Oireachtas Joint and Select Committees
Tuesday, 28 November 2017
Joint Oireachtas Committee on Jobs, Enterprise and Innovation
Cost of Doing Business in Ireland: Discussion (Resumed)
4:00 pm
Mary Butler (Waterford, Fianna Fail)
Link to this: Individually | In context | Oireachtas source
I remind members, visitors and those in the Visitors Gallery to ensure their mobile phones are either switched off completely or left in flight mode for the duration of the meeting as they interfere with the broadcasting equipment, even when left in silent mode.
By virtue of section 17(2)(l) of the Defamation Act 2009, witnesses are protected by absolute privilege in respect of their evidence to the joint committee. If they are directed by it to cease giving evidence on a particular matter and 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 asked to respect the parliamentary practice to the effect that, where possible, they should not criticise or make charges against any person or an 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 they should not comment on, criticise or make charges against a person outside the Houses or an official, either by name or in such a way as to make him or her identifiable.
I welcome Mr. Vincent Jennings, chief executive officer, and Ms Ann Martyn, president, Convenience Stores and Newsagents Association; Ms Tara Buckley, director general, RGDATA; and Mr. Jimmy Redmond, National Off-Licence Association. The purpose of the meeting is to discuss the cost of doing business. I apologise in advance to them that because of the political to-ing and fro-ing of the past week many members will have to leave early as they have been summoned to attend parliamentary party meetings at 5 p.m. I suggest that as the presentations submitted by them have been circulated to members, the attendees make brief introductory remarks and that we then go straight into the question and answer session. Is that agreed? Agreed. I invite Mr. Jennings to start.
Mr. Vincent Jennings:
I thank the Chairman, Deputies and Senators. The Convenience Stores and Newsagents Association, CSNA, is the representative group for 1,500 stores with nearly 1,300 members throughout the country. We were asked to enunciate in order of priority the areas of concern for our members. In our submission we have listed the areas of greatest concern as being labour, energy, insurance, banking, commercial rates, compliance and security costs and carriage charges. We have also outlined for the committee what we would like it to do.
I will leave it at that to allow for more interaction.
Ms Tara Buckley:
RGDATA represents the owners of about 3,500 local shops, convenience stores and supermarkets which employ close to 100,000 people in the independent retail sector. They are very good supporters of their local communities, spending about €41 million annually on sponsorship and donations. It is a tough market and many are very concerned about the impact of Brexit. While they think it is an unknown entity at present, there is an opportunity to tackle some of the increasing business costs. We believe that making us lean, mean and ready to tackle the challenges Brexit will bring is the thing to do. Much like the members of the Convenience Stores and Newsagents Association, the members of RGDATA have the same concerns. We put particular emphasis on banking and shop insurance costs. We believe there is a significant problem for our members with insurance premia which have been increasing for a typical convenience store from less than €10,000 a few years ago to up to €100,000 today. The other concern is that our members must pay the first portion of any claim which could range from €5,000 to €10,000. Some of our members have been subject to several claims from the same family, costing them up to €100,000. This is a significant and challenging problem which is causing great distress for individuals who are trying very hard to run businesses in towns and villages all over the country where the rise in economic activity has not reached them. We have made some suggestions to the working group on insurance costs. We will give the committee the list of our suggestions and obviously would like it to support some of the actions proposed.
Mr. Jimmy Redmond:
I thank the Chairman and members for the invitation to appear before the joint committee. We share the same concerns as the previous delegates. The major concerns of 350 family owned businesses in the independent off-licence sector which provides 6.000 jobs are the increases in excise duty in the past few years which have been detrimental to our business. We also see problems arising from Brexit. We echo the concerns expressed by the other delegates about rates and so on. We are different in that we totally endorse and hope to see full implementation of the Public Health (Alcohol) Bill 2015.
Mary Butler (Waterford, Fianna Fail)
Link to this: Individually | In context | Oireachtas source
I thank the delegates for their remarks. Ms Buckley referred to banking charges. The joint committee is doing quite a body of work on the cost of doing business. We have already decided to hold a meeting in January with the banking federation and the banks as we are hearing a great deal about how difficult it is for some people to access finance and meet the associated costs. We will continue into the new year our work on the cost of doing business. In fairness, everybody is very anxious to see the Public Health (Alcohol) Bill 2015 pass through the Houses and enacted as soon as possible.
I invite Senator Kevin Humphreys to ask questions.
Kevin Humphreys (Labour)
Link to this: Individually | In context | Oireachtas source
On the high cost of banking, have the representative organisations been able to compare charges in Ireland with those in other European countries?
I am aware of the high transaction charges so what charges are levied with respect to the lodgement of cash and elements like that? It is a big deal in the competitiveness element.
We have taken issue with insurance and costs in the motor and household sectors. The jump from €10,000 to €100,000 is enormous. Is the business to carry the first 25%?
Kevin Humphreys (Labour)
Link to this: Individually | In context | Oireachtas source
Over what period has that increased?
Kevin Humphreys (Labour)
Link to this: Individually | In context | Oireachtas source
Would that be a common occurrence across the sector?
Mr. Vincent Jennings:
On the banking costs, we would pay between 50 cent and 60 cent per €100, or 0.5% or 0.6%. Many of the products we sell in the cash end have a low margin. The transaction might notionally earn us 19 cent but we may be paying 25 cent or 30 cent for it. If we take €50, we give the bank 25 cent although we have only earned 19 cent for the transaction. That is the Lotto transaction and things like that.
We dealt with the Central Bank and the financial ombudsman. There were people and departments looking after the consumer end of things to ensure charges applied to them had to go through a series of mechanisms to get the nod. A case had to be made. In the commercial end of things it is far less transparent. I suggest there is nobody in charge of setting the commercial rates. Many of our members are paying enormous amounts of money - perhaps €40,000 or €50,000 per year - in cash lodgement charges. We were able to obviate that somewhat with ATMs in stores but it is still a significant problem for people. There are security elements that run with cash transactions as well. I fail to see how lodging a €200 note should attract a €1.20 charge but if I hand in 40 €5 notes all over the place in a plastic bag that people must sort out, it is the same €1.20. It does not seem to make sense. We are talking about lodgements of €10,000, €20,000 or €30,000. Paying a multiple per €100 is a really excessive cost. I am very encouraged that the committee is homing in on banking as that part for the small retailer is a big draw.
Kevin Humphreys (Labour)
Link to this: Individually | In context | Oireachtas source
Have international comparisons been done?
Mr. Vincent Jennings:
Yes. We have looked at the way it is done. We are more of a cash-reliant society than others. France is probably on a par with us but other countries are less so. Our real concern is that the people we would seek to protect us - the financial ombudsman, Central Bank or Financial Regulator - are not saying it is their job to do so. There is a similar issue with credit cards.
James Reilly (Fine Gael)
Link to this: Individually | In context | Oireachtas source
I am glad ATMs were mentioned as I know it is a way many of the bigger supermarkets handle their cash flow and get it out. Will the witnesses share any research they have done on the cost of cash lodgements in this country versus other countries? Is there any independent research that can indicate the real cost of that to a bank? In other words, is there an empirical approach that would indicate what it costs the bank to handle X, Y or Z? It must be independent as we can all play games with figures.
There is a similar issue with the plastic card. There is the correct questioning of how the costs of the card are arrived at. We will not quote any infamous bankers but where was the figure plucked from? How did it come about and where is the evidence base for it? We would be very interested in that because, as the Chairman states, we are bringing in people from the banks. The more information we have to challenge them with, the better we can take them to task for the charges being imposed on people. As pointed out in the document, we all know they have become more remote and less inclined to have face-to-face interactions with customers.
I was informed by somebody near and dear to me that there is a policy in some banks to watch out for grey heads so they can be helped. Everybody else would have to use the automatic machines. On a serious note, this is a major cost to business and we would like to be able to challenge the banks. When the committee has heard the evidence, perhaps we can make a case for an identifiable body to act as an arbiter on costs that should be levied on business by banks and financial institutions. We will have people from credit unions in as well, whose charges are different.
Mr. Vincent Jennings:
The Central Bank is fully informed of the costs. The trouble was that the two main credit card companies ran rings around the Central Bank and the intention of the Minister when he put through a much better derogation in terms of interchange fees, where previously the vast majority of people were benefitting from contactless charge with a percentage rate on debit and credit cards, the companies changed the playing pitch. Effectively, it became revenue-neutral for them. We were very closely involved with the Central Bank and warned it about it. It went through and in the six months following the alteration of interchange bank rates, consumers did not benefit and customers did not benefit. The credit card companies were most certainly the beneficiaries of the changes. That was a complete change from the policy enunciated on budget day by the Minister.
James Reilly (Fine Gael)
Link to this: Individually | In context | Oireachtas source
When the witness states the Central Bank was aware of the costs-----
Aidan Davitt (Fianna Fail)
Link to this: Individually | In context | Oireachtas source
I was quite shocked and it is why I brought it up to get people from the banks before us in the next session in the new year. I was talking to the owner of quite a large business in my town of Mullingar, who employs 80 people. He has gone back to paying his staff in cash as a means of getting rid of it. That is dynamite stuff, as one can appreciate. With any large amount of cash, perhaps €10,000 or €20,000, he has to get Securicor to come and collect it. That is bank policy and it does not want to see him landing with much cash. I can speak of my own experience working in a small business. Guys with lodgements of between €2,000 and €6,000 or €7,000 have to feed it into machines, which is crazy even from a security perspective. It is for the birds and the banks must look at this differently or there will be problems. Somebody will be held up or there will be problems down the line relating to where the cash goes and chances that people are taking. I am sure the witnesses are coming across this.
