perspective that it is illegal to sell to people under 18 years of age. The majority of publicans accept their responsibility in that regard and the sanctions for getting it wrong are quite serious. That is the way it should be. Publicans should not knowingly serve under-age people, and the majority do not.
On one specific issue regarding under-age access to alcohol, we would support measures such as labelling of off-licence point of sale and closed circuit television, CCTV. They make a modicum of sense, if not perfect sense. We have legal opinion to suggest that labelling on the can or the bottle is of limited evidential value in court. It highlights the origin of the product, and if there is a consistent pattern in that regard, it points the police in the right direction, but it will not, in itself, solve the main problem. The LVA perspective is that the licensing regime of the off-licence sector has collapsed. There has been more than a tripling in the number of off-licence outlets since 2000. The State has lost control from a licensing perspective. There is a far bigger issue here in terms of every convenience store, garage forecourt, corner shop, barber, department store, off-licence and multiple retailer selling alcohol. Everybody says availability is a factor in alcohol abuse, and if there is an explosion in the number of outlets, a removal of the ban on below-cost selling and alcohol is used as a loss leader to price promote and drive footfall, it is inevitable that the issues we have with under-age drinking and the public health and public order concerns associated with alcohol abuse will explode.
Mr. Donall O'Keeffe:
One is legally required to have a licence to sell alcohol. One is certainly required to have a licence to permit the consumption of alcohol on the premises. One can get what is called a wine retailer's on-licence, which allows the sale of wine and beer for consumption on the premises, but I doubt that any barber shop has it.
We are discussing policy options to support growth in town and village centres. Have the witnesses explored the issue of transport in rural areas to towns and villages, which people living alone and so forth would find difficult to access? We all appreciate the social aspect and we know it is good for people to get out and meet other people and so forth. Have the witnesses explored any options in that regard in terms of liaising with the rural transport programme or local hackneys or something similar?
Mr. Padraig Cribben:
Yes, it is a major issue in rural areas. A number of things have happened.
A lot of publicans, on their own initiative, provide the service to their customers. They bring them home at night and, in some cases, drive around to collect them which poses its own challenges, particularly on quiet nights of which there are many during the week. For example, individuals will want to go in different directions, they will not want to leave at the same time and there may be nobody to mind the shop. Therefore, it is a major challenge.
We have engaged with the Department of Transport, Tourism and Sport. The rural hackney initiative is in its infancy but is beginning to take off. We are not sure to what extent it will be successful but at least it is a step in the right direction. Transport is a major challenge. In villages, not so much towns, and other more rural areas there is no transport infrastructure during the day so one is certainly not going to have it at night. A lot of publicans have met the challenge by doing their own thing. I hope the new rural hackney licences that were introduced in quarter 2 of this year will be of help. If so it will be a help rather than a solution.
Mr. Adrian Cummins:
Assisting rural transport schemes has hugely benefitted specific areas but they only operate in specific areas. The growth and expansion of rural transport schemes across the entire rural area would be a huge help to communities. I know certain rural transport schemes only provide transport for a specific limited time during a day and not at night. In my sector any transport is a good initiative that will help rural towns and small villages.
I get it in the neck every day of the week from my brother about the current situation between off-licences and pubs. I have always believed that we must look at off-licences and the cost of selling rather than reduce the price on the vintner side. We must put some measures in place and compare the controlled environment of a pub with the uncontrolled environment of an off-licence from a legislative point of view. We must also make sure that below cost selling is not allowed, particularly the ridiculous situation where multiples can reclaim VAT on below cost selling. Something must be done to force up the price of alcohol in off-licences.
How many schools are involved in the training of chefs? What must we do to generate more chefs? With tourist numbers increasing there is an issue with the number of chefs working in the trade.
With regard to the perspective from my county, Kildare is a strange phenomenon in terms of motorways. In Mr. O'Keeffe's situation, people travel to Dublin and he is able to capture tourists as are many pubs, including rural ones. However, all the tourists and tourist buses pass through Kildare but we are working hard to hold on to them. This week Goffs' sales will take place and most of the hotels are fully booked. How actively do the delegations work with local tourism organisations? I refer in particular to counties that are not known as tourist destinations. The Wild Atlantic Way has been a great success. I have promoted canals in Kildare and other counties as a potential source of tourism. How active are the delegations in towns deemed non-tourist counties in terms of becoming more attractive to tourists now and in the future? Tourists are starting to come back and there is great potential for tourism.
