Mr. Fergal O'Brien:

Many thanks to the Chairman, and to members of the committee for the invitation. I will make some opening remarks and then I will ask my colleague, Mr. Kelly, to add some remarks from the point of view of the food and drink industry as well.

From an IBEC perspective, our 7,500 members very much welcome the fact that the committee is looking at this issue, the cost of doing business at the moment. It is particularly relevant for our members in the context of the challenges we now face from Brexit. We must be more vigilant than ever in terms of the competitiveness risks to the economy. In my opening remarks, I would like to focus on a small number of issues. The first of these is an administrative issue concerning how we manage, co-ordinate and ultimately implement policy responses around cost competitiveness challenges. Subsequently, I would like to address what we would see as the six most significant challenges concerning the cost of doing business that Irish business currently faces.

On the implementation issue, we would all agree that there is very significant diagnosis and analysis of the cost challenges facing the Irish economy and the cost of doing business in Ireland.

Where we fall down, however, is around the policy response and the implementation of policy measures in respect of those challenges. IBEC very much feels that responsibility for cost competitiveness issues is currently dispersed across multiple Departments and local government bodies. This has led to a lack of policy coherence and significant inaction. We would recommend, therefore, that the Department of Business, Enterprise and Innovation now commence an action plan to address cost competitiveness issues, particularly in the face of Brexit. This should include regular analysis of cost competitiveness issues, assignment of clear policy responsibility and monitoring of implementation on a quarterly basis. We note that the Action Plan for Jobs operated by this Department has been one of the most significant policy successes of recent times, and we think there is a great opportunity to replicate that structure and process around the competitiveness challenge that the economy and business face.

Briefly addressing what we would see as the economy's most significant challenges associated with the cost of doing business, first I will comment on labour costs. Right now in Ireland, overall inflation remains very low. There are, of course, some specific issues that are impacting on the cost of living, such as rents in urban areas, child care and insurance as it affects consumers, and all of these issues put upward pressure on wages. Again, we would urge that very targeted policy responses are delivered to address those issues pertaining to the cost of doing business. If we can support and control the cost of living from a consumer perspective, that will have significant competitiveness benefits in terms of the cost of doing business and wage pressures within the economy. We also would argue that Government must ensure that it does not add to the cost of doing business through labour costs, either through taxes or excessive increases in regulated wages, especially in the national minimum wage.

Local government costs are very significant costs for Irish business. Our members have reported to us that commercial rates now have a significant impact on business conditions and cost competitiveness. Business will contribute just short of €1.5 billion this year, over one third of the total local government budget. Business is now a much more significant contributor to the cost of running local government than it was prior to the crisis. We would argue that reform of the local rates system is urgently needed to ensure greater consistency, to align costs with usage and to ensure that infrastructure is made more cost-effective.

In relation to regulatory costs, we note that poorly designed policy legislation and regulation add significantly to the cost of doing business and are very real obstacles to growth and job creation in the economy. This is particularly true for the small and medium-sized enterprise sector, where the cost of regulation is fixed. Irish companies now spend 6% of their turnover and almost one third of their time meeting their compliance obligations. This is now becoming a very significant cost of doing business in Ireland. Again, we would urge that adequate attention be given to the costs in both time and money that businesses incur in complying with regulations, and note that ensuring better regulation would benefit all businesses and significantly improve the overall competitiveness of the economy.

On utilities and transport costs, energy costs will always be a challenge in a small economy such as Ireland's, positioned as it is on the edge of a wider European energy infrastructure. Energy and transport costs are a key component of costs for business, especially in intensive sectors such as manufacturing, and will particularly impact on those businesses most likely to be exposed to the impacts of Brexit. In firms in these sectors, transport and utilities typically account for up to 40% of their non-wage costs. They are a very significant cost item. We must ensure that our utility costs remain relatively competitive, despite being extremely exposed to economic and geopolitical events abroad. In addition, transport costs must be reduced by overcoming congestion, improving our infrastructure, and ultimately reducing the costs of moving goods around and from our island.

I will also comment on insurance costs. Employer liability and public liability insurance policies already represent a substantial operating cost to Irish business. Our research has found that they typically equate to about 2% of a company's payroll costs. These are quite significant cost items for most Irish businesses. The recent upward trend in annual premia for employer and public liability is now proving unsustainable for many low-margin businesses, and courts are indirectly driving premia up through the awards that they are now making.

IBEC's research has found that court awards for minor injury claims in Ireland are typically far larger than they are in other EU member states. This dysfunctional system creates uncertainty for insurers and places significant additional costs on businesses.

The final item I will comment on is the cost of finance in Ireland. Before the economic crisis, Irish business was more reliant on bank financing than any other business community in the EU. This has changed somewhat over recent years but we also find that despite some improvements in the cost of lending, lending rates in Ireland still remain much higher than in competitor countries. Investment and growth in SMEs is a key driver of the Irish economy. The continued premium divergence between the cost of finance in Ireland and other countries significantly discourages investment and growth. From a policy perspective, every effort must be made to ensure the diversity of financing options available to business and particularly in the context of Brexit, measures such as export credit financing and export credit guarantees will become even more important. I might ask Mr. Paul Kelly to make some further opening remarks.