I recently spoke with a vintner and the insurance matters were only really made clear at that stage yesterday. He was paying €3,000 for insurance and this went to €7,000 last year. He had one claim over ten years of €23,000, with a €3,000 excess that he paid. This year the company wanted €19,500.
He only had one claim in ten years. Some of these insurance figures are being pulled out of the sky. He got a quote somewhere else. He is now paying approximately €8,000. It is hard to believe. There seems to be no accountability with regard to insurance costs. There has been a great deal of discussion about motor insurance. We need to have a similar debate about insurance costs for business. The way businesses are being treated by the banks is of relevance in that context. The banks have a lack of staff and have absolutely no respect for business users.
Aidan Davitt (Fianna Fail)
Link to this: Individually | In context | Oireachtas source
I know the witnesses have touched on this issue. I have heard many stories. I can give people the names of those involved if they wish. I do not want to put them into the public domain. When I spoke to some of these guys at the weekend, it really opened my eyes. I knew representatives of small retailers were coming before the committee today, so I made a few inquiries among people running similar businesses.
Ms Ann Martyn:
I will address the whole question of banking from my perspective as a small retailer in a very small rural town. I have a small supermarket in Mountrath, County Laois. We almost have to make an appointment to get into the only operational bank in the town. The bank will not accept coins outside certain hours on certain days. We cannot lodge money at the counter. We have to put it into a machine.
Aidan Davitt (Fianna Fail)
Link to this: Individually | In context | Oireachtas source
The machine often spits it back.
Ms Ann Martyn:
Absolutely. When I brought a cheque for €120 to the bank yesterday, it came up on the screen as €7,000. I thought it was great because I could go on my holidays. It was up to me to regulate that. The move to contactless payments, which Mr. Jennings has mentioned, means we are not generating cash. Cash is still needed for ATMs, however. It is a constant juggle. The bank is of no use to us. When the girl who usually does our lodgments was on holidays, I went to the bank to do it for the first time in approximately six months. My business is not big, but relatively speaking it is one of the bigger businesses in our small town. I do not know who the bank manager is. If I need to get a loan or something like that, they will send me to Tullamore. There is no sense that the bank is there to support us in our day-to-day banking or in the bigger things we need to do. It is faceless. Consumers sometimes ask us to take coins they have saved - their kids have emptied their money boxes, or whatever - because the banks will not let them in. They will not take coins from people. I choose not to go to the bank when I need coins because it costs a fortune-----
Ms Ann Martyn:
-----and I would have to drag the coins up and down. When I first went into business at home, a porter from the bank would bring the coins down for me. The lack of security or policing in my town is a big issue when one is going to the bank. I know I am being watched by certain elements in our small town. Security is one of many issues raised by the bank being so inaccessible to me. I am not always there, so I have to put a member of staff in peril by asking him or her to move cash. It is no longer an asset to our business to have a bank in the town. It is good that the committee is going to examine how banks can help us to run our small businesses and help to keep small businesses open in small towns.
Mary Butler (Waterford, Fianna Fail)
Link to this: Individually | In context | Oireachtas source
It is interesting that there has been an emphasis on banking today. At our first meeting, there was a huge emphasis on commercial rates. We spent most of the meeting discussing that issue. When I owned a small shop for 17 years, I was a proud member of RGDATA. I compliment RGDATA, NOffLA and the CSNA. It is nice for small independent shops that are not part of a chain like Centra or Spar to have the support of such organisations. When one gets the circulars, one is informed about the various scams that are going on and one is kept up to date on what is happening. It is nice for an independent shopkeeper to be part of an umbrella group. I compliment the organisations on the work they are doing from this point of view.
Niall Collins (Limerick County, Fianna Fail)
Link to this: Individually | In context | Oireachtas source
Do the members of the associations feel they get value from the local authority charges they pay, principally commercial rates and commercial water charges? The balancing act that is the annual budgeting process of local authorities is a bugbear of mine. I refer to the manner in which the commercial stakeholders in a local authority area get fitted up so that the budget can be balanced. What are the members of the representative groups saying? What has been the associations' experience when they have spoken to county and city managers, who now have the illustrious title of "chief executive officers"?
Mr. Jimmy Redmond:
In my own personal case, the rates doubled. I accept the point that I am still in business. Even though I appealed it, I had to meet the cost of funding the increase in one go. I am not really sure what I get for it. My road is not swept. I pay a private bin charge, a private glass collection charge and a private water charge. I do not see any benefit from the commercial rates I pay. The letter that arrives to tell me my rates are due is not particularly nice. It usually comes with a statement in red clarifying that the rates are due in June or July. There is no contact. I cannot see anything that I get from the rates. I cannot see where this money goes. It is another cost to me. I do not see this as a benefit anymore. It is something I have to pay. It is around my neck. A percentage of my weekly turnover goes to fund this charge and another percentage is used to pay for the collection of glass and waste and for water utilities. All of these services used to be provided from a single fee. Our members find that the subject of rates is not a particularly nice one to think about or talk about. The rates imposed in certain areas are more punitive than the rates imposed in the area where my business is. The level of rates I pay was doubled in one fell swoop. When I looked for some of my rates to be clawed back, all I got back was €900.
Maurice Quinlivan (Limerick City, Sinn Fein)
Link to this: Individually | In context | Oireachtas source
I have a question on the rates issue, which has been raised by Deputy Niall Collins. We are looking at changing the system in this country. Can the witnesses recommend a system that would work better for businesses while protecting local authorities, which need to know what they are getting into? The revaluation process, which we have been discussing, has caused massive concern for a number of businesses. Massive rate increases affected a number of businesses in County Limerick in 2014 or 2015. In some instances, there were increases of over 100%. What would be the best way to reform the system? What type of rates system should we bring in? What particular services should be delivered by local authorities in return for rates?
Mr. Vincent Jennings:
We cannot turn the clock back. It is unlikely that the days when we paid local authorities for water and refuse collection will return. The Deputy has asked what we would like, but it is not up to us to devise a system. We can point out the inherent unfairness of the operation of the current system and the previous system. The valuation system is based on rental values, having been designed to bring about a revenue-neutral situation, but it has enormous losers as well as winners. We would like this committee to consider looking for statistics with regard to the five main pillars of commercial rates - retail, commercial parks, hotels, hospitality and offices - to ascertain which of the approximately 16 local authority areas in which valuations have been done have subsequently seen increases and which of them have seen reductions. It is absolutely the case that hotel businesses which were probably paying a small fortune in rates previously are now the beneficiaries of the new system. As the new system is revenue-neutral, and the local authorities have not been willing to give up a penny, they have had to find other money. We have found that the retail sector, in particular, has been disproportionately targeted. Rates are based on a rental value, but there is no real rental business. Every one of us knows that between 20% and 33% of the spaces on our high streets are empty. In many areas, rates are based on the Celtic tiger era. When the Fingal area was first reviewed at the time when people were crashing, the rate that was agreed was based on 2003 figures. There did not seem to be any ability to say that something was wrong. The Valuation Office had to do it in a certain way because of what the legislation said. We need to have legislation that is able to move with the times and respond when there are problems. One of the biggest difficulties with the system was that it did not give individuals the ability to say in a truthful fashion that it was beyond their ability to make the payments demanded of them. Many people who have no difficulty with paying rates are simply not making enough money to enable them to do so, perhaps because the towns they are based in have been bypassed.
Those are the issues that need to be addressed and legislation needs to be sufficiently fluid to allow for the changed circumstances of people and society.
Ms Tara Buckley:
If one were to sit in a room with a group of retailers who have similar sized stores in different towns around Ireland and hear the different rates they pay, one would realise why it is so difficult to get a group together who will come up with a formula to change the system. Over the years we were promised that there would be a more shared burden of costs across the community when property tax was introduced. It galls many retailers to see councils voting to reduce property tax by 15% while commercial rates are still increasing. They would like to see the two tied together.
A bit like Mr. Redmond, we think that the system should not be such that a business owner who is probably struggling to keep the show on the road could be given a 50%, 60% or 70% increase in one year. That is really difficult for business to handle. Those are two of the issues we would like to see addressed in the new legislation.
Ms Ann Martyn:
I wish to refer to what Mr. Jennings said and the number of small businesses that close in small towns. My husband is involved in properties. Since the Celtic tiger, fledgling indigenous businesses such as a dry cleaners or a small hairdressing salon would open up in the town. They trade for eight, nine or ten months and build up their trade when suddenly they get the rates bill. They had been trying to pay the rent and keep the business open and they think that they will not be able to pay this bill too. However, they will struggle on and they might pay it for the first year. The business is not there though. It would be a good idea to incorporate in any new plan a breathing space for new fledgling businesses. What happens then is the business closes and the unit becomes available. Someone says they would like to open up a small business selling, for instance, children's toys, clothes, shoes, etc. They do the business plan and see the rates and wonder what was last there and why it closed. I know this personally. People come to me and tell me that they cannot pay the rates because they also have to pay their electricity bills, labour costs, etc. There has to be some sort of scope. We will only get small businesses back into small towns if we make them viable. The rental value of properties was mentioned. In my street, 75% of the units are empty but my shop was given a big increase in its valuation. We need to consider the possibility of having a breathing space for small new fledgling businesses.
