Oireachtas Joint and Select Committees
Tuesday, 30 June 2020
Special Committee on Covid-19 Response
Impact of Covid-19: Hospitality Sector
I welcome our guests in committee room 1. They are from the Vintners Federation of Ireland, VFI, Mr. Padraig Cribben, chief executive, and Mr Padraig McGann, president; from the Irish Hotels Federation, IHF, Mr. Tim Fenn, chief executive, and Ms Elaina Fitzgerald Kane, president; from the Restaurants Association of Ireland, RAI, Mr. Adrian Cummins, chief executive; and Mr. Jim Power, economist.
I wish to advise witnesses that by virtue of section 17(2)(l) of the Defamation Act 2009, witnesses are protected by absolute privilege in respect of their evidence to this committee. If witnesses 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, persons or entity by name or in such a manner as to make him, her or it identifiable. We expect witnesses to answer questions clearly and with candour. However, witnesses can and should expect to be treated fairly and with respect and consideration at all times. I ask them to bring any concerns they may have in that regard to my attention and that of the committee immediately.
I invite Mr. Cribben to make his opening remarks. I ask him to confine them to five minutes.
Mr. Padraig Cribben:
I and my colleague, Mr. McGann, welcome and appreciate the opportunity to address the committee. First, we wish to extend our condolences to the families and friends of those who have died as a result of this pandemic. We hope those sick or in hospital as a result of the virus have a speedy recovery. We offer a very special thanks to the healthcare and front-line workers who have continued to provide essential and valuable services in recent months. They have made all our lives safer and more bearable.
Although public health is rightfully our foremost concern, the pandemic has had a considerable impact on many businesses, not least the pub trade. Our pubs are unique and provide an experience which is unmatched in any other country. That is why visiting our pubs is regarded as an essential aspect of Ireland’s tourism offering. Pubs are also an integral part of the fabric of many communities, acting as a meeting place, a social hub and an outlet in areas with limited facilities.
The pub sector makes a significant contribution to the Irish economy and the Exchequer. Pubs employ 50,000 people directly and are responsible for several thousand additional indirect jobs. These jobs are spread throughout every part of the country. The sector is made up of a multiplicity of small family-owned and run businesses. There are slightly more than 7,100 pub licences in the country. Of these businesses, 78% have an annual turnover of less than €390,000 from alcohol sales. Fewer than 6% of them are in the top licence band, that is, having sales in excess of €1.27 million per annum.
Pubs have played their part during this crisis. Our industry was the first sector to close on 15 March, putting public health before our economic and commercial interests. We fully recognise this was the responsible course of action and it was strongly supported by the VFI. However, it should be acknowledged that this period has been difficult for pubs. Turnover in the industry immediately dropped to zero. Tens of thousands of people lost their jobs in the space of a single day and livelihoods disappeared in an instant. Some of them may never return.
Pubs face a very uncertain future. It is certain that public health guidelines will restrict business in our industry for some time to come and that pubs will be among the last sectors of the economy to fully reopen. We have no indication as to when normal trading conditions will return. It has recently been suggested that that may not happen until a vaccine or treatment for Covid-19 has been found. Very few sectors of the economy have been hit as hard as the pub sector, and none will have its trade limited for such a long time.
Our sector has always been resilient. It adapts, is innovative and brings an entrepreneurial guile to whatever trading environment it faces. Whatever the post-Covid-19 new normal looks like, we have no doubt that Irish pubs will meet challenges head on, find new ways to appeal to their customers and maintain the place of the pub in Irish society. When pubs are in a position to trade, they will reopen quickly and efficiently. Our members are ready to re-employ tens of thousands of people across the country and to return to generating significant and much-needed revenue for the Exchequer. However, we must first survive the crisis.
To do that the pub sector will need Government support. We know this is a difficult time for the State and the economy. However, at this time of crisis we are asking the Government to invest in protecting the viability of the pub industry. We know this investment will pay off, providing a return on investment of multiple times what is being asked and one that will make a difference to employment, commerce, Exchequer revenues and community life throughout the country.
Never before has the pub sector needed the support of the Government as it does now. In summary, there are four key areas of support needed as follows: VAT on alcohol sold in the on-trade; extension of the temporary work subsidy scheme; extension of current assistance with commercial rates; and a reduction in excise paid on alcohol. Specifically, VAT on alcohol sold for on-trade for consumption is an incentive for the on-trade to reopen and relief is sought in this area. We have collaborated with our colleagues in Dublin from the Licensed Vintners Association and Drinks Ireland, representing the drinks industry, to come together looking for relief in this area. Such a measure would generate immediate and tangible support to these businesses, allowing them to reopen viably and maintain jobs.
Until now, it was understood that such a move was disallowed under EU VAT directives. However, we have now established that this measure is possible given the European Commission Directive 2009/47/EC, which amends the original directive from 2006 with regard to VAT. The amended directive makes it possible to extend and apply a lower VAT rate on on-trade alcohol in Ireland and across the EU. Such a measure would be in step with other EU countries, which are using temporary reductions in VAT to provide immediate support to their drinks, hospitality and tourism sectors in the midst of this pandemic. In Spain and Italy, VAT in the on-trade has long been set at the hospitality rate. In Cyprus, the VAT rate on services has been reduced from 9% to 5% from June to January 2021 and this applies to alcohol sold in the on-trade. In the UK, a lower VAT rate for the tourism sector, including pubs, restaurants and hotels, is an option currently being considered. We are specifically asking that the VAT on alcohol sold for on-trade consumption be reduced from its current rate to 9% until 31 December this year.
Mr. Padraig Cribben:
We are asking that the temporary wage subsidy scheme remain in place until the social distancing restrictions are lifted and that it be extended to temporary employees. We are asking that the holiday on rates be extended while the social restrictions are in place. We are also calling for a 15% reduction in excise.
Mr. Cribben, we have received your statement in advance. Thank you.
Mr. Fenn, can we have your opening statement please? Again, please confine yourself to five minutes by telling us what is most important to you, because we have your opening statement.
Mr. Tim Fenn:
The Irish Hotels Federation welcomes this opportunity to address the Special Committee on Covid-19 Response on the pandemic and its impact on tourism, hospitality, hotels and guesthouses.
The Irish Hotels Federation is the representative body of the hotel and guesthouse sector in Ireland. It is a key stakeholder in Irish tourism, working closely with our industry partners to ensure the right conditions are in place for tourism and hospitality to grow and prosper, thereby contributing to job creation.
This is the greatest health crisis in living memory and we appreciate that significant resources are being committed by the Government to address the overriding issue of public health. We also welcome the great progress being made in suppressing the disease. We express our sympathy to the family and friends of all those who have lost their lives.
Covid-19 has had a catastrophic impact on our industry, manifesting itself in job losses, revenue losses and a significant reduction in business financial resources. A much greater focus on tourism is now required given the extraordinary challenges ahead. This should put it at the top of the Government's economic policy agenda with further immediate supports for tourism businesses being made available as a matter of urgency.
We are committed to working closely with the incoming Government and the Minister with responsibility for tourism, Deputy Catherine Martin, to ensure tourism is not left behind. However, we are disappointed with the lack of a dedicated Department with sole responsibility for tourism, Ireland's largest indigenous industry.
The immediate impact of Covid-19 has been the elimination of over €5 billion in tourism revenue, representing a 74% drop for the full year, the closure of 85% of hotels during the lockdown, a collapse in business working capital and an unprecedented level of job losses.
It puts at risk more than 180,000 of the almost 270,000 jobs supported by our industry. With the right Government supports, we project that annual revenues and employment can recover to 2019 levels over a five-year period up to 2025. This would mean €7.7 billion in revenue and the employment of 270,000 people. Without appropriate supports, we see 2025 tourism revenue at €5.4 billion and employment returning to just 190,000 people, which is 30% fewer than in 2019. Over a five-year period, this would represent a cumulative additional loss of approximately €7 billion to the economy and additional cumulative unemployment costs of €3.3 billion.
The Irish Hotels Federation has developed an outline plan to restore activity and employment to 2019 levels by 2025. This will also help restore the estimated €2 billion contribution in tourism taxes to the Exchequer each year, in addition to reducing a potential State bill of €2 billion per annum in unemployment costs. This proposed recovery plan will require a co-ordinated approach from the Government, State agencies and industry stakeholders and will form part of the IHF's contribution to the tourism recovery task force recently announced by the Government, of which IHF president, Ms Elaina Fitzgerald Kane, is a member. While we welcome the various business and employment supports introduced already, they do not go far enough. The tourism and hospitality industry has been far more severely affected and faces a more challenging road to recovery than other parts of the economy. This has not been adequately recognised as yet.