Mr. Adrian Cummins:
I shall respond to the question on chefs. Nine institutes of technology provide chef training programmes but there have been cutbacks in education.
It is an expensive course to run because of the amount of money needed to provide equipment in the kitchen, products and so on. There are nine institutes of technology, with approximately five other education and training boards, formerly vocational education committees, running chef training programmes. As I indicated earlier, approximately 500 people per year come out of college. In order for us to provide enough chefs for our industry, we need to double that number.
How can we do this? We can do it very simply by getting all the other education and training boards around the country to do chef training programmes straight away.
I apologise for interrupting. The State Street company, which has a presence in Naas, has become actively involved with the university in Maynooth to design a course specific to its needs. It is fine to ask for something but there must be active involvement in trying to create a course, as many would have to start from scratch.
Mr. Adrian Cummins:
We are doing a pilot initiative in Coláiste Íde in Dublin and we are also considering doing a pilot in Galway as well. We would like to roll that out across the country. Unfortunately, there are three State agencies involved with tourism and chef training and we need just one agency to do it. It should be brought under one umbrella, with the process brought under the bodies that were the VECs from the get-go.
The Deputy asked what we are doing about local tourism organisations. The Wild Atlantic Way has been a fantastic initiative and tourism in Dublin is growing at a fairly substantial rate but that is it. Areas like the midlands and the Shannon waterways seem to be left behind. There was commentary last week regarding Waterford, as it is seeking an extension of the Wild Atlantic Way. We must support those local businesses and what they are seeking on the ground. There is a tourism product in every county, and every county and local authority needs to be actively involved in tourism promotion. The front-line businesses, including restaurants, hotels, pubs and so on, need to be part and parcel of that policy development. There should be a bottom-up rather than a top-down approach. When businesses want developments in their county, they should be listened to from the top down.
Mr. Padraig Cribben:
The latter question concerns the involvement with local tourist organisations. Our organisation operates in the 25 counties outside Dublin and there is a similar set-up to the likes of the GAA, with a body in each county. One of the stipulations is that in each county, we must have a tourism officer who must be involved with local tourism committees. To be honest, some work better than others, and the real trick is to get all the organisations working together. I take the Deputy's point. Kildare is a little like my own county of Meath, as it has motorways. We have a few more attractions than there are in Kildare but there is a propensity to drive through the area.
Our discussion during this session is with Hardware Association Ireland. I remind members, witnesses and people in the Visitors Gallery to ensure their mobile phones are switched off for the duration of the meeting as they interfere with the broadcasting equipment, even when on silent mode.
I welcome Ms Annemarie Harte, Mr. Jim Copeland, Mr. Alex Taylor and Ms Heather Graham of Hardware Association Ireland to this meeting to discuss policy options to support business growth and job creation and retention in town and village centres.
In accordance with procedure I advise the witnesses that by virtue of section 17(2)(I)of the Defamation Act 2009 they are protected by absolute privilege in respect of the evidence they give to this committee. If, however, they are directed by the committee to cease giving evidence on a particular matter and they continue to so do, they are entitled thereafter only to qualified privilege in respect of their evidence. They are directed that only evidence connected with the subject matter of these proceedings is to be given and are asked to respect the parliamentary practice to the effect that, where possible, they should not criticise or make charges against any persons or entity by name or in such a way as to make him, her or it identifiable. Members are reminded of the long-standing parliamentary practice and ruling of the Chair to the effect that they should not comment on, criticise or make charges against a person outside the House or any official by name or in such a way as to make him or her identifiable.
I invite Ms Harte to make her presentation to the committee.