Mr. Vincent Jennings:
This point relates not so much to Mr. Redmond's business because his problem with pop-up shops is probably a bit different but we suffer from pop-up shops. These shops are becoming more sophisticated. They come in at Hallowe'en time and Christmas time and absolutely suck all of the business out of that occasion. We are there 52 weeks a year and are paying our rates, yet we get no facility from the local authority. We make contact with it but these proprietors are not listed and walk away after a six-week period, leaving rates bills behind them. However, they will have taken an enormous amount of money. There needs to be a clear path for ratepayers to have direct access to the local authority to make them aware of this and for action to be taken. We cannot deal with our customers in a high brow fashion, and we feel that we are customers of the local authority but we are not getting a hearing.
Mary Butler (Waterford, Fianna Fail)
Link to this: Individually | In context | Oireachtas source
It needs to be stated that some local authorities are better than others. I am from Waterford. When I was on the council a few years ago there were incentives by Waterford City Council to try to encourage new businesses. It was quite constrained but there were some rates holidays for specific areas. For the first year, there might have been a 12-month holiday, the second, six months and then something for the third year. Some local authorities have tried to do that. It is interesting to note that there is so much conversation about rates under the cost of doing business. A person can look at his or her electricity bill and try to shop around for a slightly better rate or manage electricity use in the store or a person can try to negotiate a better price with whoever is collecting the rubbish. However, with the rates, the bill comes in and that is it. That is the issue I hear from people. People can try to reduce other costs but they feel that they are trying to pay the rates bill but are not really getting anything back for it. We have been hearing that through and through. When I was in business, I felt the same.
Mr. Jimmy Redmond:
Mr. Jennings is right in that we do not have an issue in terms of actual pop-up shops but we do have illicit trade. However, our biggest pop-up shop competitor would be the below cost selling from the multiples which is sucking potential customers away from me and other businesses like mine. They then do a VAT reclaim off the Exchequer. We have a pop-up scenario but it is in a different format. All of that impacts on our profitability, turnover and ability to meet our ongoing costs.
Tom Neville (Limerick County, Fine Gael)
Link to this: Individually | In context | Oireachtas source
I thank the witnesses for attending and apologise for being late. I have read some of the briefing documents that were circulated during the week. A bugbear of mine since I was elected is the cost of insurance for businesses. Whether it is motor insurance or otherwise, it has been absolutely astronomical, particularly for businesses. Business owners are in fear of the insurance bill and increases of 20% or 30%. Usually, when forecasting costs in a business, the forecast is based on inflation but increases in insurance have been nowhere near the inflation rate. As the witnesses stated, it is not possible to plan ahead because business owners are waiting for the shock to come through and are wondering if it will end up closing their doors. It has a knock-on effect on the business, particularly small business owners who have to grapple with the accounts, HR and staff as well as the actual core business function.
I was a sole trader working in sales consultancy. Many plumbers or carpenters want just to do plumbing, etc. It is not that they do not want to deal with the business-side of it but they are not au faitwith it. They are good at what it is they do. I know we are examining the cost of business generally but we should examine what would help smaller businesses in particular. This would help rural areas of Ireland. We currently have an unemployment rate of 5.8% or 5.9%. What would incentivise them to come back to work? We should examine having some sort of back-up service to help them with compliance, accounts and HR.
Based on today's presentations, I think that we also need to examine the cost of hiring staff. This does not refer to the minimum wage. I want to see the minimum wage increased. This relates to compliance and the complexities of hiring staff and the costs involved. To get to full employment, we need to examine that issue. I know from trades people, whether a builder or a carpenter, that they are flat out working seven days a week. However, to take that next jump to hire someone is too big a step for them, so they pull back and turn away business. A big issue arising from the recovery is to get those sole traders' businesses to pop up so that they can hire two or three more people. The conduit between that and hiring staff needs to be examined by the committee. That is based on some of what I have read here today.
I have a question similar to that of Deputy Quinlivan. We see all the costs of doing business between accommodation, insurance, rates, etc. If we were to prioritise, where are the quick wins? The witnesses are at the coal face and have done their research. From their experience, where are the quick wins? Would it be in tackling rates or insurance costs? I know we want to tackle it all but if we were to tier them, has there been any analysis on where the quick wins are?
Mr. Jimmy Redmond:
In my own trade rates are one issue but excise is even more important. There have been two major jumps. That, for me, is a major cost because on budget night I have to find that excise to buy my next case of wine.
It is not in my profit forecast for this year but suddenly it has gone up in the budget €1 or 50 cent a bottle. The following day to buy the same bottle of wine I have to find that increase. That comes out of my bottom line. It is not found with a magic wand. I cannot go to the bank for it. For me rates and excise are important.
Mary Butler (Waterford, Fianna Fail)
Link to this: Individually | In context | Oireachtas source
There was no excise increase this year.
Mary Butler (Waterford, Fianna Fail)
Link to this: Individually | In context | Oireachtas source
I understand that but there is stock in hand.
Mary Butler (Waterford, Fianna Fail)
Link to this: Individually | In context | Oireachtas source
Most consumers do, especially when it comes to cigarettes.
Mr. Jimmy Redmond:
Cigarettes are different. I cannot comment because I am not a tobacconist. I carry probably 12 lines of cigarettes. I am a specialist in off-licence sales. Most of my cigarette sales would come from the Spar next door being full and slow. My cigarette sales are small. I cannot put the price of my alcohol up overnight. I would be shot. I have a community-based shop. I know my customers. They are not people who walk in once and never come back. They come in a couple of times a week. I have to look after them and be seen to look after them, as we all do because we are all community based.
Ms Tara Buckley:
We have been campaigning about insurance costs because they are so significant for our members and they are running out of control. They are completely unsustainable. A couple of shops have already closed because of this. Most of these stores cannot shop around for insurance. They have only one place to go and their premiums increase every year. They have to pay excesses as well. We have made many suggestions to the working group on insurance costs. It has promised a second report on employers' liability and occupiers' liability. That list is in our statement and we hope this committee will support us in this. We told the working group that radical action is required and we have to make some hard choices. There is no business owner who does not believe that they need insurance for catastrophic incidents and if something happens and they are at fault, they want the person affected to be compensated. Unfortunately, we pay huge sums of money on minor trips and slips, bruises, and soft tissue injuries without any challenge. It seems to us that there are exaggerated and sometimes false claims. Money appears to be handed out too easily. It is causing serious heartache for business owners in respect of costs and implications for their business.
Mr. Vincent Jennings:
The Deputy's question about whether there are any quick fixes is very honest. The answer is no. There are things the Legislature and Government should do, and should not do. It is our money as employers that is paying wages. It is not the Government's money. Commitments should not be made in programmes for Government on a set increase for the national minimum wage by a certain date, when the Low Pay Commission, LPC, is charged with making only evidence-based recommendations. The LPC should not be charged with increasing the rate. It should be considering the evidence and, if there is sufficient evidence to merit and warrant those increases, it will so recommend. There have been times, and it is happening now, when the increases exceed those of inflation. That is what really upsets the employers. We are not mean people. We may be thrifty. We are told that our chance of recouping the entire moneys in additional wages will happen because of the increase we will get in our stock but that will not happen. We are now committed to pay from 1 January well above the rate of inflation in excess of the evidence and it seems, and this was reiterated recently, that the minimum wage will be rising and we will oversee that. Stop making comments about our money and allow the evidence to flow.
The Low Pay Commission in the United Kingdom has been operating for 18 years. There has never once been a minority report attached to it. It has always made recommendations in line with the expectation of inflation. It has always been unanimous. In this country we have had three reports with four minority reports attached. That goes to show there are serious difficulties in bedding down the LPC.
Mary Butler (Waterford, Fianna Fail)
Link to this: Individually | In context | Oireachtas source
Ms Martyn would you like to make a comment? On a scale of 1 to 5 what is the most difficult thing?
Ms Ann Martyn:
I am not terribly sure that I could put them in order of preference. They all hurt me. To follow up on what Mr. Jennings said, the thing that affects my business most is labour costs, particularly with the minimum wage. I come from a small rural town where we have always supported students, young people in part-time jobs, so that they can go to college. The minimum wage and the pay related social insurance, PRSI, charges make having two students in for Saturday and Sunday very expensive for me. We are working with very tight margins. People think I am loaded because they see all the money in the till but that belongs to the Government, the county council, the insurance company. A bit more relief for small-time employers in respect of PRSI payments, which we had before, would help to keep indigenous industries and small businesses in small rural towns, as Deputy Neville said. That is a challenge even in the business I am in. If we could address the labour costs I would be happy.
Tom Neville (Limerick County, Fine Gael)
Link to this: Individually | In context | Oireachtas source
Is there an instance in the witnesses' experience of the minimum wage where some businesses would be paying above the minimum wage?