The overriding priority must be to safeguard the livelihoods of the 270,000 people whose jobs are supported by tourism. As such, it is vital that the wage subsidy scheme is continued and extended to include seasonal employees and take account of employees being previously on reduced hours due to seasonality. The scheme should be continued until the impact of Covid-19 restrictions has fully abated.
Additional Government measures on liquidity and competitiveness are also required to protect tourism livelihoods to address the challenges we face. Tourism businesses now have a significantly weakened capital base caused by restrictions introduced to suppress Covid-19. These measures should be tailored to the specific challenges facing tourism to help businesses survive and restart, including significantly increased grants to assist tourism businesses to reopen and survive, 0% interest on Government guaranteed finance and a Government support scheme for the deferral of capital and interest payments for a period of one year. Other countries such as Germany, France and Spain have provided immediate fiscal impulse measures, including direct support to help their businesses restore their capital base and restart.
International competitiveness is key to our industry. We are calling for a reduction in tourism VAT to 5% until December 2021, followed by a permanent restoration to 9% to assist recovery and secure a viable and sustainable future for tourism. International competitiveness is an urgent issue and Irish hotel VAT is now higher than VAT on hotels in 28 European countries with which we complete. In addition, the local authority rates and charges waiver period should be extended to coincide with business interruption due to Covid-19, with a revision of ongoing charges to reflect reduced business activity during the recovery period.
The Irish Hotels Federation has worked closely with Fáilte Ireland-----
Mr. Tim Fenn:
We have worked with Fáilte Ireland to establish agreed operational standards for hotels in accordance with HSE requirements and international best practice. Our priority will always be the health and safety of staff and guests. We are confident that people can looked forward to a relaxed, enjoyable and well deserved break in an Irish hotel this summer, secure in the knowledge that they are in a safe environment.
As to gatherings, we ask that the Government issue guidance and a roadmap to the end of the year so that couples who intend to plan their weddings can have some clarity.
Tourism is a vital indigenous export industry, accounting for 4% of GNP as of 2019, and with the right supports it can again be one of the most effective ways to spread employment opportunities and prosperity throughout the country.
I again thank the Chairman for the opportunity to address the committee. Ms Fitzgerald Kane and I will be happy to answer any questions that he or committee members may have.
Mr. Adrian Cummins:
I thank the Chairman and members of the committee for the opportunity to appear before it. On behalf of the Restaurants Association of Ireland, I extend our sympathies to all those who have lost family and loved ones during the Covid-19 crisis. I thank our front-line workers for their Trojan efforts to keep our country safe, and especially our medical staff throughout the State. Members of my family are involved on the front line, and I appreciate the work they have taken on board. We thank them thoroughly.
Restaurants, cafés and gastropubs are a key component of the accommodation and food services sector. At the end of 2019, 125,800 workers were employed in food and beverage activities according to the Central Statistics Office, CSO. There are more than 10,000 such businesses, with 6,500 having a broad regional and rural footprint. It is estimated that the restaurant sector contributes €3 billion to the economy annually. It is a key customer of Irish agrifood producers from a farm-to-fork perspective.
The sector is also a crucial component of the Irish tourism product. Having a high-quality and affordable restaurant offering is vital to the success of tourism in Ireland. Restaurants and food service businesses employ workers in almost every city, town and village in the country. The programme for Government is clear: tourism is one of Ireland’s most important economic sectors and the Government recognises its significance as a source of local employment and regional development. Serious damage will be done to this sector if those businesses are not enabled to survive.
The past 17 weeks have had a significantly damaging impact on the restaurant and hospitality sector. The recent CSO survey on the business impact of Covid-19 stated: "More than three in every five (62.2%) of enterprises in Accommodation and Food Services had ceased trading, either temporarily or permanently, compared to 7.3% of all other Services enterprises." Simply put, the restaurant and hospitality sector was hit hardest by this crisis and will take the longest to recover. It cannot be denied that there will be no mile-long queue to enter restaurants, as is the case for some high-street retailers. No booking websites will crash with appointment inquiries, as is the case for some in the beauty industry. The recovery for restaurants will be slow and, without tourists for the foreseeable future, it will be a hard-fought battle to survive. Without immediate access to, and an extension of, the temporary wage subsidy scheme, seasonal businesses, the mainstay of Irish tourism, will not reopen. Current business supports do not go far enough.
The CSO reported last week that just 3.5% of SMEs have applied for the Covid-19 working capital loan scheme. SMEs simply cannot afford more loans. We have put forward a viable, fully costed plan to stabilise and rebuild the Irish restaurant sector, and its author, the economist Jim Power, is here today. As we start on the road to recovery, the challenges we have are that seasonal new businesses are excluded from the temporary wage subsidy scheme, which we require to be extended to next year to give us some fighting chance of keeping our doors open; that there has been little or no payout from insurance companies on business interruption claims; that landlords have not stepped up to the plate and are demanding full rent for the period of closure at a time of economic crisis in our country; that utility providers have disconnected services; and that the VAT rate of 13.5% is unviable and must be reduced to 5%.
Some say the market will take care of itself and that unviable businesses will fail.
How does one tell a third-generation family business in the hospitality sector in Waterford, Kilkenny, Monaghan, Dublin, Cork or any other part of Ireland that, through no fault of its own, it must fail because the country and its Government did not see the value in protecting small businesses and jobs? The cost of not supporting the restaurant sector will have a much greater impact on the economy because 100,000 workers will remain unemployed and the costs to the Exchequer will be €2 billion on social protection expenditure, €500 million in lost payroll taxes, €240 million in lost VAT receipts and €52 million in lost commercial rates. We are asking the committee for urgent action and a roadmap. We are also seeking assistance to help our industry recover.
What engagement have the witnesses had with the Government or senior officials in the respective Departments to put forward their requests for supports and for the inclusion of those supports in the July stimulus package? Have the witnesses been consulted in respect of the July stimulus package?
Mr. Adrian Cummins:
I will speak on behalf of the Restaurants Association of Ireland. We have had contact with the Department responsible for tourism. Its officials have been excellent in listening to our requests. We have had problems with the Department responsible for business and the lack of engagement by that Department in supporting grant applications for our industry and listening to our needs. We feel there is a disconnect between various Departments in terms of getting things done. What we need is urgent action, including through the tourism recovery task force, with which we all agree. There are recommendations on the reduction in the VAT rate and a grant aid package. It is not loans that we want but grant aid. We need to make sure that it is moved through the system very quickly. We need to consider very low cost, or 0%, loans to ensure long-term liquidity for our industry. Other witnesses will have other asks but we-----
I realise what Mr. Cummins is saying with regard to his engagement with the Departments and other agencies. He has put before them his ask. I want to know the response. What we have heard so far in these hearings about the SME sector, particularly micro-businesses, is that it has been loud in its declaration of what is required but that the follow-up from the Department has been extremely poor, and that the sector still struggles to get the Departments to understand the case it is making. What has been the response of the Government and Departments?
Mr. Padraig Cribben:
We have had engagement with the Department responsible for tourism and we have also had substantial engagement with the Department responsible for enterprise, including with the Minister and the Secretary General, and with other Departments. The clear message coming back was that the July stimulus package would determine what was going to be done, and how. That has been coming back very clearly but there is possibly a lack of understanding of what is required specifically for the SME sector. We are dealing with very small businesses. As I stated in my presentation, 78% of businesses in the pub sector have an annual turnover of less than €390,000 from alcohol. The concept of credit guarantee schemes involving interest rates of around 4% does not reflect what is needed in the SME sector. I agree with Mr. Cummins that what are needed are grants because the grant aid, while welcome and acceptable, is insufficient in terms of a refund, rebate or the equivalent of the 2019 rates.
Mr. Cribben wants to see a wide-ranging package of grants in the July stimulus that will support the general business sector he represents. If I am reading him correctly, loans may be considered by the sector but only if they are at 0%.
May I ask him about the banks and older borrowings within businesses that have come through the recession and the financial crash? Is there a demand within the sectors to bundle those loans and seek support for those loans in the long term with help from the Government? This would allow businesses to deal with long-term debt and short-term requirements for capital, with them getting all of it at a sustainable rate for the business.
What has been the response from the banks to requests for support or loans, or perhaps a stay on the heavy debt of businesses? Mr. Cummins raised the point of landlords demanding that rent continue at the level it was prior to the Covid-19 crisis. He spoke about utilities cutting off services to businesses. What does he want the Government to do about this?
