Mr. Gerard Brady:

There was a recent consultation with the Department of Finance on the research and development tax credit. The figures show that the €700 million it went up to in 2014-15 has come back down in recent years; we are back down to about €500 million a year. That has been falling in the past two or three years, which is worrying because it means less qualifying research and development is being done. We have looked at the studies about research and development tax credits and how effective they are worldwide. In some countries there is a question about whether it is more effective to give a tax credit or a grant. There are some studies that show that subsidies are better and others that show a tax credit is better. The studies in Ireland show that, by a long margin, a tax credit is much better. For every €1 we give in a subsidy, we get about €2.5 in research and development in private companies. I guess the reason for that is that there is a double benefit of the research and development tax credit. On the one hand, it is attractive from an inward foreign direct investment point of view because one gets the tax credit itself but on the other hand, it takes the cost out of research and development. We have seen big challenges in that regard.

The big challenge on the research and development side is, first, direct funding on which I totally agree with the Deputy. Direct funding should be much higher than it is currently which, as Mr. O'Brien said, is pitiful. Second, many small and medium enterprises, SMEs, do not use the research and development tax credit because it is too difficult for them to use administratively. The UK, Norway, France and other countries have separate research and development tax credits for small companies that give them cash. They are refundable. They are paid quicker. Administratively, they are much less burdensome and one sees much better results out of the research and development tax credits. If we want to get more value for money out of the money we are already spending, we should try to make it easier for SMEs to use it rather than shift it completely to subsidies. Along with the research and development tax credit, we believe the Government should be putting money into innovation anyway and using this corporate tax as the opportunity.

I will make one comment on apprenticeships. We would ask that there would be some offsetting and not only in construction. In almost every company we talk to the take-up of apprenticeships has been low across the board. Much of that is due to the fact that they are losing a member of staff for two days a week and still paying them. We are saying that some kind of subsidy may have to be offered to encourage companies to take that up, for example, a tax offset against corporation tax or a direct subsidy. We do not care which model the Government goes down but that it takes some of the cost off smaller companies in particular which cannot afford to pay someone for six or seven days and only get their services for three or four.

On social housing, there are real challenges in that regard. The cost of land is a big issue. The cost of construction is procyclical in Ireland. It will only go in one direction while the economy is getting stronger. We have seen some signs in that regard and talked to many developers. We believe, and we agree with the CIF on this, that the pace of the delivery of new housing will continue to increase but it will slow in terms of the growth. There are two reasons for that, one of which is that affordability has reached its limits, particularly in urban areas. Last year, approximately 90% or 95% of households were more than 3.25% in loan to income ratios in Dublin, which means that there is not a lot of space. If incomes are growing by 5%, we cannot have house prices growing by 10% or 15%. That cannot continue. That sets a top on the market in terms of what people can afford. In terms of land prices, we are competing with industrial, commercial or public buildings in some cases so land prices are increasing. The cost of construction is increasing and because more people are being hired there is more competition. We are low in terms of the unemployment rate. That will squeeze margins and make it more difficult in future years to deliver housing. We believe we may see 20,000 or 21,000 houses delivered this year. That is not anywhere near the rate of growth we need to be at to get to the levels we will need to reach.

In terms of social housing delivery, we have been before this committee on several occasions and have said over the years that we need a much bigger scale of social housing direct delivery. We are cutting out the developer in the middle but in terms of the construction sector and the workforce we need for apprenticeships and some of the trades, we will still need those people to deliver it regardless of what happens. That remains an issue. Even if the State decides to deliver it, who do we get to deliver it? That will be the big challenge.

We have heard from members in other sectors that workers go into construction but not at the rates we would expect in previous years, particularly in the mid-2000s when many people moved from manufacturing into construction. It is not happening at the same rate but it is happening. I agree that that trend is probably the main place left. I do not believe there are many workers left on the live register with trades; it may be fewer than a couple of thousand. They will have to be found from other sectors, which builds up costs for many other businesses and will probably be a challenge for other sectors also. I agree that it is difficult to see how that can be fixed quickly. That is a major challenge for employers as well.