Tom Neville (Limerick County, Fine Gael)
Link to this: Individually | In context | Oireachtas source
Social drivers.
Tom Neville (Limerick County, Fine Gael)
Link to this: Individually | In context | Oireachtas source
Has any of the witnesses ever spoken to staff about profit-sharing or commission so that as the business becomes more profitable there is a kick-back for staff? They may be on the minimum wage. Is there ever any discussion or debate around that? I have seen this in other jurisdictions and when a customer walks into a shop the staff are on top of them trying to sell something because they have a commission.
Tom Neville (Limerick County, Fine Gael)
Link to this: Individually | In context | Oireachtas source
As the business does better the staff are rewarded. There is a connection between salary and profitability. Has that ever been debated here?
Tom Neville (Limerick County, Fine Gael)
Link to this: Individually | In context | Oireachtas source
Has there ever been a debate on it?
Tom Neville (Limerick County, Fine Gael)
Link to this: Individually | In context | Oireachtas source
The kernel of the question was not so much upselling but offering a kick-back when the profitability of a business grows.
Tom Neville (Limerick County, Fine Gael)
Link to this: Individually | In context | Oireachtas source
Has a debate taken place on this issue?
Tom Neville (Limerick County, Fine Gael)
Link to this: Individually | In context | Oireachtas source
I am sure some businesses are doing much better. In fairness, it is not the case that all businesses are barely making a living.
Tom Neville (Limerick County, Fine Gael)
Link to this: Individually | In context | Oireachtas source
I am trying to broaden the discussion. Some businesses are doing well but this will depend on where they are in the business cycle, for example, when they started, if they are mature, a cash cow and so forth. I assume there is different-----
Mr. Vincent Jennings:
The country has some wonderful entrepreneurs and they are not excluded from our sector. However, our members have disproportionately high costs and none of them will ever become a new Dunnes Stores or Tesco. They have high costs and it is our job, whether they are small, medium or large, to look after the companies in our sector. The eight or nine issues we have listed are the areas on which the committee should increase its overall knowledge. We have made recommendations on who members should speak to to become more knowledgeable. While I am pleased the joint committee intends to examine the banking sector, there are other areas it could also consider.
Tom Neville (Limerick County, Fine Gael)
Link to this: Individually | In context | Oireachtas source
Based on the information provided today, it would be useful to obtain a report from the relevant committee on the issue of insurance. We should ask for an update on what has been submitted.
Mary Butler (Waterford, Fianna Fail)
Link to this: Individually | In context | Oireachtas source
As the Deputy joined us a little late, he may not be aware that we decided to invite representatives of the banks to appear before the committee as we heard a great deal about banking.
Does membership of RGDATA or the Convenience Stores and Newsagents Association confer any advantages on a smaller retail outlet such as a Londis store in terms of purchasing power? I know Centra stores buy direct from Musgraves and have, therefore, a little more buying power because they are in the SuperValu umbrella group. Do RGDATA and the CSNA offer similar benefits or must independent retailers buy from a cash and carry company?
Ms Tara Buckley:
We represent many people who have joined buying groups, which means they have shops affiliated to Musgraves, BWG Foods or Stonehouse. A small number of members are standalone independents, many of which have made arrangements with various independent cash and carry companies or may have opted for a United Kingdom based cash and carry company. We provide offers to our members by trying to negotiate good deals for them. However, we do not get involved in the buying of goods in their shops as that is not our role. We are their representative association rather than an association for making purchases.
Mary Butler (Waterford, Fianna Fail)
Link to this: Individually | In context | Oireachtas source
I did not realise that RGDATA represented such companies.
Mr. Vincent Jennings:
The CSNA has 27 different deals. While some of these are for products, more are for services such as insurance, rateable valuations and other services for which one can organise collectively.
I am pleased the Chairman teed me up on one of the issues in the report. This association and other associations should be allowed to negotiate with suppliers. Competition law currently prevents us from doing so. I am not knocking trade unions but they have negotiating rights which we do not have. Our members are continually dealing with ever larger companies which tell them what terms and conditions will apply if they want to sell newspapers or another product. We must do what these companies say and pay for goods in the way they say. They crack the whip and will cut off a retailer or refuse to provide a product if the retailer does not act in the manner prescribed. If, as is the case in Australia, the associations were allowed to secure negotiating licences, we would be able to represent our members, although I accept we should not be allowed to organise boycotts and so on.
Senator Reilly will be aware of the difficulties that ensued in terms of Chinese walls and so on when the medical profession tried to organise collectively. It is a significant problem that the small guy cannot be represented and must deal with a monolith. It may not be the State but it will be large supplier. Some kind of level playing pitch is needed because the small guy is always crushed.
Aidan Davitt (Fianna Fail)
Link to this: Individually | In context | Oireachtas source
Mr. Jennings indicated that the cost of wages was a major impediment to doing business. If he had the option, would he reduce the minimum wage? I am curious about that.
James Reilly (Fine Gael)
Link to this: Individually | In context | Oireachtas source
On the same issue, the Government will not make any apology for ensuring a minimum wage is in place that gives people a decent living. I am also an employer. There is no doubt that very few employers pay the minimum wage and most pay above the minimum wage. The area of relativity is a major problem in many sectors. However, one can see how this can be turned on its head in some sectors, in other words, the idea of equal work for equal pay applies. This is not a simple problem to solve. It is a complex issue and I fully subscribe to the idea that if someone is working for a company for a long time, he or she will be more valuable to the business than someone who has been working for one year. This difference needs to be reflected, although it is not a simple matter. I could not let the comment on the minimum wage go unchallenged.
On the Competition and Consumer Protection Commission, I fail to see the reason for preventing smaller operators from coming together to purchase when there is a choice of different suppliers. I have no doubt wiser heads and legal minds in the commission will have a different view. In principle, however, I do not see why the smaller retailers cannot play on the same pitch. The witnesses referred to Musgraves, which has substantial buying power when it is negotiating a deal to buy X product. Individual operators cannot possibly compete and must, therefore, compete in a different way.
The joint committee wants to support small and medium enterprises and the shops in villages and towns. As this is a public meeting, I am happy to place on record my view that people must be realistic. While they may be able to buy goods more cheaply in a multiple in a large town ten miles away, if they want to be able to nip down to a local shop for bread, butter, milk or a newspaper, they must support it and be prepared to accept that such shops cannot buy in the same bulk as the large multiple ten or 15 miles away. If these shops are not supported, they will no longer be available. That needs to be stated. I have always tried to buy certain goods in smaller shops, even though they cost more, because I know the shop will not be there for much longer if we do not do so.
Mary Butler (Waterford, Fianna Fail)
Link to this: Individually | In context | Oireachtas source
I agree wholeheartedly with Senator Reilly. Small shops have a social value. We sold our family business. I remember there was a particular lady who could buy everything in one go but she used to come in seven days per week because I was the only person she spoke to every day. As with the post offices, one can never underestimate the social value of the small shop. Members are very much on the side of small retailers.
Ms Ann Martyn:
When I am training my staff I always ask them to smile pleasantly and say "hello" to customers because they may be the only person the customer will speak to on a given day. After a certain period, they will find out who are the customers who come in every day. We are training young people to have a word with customers and talk about the weather and so on. I always tell them to bear in mind that an old person may not speak to another person on a given day. We must keep rural shops and post offices open.
Mr. Jimmy Redmond:
To respond to Senator Reilly's comment on multiples being cheaper and having to travel out of town to them, I do not have a problem with that. I am a small shopkeeper, as are my members and those of the other associations represented, and we are all community based. The problem we have is with low cost selling and the ability to claim back VAT because as this creates an unfair advantage of which our customers and members of the public are often not aware.
From our side, yes, we would love the groceries order to return. I would love a ban on selling at below invoice cost. It would help our trade greatly. It would also help the mixed traders who operate in euro.
James Reilly (Fine Gael)
Link to this: Individually | In context | Oireachtas source
I am very happy and pleased that Mr. Redmond is so supportive of the Public Health (Alcohol) Bill. A minimum unit cost is a major part of it. The fact that so much attention has been paid to one small element is disappointing when there are such huge gains to be had in respect of ensuring that young people under the age of 18 are not exposed to alcohol. We know that if they are exposed, they will develop problems later in life at a much greater rate than those who were not. Equally, it will allow members of Mr. Redmond's organisation to sell their products in a way that offers a more personalised service. Having said all that, this is about business and supporting small and medium-sized enterprises.
I accept Mr. Redmond's point on competition. I have asked that we bring the Irish Farmers Association before the committee. Mr. Redmond will be wondering what in the name of God I am on about. Farmers, and particularly those involved in horticulture who produce vegetables, are being nailed every single year by the multiples. Their margins are being cut and cut. We are now at the point where something like 35 farmers are responsible for nearly 70% of our vegetable production. Some of them may employ a couple of hundred people, but there is a real fine expertise in vegetable production and if it is lost, and if the 40 ft lorries stop coming across the Border from the UK, we will rue that day. One thing of which we should be proud and for which we should aim is self-sufficiency. Goddamn it - I hope the Chair will pardon my language - if we cannot have it in food, where will we ever have it?