Mr. Adrian Cummins:
With regard to landlords, we want the same protection that residential tenants have for our commercial tenants. In the restaurant industry, 90% of businesses are rented and landlords have definitely not stepped up to the plate to take their fair share of the pain that all businesses are currently suffering. If turnover is down by 50% to 75%, landlords across the country must realise that rents cannot be paid at pre-Covid levels. Currently, they are seeking 100% of the rent upfront or continued with no haircut or reduction. This will be a tipping point for the vast majority of what are small businesses. These are coffee shops employing ten or 15 people, for example.
We are moving into a space where we will see many businesses having to close their doors because the landlord is not playing ball. All we are getting is tea and sympathy while they ask for full rent. We have no structure in this country to deal with that.
Mr. Adrian Cummins:
Absolutely not. I can give a simple example. There are some utility services now demanding payment upfront and they are targeting the restaurant industry for large deposits for connections. We are being singled out as a sector in this respect. We have spoken to the regulator and identified that this is an issue. We are being targeted by some but not all utility providers, and they seem to be targeting smaller businesses as opposed to larger ones. Businesses do not have the level of cash deposits required. This must be fair and balanced and everybody must step up to the plate in this crisis, including the banks, landlords and utility providers
Mr. Adrian Cummins:
The banks at the beginning came in kicking and screaming. The Minister told them to give some sort of help, which amounted to deferment of loans. There have been no loans written off. There has been no assurance by the banks for our sector in particular, where people tend to have personal guarantees for loans on commercial property or enterprises. The banks have stated there will be no action on personal guarantees. We should remember the Irish people bailed out the Irish banks to the tune of €65 billion and the banks must do a little more to help SMEs across the country.
Do the witnesses expect the employment level within the sectors to drop and will they be looking for assistance in terminating employment contracts and effecting redundancies and so on? Has there been reaction from members in all of this?
What has been the response from Government?
Mr. Padraig Cribben:
There is no doubt but that as we reopen with capacities reduced, probably to a maximum of about 50%, with no tourism, conventions or big gatherings, the staff numbers required will drop. That is unfortunate but it is also short-term. We need supports until we can get back on our feet with tourism, businesses and events coming back. Redundancy, certainly, will be an issue. There is absolutely no point in finding ways to inject liquidity into businesses on the one hand and having three or four redundancies shortly afterwards that will suck that liquidity out of the business again on the other. We have to get back to the position of some years ago where the vast majority of the redundancy costs were borne by the fund. We have raised this issue on a number of occasions with the Department of Jobs, Enterprise and Innovation. We know that the current position regarding the application for redundancy has been deferred for a period but we also know that that needs to be extended. Otherwise, there is no point in having liquidity going into businesses that will be sucked out in that way.
Mr. Padraig Cribben:
Absolutely. This is not something that can wait or be long-fingered. Businesses are open. Collectively, in the three organisations represented here today, many will have opened yesterday. In our sector we have another three weeks to go before the final part of the jigsaw can be put back in place but there is no point in introducing something in a budget in October. Everything needs to be in the July stimulus in order that people can see what they are facing, which will allow them to plan properly and return to some level where they can minimise the losses because we are certainly not looking at returning to profitability. We are looking to open the door to give the service and get people back working.
I have a quick follow-up question. The witness mentioned that some businesses are opening and some are not. Has he seen these new regulations determining which pubs can open and which cannot and under what conditions, which have been signed by a Minister? Have any of the witnesses seen them?
Mr. Padraig Cribben:
Our understanding is that what we have is a set of guidelines. They are not laws. Obviously, against the background of the guidelines and the situation we are under, the Health and Safety Authority and the Garda have certain powers but our clear understanding is that we are dealing with a set of guidelines, not with a set of laws.
That is Mr. Cribben's understanding. The Minister or somebody from his Department might decide to promulgate the laws, if they exist. It is a bit like transubstantiation; we are told it happens but I have not seen it. Beyond that, I cannot say. I call Deputy O'Rourke, who has ten minutes.
I thank the witnesses for their presentations and opening statements. I have a question for the three of them separately. Individually, they represent a significant number of members and whether they be hotels, restaurants or pubs, it is a broad range and they can be very different animals despite coming under the same bracket.
There seems to be a very low uptake of the financial supports offered by the Government. Is that true across the board in each sector, or have certain categories of hotel, for example, seen greater uptake? Likewise, have certain categories of restaurant or pub responded more favourably?
The witnesses have all raised the issue of the temporary Covid-19 wage subsidy scheme and the particular elements which apply to seasonal workers. Can they expand on the practical implications for seasonal workers? I am conscious that the scheme is based on payrolls from January and February. This may be a quieter time of year for some of the businesses represented here, with fewer staff employed. Could the witnesses speak to those two points?
Mr. Tim Fenn:
I thank the Deputy. To take the temporary Covid-19 wage subsidy scheme issue first, if a worker was not employed on 29 February 2020, he or she will not qualify for the scheme. That means that businesses that were open on 29 February are now directly competing with businesses that were closed for the winter period and have only managed to start now. We now have a temporary Covid-19 wage subsidy scheme that is manifestly unfair. It is anti-competitive and it is leaving these people behind. It would be very easy for the Department to come up with a scheme that would use historical employment records to identify those who were employed last summer for inclusion in the scheme. There is a precedent for this. It was done for people who were on maternity or paternity leave and have been added to the scheme.
The temporary Covid-19 wage subsidy scheme is a key part of the ongoing support our industry requires. We are now operating under the guidelines Mr. Cribben mentioned earlier. Those guidelines are in the interests of the health and safety of our staff, businesses and guests. They require a significant increase in staffing levels and running costs while businesses are being asked to operate at much lower capacities than normal. The difficulty with this is viability. If we seek to retain the connection between employees and employers and do our best to support the livelihoods of all of those people, the temporary Covid-19 wage subsidy scheme will be absolutely critical. It should be amended to include seasonal staff.
Mr. Tim Fenn:
The statement in the Dáil by the Minister for Finance noted there were no current plans to amend the temporary Covid-19 wage subsidy scheme. Previous comments have indicated that there would be no sector-specific measures and that it would be up to the next Government to address all of this. We are hopeful.
Mr. Tim Fenn:
Our view is that the Strategic Banking Corporation of Ireland, SBCI, structure governing start-up grants is completely unfit for purpose. They are limited to €10,000 for SMEs. There are two key points here. For a hotel, that sum is the equivalent of seven and a half bedrooms. The average hotel in Ireland has about 70 bedrooms. As such, hotels are simply excluded. Furthermore, the way it is put together is dysfunctional from the point of view of small business. It discriminates against small businesses that are labour-intensive. If a business has more than 50 employees, it simply cannot claim the grant, regardless of turnover. Our industry is labour-intensive, so the measure works to exclude it.
Mr. Jim Power:
The experience I find with the SME sector generally is that the banking sector is proving incredibly difficult at the moment. One of the problems is that in a free banking market, banks are loath to lend to or support SMEs at this time when business risks are significantly higher. State intervention is required and banks will have to be given some guarantees of some sort in order to provide more capital to small businesses because they will not do so if they are left to their own devices. There is no doubt about that. There are many solutions to ensuring that as many businesses as possible that shut down in March are able to reopen and survive the challenging environment they will face over the next 18 to 24 months. The banking sector has to step up to the plate and play a more constructive role. I agree with Mr. Cummins' point about the amount of money we put in to support the banks over a ten-year period. It is time for the banks to help.
I will move on to discuss price and affordability because I am conscious of the time limit. It was mentioned in the earlier session that the previous crisis was one of debt and that this crisis is one of confidence. Sinn Féin launched a proposal last week to stimulate demand within the tourism and hospitality sector through the issuance of vouchers for each individual and family across the country. Some of the responses we got referred to the issue of affordability within the Irish tourism and hospitality sector. Some people said that they can holiday in Spain far cheaper than they can in Ireland and gave examples of very expensive hotels, holiday homes and that sort of thing. The sector is requesting a lot of the State. What measures will be taken within it to tackle that issue of affordability and to ensure that fair value is available to consumers?
Ms Elaina Fitzgerald Kane:
A customer who stays in our hotel tonight can do so for €95, including bed and breakfast. A family can stay for €125. I have looked at the cost of various hotels across the country for tonight and midweek next week and have found double rooms at €79 and family rooms at €129. There are 11 activities available for children in our hotel. We have a considerable level of resources.
I have one telling reminder for people who are planning a staycation when there are so many options available. It is critical that people book directly because that is how to find the best value. Online travel agencies often misrepresent the situation. I did a search for a family of four last week and although I requested one room, the website I was using deferred to two rooms which made it look as if a stay would be twice as expensive. It is critical that people book directly. Value means different things to different people but being able to stay as a family in a four-star hotel with a leisure club and facilities for children for €125 or €129 offers opportunity.