Ms Annemarie Harte:
We thank the joint committee for the invitation to present to it. We come here with specific, achievable propositions that target growth in town centres and villages within a rural context. I am accompanied by Mr. Jim Copeland, not least because I only joined the association two months ago and there may well be gaps in my knowledge of certain aspects of the industry. I am also joined by two members of the association, Mr. Alex Taylor from Uppercross Enterprises Limited, a Dublin-based supplier of plumbing and heating products to the sector, and Ms Heather Graham, owner of Maurice Graham Limited, a merchant based in Monaghan town.
I do not intend to read our submission word for word but rather to summarise the main points. Following this I will ask the two members of the association to give the joint committee an insight into their experience of business growth and job creation outside of the main cities.
Approximately 50% of the membership of Hardware Association Ireland is traditional merchants and purveyors of hardware, with the remainder comprising suppliers and manufacturers, 70% of whom operate outside the Dublin city and county area. Our members are perfectly placed in the villages and town centres of Ireland to be a gauge of economic activity.
The latest survey of our members' business performance shows that while confidence is improving in Dublin and most of Leinster, staffing and profitability levels outside of these areas have a negative balance. To address this imbalance fundamentally, we are proposing rural investment, driven by implementation of the report of the Commission for the Economic Development of Rural Areas, CEDRA, and the Construction 2020 strategy, with specific reference to recommendation No. 8 on State agencies strengthening their collaboration to bring small and niche foreign direct investment to rural areas; recommendation No. 5 on facilitating rural economic development zones; recommendation No. 14 on the introduction of a funding mechanism, either stand-alone or in partnership with other finance instruments, to incentivise and support the early stage development of social enterprises; and recommendation No. 15 on delivering broadband of a minimum of 30 MB minimum to all rural areas by the end of 2015.
Construction 2020 contains 75 specific actions. While this is welcome, it will take some time for any benefit to accrue. The change proposed in the strategy for the National Pensions Reserve Fund to become the Ireland Strategic Investment Fund, with the ability to invest in commercial activities, is welcome.
We have been calling for an extension of the home renovation incentive scheme beyond 2015. The latest Revenue information as of 15 September is that the value of the works registered to date is €171 million - clearly, it has been a success - and an average job value of €16,500. The bulk of the work registered for the scheme to date, some 77%, is focused in the Dublin-Leinster area. Hardware Association Ireland, HAI, believes that an extension of the scheme would allow time for it to be better promoted in more rural areas while also creating jobs and boosting business activity. As an association, we are more than willing and perfectly placed to support Revenue in promoting the scheme should we achieve an extension. We could combine promotion of the scheme with a drive to support the local independent merchant. This would in no way disenfranchises our wider membership, as a buoyant local economy in towns and villages will help the overall sector to recover more quickly and support job creation.
We would support the introduction of a help-to-buy scheme, which should also be thought of as a help-to-build scheme. We recommend that the threshold for an Irish scheme should be lower than its UK equivalent of £600,000 and focus first on family-type homes in areas of need and disadvantage. Nowhere has the collapse in the construction market been more obvious than on the fringes of towns and villages. Adoption of such a scheme would support housing regeneration and stimulate commercial activity in town centres.
Regarding credit guarantee schemes, obtaining working capital through credit or loan facilities is a major problem for small builders and small to medium-sized enterprises in the building-construction industry. In an effort to alleviate this problem in the UK, a pilot scheme is in operation whereby a trade customer can apply for a credit account in a builders' merchant of up to £25,000 underwritten by the Government. We appreciate that a review has been prepared for the Minister and is on his desk but we ask that consideration be given to the inclusion of this proposal on Committee Stage.
To support local entrepreneurship, the micro-enterprise loan fund scheme should be expanded and promoted. Introduced in October 2012, this scheme was originally intended to provide more than €90 million in extra lending to 5,500 businesses and create an estimated 7,700 jobs in a ten-year period. It needs to be revamped. The latest report, covering a period up to 31 March 2014 after one and a half years in operation, shows that only €3 million in loans has been approved, with 437 net jobs created in 192 businesses. Only 51% of applications were approved, with 83% of approvals for businesses employing three or fewer people. These figures are so far off the original target that a revamp is clearly required.