I think we are all ad idemhere in supporting small and medium enterprise. We also accept the need for multiples, but we need fair play. We understand the power they have over smaller operators and we want to see a level playing pitch. That goes for the big banks as well.
Mary Butler (Waterford, Fianna Fail)
Link to this: Individually | In context | Oireachtas source
I thank the Senator. I thank the witnesses for coming here today to engage with the committee. Before we suspend, I invite Senator James Reilly to take the Chair, as we already agreed, because I must vacate it.
James Reilly (Fine Gael)
Link to this: Individually | In context | Oireachtas source
Before we begin, I apologise to the witnesses for the fact that many members of the committee had to go to different meetings as a result of current events. I welcome Mr. Pat Davitt, CEO of the Institute of Professional Auctioneers and Valuers and his personal assistant, Ms Valerie Mogerley. I also welcome the witnesses from Insurance Ireland, Mr. Kevin Thompson, CEO, and Mr. John Byrne, communications manager. We are discussing the cost of doing business in Ireland.
Before we commence, in accordance with procedure I am required to read the following. 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. However, if 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 a 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 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 an 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 they should not comment on, criticise or make charges against a person outside the Houses or an official either by name or in such a way as to make him or her identifiable. I remind our guests that their presentations should be of no more than five minutes duration. Members have previously received the witnesses' submissions and presentations. Again, I apologise on behalf of the Chair. She had to go to another meeting. I am deputising for her.
Mr. Patrick Davitt:
I wish the Acting Chair, Deputies and Senators a good evening. First, I thank the Chairperson, Deputy Mary Butler, and all members for this opportunity. The Institute of Professional Auctioneers and Valuers, IPAV, is delighted to take up the invitation to appear before the committee this evening to discuss the issues raised in our submission to the Joint Committee on Business, Enterprise and Innovation. I am the CEO of IPAV.
IPAV's areas of concern are outlined in our submission, which I expect committee members have, and I wish to highlight some of the key concerns in the short time available to me.
The majority of IPAV members operate in the SME sector. We have had an ongoing concern that, despite much rhetoric emanating from official circles about the importance of the SME sector to the Irish economy, little real progress has been achieved. In terms of doing business in small and medium-sized rural towns today, we need to consider the broader economic impact that the recession has had on rural towns and the economic realities arising from neglect of those towns, a lack of investment, the large numbers of empty retail units, infrastructural deficits - water and sewage services, broadband, schools and roads - and the exit of banks, Garda stations and post offices.
While the economy went through a sharp correction during the recession, resulting in some businesses being devastated and most struggling to survive, there was no such correlation across a significant number of overheads, for instance, taxes, employment tax and employers' PRSI. The latter is a large cost at 10.75% on all earnings over a low threshold. Other overheads include building insurance, public and employers' liability and professional indemnity insurance; motor insurance and motor tax, which have been increasing per annum by anything from 18% to 20%; telephone, broadband and electricity; auctioneers' licences for employers and employees and regulation and compliance costs; increasing bank charges and the cost of finance for business development; and one of the old favourites, namely, commercial rates, which are a cost that awaits a business even before it opens its door. A range of services were once provided for such charges, like bins, water and street cleaning.
In the countrywide rates revaluation, the rate purse of €1.5 billion has remained the same, notwithstanding the fact of a devastating recession in the 2007 to 2012 period, during which time many IPAV members experienced a fall of 50% in their fee incomes as the price of property halved, and is still 40% behind where it was in 2006 except in some parts of Dublin. All that the revaluation is doing is merely taking from Peter to give to Paul.
In the Valuation (Amendment) Act 2015, IPAV placed significant importance on what we believed was the intended outcome, namely, the linking of commercial rates to the actual rents being paid for commercial buildings. The rental income from some commercial buildings in rural Ireland is so low that very little in commercial rates should be payable at all, but the intended outcome has not happened. The issue with these properties is that the Valuation Office will either not accept the reality of the low rents or it will analyse the passing rents incorrectly and then link the valuations on these properties to the tone of the valuation list that the Valuation Office has itself created.
The 2015 Act has made two important changes among others. Section 30 of the Valuation Act 2001, which allowed a second appeal to the Valuation Office, has been abolished, and section 19 of the 2001 Act has been amended by a subsection (5) inserted by section 7(b) of the 2015 Act, which means that the grounds of appeal that ordinary ratepayers can make in the valuation tribunals are now limited to appealing against the tone of the valuation list. Appealing against the tone means that, when the valuation certificates are issued by the Valuation Office, one can only appeal on the basis that a valuation is incorrect relative to other comparable valuations on the list and one cannot contest the rental values that make up those valuations regardless of whether those rental values are excessive, hence completely undermining one of the most important intentions of the Act, that being, treating all ratepayers in a fair way. Indeed, in many of the revaluations, the proposed valuation certificates were appealed by property owners or tenants, but many of the appeals were not listened to by the Valuation Office during the revaluation process. My belief is that the reason for this change in the Act was that the Valuation Office's viewpoint had been overturned by the tribunal much of the time.
IPAV recently contacted the Minister of State with responsibility for housing, Deputy Phelan, seeking clarification on his remarks made at an IPAV conference that indicated an intention to take away the temporary abatement for vacant premises, which is an allowance that property owners can claim if a commercial building is unoccupied. This is at a time when none of the 31 rating authorities are able to collect their full current rates. Looking at the audited figures, the percentage rates collected range from 63% in Donegal to 96% in Fingal. I am not aware how much money is involved in this regard or in the Minister of State's new proposals but, from IPAV's point of view, this would be a damaging course of action and serve as another nail in the rural Ireland coffin.
For property owners who cannot secure a tenant, and there are many, the Minister of State suggests that property owners should change the use of their buildings. Where can they obtain the finance to do this? In addition to financial constraints, planning laws, development plans and processes are also prohibitive in changing the use of commercial buildings. The big question is how and when are ratepayers going to get a fair crack of the whip? On top of this, many businesses are continuing to struggle with high debt levels, much of which has still not been resolved in a realistic way by lenders.
These are some of the issues that we wish to put before the committee. I thank the committee for allowing me the time to address them and bringing them to members' attention. I am happy to take whatever questions they may have.
James Reilly (Fine Gael)
Link to this: Individually | In context | Oireachtas source
I thank Mr. Davitt. I call Mr. Thompson.
Mr. Kevin Thompson:
On behalf of Insurance Ireland, I thank committee members for the opportunity to contribute to their assessment of the cost of doing business. We welcome the opportunity to inform the committee's work on this issue and have consulted our members to gather their views on the areas of most concern.
By way of background, Insurance Ireland is the representative body for the insurance industry in Ireland, comprising the general insurance, health insurance, life insurance, reinsurance and captive management sectors. Insurance Ireland represents more than 130 members, and total industry employment is approximately 28,000 people, comprising those who are employed directly and indirectly. Insurance Ireland members pay out more than €13 billion in claims and benefits to Irish consumers each year. The industry holds €200 billion in assets under management, with €35 billion invested in Irish infrastructure or Government debt. Our members pay €1.6 billion in tax and one in four jobs in financial services is in insurance.
Given the scale of the industry and how insurance is vital to almost all economic activity, our members are major service users, employers and utility customers, among other areas. Like all businesses, they aim to maintain close control of costs to ensure that they are predictable and do not compromise competitiveness. This involves benchmarking their expense bases against their costs from previous periods and, for international insurers, against similar-sized operations in different jurisdictions. Insurance is an internationally traded service and competitiveness is, therefore, central to maintaining and growing the industry in Ireland. The insurance industry is keenly aware of costs in the economy and the following submission highlights the key concerns of our member companies.
Regarding labour costs and given the return to strong growth in the economy, insurance is facing increased pressures in competing to attract and retain staff. This is leading to wage pressures and difficulties in attracting suitably skilled and experienced staff. According to the National Competitiveness Council's report, Cost of Doing Business in Ireland 2017, there has been modest wage inflation in the finance and insurance categories, and the Irish figure for 2016 is noted to have been lower than the euro area figure. However, it should be noted that this is a cross-section of all grades across the country. Insurers, while acutely aware of headline figures, are especially cognisant of wage levels for posts requiring technical experience and skill sets such as underwriting, actuarial and claims specialists, as well as IT and in-house professional services such as accountants. Some of our members have noted that the cost of many of these professional roles in Ireland is significantly higher than in other countries. If the projections of future economic growth materialise, our members expect further pressure on labour costs.
Regarding legal costs, and given the nature of the business of insurance, there is a significant requirement for the use of legal services. Insurance Ireland has pointed out the impact of rising legal fees in the claims settlement process and the costs associated with a claim proceeding to litigation in generating additional fees and costs for consultants and expert witnesses. As the Department of Finance's key information report on motor insurance showed, legal and other expenses add €42,400 to the cost of settling a €100,000 motor injury award.