The Irish Hotels Federation is precluded from fixing rates or anything like that from a competitive point of view. There is value available across the country right now, as there always is. Inevitably, the further in advance someone books, the greatest opportunity they will find. People who find themselves in a zone that does not represent value to them should move on to the next alternative but there is certainly great opportunity in the context of value.
I thank our guests for their presentation and for giving very detailed analysis of the challenges their businesses now face. I will come back on one or two issues that have already been raised in respect of utility companies now acting unfairly. Do the witnesses want to identify the utility companies they are referring to? Would it be helpful if a clear message was sent out from here by identifying those utility companies that are felt to be acting unfairly?
Mr. Adrian Cummins:
I will furnish the Deputy with the details of the utility companies directly tomorrow. I will email them to him. I have raised it with the Commission for Regulation of Utilities and highlighted that this has to be dealt with. Why is the hospitality sector targeted for deposits while other sectors are not? It is very unfair.
I will move on to the issue of insurance. All of the industry members the witnesses represent have had three months where there has been no activity. Footfall through the premises for the overall 12 months is going to be at most only 60% of what it would normally be. I had a conference call with some of the members of the Irish Hotels Federation in Cork two or three weeks ago. This was one of the issues that came up. In respect of the engagement with the insurance industry, what has the response been? Hotels have now been closed for three or four months. Surely there should be a reduction in insurance accordingly. One of the witnesses might give us an idea of the insurance cost per annum on, say, a 100-bed hotel.
Ms Elaina Fitzgerald Kane:
A classic example is our own hotel which is in the region of that size. Just in the context of numbers, a lot of hotels have had to continue to pay insurance or there are different types of schemes around it. Against the backdrop of a reduced amount of activity in terms of both sales and employment, we are not seeing that mirrored with the same levels of decreases in premiums as they are rearranged. There are some policies that are seeking to exclude Covid also. It is not just what happened pre-Covid but also these new conditions and what we are seeing. This is a source of great concern to us as businesses reopened yesterday after 105 days of cash burn. There are a lot of challenges around. The Deputy may be familiar with Michael Magner in Cork, who is very close to that. It is something that needs to be seriously addressed. It is so anti-competitive in terms of trying to build forward and certainly in terms of the level they cover and the confidence and assurance that comes with it.
Just to give the general public an idea, the quote given to me by one of the hotel owners was that they were paying €90,000 in insurance costs. Would that be reflective of a 100-bed hotel or would it be a lot more than €90,000?
I also want to talk about commercial rates. Again, there is not much knowledge among the general public about the cost of commercial rates to hotels. One of the quotes given to me was that one hotel in Cork is paying €420,000 per annum in commercial rates. Across the country, for a 100 bedroom hotel, what would be the commercial rates? I am referring to rates paid to the relevant local authority. It is important that we get this information out to the general public. People do not realise the cost per week. That is the way I look at it. I am from a self-employed background myself so I am very much looking at the cost per week of running any business.
The costs involved relate to insurance, commercial rates, rent and wages. What is the normal commercial rate for a 100-bed hotel?
Mr. Tim Fenn:
Right across the board hotels pay, on average, €1,500 per bedroom so for a 100-bed hotel that is €150,000. We pay approximately €90 million a year in local authority rates. The key issue now is that when we are open, there is no change in the rates that we must pay. However, businesses that operate over the next year or two may do so at 50% of their normal turnover. The rates liability is based on the historical rentable value of a property. There is no provision in legislation to allow for a change to this during a pandemic such as that relating to Covid-19. Our businesses are acutely aware of the fact that these fixed costs will continue into the future, and there is no provision to allow for some holiday on that. If one were to take it that €1,500 is the average, people in certain parts of Ireland pay €500 but we have members who pay €3,000 per bedroom per annum.
It is important to get that information out there because it is vital that people see the cost factor involved for hotels. It was suggested earlier that the temporary work subsidy scheme be extended. What kind of extension do our guests envisage in this regard and what changes would they make to the existing scheme?
Mr. Tim Fenn:
If we had a blank page, we would rip it up and throw it out. We would start again and provide a simple form and grant aid structure that would be based on the total level of employment expenditure in a business. In fairness to the Departments that were involved, the scheme was developed over a weekend. Unfortunately, it has given rise to many hundreds of questions being submitted week after week by people trying to figure out how to use it. The scheme is unworkable but people are doing their best to work with it.
If it is not possible to change it and use a simpler form or measure, then we ask that it continue for the duration of the pandemic - and until such time as the impact of the virus has abated - and that a time limit not be applied to everybody. Our industry is going provide services for a period beyond those relating to other industries and during which we will be limited because of international travel restrictions and the safety measures that are properly required to make sure people are safe. We ask that the scheme continue until the impact of Covid-19 has abated and its-----
The restaurants located on the street on which my business is located have been seriously affected. Do the witnesses have any idea of the number of restaurants that will not reopen? Is there feedback to indicate the percentage of restaurants that will not do so?
Mr. Adrian Cummins:
Everybody will try to reopen. People are fighting for their business lives. Unless the wage supplement scheme is continued until next year and the July stimulus package contains substantial grant aid, then 50% of all restaurants will close. Some restaurants did not reach the starting line, which was yesterday, and have remained closed. These are seasonal businesses in west Cork and Connemara that cannot open. The situation is so serious that we need a package of measures, VAT reduction, grant aid and the temporary wage supplement scheme. Absolutely from our sector alone we need some sort of burden sharing for the landlords where everybody must take a cut. I mean the banks, landlords and tenants.
Mr. Padraig Cribben:
Insurance is a major issue. The non-payment of insurance due to business being interrupted has been well documented in the press.
There are serious issues in that regard, as well as around forbearance when businesses are closed. There has been a very mixed bag in the context of businesses having been closed for 13 or 14 weeks. In some instances, insurance companies have stated they will discuss the matter when the business renews its policy at the end of the insurance year. Of course, that means the business cannot shop around for options because it is tied to that insurer. The insurance companies have behaved abysmally on this issue, but we probably would have been foolish to have expected anything else, given our experience with insurance companies and insurance generally in recent years.
I thank the witnesses for their attendance. I previously raised in the House the issue of seasonal workers. I am aware that the loss of seasonal work will create hardship for many people, especially students, who very much depend on restaurant, hotel and pub work to get them through a large part of their next term. It is probable that financial hardship will be experienced if we cannot provide supports for those in seasonal work.
Mr. Cribben finished on the issue of insurance and that is where I wish to start. Well before Covid, I was contacted by publicans who were experiencing difficulty in respect of public liability insurance and its significant cost. As we head into the reopening stage, I am conscious that there is a significant onus on businesses with regard to managing distancing, new working arrangements, hygiene, cleaning and time limits. That will be very challenging for businesses. If they are unable to manage it and a venue becomes a location of transmission of Covid or is identified as a cluster, will the venue or owner be liable? What supports can the witnesses' organisations offer to their members in that regard? The Chairman inquired as to who has responsibility for the enforcement of the new working conditions or arrangements that must be put in place. Who will be responsible for telling a person that he or she should be on a premises for no more than an hour and five minutes? How does one deal with a person who is not willing to leave after that time?
Mr. Padraig Cribben:
On the issue of insurance, essentially, the insurers have stated that they have no liability in respect of Covid-19 in the context of business interruption insurance. That is the starting point. The question then arises of what happens if there is an outbreak of Covid-19 on a premises or a person takes a claim against a business on the basis of a belief that he or she contracted the virus on the premises. What we are seeing is that it is being specifically written into the policy of those renewing their insurance that they will have no coverage in respect of Covid-19. Effectively, if there is an issue related to Covid-19 on the premises, the business is on its own. The only potential defence a person would have would be that he or she had followed the guidelines.
This issue goes deeper than that. Significant insurance reform is needed. I am glad the programme for Government specifically mentions insurance reform. Mr. Fenn referred earlier to a particular document needing to be torn up and recalibrated. That is what needs to happen with the book of quantum because we have the highest level of awards in Europe. That is one key element which needs to be addressed. Another key element which needs to be examined is the duty of care. Essentially, if a person walks into a premises this evening, the owner of the premises has an almost absolute duty of care towards that person.
There is nothing about personal responsibility. That personal responsibility needs to be taken on board. Legislation needs to be put in place to underpin a significant change in respect of the duty of care.
Deputy Matthews asked who was responsible for policing the guidelines. I saw a headline in one newspaper during the week. It was very much a case of pass-the-parcel. No one was accepting responsibility, from the HSA to the HSE to the Garda etc. Essentially, what happens in that case is that it falls on the individual publicans to decide to implement, as best they can, the guidelines. The problem is that "as best they can" might not be good enough if an inspector walks in and takes the view the guidelines are not being followed. It would be helpful if there were clear guidelines on who the police are in this situation. Our understanding all along was that it was the HSA, but certainly on the basis of some media speculation the authority is a little shy in this area.