In terms of social policy reform, we advocate the introduction of a fuel voucher system whereby those who receive the winter fuel allowance must use a dedicated fuel voucher or smartcard to purchase a fuel product from registered and tax compliant retail fuel outlets. We also propose a revamp of the social welfare conditions to incentivise jobseekers to apply for seasonal, temporary employment.
HAI members, both suppliers and merchants, are directly affected by weaknesses in construction activity and the continued weakness in consumer demand generally.
To ensure an equitable spread of the green shoots in consumer confidence and increase in commercial activity about which we have heard in recent months, we need to target our local town centres and villages with a proactive and realistic approach. We hope our suggestions are practical and helpful and I thank the committee for its time. One of our members, Ms Heather Graham, will now tell the committee about her experience.
Ms Heather Graham:
I thank the Chairman for the invitation to come before the committee. I work in a family business, which has been based on the outskirts of Monaghan town since 1988. We saw the business grow and in 2008 it collapsed when the building trade and everything else in the country took a downward spiral. My family business lost more than 50% of our turnover and we had to diversify. We no longer had tradesmen coming through the door because many of them no longer had jobs and some of them were heading abroad. We had to examine from where our customers came and we diversified into decor and home furnishings. We believe the trade has hit the bottom and we are about to turn a corner. My fear, and the fear of other merchants in the country, is that as we turn this corner we must learn from the lessons of the past six or seven years.
I am very passionate about my views on credit. Tradesmen and contractors are fighting hard for jobs. Prices are still being driven through the floor because many contractors quote for one job. They no longer have the same banking facilities and neither do we. They tell home owners that they will supply the labour while the home owner pays for the goods. We now deal with two parties. To turn around our business we need to be able to facilitate credit, but we also need to be guaranteed that we will get paid or we will land back to where we were in 2007 and 2008. The culture in the economy with regard to credit is not something about which we should be proud, and our Parliament should very much try to help us change this culture. We would like to have an input into the credit guarantee scheme because if we are to grow businesses and jobs, credit will play a part in this.
Our company created new jobs recently. Many of the applicants did not want more than 20 hours work. Costs are still increasing and while companies know they need more staff, they do not have the finances to pay large wages. I am sure committee members hear about the tax system all the time. This and the universal social charge need to be tackled. I would love to see an incentive to encourage people back to work because men and women genuinely want to get back to doing a day's work. This is for financial reasons and because they want to be in the workplace, among people and doing what they are good at. People who knew nothing except work have been out of work for the past four to six years and for the sake of their mental health they should be able to return to work. I would like to see such an initiative so we do not encourage people to stay at home.
How do we reward people for going back to work? I am sure members have been reading the articles on the living wage. What I see coming down the tracks is the need to increase wages. Our trade sector is a low margin business, with very high costs. Any wage increase will be built into the price for the end user. At present I believe it is inappropriate to increase prices at a time when we should be encouraging people to start jobs, be in at their home, on the farm or business.
As we turn the corner, the issue that we see on the ground is the need for more staff in our shops and stores because our customer mix comprises DIY, the tradesman and women who do their own repairs and decorating. We see a large increase in the footfall of female shoppers in our store. This is greatly welcomed because they know what they want. We are no longer wholesalers and the merchant on the ground is effectively a retailer.
I hope members will be able to take some of these issues on board.
I am sure the witnesses are familiar with the JobsPlus scheme, which offers an employer €7,500 toward taking on a person who has been on the live register less than 24 months and €10,000 for a person who has been on the liver register for 24 months or more. It is the Government's intention to extend the capacity of that scheme to include more people. We are very much aware that some employers may not be in a position to bridge the gap between taking somebody on but the €10,000 subsidy might be what is needed to do so.
I accept that broadband is not available everywhere. I understand the situation, as Rush in County Dublin does not have broadband.
How many of the businesses in the hardware association are using IT to enhance their businesses? Some people think that a website is enough but if one is running a shop, the website is another shop window and must be changed as often as a shop window changes. Some companies do not see the need to tweak the website. Have the members of the association gone down the route of trying to find out how IT can enhance the business of a SME? Let me give an example. I was getting things done in my house during the summer but as I work weird hours I do get the opportunity to go shopping. I relied on the Internet to look up doors and lamps. It was amazing to find how hard it was to find Irish suppliers and Irish suppliers who had a decent website that one would stay on long enough to want to buy something from them.