Increasing legal costs are, therefore, a material factor in the price paid by customers for their insurance and in the cost base for insurers. Indeed, the National Competitiveness Council's Cost of Doing Business Report 2017 states that in Q3 of 2016, legal service prices were 10.4% higher than the corresponding quarter in 2013. It further states: "Ireland remains an expensive location in which to enforce a business contract and is the 6th most expensive in the OECD. The World Bank also estimate that the total cost of contract enforcement in Ireland amounts to 26.9 per cent of a claim, compared with 22.1 per cent in the OECD". The report continues: "It also takes significant time (650 days) to enforce a contract in Ireland compared with an OECD average of 551 days". This experience is borne out by the feedback given by our members who have noted extreme examples. One member has highlighted a 70% increase in the average cost to settle a non-nil claim since 2013. Insurance Ireland believes that Irish legal fees are a considerable competitiveness issue. Insurance Ireland also believes that reform is required to reduce legal fees and the requirement for legal services in the claims settlement process.
Commercial property costs are a growing concern for insurers. The Competitiveness Council's Cost of Doing Business Report 2017 states:
Growth Rates associated with Office Rents were 14.1 per cent in Dublin (D2 and D4 districts) and 7 per cent in Cork. The growth rates in Dublin were over three times the equivalent rates in both London City and London's West End. Commercial property prices in Ireland, however, still compare favourably to comparable cities in the UK but concerns persist about the availability of prime office space for rent in large urban centres in the short term as the market tightens and vacancy rates decline. This could result in future rent increases and any shortage of supply of new commercial space could adversely impact our competitiveness.
Our members have seen these figures through inflation in per square foot charges, particularly over the past 12 months of in the region of 10% and they expect it to increase further. Dublin does compare favourably with London, Paris and Brussels in this regard, which is important especially in the context of winning Brexit-related business. There is undoubtedly a Dublin premium leading to insurers seeking alternative operational sites in some instances. This is noteworthy as the role of an operation in Ireland will be benchmarked against capital cities but also against competing locations for back office operations.
Our members are concerned about the impact of rising accommodation costs on their staff in the form of rising rental costs and house prices. The availability of accommodation is a significant concern and we note the August 2017 report by Daft.iethat stated Dublin rents are now 13% higher than their 2008 peak with fewer than 3,000 properties to rent nationwide, the lowest figure they have on record for the country.
House prices are also on a trajectory that could jeopardise competitiveness. A Central Bank survey of estate agents, auctioneers, economists and surveyors in August 2017 expects house prices to rise by 15% over the next three years on top of the increases in recent years. Our member companies are part of international groups and have experience of many European markets. They have highlighted this as a major issue in terms of the ability of their staff to afford rental accommodation and this is especially true for entry level positions. For companies that need to bring in staff with linguistic skills, this can significantly impact on the attractiveness of the jobs.
Our members have highlighted the increased cost of regulatory compliance in Ireland and expect such costs to increase. There is a constant flow of new regulation from Europe in addition to local requirements that stem from the Central Bank of Ireland and other regulators. Recent examples include the introduction of Solvency II.
James Reilly (Fine Gael)
Link to this: Individually | In context | Oireachtas source
Sorry, Mr. Thompson. We asked for five minutes but you have spoken for over seven and half minutes.
James Reilly (Fine Gael)
Link to this: Individually | In context | Oireachtas source
The next bit of the presentation will be of interest to members. I wish to advise Mr. Thompson that the members have received his presentation and have read same.
Mr. Kevin Thompson:
Insurance Ireland is also aware of the heightened level of focus on motor, public liability and employers' liability insurance in recent years. Insurance Ireland is keenly aware of the public concern about rising costs. We have sought to inform public policy responses to address the cores issue of the rising cost of claims. Specifically, on motor insurance, we set out our desired policy solutions in mid-2015 that included the international benchmarking of high personal injury awards and giving new powers to the Personal Injuries Assessment Board, PIAB, to handle more claims thus reducing the number of claims proceeding to expensive litigation. This led to us engaging with the Government's cost of insurance working group report, which was published in January 2017. It details 73 policy actions and the timeline for their implementation.
Insurance Ireland is keen to see fundamental and sustainable reform of our claims environment to reduce volatility in the market as it has an impact on our customers. Insurance Ireland also fully engages with the Government on employers' liability and public liability insurance. The fundamental issues of the cost of claims remain the same and many of the actions in the motor report can help to reduce costs in employers' liability and public liability.
The following are some relevant figures to illustrate the trends in this area: There has been a 48% increase in the average Circuit Court award, from €11,941 in 2013 to €17,722 in 2016, according to the Courts Service's annual report for 2016; there is a paragraph relating to Q3 of 2016, provided by the National Competitiveness Council, that I quoted earlier; according to the PIAB annual reports for 2011-16 there has been a 30% increase in the average PIAB employers' liability award from 2011 to 2016 and a 35% increase in PIAB public liability claims from 2011 to 2016; and according to the PIAB annual reports for 2011-16 there has been a 17% increase in the average PIAB public liability award from 2011 to 2016. As with the cost of claims in terms of motor insurance, Insurance Ireland will work with the Government and all stakeholders to help inform the policy responses in this area.
I hope my presentation has enlightened the committee about the issues faced by insurers. We are happy to answer any questions.
Tom Neville (Limerick County, Fine Gael)
Link to this: Individually | In context | Oireachtas source
I have a couple of questions on insurance, an issue that I have raised in these Houses. The cost of insurance was the topic for my inaugural speech because it was one of the issues that was mentioned the most when my party and I talked to people on their doorsteps. I am sure the delegation is aware of the situation. However, I must keep putting it on the record that the cost of insurance is still a huge issue for people. In particular, it compromises our competitiveness and must be tackled. The Minister for Housing, Planning and Local Government, Deputy Eoghan Murphy, worked on the issue when he was the Minister of State at the Department of Finance. His successor, Deputy Michael D'Arcy, is working on the issue and has been very open to suggestions.
My questions are on the insurance industry as a whole. I constantly hear that legal fees and costs have increased and this matter has been debated. The problem that I have is that there is buoyancy in terms of insurance products. I mean by this that product development and product take-up has also increased presumably due to this country's economic progression. The same applies to car sales, house sales and products in general, so clearly business has increased.
Let us say an insurer has an insurance product with a specific risk, brand name and fee. I have learned that some people in the sector take that same insurance product and risk but give it a different brand name and charge a different fee. Can the witnesses confirm whether that is happening in the sector?
Mr. Kevin Thompson:
I cannot comment on that. All I can say is that the premiums, regardless of whether it is motor insurance, employers' liability insurance or public liability insurance, are a function of claims. The driving pricing factor for any insurer is the cost of claims. As we know from the submissions provided by the Courts Service and the PIAB, the cost of claims is increasing as are the associated costs for the claims such as medical costs but, more importantly, the legal costs. Insurers will seek to charge an adequate premium to cover the cost with the predominant cost being the cost of claims. I am not aware of the activity highlighted by the Deputy. In some ways, insurance is quite a simple model. We have to take in enough premiums to pay the costs.
Tom Neville (Limerick County, Fine Gael)
Link to this: Individually | In context | Oireachtas source
I asked because Mr. Thompson said earlier that all of these costs have a knock-on effect on what is charged to the consumer and fees increase. He started his reply by saying he was not prepared to comment or could not comment. Has he chosen not to comment because he is unaware of the problem? Please clarify.
James Reilly (Fine Gael)
Link to this: Individually | In context | Oireachtas source
Deputy Neville's question is very relevant and certainly would have resonance with a life insurance practice known as churning in the past, whereby a person with adequate life insurance cover would be approached by their broker to change their insurance cover. If the person had a bit of extra money, they would go ahead and do that but without realising the first year's premium was going straight to the broker in commission. I understand that practice has stopped-----
Tom Neville (Limerick County, Fine Gael)
Link to this: Individually | In context | Oireachtas source
I want to point out I asked my question as a form of clarification. I am not making an allegation towards the industry or anything like that, and I want to make sure that is understood. I am seeking clarification. I do not know if this will be done in conjunction with the committee that is dealing with insurance but some sort of investigation or clarification could be sought in regard to the market.
Tom Neville (Limerick County, Fine Gael)
Link to this: Individually | In context | Oireachtas source
I take Mr. Thompson at his word.
Mr. Kevin Thompson:
In regard to the Chair's comment, insurers abide by the consumer protection code. We do not represent the broker market, that is, the adviser market; we represent the insurers themselves. What we do know is that for a broker to give advice for someone to change their product, that advice has to comply with the consumer protection code and has to be in the best interests of the consumer. Those regulations are in place.
James Reilly (Fine Gael)
Link to this: Individually | In context | Oireachtas source
I emphasise this was a practice in the past and I am not saying it is current. In regard to the Deputy's question, if a similar type of approach were taken because the same product has been dressed up in a different fashion, with different charges being applied, this would be to the disadvantage of the customer.
Mr. Kevin Thompson:
It would be to the disadvantage of the customer if this practice exists. In our view, in the current environment in which we operate, people are looking for a premium which they can afford, which in itself instils an element of competition into the marketplace. If we look at employer liability, public liability and even motor insurance, these are annually renewable contracts. The contracts come up for renewal every year, they are brought to the market at a moment in time and companies compete for that business. There is competition within the marketplace which, to my mind, does not support the practice the Deputy indicated may exist, but which we have no knowledge of.
Tom Neville (Limerick County, Fine Gael)
Link to this: Individually | In context | Oireachtas source
I did not make any allegations. I want to put that on record. It is a question.