As for adherence to the guidelines, there are a great many of them. We should bear in mind that the guidelines for the pub sector that opened yesterday ran to 23 pages. That is on top of another 23 or 24 pages of guidelines that were in the 5 May document for the general opening of businesses. Trying to distil the language in 46 pages down to a small number is something of a challenge. It places quite an onus on business owners, who are already anxious about their capability to survive. They are already anxious about their employees and customers and viability, as well as what they have to put in place. This is putting extraordinary stress on operators in the market. To a certain extent, this is unfair when there are no clear guidelines. The guidelines are sometimes ambiguous, which is fine but there are no clear guidelines on who is implementing them in the sense that if I have an issue I can go to that person to look for guidance.
There is no doubt we require a different approach on this occasion from that employed during the last economic crash. It requires a stimulus and it must be targeted. It has to be a job-rich recovery.
I am keen to focus on the temporary wage subsidy scheme. It was put in place and it was a very good idea to have industries capable of scaling up once they opened.
How do the representative bodies see the temporary wage subsidy scheme being used in respect of seasonal staff? How would the scheme be used for a typical employee who was employed for the month of August? What would that look like?
Mr. Padraig Cribben:
There is one possible way around it. I would agree with the Deputy that this must be a job-rich recovery. One thing this sector has proven since 2011 is that the recovery in the sector, whatever else it has been, has been highly job-rich. With the proper supports and help, it will be a jobs-rich recovery in this sector again.
It is a challenge in terms of seasonal staff but let us consider the businesses. They will have had several staff in 2019, whether in the months of July or August. That will all be there in the Revenue returns. It should be based on what the businesses had in 2019, whether in the months of July, August or September. Those businesses should be allowed to support to the level of employment they had last year. It is along those lines that the solution has to be found. The first thing needed before we look at the detail of the solution is the will to find the solution. If we can get the will to find the solution in the Department, then I believe with the collective heads around the industry we will find the detailed solution for how an implementable solution would work.
Yes. What are the industries collectively doing to address the behaviour of landlords, for example? Do they envisage leaving this matter exclusively to the Government to address or is a collective approach being taken to burden-sharing with regard to utilities, insurance and landlords, particularly institutional landlords? Has the industry taken any initiatives to try to address this matter, rather than leaving it to individual business to address with their landlord, utility or whatever it may be?
Mr. Adrian Cummins:
I thank the Deputy for a very good question. This is one of the biggest issues we face at the moment. In the middle of the second quarter, with landlords demanding full rent, there is no State apparatus available for commercial tenants to seek to have mediation, burden-sharing or another mechanism put in place. In other countries, such as France and Denmark, the state has intervened, specifically during the Covid-19 crisis, to bring banks, landlords and commercial tenants to the table and put a forum in place. Three weeks ago, the UK created a commercial rent forum for businesses. This does not solely concern the hospitality sector as retailers are in the same boat as we are. This is one of the biggest issues restaurants are facing at the moment. The State has to intervene and bring all parties to the table. While we understand that there is a constitutional issue with property rights, all parties have to play their part in dealing with this crisis and landlords are not doing so.
I will start with some questions for Mr. Cribben of the Vintners Federation of Ireland. On the 2 m or 1 m distancing requirement in pubs, the World Health Organisation's special envoy on Covid-19, Dr. David Nabarro, has made very clear that 2 m is very safe and much safer than 1 m as it protects people from 99% of droplets. The advice on pubs changed in recent weeks when the 2 m distancing requirement to be applied across the board was changed to 1 m provided people are only on the premises for 90 minutes. I am interested to hear what role the Vintners Federation of Ireland played in this change and if it had any medical or scientific evidence to back it up? What role did lobbying by the VFI play in that decision? What interactions did it have with the Government on the issue?
Mr. Padraig Cribben:
The question of 2 m versus 1 m distancing is about much more than pubs. One of the first interventions I saw on this issue was by the chief executive of the HSE regarding emergency departments in hospitals, which are probably the most critical area of all. Our intervention was quite simply to get some independent research done on what the effect of a 2 m versus 1 m distancing requirement would be on capacity in the business. It was purely on capacity and what it showed was that a 2 m distancing requirement would reduce standing capacity to 12.5% and seating capacity to 34%.
If it remained at 2 m in a pub where people stood rather than were seated, there would be 12.5% of the capacity, which is obviously not viable. At 1 m, that 12.5% would become 50%, while the 34% seated would become 65%. All we did was put that into the public domain. We carried out that research together with our colleagues at the Licensed Vintners Association in Dublin and put it into the public domain as something that was very relevant to the viability of a sector employing 50,000 people, with 7,000 small, family-run businesses with small turnovers. We thought that was a proper step to take in the context of the debate about Covid-19.
To clarify, the study the VFI commissioned did not consider the question of the impact on people's health, whether that of staff in pubs or of customers or the wider community. Were there lobbying interactions with the Government about this, separate from the public intervention and the publication of the study?
Mr. Padraig Cribben:
The study was a capacity study carried out by engineers. We have said from day one, and we continue to say, that we will abide by the public health advice coming from the Government. That has been our position from day one. The Deputy will recall that on 15 March, we stood shoulder to shoulder with the then Minister for Health when he decided to close the pubs, and we have not deviated from that since. We made the report available to various Ministers. That was the extent of where we took it to.
Mr. Cribben stated the VFI has stuck with the public health advice, but the public health advice at that stage was quite clear about the 2 m distance. The purpose of the study was to make the case for a reduction of the 2 m but that was not grounded in science or public health. It was grounded in the capacity and viability of pubs, which I appreciate is an important issue, and not in public health.
Mr. Padraig Cribben:
We are not public health experts. We have left the matter to the public health experts and they have issued a set of guidelines for the trade, some based on 2 m and others based on 1 m, and our strong advice to our members has been to follow the guidelines as laid out by the public health officials and the Government.
Mr. Padraic McGann:
For the information of the Deputy, in my premises in Galway, which would have accommodated 28 people standing, it has been reduced to 12 people with the 1 m guideline. There is a hallway that can have nobody in it and people have to walk into the lounge, where the capacity has been reduced from 120 people to 34.
I thank our guests for appearing before the committee. I begin with the Restaurants Association of Ireland. In Waterford, two long-established restaurants have signalled they will not reopen. They are both owned by two gentlemen not of Irish nationality who have been great supporters of business in the city for years, and it is very sad to think it is totally unviable for them to come back to the marketplace.
While I was outside watching the proceedings of the committee, I also watched our new Tánaiste, Deputy Varadkar, speaking about the rate of interest being applied to SME loans. He explained that the 4% interest rate is because of the default rate. In other words, the Government is not prepared to support any default. It would rather pass the charges on to the SME sector.
Deputy McGuinness and I were in the Chamber earlier today talking about the lack of engagement at the very highest levels, including with senior civil servants. Mr. Cummins stated that he experienced pretty poor engagement at the very highest levels. Could he expand on that? Are there any plans as to how this might be redressed?
Mr. Adrian Cummins:
To be very clear, our line Department, which is responsible for tourism, has been very supportive of our industry to date in getting things done with regard to guidelines and advocating on our behalf. When it comes to business supports, the Department of Enterprise, Trade and Employment is the Department whose role is to help all small businesses. It seems that hospitality and tourism have been excluded in respect of much of the grant aid and discussions on support services and getting things done. Therefore, we need a joined-up approach and to get things done faster to support struggling businesses. The July stimulus is the vehicle through which this needs to be fast-forwarded, with an aid package tailored specifically for our sector but also for others, and specifically for large-scale re-employment of the workforce right across the country.
On restaurants, the Deputy is quite right to identify the two individuals concerned in his constituency. It has been hard to make money in restaurants and now it is extremely hard. What we are trying to do is help those affected through this critical time. Many young people get their first job in hospitality and tourism. This job might allow them to earn some money to go to college and to have some spending money. We want to play our part in this recovery. We did so during the previous recession. We created 50,000 jobs in the space of three years. We went from 120,000 jobs to 170,000 very quickly. We can fast-track employment.
I will hand over to my colleague Mr. Power. I believe there is a question-----
I want to ask Mr. Power specific questions but, before I do so, I must say to the Chairman that I believe this committee should be producing an interim report that should go to the Government because we may not have any report in advance of the July Estimates. Therefore, all the chitchat going on here today might count for very little.