Those who buy on the Internet comprise a growing market. The Irish retailers are losing out to international retailers because they have the competitive advantage of IT to enhance their business. We are often left with no other opportunity but to buy the lamp from a retailer outside of Ireland. I met the former director of AOL Ireland, who now works for FIT, a body that upskills long-term unemployed people. They train people who have done the Momentum course, that is those who have upskilled themselves from previous jobs such as construction and so on.
Some of those with whom they work have a pilot scheme on how to help SMEs to develop their IT skills and make IT work for their business. There is a market but Irish retailers are not hitting the bullet and are losing out.
Ms Heather Graham:
I agree totally with Deputy Lyons. Five or six years ago our business dealt entirely with tradesmen coming through the door. We have had to diversify to stay in business. We are now getting the general consumer coming through the door. The merchant is still going, trying to change themselves to become destination stores where one can come and get the lamp and so on. The next stage is IT. We have only recently started a website where one can go online. This industry has changed a great deal in the past five or six years. We have a long way to go but we are very determined and have great potential.
On the jobs issue, one thing I can say about our industry is that there is a great deal of knowledge in it. My staff on the floor can deal with a plumber and everything to do with decor. It is not a business in which a person starts tomorrow and he or she knows everything by the end of the week. Besides job creation, job retention and keeping those with the knowledge in the business is vital to us as merchants.
Ms Annemarie Harte:
Perhaps I can comment on the e-commerce side. It is a chicken and egg situation if we do not have broadband. I am disappointed but somehow I am delighted that Rush has not got it because it means it is not exclusive to Dublin. I cannot whinge that it is all rural areas. I would not consider Rush a rural area.
It is coming down the line like a juggernaut. According to the research and statistics coming from the US, one is looking at one's home improvement online and not just via a website or looking at it on a mobile phone. It is a multi-application process. Evidence from the US shows behaviour will start to change. People are researching and then move into purchasing. The latest statistics from the UK show that after what one would expect to be the big purchases online - music, videos, books and electricals, homeware and DIY is the fourth biggest sector. It is a growing sector and, as Ms Graham said, there has been a great deal of change in recent years in the traditional business and how it has diversified. The next step is to get much more bullish in the e-commerce market. UK companies will come here and some are already in the market, and they will put will put the indigenous industry at a severe disadvantage if we do not have broadband up and running throughout Ireland. It will hit the businesses in the towns and the villages throughout the country much harder than perhaps it will the sustainable businesses in the Dublin area.
I am disappointed that only four Oireachtas Members were present to hear the fantastic presentation. It is important to try to motivate the rest of the membership of the committee to ensure they attend these meetings and do so to the end. To add to the comments made by Deputy Lyons, e-commerce is a massive issue. The level of transfer from traditional retail to e-commerce on an annual basis is in the billions, and three out of every four of those euro land outside this jurisdiction. As that is a major threat to retail and to retail jobs, the State needs to do more. Perhaps the witnesses will outline some of their experiences with regard to State supports on e-commerce. I would like to see all local authorities creating virtual towns where people can go to, for example, navan.ie, and see what shops are available in Navan. They could click on the particular shops, some of which might offer an e-commerce opportunity for people to purchase. That would help further local town growth and also help the delegation.
The LEOs are very new and have only hit the ground. Do the witnesses have any experience of LEOs facilitating their needs as retailers? Are the witnesses affected by the move to out-of-town shopping? Do they represent traditional hardware shops or Homebase and Woodies and so on?
Mr. Alex Taylor:
If the Deputy looks at our membership base, he will see that there are suppliers, such as my company, and merchants, such as Ms Graham’s company. A high percentage of that base is small, Irish family-run companies. They may be part of buying groups which have come together to buy more effectively but there are many businesses such as Ms Graham’s which have been passed down from generation to generation.