Aidan Davitt (Fianna Fail)
Link to this: Individually | In context | Oireachtas source
I have a couple of queries for Mr. Thompson and Mr. Byrne. I have read the submission. My understanding is they are representing the insurance underwriters. Is that correct?
Aidan Davitt (Fianna Fail)
Link to this: Individually | In context | Oireachtas source
The issue of insurance has been dealt with and discussed by this committee, on and off. It seems as if the book of quantum is being thrown to the wind at this stage, given what we read in the newspapers on settlement figures and all the rest. I am curious as to why this is the case and why the book of quantum seems to be used a lot less. How does Insurance Ireland view that problem, from the perspective of representing the underwriters? Why are so many cases being settled without use of the book of quantum or the figures within it?
There has been no record of all of the claims that are being made. One group will blame somebody else, and maybe underwriters are blaming brokers while brokers are blaming someone else, and all the rest, but if we had a way of recording who is claiming and how much they are being paid, these serial claimers would not be long in coming to light. This has been a problem in the industry because this information has not been shown. I know some of the insurance companies are doing work behind the scenes but it is in an ad hocmanner. In addition, governments, past and present, have been keen to get some sort of a record in this regard so they know who is claiming, what amounts are being claimed for various injuries and the names of the people who are claiming. If people are claiming regularly, or if members of the same family are claiming, we could shine a greater light on this. That is the second part of the question.
On a further point, I was shocked to hear a story at first hand when it was brought up at the committee. An insurance company - that is, the underwriter, not the broker - made a settlement when somebody made a claim against an insured party. The man who made the claim had a little tip in a car and took the other driver's insurance details. One insurance company contacted the other insurance company but the man never heard a word about it and was not asked about the incident, although he said there was hardly a mark on the car and it was just a little bang. The next thing, by chance, somebody told him the other man had got €20,000 out of this. He was gob-smacked. Although it was claimed against his insurance, he did not know about it until he came to pay his insurance premium. I found it hard to believe that, given a claim was being made against a person's policy, somebody would not lift a telephone to tell the person what was going on. That is probably not par for the course but it must happen. In this case, this man was adamant it happened and the committee has heard of a similar case.
Those are three issues which I think would come under Mr. Thompson's remit.
Mr. Kevin Thompson:
First, the book of quantum reflects the prevailing level of awards. As an industry, we welcome the updating of the book of quantum, which basically reflects what is happening in regard to the amounts being paid. We look to reference that book of quantum, as does the injuries board. The Judiciary is not compelled but it is minded to make reference to the book of quantum. One aspect we are happy with is that the book of quantum brings an element of stability to the claims environment. In recent years we have seen a lot of volatility in the claims environment, in particular in terms of the variance in awards for a similar injury. As this is not good for insurers or for business, the book of quantum has been good in this respect. As an industry, we look to use it where we can, as does the injuries board.
Unfortunately, what we have seen is that a high proportion of the cases which go through the injuries board are rejected and end up in the court settlement channel. As we know, and this was borne out by the Department of Finance report under the cost of insurance working group, once it goes through the claims settlement channel in the courts, it becomes a lot more expensive, which, ultimately, has to feed through to premiums. What we would like to see is a more timely updating of the book of quantum. To be fair to the Government, the cost of insurance working group report, published in January of this year, also recommended that this should be the case. In regard to the prevailing level of awards, it also recommended that these awards should be benchmarked against other jurisdictions. That is part of the recommendations on which we are working with Government, through the Personal Injuries Commission, under retired President of the High Court, Mr. Justice Nicholas Kearns. Hopefully, that will help in terms of knowing where award levels should be set.
The Senator makes a fair point in regard to the claims database in that there is no database which will give the information, claim per claim. Again, that issue was identified within the cost of insurance working group report in January 2017 and it is one of the recommendations that a national claims database should be set up under the auspices of the Central Bank. As an industry, we are working with the Government and the Central Bank to develop that claims database, although it will take time to develop. A similar model was developed in the UK and it took close to ten years to complete. That is not to say it will take us that long because there is impetus from our side and from other stakeholders, particularly the Government and the Central Bank, to make sure we can bring it to fruition. As an interim step, what we have done to try to highlight what is going on within the claims environment is to work with the Department of Finance, which has been publishing ad hocclaims information on a quarterly basis, albeit at an aggregate level. That has also worked well.
On the Senator's third point on the settlement of claims, where he gave the example of the person who had a tip in his car, I acknowledge it is a difficult area. While it is hard for me to comment on specific cases, the committee members will have seen recently that insurers have adopted a more robust approach in regard to claims settlement. It is difficult for insurers because they have to tread a fine line. We have to remember that the majority of claimants are honest claimants, and when they make a claim, they should be paid quickly and at the appropriate level for their injury.
Equally, however, there is a degree to which insurers will have to adopt a more robust approach. I think we are seeing that emerge, most recently in cases which have been published in the media. The industry is investing heavily in more robust claims settlement and in fighting fraudulent claims. That trend will continue and will hopefully alleviate the cost of claims, which will ultimately lead to lower premiums.
Aidan Davitt (Fianna Fail)
Link to this: Individually | In context | Oireachtas source
There are cases such as this, where insurers would not contact their client, or someone else on the road, to find out what the reality was. It is a no-brainer for me.
Mr. Kevin Thompson:
Again, it is difficult for me to comment. What we do know is that a claims officer would assimilate a certain amount of information, and would adjudicate on that claim to the best of their ability. As I say, insurers are becoming more robust in their claims settlement, albeit treading a fine line to make sure they do not penalise genuine claimants.
Mr. John Byrne:
We had our annual fraud conference last year. We have run four or five such conferences now. There were about 350 people there, claims experts, investigators and so forth. Every year it provides a forum, and it is growing in importance. The conference facilitates analysis of how insurers can work together to identify trends, and to inform policy that responds to issues of concern to the customers and to business. One area that insurers are particularly looking at is improving data analytics as a way to invest in their investigative units and analytical tools. These improvements to investigation can help identify inconsistencies in claims at an earlier point in the process. That prevents a claim going further down the line and incurring extra costs, such as litigation costs, the cost of expert witnesses, and so on. It is important for insurers that there is a deterrent and that they are effective in their investigations, because it affects public confidence in the claims settlement process. That is just one area that insurers are looking at.
Aidan Davitt (Fianna Fail)
Link to this: Individually | In context | Oireachtas source
Can I continue with the queries on auctioneering?
Aidan Davitt (Fianna Fail)
Link to this: Individually | In context | Oireachtas source
I welcome Mr. Davitt and Ms. Mogerley. I have a few questions for Mr. Davitt. He has mentioned the relationship between the rental values of properties and rates. It is hard to believe that when a customer feels aggrieved at the new rates he has been quoted after a revaluation, the associated rental values would not be talked about. Perhaps Mr. Davitt could enlighten the committee about that, as he seems to know a bit about that process.
There is also the issue of rates in rural Ireland and their effects on smaller businesses. Earlier today, before our witnesses appeared, the committee talked a little bit about the banking industry, and the current difficulties it presents for small businesses. The members of Mr. Davitt's organisation are also finding problems and complications between the banking industry and small business. Mr. Davitt touched on a few other points, but if he could enlighten the committee on those two topics I would appreciate it.
Mr. Patrick Davitt:
It is important to say that there have been no tribunal cases yet under the Valuation (Amendment) Act. However, we believe that parties that go to the tribunal will not be able to argue on the basis of the rent of their premises. They will only be able to argue on the basis of tone. The tone of the valuation sounds very tricky and very difficult to understand. It is made up on the basis of valuation averages.
We might imagine four properties for instance, with two at a high rental value and two at a low rental value. The Valuation Office will try to pick a value in the middle. However, no matter how it picks it, the owner of a property with low rental value is going to have a high valuation and a high rate. Conversely, owners with higher rental value, will get a fall in the rates. Hence we say that the Valuation Office takes from one to give to the other. However, there have been no tribunal hearings yet. It will be interesting to see what happens. We fear that when the hearings start, this is exactly what is going to happen. A property owner will not be able to argue that his rates are X and his rent is Y, and seek to link them. The issue turns on the tone of the valuation, which does not seem very fair.
The Senator also referred to rural Ireland. Rates in themselves have a huge effect on rural Ireland and its business holders and shop-owners. They have to pay the rates, and must raise that money through rents or otherwise. If the rates increase, it will put those people at risk of going out of business. That is a huge problem for small business owners, and especially for some of our members, who are small business owners throughout the country. If in 2006 a house cost €300,000, and in 2012 or 2013 it cost €150,000 or even €50,000, fees will obviously fall considerably. That leaves these people earning a lot less in fees. However, the whole valuation figure of €1.5 billion sought by the Government has not changed, even though these businesses' fee income has down drastically. This could close a lot of businesses in rural Ireland.
Moreover, there may be a new provision whereby an owner cannot claim that their property is not rented. If that comes in, people will have to pay rates whether their property is rented or not. It seems very unfair, and I plead with the Minister not to bring this in, because rural Ireland faces a very different situation. We took a survey in one small town, Strokestown, where 17 properties are vacant at the moment. If that abatement comes in, the owners of those properties will have to pay rates for those properties, as if they were rented. How are people going to pay for it? In some instances, the value of those properties has gone from €250,000 to €30,000. It is incredible.