I am aware Mr. Power has done some work on the SME sector but there were specific challenges identified, one being examinership lite and the other being the reform of the insurance sector. Could he provide any update in this regard? Has there been any improvement regarding examinership lite and insurance?
Mr. Jim Power:
No. From what I have observed over the past couple of months, there has been no progress whatsoever. There are issues that are not being addressed. If they are not addressed, it is inevitable that many of the businesses that manage to reopen will not survive the next 18 months. The issues need to be addressed as quickly as possible.
I totally agree with the Deputy's assertion that the committee needs to have an input immediately because the stimulus package is intended for around the middle of July. Therefore, if all these issues are not recorded in the system immediately, we will be left with the sad legacy of the closure of hotels, pubs and restaurants that are an essential part of the tourism industry. It will not be possible to rebuild tourism at the end of all this without those businesses. Obviously, there would be a major loss of employment across the sector. With regard to the regional economic contribution, the effect would be pretty staggering and devastating. We are aware of the counties that would be most exposed. We could end up with vacant premises on the streets of our villages, towns and cities.
It goes on. The social and economic damage of not addressing those matters and others will be devastating. I spoke to a person in one restaurant who made a decision last Saturday to shut and it will not open again. The issue was definitely that the landlord was insisting that full rent be paid for March, April and May. There was absolutely no flexibility whatever given to the likelihood that turnover for the foreseeable future would be down by at least 50%.
These matters need to be addressed immediately or the economic and social legacy will be devastating.
I thank the witnesses for their comments. I do need to say how businesses around the country in the pub, hotel and restaurant sectors are haemorrhaging money very badly. In my constituency of Cork South-West I have spoken to business owners from Kinsale to the peninsulas and there is serious concern out there. I will be putting a number of questions and I would appreciate it if the witnesses took note of them. Some of them may have similar answers from the witnesses and there is no point in taking each of them individually. I have so many questions I could be here for the day.
I start by acknowledging a conflict of interest, as two of my brothers own pubs in west Cork and my daughter works in a pub. Maybe this is not something bad as I hear of the daily struggles of publicans. The previous Government spent its time trying its best to damage the industry, which employs more than 50,000, leading to many publicans closing their doors and in turn to massive job losses and a sense of rural isolation in communities. This new Government must step up to the mark now and put together a survival package for pubs and restaurants. From what I have heard, the most they can get so far is €2,000 from the back-to-work grant and they have not even got this yet. Do publicans qualify for any other aid, as if they do not, many publicans will not be able to open their doors again?
I know the fact that the insurance companies have acted shamefully with respect to the pub industry and others during the Covid-19 crisis has already been mentioned. All publicans have business interruption cover in their insurance, but when business was interrupted, many found they did not have cover. People were told that if they could prove a customer had Covid-19 on the premises, a claim could be made, although full proof had to be provided. I spoke to a publican today who told me he has paid €400 monthly as his premium while his doors are shut. This must be one of the biggest scandals of all time. The doors are shut but insurance companies are billing people daily for a working premises. Is the industry powerless when it comes to insurance companies?
Why did the Government allow pubs to open yesterday only if food was served? Why was every pub not allowed to open with proper guidelines being followed? The cost of Sky television packages has always baffled me. I know the charges have decreased when there has been no live sport but these astonishing charges go from between €700 per month to €2,000 per month. That is a massive mortgage in itself. Are vintners able to broker a long-term deal to tackle this massive charge? Publicans do not want to lose the Sky package as it attracts customers, but if some deal is not done, the publicans will not be able to purchase any package. I am specifically referring to this happening over the next year or two.
A hotel or restaurant will have to take on extra staff because of Covid-19. I met representatives of hotels and restaurants, and according to them, the wage subsidy scheme does not cover new staff. Is there any indication the wage subsidy scheme will cover staff taken on or could it be changed in some way?
I will give the witnesses a chance to answer. Prior to Covid-19 I pleaded for a lowering of the VAT rate on tourism but this has become a must since Covid-19 struck. I have called for a zero VAT rate on tourism for the past two months. I have since heard many Fianna Fáil Deputies call for the same, which is welcome. This is not a dig at the new Minister but I am extremely disappointed Fianna Fáil, in government, has not appointed a stand-alone Minister with responsibility for tourism. It is something the sector urgently needed. It would be very soon for a Minister to deliver but is there any indication that under this Fianna Fáil Government we will get what is needed, which is a zero VAT rate? I appreciate any answers, although I know the time is short. The witnesses might be able to touch on some of the matters.
Mr. Padraig Cribben:
I thank the Deputy and I will try to address those matters. I am delighted to say his brothers in west Cork are members of our organisation. The Deputy asked if pubs qualify for any other aid but the only other one we can see is the holidaying of VAT from January to April, along with PAYE.
What actually happened in the early stages is that the Government did a very good job in looking after employees, and we commend that. What it did not do was to do anything for the employers who took the risk to create the jobs in the first place. That is why the July stimulus is very important. The only thing we can see is that they can apply for the restart grant, which is a minimum of €2,000 and a maximum of €10,000 based on last year's rates. That is really all that is available at the minute.
Whether we are powerless in terms of the insurers, I do not believe the issue of the full proof of a case happening on site. They resile from that on the basis of an intervention by the Department of Finance, but the insurers have very much said, "We are not covering, full stop. You can take us on. We'll see you in court. We'll see you in arbitration". We know that in one particular case there are half a dozen cases in the High Court and possibly heading beyond that.
We are a little perplexed also as to the reason food-only pubs were allowed open yesterday. We have been very consistent in our view that there should have been equality of opportunity for all outlets. All of them should have been allowed open on the one day, with specific guidelines and safeguards for public health. It baffles us how having a meal makes something safer than not having a meal. We would be ad idemwith the Deputy on that. We believe that would have been the right way to go.
In terms of Sky, the minimum the full Sky Sports package will cost, and if one is really into sport one has to put BT and racing on top of that, in the smallest band 1 pub is about €1,000 per month. Very simply, Sky do not negotiate. I had a meeting with its representatives once and their modus of negotiating was: "If your members do not think this is value for them, tell them to take it out. We have more subscribers in Birmingham than we have in Ireland". It was as simple as that. The cost is crazy, and it is up to individual members as to what they do now that sport is coming back in some shape or form.
We have spoken about the temporary wage subsidy scheme, TWSS. There will be extra staff required. That is the issue both Mr. Tim Fenn and I spoke about earlier in that there need to be significant variations on that.
The final issue the Deputy mentioned was the VAT rate. One of the points I made in my opening remarks is that there is now an opportunity, under new interpretations of EU VAT laws that have been put in place in Spain, Italy, Cyprus and other countries, that one can have a different rate of VAT for alcohol sold in the on-trade and the off-trade. I should add, and I have said this in various fora around here in the past, that when supermarkets sell alcohol below cost the State actually subsidises that through the VAT system because they can recover a higher level of VAT that they paid on the purchase than they actually pay when they sell. We now have an opportunity to put that right by charging a different level of VAT for alcohol for consumption in the on-trade. We are proposing that that would be put in place for five months to the end of 2020 to allow pubs, particularly the smaller pubs, to get back on their feet. We believe that would be a very welcome innovation in the July stimulus to help the smaller pubs get back up and running again.
While we welcome the new Minister for tourism, and it is not a reflection on the new Minister, we believe that Department should have formed part of one of the major economic Departments. We would have much preferred to have seen it as a Ministry on its own. We must bear in mind that this is our biggest indigenous industry.
I think he will agree. I am sorry but I have to bring in other speakers. I thank Mr. Cribben. His message around the VAT rate is well noted. The next speaker is Deputy Butler for Fianna Fáil who has five minutes.
I will be sharing time with Deputy Ó Cuív. We will take five minutes each.
I thank the witnesses for attending. My first question is for the Restaurants Association of Ireland. Mr. Cummins's submission lists some of the challenges the sector faces on the road to recovery. A number of them were discussed earlier. I would like to ask him about the third challenge, namely, landlords seeking full rent for the period of closure. We have seen many relief measures such as rate breaks offered by local authorities, or certain reliefs offered by the banking sector to SMEs that are under pressure. Are landlords living up to their collective responsibility to be more amenable to tenants in the context of the pandemic? Admittedly this may depend on an individual landlord's financial circumstances. Could Mr. Cummins comment on that?
Mr. Adrian Cummins:
It is a very good question. No, they have not. They have done very little during this crisis. They have backed away from their responsibility. Every other part of this economy has done something to help our country get up off its knees. In our opinion, landlords have done nothing. Some have, but the vast majority - 75% or more - are now demanding full rent for a time when doors were closed while turnover is down to about 25% of what it should be. That is a big issue for us.