In respect of online shopping, if people come to a builder’s merchant and want to buy a specific product, unless they are tradesmen, they want first-hand advice from someone they believe is an expert. They do not get that advice on-line. Our experience is that they are much more comfortable talking to somebody they trust and who they believe can answer their questions. Providing that service for a company such as Ms Graham’s, or all the merchants we recommend, is costly because it means that one has to have an expert in electrical matters, in plumbing and so on.
There is no doubt about that but many people do their initial research on the style and cost of the product online before they go into the store.
Do the witnesses not feel that the supply side of the construction industry is one of the major stumbling blocks to growth because credit is a problem for anybody who needs to get the necessary capital to develop a site? Planning permissions may be out of date in some cases because they provide for a type of housing unit that is not in demand and land banks are not necessarily accessible to people in the right areas.
The witnesses mentioned a card for fuel sales. How much of the money is going into the black market or shadow economy?
Mr. Jim Copeland:
We do not know because the winter fuel allowance is paid by means of a cash top-up. It is €20 per week for less than 26 weeks. We are not against it being paid because people are suffering fuel poverty and they need the benefit. We do not have oversight of where that €20 goes. Is it spent on fuel that is not compliant or is it paid to people selling fuel who are not compliant retailers, or is it spent on other product? We have absolutely no idea. There is no traceability for over €200 million going out of the Government coffers whereas if it was spent through legitimate trade, not necessarily ours, although we would like it to go through the hardware merchant, the Government will get a portion of it back through employment taxes, VAT and carbon tax. That is a much better way to do it. With modern technology there must be a way of giving this benefit to people in a form other than cash. The Government has a programme to move us away from cash so why does it persist in giving people €20 a week to spend, without knowing where, or to whom, it is going?
I understand those concerns but I feel citizens should have as much control over spending the cash as possible.
The other two areas of great opportunity to the construction sector, which affect the witnesses' areas, are the retrofitting of insulation and renewable energy. The Government has programmes for delivery in these areas but I would argue that they are not significant enough. What is Mr. Copeland's experience of those two sectors?
Mr. Jim Copeland:
I agree with Deputy Tóibín. That is why we mentioned in our submission that even the home renovation tax incentive scheme has been a great boon to everyone. That is not necessarily just on energy products, but on anything that goes into the fabric of the home. When one considers that the scheme, which is not yet a year old, has brought in €170 million, it is a great achievement. It brings people into the legitimate trade as well, as one must be tax-compliant from a contractor's point of view and one must have one's property tax paid from a resident's point of view.
The other schemes administered by Sustainable Energy Ireland are all of benefit but they need to be hammered home. One of the biggest problems with the home renovation tax incentive scheme is that it has not been advertised enough. Some €170 million was generated without a great deal of promotion. We advocate that the second phase of the scheme be promoted heavily because there is a pent-up demand. People want to put money back into their homes and if they are going to do it, they will go for the energy-efficient option. They will go for the insulation and the timer switches to save energy and power. With water meters now being fitted, they will go for shower heads that will save on water, for rain butts, and for retention tanks. There is a great opportunity for the Government to increase tax revenues by giving a bit of leeway as an incentive and promoting it as heavily as possible.
One of the downsides of the renovation scheme is that one must wait two years to get one's tax credit back. Those operating in the shadow economy will give the consumer the money off straight away. The delay in receiving the tax credit is a big disincentive and this is something we will ask the Government to reconsider. As the recovery is happening in Dublin-Leinster, it has not had the chance to spread to the rest of the country so an extension of the scheme would allow the midlands, the west and the north and the south to avail of it. I would be surprised if we do not get to €500 million very quickly if it is extended, and there is no cost to the State. To answer Deputy Tóibín's question, whatever incentive we can give to put value back into our homes will be worthwhile. Everyone knows the value an Irish person sees in their land and their home, so they will want to put value back into it.
On Deputy Tóibín's earlier question about LEOs, whatever they can do to help retailers on the ground to get business plans together and apply for credit, to help them with IT and digital marketing, should be encouraged. The LEOs have so far been focused on areas other than retail, which is a huge employer. There should be a dedicated officer in LEOs around the country looking at retail because that is where the economy will bounce back. In that regard we must all get out and spend.
