Mr. Gerard Brady:

I will give an overview of the five key areas we identify in our submission to the committee. We can get into more detail in the question and answer session. The first area that we think is lacking in supports for SMEs is investment, including helping business and SMEs to invest as well as the environment for people who wish to invest in SMEs. Irish small businesses, compared to their European counterparts and those elsewhere, are overly reliant on short-term bank financing and particularly on overdraft financing, which is a more expensive and more volatile source of resources. Our equity mix is pretty poor compared to other countries, as is the availability of equity financing, which could diversify that funding source.

In that context, the employment investment and incentive scheme, EIIS, has taken a big nosedive, particularly over the last year or so. A huge number of our members used it in its successful previous guise, the business expansion scheme, BES. In the first quarter of 2018, the take-up of that scheme was down by about 50% on the previous year, despite the turnaround in the economy over that time. There are big issues to do with state aid rulings there. Some of them have been dealt with in the Finance Bill but there is an ongoing need to improve support for companies looking for equity investment rather than relying on short-term bank financing.

The second area we drew attention to was Brexit protection. We are all discussing some of the things we would like to happen for our SME sector but the reality is that without at least the semblance of a deal over the coming months, it is very hard for any SME to plan. That is particularly true of those relying on the UK in the food sector and traditional manufacturing. Those companies will need support. They have got some in the budget. They have got some resources for borrowing from Government, as well as new longer-term borrowing provisions, which are welcome. However, in the event of a harder Brexit or ongoing uncertainty, some companies will need more direct supports than are currently available. That may require changes to state aid rules, for example allowing for a temporary state aid regime, from our European colleagues. Another element of the Brexit issue is that a huge amount of companies will now quite possibly have to deal with the UK as a third country for the first time. That will mean huge changes in the way they must interact with their suppliers and the people to whom they are selling. The import VAT regime is a huge worry for a lot of our companies because it could have a significant impact on cashflow in the event of a hard Brexit.

The third area we drew attention to was the innovation performance of small Irish companies. Particularly, we looked at mid-cap and small companies. They have pretty good innovation performance across the board, but they are not in the top tier of European companies of their size. This is crucial to their growth. We can examine the mean support throughout the State for small companies, or for all companies. The take-up of the research and development tax credit among SMEs is very low compared with what it is in the UK. Other countries have simplified pro forma versions of the onerous regulatory forms involved in claiming a research and development tax credit. They have separate pro forma versions for SMEs, which help them overcome some barriers, particularly the costs involved in claiming a credit when professional services must be hired.

Our fourth issue is management capacity and skills. International research shows that Irish SMEs have poor management capacity when compared with some of our neighbouring countries and that we are in the lowest third internationally. Growing that management capacity is going to be increasingly difficult for companies because of the tight labour market. They will struggle to compete with the multinational sector on wages. That has been mentioned already. A huge amount of that is down to the fact that they just cannot afford to pay the same kind of wages on a salary basis. The best option from the State's point of view therefore is to allow them to use their equity to try to hire key staff through improving share option schemes. The key employee engagement programme, KEEP, has been mentioned before. There are some improvements to it in the Finance Bill but on the other hand, KEEP has seen some reversals in other areas of the Bill. If that scheme does not work there really is no differentiator or support for hiring when firms cannot match multinationals in competition for skilled workers, particularly at the C-suite level where mid-cap companies are trying to expand.

Finally, I refer to a point that has been made already about regulation. We appeal to the committee to encourage an approach of thinking small first when it comes to regulation. A huge amount of regulation is aimed at corporates but does not take into account the impact on owners of SMEs. That impact is felt in terms of time more than anything; owners who could be putting their time to more productive use must deal with significant regulatory burdens. There are good examples of how regulation can be improved and made to suit SMEs, but there are other areas where we could do with more help. In particular, by international comparisons the State is pretty poor at doing regulatory impact assessments when it comes to introducing new regulation. An improvement in the use of regulatory impact assessments could have a knock-on impact in the time available to owners of SMEs and their ability to run their businesses and grow them for the benefit of the whole country.