Mr. Adrian Cummins:
Some 75% of landlords are demanding full rent with no cuts or deferments. That is wrong. There must be some sort of State intervention or apparatus to bring all parties to the table and ensure burden-sharing. That means the banks need to give some sort of leniency to landlords who may have mortgages on properties. Landlords in turn must give tenants some sort of reduction in rent. This is not just an issue for those of us in hospitality. Retailers are in the same boat. This will have a domino effect.
After this pandemic began and all non-essential businesses had to close, we noticed that 50% of those unemployed are aged between 18 and 25. I know that most of the groups appearing today appeared before the Joint Committee on Business, Enterprise and Innovation, of which I was a member in the previous Dáil. We spoke about the role of apprenticeships and their importance in kick-starting the economy. Last year, approximately 10,000 people took up apprenticeships. They earn as they learn. Do the witnesses see this as a means to help the industry to recover?
Mr. Adrian Cummins:
I see apprenticeships as a way to get people into training and upskill our workforce. As it stands, the model for new apprenticeships like ours, which trains chefs, does not work for the employer. The employer is treated unequally to his or her counterparts in other traditional trades. If a business has to take on an apprentice while he or she is in college, for example, the business has to pay the apprentice while he or she is off site pursuing education. Other traditional trades are subsidised by the State. That is not right. We have raised it with SOLAS and the Department of Education and Skills, now superseded by a new Department. That needs to be fixed. Businesses will not take on apprentices in the middle of an economic crisis if they are penalised from day one.
I thank Mr. Cummins. My final question is for Mr. Power. I will be a little bit parochial here. Mr. Power will be very familiar with Waterford. Across Waterford, we anticipate a potential loss of 4,600 tourism jobs and a hit to the local tourism economy worth €100 million this year. Many industry organisations have called for the 13.5% VAT rate to be reduced because it is unviable. Will Mr. Power outline his thoughts on that? How important will that be to kick-starting the economy? As a country, how low can we go financially? What effects would it have on us?
Mr. Jim Power:
I thank Deputy Butler, who comes from the neighbouring parish to mine. When the decision was taken in budget 2019 to increase the VAT rate from 9% to 13.5%, I went on the record as saying that it was a mistake. The timing was awful, particularly as the impact of Brexit on tourism and the hospitality sector was starting to make itself felt in a significant way.
It was a mistake, the timing was wrong and the whole situation has obviously been exacerbated by Covid-19. It is essential that a 0% VAT rate is one of the measures put in place, probably until the end of 2021. A 9% VAT rate should then become a permanent feature for businesses in the industry. Those businesses should get certainty and not be wondering if the rate will change from budget to budget. It is a major burden on businesses.
Can we do that? Of course we can. There are many examples over the years where tax rates have been cut and tax revenue buoyancy generated. I am unambiguous in stating that the reduction of the VAT rate from 13.5% to 9% in July 2011 made a positive contribution to the contribution the hospitality sector in turn made to the subsequent recovery in the economy. It makes absolute sense to introduce lower VAT rates for the sector. Tourism is one of the most competitive service businesses in the global economy. We are competing with many other countries. Anything that can be done to improve the competitiveness of the product will be important.
Thoughts about our competitiveness on an international scale, unfortunately, are for a time a little bit down the road. International tourists will not be a significant feature of the Irish market for the foreseeable future. It is about helping those businesses to survive and stimulating some demand at the moment. It is, ultimately, a matter of international competitiveness.
I welcome all of our guests. Many of the points that have been made in the submissions are similar to those we heard this morning from Mr. John Moran and his colleagues from SME Recovery Ireland. Businesses need liquidity, urgent grants and supports. More loans are not the solution and cash to support fixed costs is required.
Mr. Cribben made the obvious point that Covid-19 has had a catastrophic impact on the industry with job losses, revenue losses and a reduction in financial resources for businesses. Some of this may have been asked already but I would like to hear Mr. Cribben's views on the matter. When does he think we will have a full recovery in the tourism sector? During the last session, Mr. Cummins said that a five-year strategy is required. When does Mr. Cribben envisage a situation where the industry returns to pre-Covid levels?
Mr. Padraig Cribben:
That is a good question and there is a bit of considering how long is a piece of string in trying to reply. It depends, to a certain extent, on the development of a vaccine, safe travel and things like that. I can say with a high level of certainty that while 2020 is absolutely written off, 2021 is close enough to also being written off because much of the inward-bound tourism for 2021 would have been planned in 2020. On getting back to 2019 levels, that was a record year by any measure and I suspect that getting back to such levels will take at least until 2023, possibly 2024. It will be a gradual development to that point. Before March, we had thousands of viable businesses in this country and, with the flick of a switch, they became unviable.
That is what I am trying to get at. I think we can agree that things will not return to normal this year or next year. It will take a number of years, perhaps three or four, to get back to 2019 levels for all sorts of reasons. It may happen more quickly but some of that will depend on the external issues that Mr. Cribben mentioned about a vaccine and so on. It is going to take some time so we need a bespoke plan for the tourism sector.
In that bespoke plan, from Mr. Cribben's perspective, will he give me some of the key ingredients that need to be included?
Mr. Padraig Cribben:
There would be four specific asks. The first would be the reduction in the VAT rate on alcohol sold in the on-trade for a period to allow businesses to get back on track. The second would be an extension of the temporary wage subsidy scheme for people when they are back at work. That should stay in place until social distancing is gone. One the third issue, one of the biggest costs for business is commercial rates. The pub sector has been revalued over the past ten years. It is one of the few sectors that has been revalued based on turnover. That turnover is going to be significantly diminished so commercial rates should also be substantially diminished and parked for a period while social distancing lasts. There also needs to be a 15% reduction in alcohol excise. We have the second highest level of excise in the EU. It is not just that we are second in the league. In some instances we are six, seven or eight times higher than others. We have had two excise increases, one in 2012 and one in 2013. One of them needs to be turned back, as it were. It is a 15% reduction, the equivalent of about 10 cent a pint or 10 cent on what would be referred to as a small one. They are the four key asks.
Just to add to that, Deputy Butler spoke about tourism in Waterford. After the last economic crash, some regions in the south east had to look at rebuilding, specifically Waterford but also working with Wexford and Kilkenny. It was done on the back of tourism as one of the key economic drivers. Unfortunately, the south east had a very difficult time following the last recession. We are now faced with a tsunami as revenues collapsed across the board. In the tourism sector, unfortunately, the south east is disproportionately hit. We need a sectoral response and strategy and a bespoke solution for tourism.
I thank Mr. Cribben for stating what he sees as the key ingredients in the plan. I will move to Mr. Cummins, if I can. He made an interesting point in his opening statement, which he might like to expand on. He stated:
Some say the market will take care of itself and that unviable businesses will fail. How does one tell a third-generation family business in the hospitality sector in Waterford, Kilkenny, Monaghan, Dublin, Cork or any other part of Ireland that, through no fault of its own, it must fail[?]
I agree with that and I have said for a long time that if we just take a simple market approach, it is not going to work. Mr. Cummins outlined the challenges in his opening statement. The second was insurance companies not paying out on business interruption claims. What interaction has Mr. Cummins had with the Department on that issue and what does he see as the solution to the problem?
Mr. Cummins spoke about landlords seeking full rent for the period of closure and said 75% of landlords were looking for full payment. That is the anecdotal evidence I am getting back as well. It seems the Department and Government are saying we have to depend on the good will of landlords. Depending on the good will of landlords does not seem to be working. We are appealing to landlords to do the right thing but it is quite obvious from the figures Mr. Cummins has given that they have not done the right thing. What recommendation has the Restaurants Association of Ireland made to Government to deal with this in a more proactive and practical way?
Mr. Adrian Cummins:
I will deal with the question on landlords first. Obviously there has to be a State forum involving the State, the landlords, banks and commercial tenants, to hammer out some sort of a process to deal with the economic crisis and how it affects commercial rents. At the moment, we do not have a structure in place. That needs to be done and we have recommended that it should be done as quickly as possible or else we will have a tsunami of closures.
Everybody loses - the banks, landlords, tenants and the State. It is not just the hospitality sector but retail as well.
On insurance, the Restaurants Association of Ireland is part of the Alliance for Insurance Reform, as are the other organisations represented today. We have put forward a suite of recommendations to the Department of Finance and the Central Bank. The big insurance companies will grind down any small business and make it fearful of taking them on, either through arbitration or the courts. They will make it tough to do so and ensure it is a lost cause for every small business. They will make sure that any company that goes through the process of trying to get business disruption relief at the moment suffers. That is wrong. The Minister for Finance needs to bring insurance companies back in again and tell them they need to do what they-----
If I may interrupt for a moment, we can bring all the stakeholder groups we want back in again. Mr. Cummins may have seen during the previous Dáil term that the Joint Committee on Finance, Public Expenditure and Reform, and Taoiseach brought in representatives of all the insurance companies, one after the other, and chastised and tried to get information from them. The committee got very interesting information from them in some respects but nothing changed. Change will only come if there is political will to make change.
