Oireachtas Joint and Select Committees
Tuesday, 30 June 2020
Special Committee on Covid-19 Response
Impact of Covid-19: SME Recovery
I welcome our witnesses to the committee. This morning's session is dealing with SME recovery. From committee room 1 we are joined by Mr. John A. Moran, chairman, and Mr. Derek Butler, founder of SME Recovery Ireland; and Ms Jean McCabe, managing director of Willow boutique.
I draw the attention of witnesses to the fact 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 the committee. However, if they are directed by the committee to cease giving evidence on a particular matter and they continue to so do, they are entitled thereafter only to a qualified privilege in respect of their evidence. They are directed that only evidence connected with the subject matter of these proceedings is to be given and they are asked to respect the parliamentary practice to the effect that, where possible, they should not criticise or make charges against any person, persons or entity by name or in such a way as to make him, her or it identifiable.
We expect witnesses to answer questions asked by the committee clearly and with candour, but witnesses can and should expect to be treated fairly and with respect and consideration at all times. If witnesses have any concern in that regard, I ask that they raise it immediately to the committee.
I invite Mr. Moran to make his opening statement. I ask that he limit it to five minutes. The statement has been circulated in advance.
Mr. John A. Moran:
I thank the committee for inviting us to address this really important topic. SME Recovery Ireland is an umbrella platform. It has sprung up to give small businesses and the 1.5 million people relying on them a strong voice during the Covid emergency.
Many of the principles that we use are of general application. I am here as chair and I am joined by Mr. Derek Foley Butler, founder of this initiative, and Ms Jean McCabe, who is a small business owner because we think it is really important that all of these conversations include the voices of actual business owners.
The committee already has our submission and has seen the plan so I can move fairly quickly. As I said, we are endorsed by some 26 industry bodies that have come to support the plan since it was first published in April. Five local authorities have also come behind the messaging in the plan and its measures. The most important message that I would pull out of the whole thing is as follows. Everybody is aware that SMEs across Ireland are dying at the moment. They need an urgent bailout of, we reckon, approximately €15 billion that involves an immediate cash injection of €6 billion, which is a much larger number than has been talked about in the past. This is required so that businesses would be restructured. The money needs to be given to them as grant aid and not as debt. We learned some lessons from the last crisis and we can talk about the importance of not having too much debt.
At a macro level I would mention that we cannot be afraid to spend this money. Unlike the last crisis we are now in a position where we can borrow and we need to use that borrowing on the most valuable choices for us. Dr. Stephen Kinsella has already addressed the committee. He went into this matter in some detail and explained how important investment is as opposed to things like structuring, wage support and the rest, and that investment is more useful. We would say that saving and investing in SMEs is now an investment to save the jobs in that sector. It can also be used, and should be used, to modernise the SMEs and create new jobs for the 21st century. That is the way to pull us out of the recession. There is no point in waiting. Perfection is the enemy of survival for many of these firms and we cannot wait. The July stimulus package presents an opportunity to introduce a scheme like ours to recapitalise firms, depending on the severity of their losses. The most important thing is that it needs to be fair, fast and done easily, for which we have recommended the Revenue Commissioners. The most important thing is that cash gets out quickly and in large amounts.
As I mentioned at the beginning, it is not a question of asking the academics like Dr. Kinsella and others or, indeed, us, one must ask the SMEs. By that we mean also small firms, not just big industry and their representatives because only they really understand on the ground what will save us. They have told us for the last couple of months that they need cash and not more mountains of debt.
The support package of the Government was announced as €6.5 billion only two months ago, built up in iterative pieces. The figure was based, because of the legislative vacuum of having no Government and an Oireachtas, on another crisis - the Brexit measures - where there was time to plan and gauge viability. We are saying that has not worked. In fact, the numbers show that only €100 million of cash has been disbursed in Ireland while across Europe there have been percentages ranging between 12% and 15% of GDP being disbursed to save industry. We need to move quickly to reallocate and change those schemes but base them on a pandemic, which has recognised that 34% of firms have closed completely and 85% have had their activities significantly restricted.
What worries me most, having been around for the last crisis, is that I do not think that the State is getting ahead of the problem and it is patching up. I do think we have a handle on the cost of the problem and the extent of the crisis, and I do not want to see us make the same mistakes again.
Our principles are very simple and are as follows. SMEs are critically important to the fabric of Ireland right across our rural communities and in our cities. We need to recapitalise them with a large amount of money. We think that is €15 billion, which we can debate later, with €6 billion released immediately as equity. We also need to give SMEs a boost to demand. What has been different is that for the last couple of months we have argued that we want this done as grants and not as debt. That is following what our European counterparts have done. Even up in Northern Ireland there are grants of £25,000 readily available to firms while our firms are looking at numerous pages of an application form. We are saying we need to move quickly and recognise the importance of the sector like what was done in the programme for Government but time is rapidly running out and we need to see urgent action. The members, as elected representatives, probably understand this as much as us, and realise that these businesses breathe oxygen into local communities. These businesses are the ones that support the local GAA teams and buy tables at charities. We need now, in a similar spirit of solidarity that they showed by closing their businesses to protect us, to act to protect them.