Ms Annemarie Harte:
It is important to add that in the last five or six years the country as a whole has been fire-fighting and trying to return to some semblance of economic normality. The whole area of e-commerce, online retailing, has taken a back seat because they are just managing to survive. Given this background and looking to the future, there is an opportunity to get broadband up and running throughout the country, to guarantee a minimum speed. We are not saying we cannot be a part of that development, we absolutely want to be a part of it. We want to collaborate with semi-State bodies such as the LEOs so that we can get the information to our members. It is important that we plan for the future, rather than potentially seeing the whole cycle happen again. Many of us acknowledge this as a possibility but would never want to admit that this could become a reality.
On the availability of the grant and its due finishing date in 2015, Hardware Association Ireland has made a submission in its budget submission with regard to extending it further. It is interesting to see that the statistics show that its uptake has not yet extended throughout the country but is concentrated to be concentrated in the east.
There are couple of things that might be put into the submission on the budget. There are those who cannot avail of the scheme, particularly retired people who might like to renovate their own home. Has the Hardware Association of Ireland considered that in its budget submission?
If it looks as if the scheme might be removed in the future, it might be targeted at activities such as energy or water conservation. Water conservation is going to be very prevalent in the future.
Is the industry getting much cross-Border activity?
Ms Heather Graham:
The Deputy who spoke before Deputy Lawlor mentioned fuel. We live seven miles from the border with Northern Ireland. I do not have a problem with that but, for instance, for us to stock and sell fuel does not make any sense. We stock a little bit of it, more for convenience for someone coming into the store. The differential created by the carbon tax is huge. We always get some cross-Border trade. However, the consumer in Northern Ireland is probably a lot more loyal to his or her own country in shopping there as opposed to coming across the Border to us. There would have to be a huge differential in the sterling-euro exchange rate. When the rate is at a level like the current one, we get some more trade on that. There are also cases of contractors who have VAT numbers, who will come across the Border. My only problem with that is that there is an abuse of it as well. It is a big loss to the Exchequer.
Ms Heather Graham:
Mr. Copeland will tell you it has been a bugbear of ours for years. It is a very simple transaction. One can take an invoice from, say, Maurice Graham Limited, head across the Border and buy something up there such as a tractor or a piece of machinery. My VAT number is on the bottom of our invoice. It can be checked on the europa.eu website to check that it is a valid VAT number. If that business across the Border is willing to take the VAT number, the transaction is VAT exempt, but it is on my VAT number. It happens both ways. We have met with the Revenue Commissioners over this in the past so they are aware of the problem. We are taking on all the extra taxes to get the country back on line again, and this use of VAT numbers both ways creates a huge loss to the Exchequer.
Ms Heather Graham:
I would never give names. Trying to put a figure to it, it is a very loosely operated system. We as a company have to be tax compliant. Members that are involved in the scheme have to be tax compliant. I would very much like this issue to be looked at in more detail. We are in a unique position in that we border another jurisdiction, which means that these transactions can be done exempt of VAT. It has been put on the back-burner for many years. As there is more competition now it has become a big loss to this economy.
Mr. Alex Taylor:
On a positive note in regard to the home improvement scheme, we have done a number of joint presentations with Revenue in builders' merchants, particularly in the west and the north west, on the benefits of the scheme.
For every €1 that goes through the scheme - there are huge sums involved, and we hope they will increase further - there is a benefit for Revenue both from the registration of builders as bona fide companies and in terms of the tax take.
I submitted a proposal last year on this whole issue and the possibility of increasing the grant. Clearly, there is an issue here in terms of combatting the black economy. What is the delegates' view on the current operation of the scheme? Is it pegged at a level sufficient to capture those individuals at whom it was targeted?
Mr. Jim Copeland:
It is a step in the right direction but it could be enhanced. As well as extending its duration, we would like to see a reduction in the entry level. As it stands, one must spend €5,000 before being able to claim anything back. If the floor can be lowered and the ceiling raised that would be helpful. The scheme would be more attractive if people could enter at €2,000 or €3,000 and claim for sums up to €60,000 rather than the current cut-off of €30,000. That would be a much greater incentive for a home owner considering a large extension. Front-loading of the payment in some shape or form would also be crucial in a context where builders are in direct competition with shadow economy operators. It would be a win from everybody's perspective.