As my time is almost up, I will return to the point about not depending on the market to ensure the viability of businesses. The same argument has been made about wages. Given that business organisations have asked that the Covid payment should remain, has the Restaurants Association of Ireland taken a different approach to the living wage? If a living wage was proposed, would the association support it in the medium to long term?
Mr. Adrian Cummins:
We put forward our recommendations to the Low Pay Commission, which is independent. With regard to movement on the minimum wage or a living wage, we have not been asked to put forward any recommendations. Let us see the Low Pay Commission's recommendations. I believe all sectors will do exactly the same thing. We are in uncharted waters economically. If the Deputy is asking us to support an increase in pay to a living wage that is unsustainable for small businesses, we cannot sign up to that.
We have spoken about business interruption insurance and reform in general. The Restaurants Association of Ireland is part of the Alliance for Insurance Reform. I do not think Mr. Cummins had an opportunity to answer Deputy Cullinane's question on whether he met the Minister for Finance.
I have spoken to a number of people in business in my area about insurance. Do the witnesses have anecdotal evidence, or have they seen data to show, that insurers are increasing annual premiums? If so, by how much are premiums increasing?
Mr. Adrian Cummins:
It is between 15% and 20%, on average. Obviously, Covid has been in the country since February. Premiums are being renegotiated at the moment and I can safely say that the insurance companies are using the situation, possibly for their own benefit. We can see that, on average, premiums have increased by between 15% and 20%.
This is an issue of concern to me. I wrote to the Central Bank on it last week. I will send a copy of the letter to Mr. Cummins for his records. I ask him to stay in touch with me regarding any data he gets on it. I have asked the consumer protectorate division of the Central Bank to keep an eye on this issue because it would be inherently anti-competitive for business. As I think Mr. Cummins will acknowledge, the Government is providing a range of restart and liquidity grants, albeit not all of them have been released and there are more to come under the July stimulus. However, they are not intended to support the insurance industry. Rather, they are intended to support businesses such as the members of the RAI. I ask Mr. Cummins to stay in touch with me on that matter.
On the reduction in VAT, many businesses were able to use the previous reduction in VAT to invest in their businesses. That involved, for example, supporting other industries such as the construction industry. Those businesses now have commercial loans that will come due in September. It is clear that they will be able to access the refinancing that will be available under the new Department of Enterprise, Trade and Employment legislation, which will not undergo pre-legislative scrutiny and, as such, will happen faster. Would the industry be interested in a conditional VAT reduction, where the difference is used to support other industries such as construction, or was Mr. Cummins referring solely to an absolute reduction in VAT?
I am aware it is a labour-intensive industry, but it has already received significant labour-related financial supports. Is Mr. Cummins willing to engage on a VAT reduction that is linked to support for another industry, through refurbishment or other matters, for example, or is he simply seeking an absolute reduction in VAT?
I accept that and I am sure that will happen. On the range of supports under the July stimulus and others, questions have been asked regarding the nature of supports provided to businesses. The Government has taken a nuanced approach of trying to provide targeted supports for different-sized businesses and employers first, rather than allocating a blanket cash amount for every business. It has done so because it recognises that different businesses have different needs. Before Covid, some businesses were approaching a point of non-viability, whereas other businesses were viable and doing very well. Does Mr. Cummins accept that the businesses that were clearly viable before Covid should take precedence over those which had a question mark over their viability?
Mr. Adrian Cummins:
That is a very good question. The SME Recovery Plan authored by Mr. John A. Moran and to which my organisation and many of the other organisations represented here today contributed identifies the credit review office as the appropriate agency to examine viability. Businesses that were viable prior to Covid should be looked after. Any question marks over a business's viability prior to Covid can be very quickly cleared up through an independent review. We believe the Credit Review Office should be responsible for that task. During the previous crisis, it worked with the banks and I think it can do its work again. However, we need to get cash and grants moving to inject liquidity into businesses. There are many suppliers in our sector that need to be paid and there is a significant amount of outstanding legacy debt. If we do not address that, the domino effect will lead to redundancies and the collapse of businesses throughout the country.
There are three themes on which I wish to ask questions. I will be pleased if I manage to deal with them all. The first is seasonal employment and hotels, guest houses, etc., that only open for part of the season. What percentage or number of hotels open seasonally, that is, are closed in January and February? How many hotels operate on a skeleton basis in those months? Has the Irish Hotels Federation discussed with the Department the possibility of allowing employers to avail of the temporary wage subsidy scheme, TWSS, based on employment patterns in the previous year? If that is not done, seasonally based operations will not be able to avail of the TWSS. If that issue was raised with the Department, what was its response?
There is a second part to that question. Do the hospitality sector representatives believe the TWSS should be extended for a year to bring certainty to the hospitality and hotel industries?
Mr. Tim Fenn:
First, there are approximately 48,000 people in our industry who are seasonal employees. They are the people who are being left behind on this. As mentioned earlier, we have hotels that are next door to other hotels that have access to the TWSS. They are competing with hotels that do not have access to the TWSS for seasonal employees. We are saying it would be quite easy to use historical Revenue records to identify those who should be included on the TWSS.
We do not have a figure that identifies exactly how many seasonal properties are affected by that. The level of employment is the key figure for us. While some businesses are open, they are still seasonal properties and they may simply be ticking over for a period of months. Some are open only for July, August and September.
I wish to move on to my second issue. Do the hospitality sector representatives have any idea, between the three of them, as to the respective percentages of hotels, restaurants and pubs that will be paying rates in excess of €10,000 per annum? Has any request been made to lift the cap in this regard for the hospitality industry in the context of the restart grant? If the sector representatives have made that request, what response has been received?
Mr. Tim Fenn:
This is significant. The average size of a hotel in Ireland is approximately 70 bedrooms. As mentioned, the €10,000 limit equates to a hotel or guesthouse with 7.5 bedrooms. It is completely irrelevant to most of our industry. We have asked for that to be lifted. It does not look after the small and medium-sized business sector. It has a limit of 50 employees. It is counterproductive as well because at the end of the day, we are trying to help businesses that have employment or that are labour intensive. We have asked and there has been no response to that either yet.
My final question relates to banks, landlords and insurance companies. Do the hospitality sector representatives believe it is foolish for us to rely on these institutions to act in a benign way of their own volition? Would the sector representatives agree with me that these institutions do not part with their money easily? Do we need the Government to step in either to force action or to come up with alternative support, rather than depend on voluntary action or forcing businesses to try to take expensive legal actions?
Am I right in thinking that loans, especially those at rates of 4% or more, are no substitute for straight support, as they are only deferring the problem not solving the problem?
Mr. Tim Fenn:
The first question relates to Strategic Banking Corporation of Ireland supports, as well as grant aid and the loan guarantee schemes. There is also an Ireland Strategic Investment Fund, ISIF, initiative. None of these are working, especially for our industry. The banks have their own issues about how to protect their own balance sheets and maybe how they price their products etc. We are asking that any Government initiative should look at a different structure to release money to the businesses that need it most. There should be an investment bank or agency to give the Government the channels to release that money without getting caught in the trap of the banks trying to protect themselves. The banks have a job of work to do but at the end of the day what we have is a crisis. The Government should be prepared to help small and medium-sized enterprises to recapitalise in a manner that is more than just asking them to go to the banks and look for borrowings at 4% or whatever - the percentage does not matter.
At the end of the day these businesses need liquidity. These are businesses whose balance sheets have been damaged by Covid-19 because were asked to close in the interests of public health. What we and they are asking for now is for the Government to figure a way of recapitalising those businesses so that they have the resources to have a fair chance of survival going forward. If this does not happen there will not be the same recovery that we should have and there will be a situation where the 270,000 livelihoods that exist right across the island of Ireland, particularly on the western seaboard, and 70% of these livelihoods are outside of Dublin, will not be able to be secured.
I have one remaining question as we must conclude.
I saw various letters by insurance companies refusing to honour claims, claims that were based on the outbreak of infectious disease, where the insurance companies were saying that one needs to prove that there was an outbreak within 25 miles of one’s premises. I have two “yes” or “no” questions on that. Has Mr. Cribben seen any such letters and have such letters been sent since the CSO published information on the district electoral divisions, DEDs, in which outbreaks were identified? In other words, did the companies stop using that reason as an excuse when that information suddenly became available to the insured person?