This morning I was speaking at a banking meeting, and I saw two properties on the Internet that were sold at auction during the week. They were two-bedroom apartments that made €25,000 each in one of these towns. They were bought in order to be rented. We hear of the high prices for properties and that may be true in Dublin or the big cities, but in rural Ireland it is a different kettle of fish. There are many people in rural Ireland who have problems with banks and loans, and they have not been dealt with at all. There are people whose businesses have had a loan outstanding for years. They cannot pay it back and it does not look like they will be able to do so, because at the end of the day they are not making enough money. It is practically impossible to get a settlement with the bank or even to speak to somebody there. It is still the same today. From a business-owner's point of view, and certainly from that of many of our members, something will have to happen. The banks must be contactable by these people. They must sort out their loans and come to some sort of arrangement with these business owners, or a lot of them are going to go out of business.
Mary Butler (Waterford, Fianna Fail)
Link to this: Individually | In context | Oireachtas source
In our private session we determined that we would be bringing in representatives of the banking sector and credit unions, because that is a large part of the cost of doing business in this country. We accept that. I wish to ask Mr. Davitt a question about rates. Does he have suggestions as to how he would change the current assessment mechanism to better reflect the huge difference between some parts of rural Ireland and the bigger cities which he rightly points out?
Mr. Patrick Davitt:
The Valuation Office has tried to change it, but tried to revalue the whole of the country over a short amount of time. Each rate-payer should have to pay rates on the rents of his or her property, or its rental value. Low rents should be taken into consideration as well as high rents. If we get into a situation where appeals start going to the tribunals, somebody who owns a property should be able to appeal that property and outline the rent they are earning from it. They should be able to submit the rents, letting agreements and pertinent information and this should be taken into consideration. If that does not happen it will be exceptionally unfair, because people will have to pay rates on the basis of somebody else's rents, not their own.
James Reilly (Fine Gael)
Link to this: Individually | In context | Oireachtas source
What about those business people who rent premises and pay their own rates?
Mr. Patrick Davitt:
Some people have their own businesses and pay their own rates, and that is fair enough. It depends on what the yield of the building would be, because the rates are calculated on the yield of the building. Some of rate-payers the Chair mentions have appealed their rates, but a lot of the appeals were not heard. They can go to the tribunal, but it costs money. The worst of it is, if they go to the tribunal and come out on the right side of it, they can be taken to the High Court.
Obviously, one can go to tribunal if one wants, but it costs money to do so. The worst part is that even if one goes to tribunal and comes out the right side of it, the rates office or the valuation office can take one to the High Court. Most people who go to tribunal cannot go on because they cannot pay that sort of money.
James Reilly (Fine Gael)
Link to this: Individually | In context | Oireachtas source
I would like to ask a few questions of Mr. Thompson if I may. First, I thank both witnesses for coming here today because the work that we are doing needs to be informed. The witness mentioned labour costs and insurance. Indeed, labour costs are mentioned by all business people as a concern but the cost of insurance is particularly concerning at the moment. RGDATA representatives met this committee recently and mentioned a particular business that was paying €10,000 in insurance ten years ago. This year that business has been asked for €110,000 which is a phenomenal increase in ten years. I ask the witnesses to comment on the levels of increase in insurance costs.
On legal costs, the witness referred to €42,000 in the context of a €100,000 settlement. Is the €42,000 part of the €100,000 or on top of it?
James Reilly (Fine Gael)
Link to this: Individually | In context | Oireachtas source
Okay. There would be fees for medical reports and so on.
James Reilly (Fine Gael)
Link to this: Individually | In context | Oireachtas source
On the issue of commercial premises costs, the witness mentioned large urban areas and central locations. I ask him to explain why it is important to locate in large urban centres rather than on the periphery, given the IT nature of insurance nowadays and so forth.
The last issue I wish to raise is that of bench-marking awards. When one looks at the UK, for example, the average award for a simple whiplash injury with no complications is around £6,000 or £7,000 whereas in this country, it is around €20,000. That is a huge difference. On the matter of the book of quantum, it seems to be ever rising. The awards seem to be getting bigger, legal costs seem to be rising and other costs are also increasing. What is astonishing is that there was such an increase between 2013 and 2017 when everyone else was suffering a reduction. I would welcome the witnesses' comments.
Mr. Kevin Thompson:
I will take the questions one at a time. Reference was made to an increase in insurance premiums for a particular business. In some ways, the explanation is quite simple. The average level of awards, even according to the Courts Service's own publication from 2016, has increased by 48% and that ultimately feeds through to premiums. In addition, we have also seen inconsistency within those awards and I will explain how that affects insurance premiums. If, for example, 100 claims are notified to an insurer within a year, the insurer will not settle all of those claims on day one. In the first year, the insurer may only settle 20% of those claims and will make payments based on prevailing award levels. The insurer posts a reserve or capital for the remaining claims based on its best estimate. If awards are increasing and there is volatility in the level of awards for whiplash, for example, this can cause difficulties. If the insurer has reserved X amount but a decision in court results in an award of X plus Y, the insurer then has to go back to the back book and make an additional provision which has to be accommodated in the current pricing, that is, in the current premiums. Unfortunately, we have seen the level of awards increase and the volatility around those awards increase which has fed through to premiums.
On the positive side, we do have a framework now, through the cost of insurance working group report published by the Minister in January, which makes some key recommendations. The first is one touched on by Senator Reilly, namely the inconsistency between the level of awards in the UK and here. The establishment of the personal injuries commission and the bench marking exercise should bring forward clear recommendations to address that issue on behalf of all consumers. In terms of driving costs out of the claims settlement process, the reinforcement of the powers of the PIAB is a key recommendation. We know that legislation-----
James Reilly (Fine Gael)
Link to this: Individually | In context | Oireachtas source
I am sorry to interrupt but a vote has been called and I must leave, which is unfortunate because I am very interested in Mr. Thompson's answers. Senator Aidan Davitt has kindly offered to take over.
James Reilly (Fine Gael)
Link to this: Individually | In context | Oireachtas source
It is the Finance Bill so I must be there.
Aidan Davitt (Fianna Fail)
Link to this: Individually | In context | Oireachtas source
I invite Mr. Thompson to continue.
Mr. Kevin Thompson:
Senator Reilly also asked why we would seek to locate in urban areas. We are trying to attract new, additional players into the Irish insurance market, particularly in the context of Brexit and one finds that new entrants will generally coalesce around centres of excellence such as the IFSC and similar places. That is not to say, however, that the insurance sector is not supportive of decentralisation. We actively work with the IDA to try to decentralise. If new companies are considering entering the market, we actively promote regional centres to them as well. We try to do what we can in that regard.
Aidan Davitt (Fianna Fail)
Link to this: Individually | In context | Oireachtas source
Traditionally, many insurance underwriters have been based outside this jurisdiction. When Quinn insurance operated here, it was perceived to be an Irish underwriting operation. Are there any real Irish underwriters now? What is the make-up of the underwriters in the Irish market at present?
Aidan Davitt (Fianna Fail)
Link to this: Individually | In context | Oireachtas source
FBD is the only provider in the Irish market that is underwriting its own policies. That is incredible.
Does anyone have anything further to add?
Mr. Patrick Davitt:
I would like to add something on the issue of insurance. Our members have a huge problem in attracting younger staff to their offices. Auctioneers who are trying to bring their sons and daughters back from Dublin or from abroad to work for them face enormous insurance costs. When they want to insure younger staff, they often find they cannot afford to do so. This means that younger staff members cannot travel to conduct viewings and so on. I am talking here about young people between the ages of 20 and 25 with full or provisional licences. It could cost up to €6,000 to insure them, even as named drivers. This is a huge cost for our members and it arises in both rural and urban settings. In fact, prices in cities are probably higher. One has to ask why this is the case. Often younger people are better drivers than their older colleagues. Mr. Thompson may not be able to give me an answer on this today but it is a large cost for our members. It is particularly difficult for our members if they are trying to encourage their own young sons or daughters to come into the business.
Mr. Kevin Thompson:
I will take up on that point. Mr. Davitt made reference to people coming back to the country. We have, through the cost of insurance working group and the Department of Foreign Affairs and Trade, developed a protocol which all insurers will follow. It covers the evidence that people returning to the country will need to give to insurers in order to obtain insurance at a reasonable rate.
I accept Mr. Davitt's point on younger drivers. While I cannot comment on individual cases, insurers will price according to the risk presented to them. That said, we represent all of the carriers in the marketplace and would strongly encourage people to shop around. We also encourage them not to accept the first quote they get from an insurer. They should seek quotes from other insurers.
Aidan Davitt (Fianna Fail)
Link to this: Individually | In context | Oireachtas source
I appreciate that. It is a valid point. The witnesses can have a discussion or a set-to about the cost of insurance outside after this meeting. I thank them for attending and engaging with the committee. This is the third in our series of meetings on this topic. Our next meeting will be held on 12 December and it is intended a further meeting will be held in January. We have talked about the banks and credit unions today also and we intend to produce a report in the new year. That concludes our business for today.