We have gone through five years where people did not put any work into their home other than where it absolutely had to be done. Where I live in Lucan, there are currently four renovation jobs ongoing on my road alone. There is a pent-up demand and this scheme is something like the vehicle scrappage scheme. Almost everybody agrees that it is a good idea, but it had to be implemented by somebody and I compliment the Minister on doing so. It is important now to drive it home so that we can give people a little extra to put value back into their homes.
Mr. Alex Taylor:
Anecdotal evidence suggests the scheme is working. I reiterate what Mr. Copeland said about the skips. There was a time when we counted cranes, and when they came down we counted skips. The skips, in turn, disappeared, but now they are back. Moreover, wherever I see skips, I generally see a builder's sign with all the safety notices and so on, which tells us this is not a black market operator. That is very promising.
Ms Annemarie Harte:
Before we move on from the home renovation scheme, it is important to consider the situation of apartment owners, who have essentially emerged as a separate breed of home owners in the past ten years. Apartment owners are limited in the amount of renovation they can do because they do not have a driveway, a roof or the facility to build an extension. I speak from personal experience in saying that it is almost impossible to reach the threshold of €4,500 or €5,000. Even though I might have the money and be willing to spend it, it will not happen in the next 12 months because I do not have enough scope to implement substantial renovations in an apartment.
Regarding sustainable energy or green products, it is important to note that the Sustainable Energy Authority of Ireland offers grants in this regard. It would not really be feasible to offer consumers a double whammy of tax credits or grants under two different schemes.
Ms Annemarie Harte:
I would argue that it comes back to promotion. Some 90% of the press around water charges has been negative, as members will be all too aware. We are not hearing enough about the types of schemes that would help people to conserve water. I recently bought a new washing machine even though, as an apartment dweller, I will probably be charged the all-in rate for the next 12 months. However, I am making a conscious effort to change my behaviours in order to conserve water. I am not convinced that most people are aware of what is available by way of incentives and grants.
This committee is developing a report on all-Ireland trade, which will focus, in particular, on some of the barriers to that trade. It would be helpful if the delegates would submit some of the points they have raised today for consideration in that context. As I said, one of the focuses of our report will be the challenges that arise in respect of cross-Border trade.
There are competitive advantages that swing from one jurisdiction to the other, depending on which tax policy is implemented or whatever. A very interesting thing is happening at present as the North is likely to get fiscal powers quite shortly. Organisations such as those represented here should lobby the Government in the South to push for that and if they are associated with similar trade organisations in the North, they could get them to push for it there. The only thing that will stop these leakages from one jurisdiction to the other is equalisation of all of these matters across the island. All the policing and regulations in the world will not stop people seeking out the competitive advantages on either side of the Border when they exist.
Mr. Jim Copeland:
On that point, the former Minister for the Environment, Community and Local Government launched a study on smoky coal about a year ago and at the launch he mentioned that it was done in conjunction with his opposite number in Northern Ireland. There is no point arriving at a solution for the South when people can cross the Border quite easily and sell coal products that are either not environmentally friendly or are not subject to carbon tax or VAT. It must be an all-island solution. As Heather Graham said earlier, we share a Border and there are issues. As good or bad as the Border is, it is porous and people are moving product. When one talks to the Revenue Commissioners, they are more concerned with drugs, alcohol and so forth. They do not see solid fuel or timber roofs, for example, as an issue, but that all represents loss of revenue to the Irish State.
With regard to Deputy Tóibín's suggestion about making a submission, he is the rapporteur for our report in the new year so you will have time to consider it. There is no immediate urgency. You will hear from the committee to notify you as to when to have it ready.
I thank all of you for attending this afternoon to engage with the committee. I found it very interesting and it will be of value to us in our deliberations. All suggestions you have made will be considered in the context of the committee's future report on the topic.