I thank our guests for taking the time to come before the committee. I thank Mr. Moran for his statement. He stated that only €100 million of the €6.5 billion stimulus package has been drawn down and suggested that the funding should be reallocated. To where should the funds be reallocated to support SMEs most effectively? How can we improve what is on offer? What blind spots do we need to address?
Mr. John A. Moran:
There is a lot in those questions. I hope that in the next couple of hours we will get into the matter in more detail. As I stated in my opening remarks, the most important point is that we need to get cash quickly to firms. Bills are piling up and need to be paid. A bill that is not paid by one firm impacts on another firm's revenue and creates a problem. The issue does not disappear as a result of a firm hiding from the bill. SMEs will not take on debt at 5% or 6% which involves filling in lengthy application forms. Some people have the view that the State has been very generous in its support of SMEs through allocating €6.5 billion, but the measures are not working. Firms have only taken up €100 million of that funding.
Prior to this session, my colleagues and I discussed how, in the previous crisis, the SME sector was riddled with debt, much of it taken on to fund property speculation. That held those firms back from being able to recover. Banks would not restructure their debt. They will not follow that path this time around. We need the State to release a large scheme of grant aid. It can do so in two phases. In our report, we have recommended that cash be made available quickly in this emergency phase. If that is in the form of loans, that is fine, as long as every firm knows that once they have calculated their losses, they can convert that debt into grants which can be issued by the Revenue. That will allow us to move quickly.
Mr. John A. Moran:
The difficult part is that firms have built up losses and we need to get those losses sorted out. We have recommended that a firm-by-firm analysis be carried out by the Revenue. That will take a certain amount of time. The idea is to move it out quickly. There are many aspects to this issue. I do not think the guarantee scheme is working because the amount of the guarantee is not significant. It is restricted to banks. They are not the only ones providing debt at the moment. Many firms no longer have banking relationships. We need to find new mechanisms. The most important thing we could do through the July stimulus would be to find a way to scale the problem and announce that the aid is coming quickly and that firms will not be obliged to fill in lengthy application forms to draw it down. It involves relatively small amounts of cash compared with the value of the investment.
I was a small business owner. Yesterday, I met the owner of a small business that specialises in occasional wear for children. Obviously, the business is seasonal and cash flow is essential. Stock has been sitting in the business premises for three months. Suppliers must be paid. I ask Ms McCabe to address the situation faced by that small business owner.
Ms Jean McCabe:
I thank the committee for inviting me to participate in today's session. Fashion, retail and tourism have been significantly impacted, given their stock holding for the time of year. The Deputy's constituent who owns a children's clothes store was probably at her peak stock level due to new season stock coming in. There would have been a payment plan in that regard over the following three or four months, but obviously the business was closed. To reiterate the point made by Mr. Moran on not getting into more debt, many businesses, especially in the fashion industry, are reopening with significant debt because they were at their highest point of stock holding when businesses were forced to close. Taking on more debt is not an option because the trading environment going forward will be quite difficult. I am in the fashion business and have spoken to colleagues who are in the occasion wear sector. The challenges facing them are so great that they are at their wit's end as to whether to continue trading. That reinforces the point made by Mr. Moran on the need for quick action. Businesses need cash and liquidity now. That will feed back through the supply chain.
The important point is that the Government measures thus far have been drip fed. There have been continuous small stimuli, but they have not really instilled confidence.
This is part of the message that the committee needs to give the business community and small and medium-sized businesses. The committee should remember that SMEs employ more people than anyone else in this country. We are dotted around the four corners of Ireland. We are the supporters of every GAA club, Sláintecare and local charities. We give back more than anyone else. An employee is not a number. Employees are our brothers, sisters and neighbours. It is important that the sector is recognised as the backbone of the Irish economy. It needs to be treated in this way. I heard the chairman of the Irish Fiscal Advisory Council, Sebastian Barnes, say the same thing. He said the SME sector would determine how quickly we get out of this crisis. That is really important. Until now, the SME sector has not been part of Government policy. It has been a secondary thought. Everything is export-driven and about foreign direct investment. Right now, the domestic economy is where the opportunity is and this sector really needs support.
On RTÉ's "Morning Ireland", Mr. Moran stated that support measures such as the extension of the wage subsidy scheme beyond August must be announced in a timely manner, ideally as part of the July stimulus package, to allow businesses to plan forward. How important is timing in respect of stimulus generally? How important is timing in terms of competing with SMEs in other European jurisdictions? As we know, retailers in particular are competing with online traders. How significant is timing as an ally in saving our SMEs?
Mr. John A. Moran:
Timing is everything. Deputy Butler is asking questions to which I keep wanting to say, "Yes". She is absolutely right. Timing is critical. For those running a business, cash is already depleted. Most businesses run on two months of cash reserves, on average. They have been closed for three and a half months. They are now already very negative, as Ms McCabe has just said. If we wait another few months, it will be worse. I know it is difficult and the conversations that are taking place around the programme for Government have been long. The legislative vacuum has meant it has been difficult to get legislation introduced, but SMEs need to have a path they can follow. They need to know with certainty that stuff will arrive on time. They need to know when it is coming and that it will be significant enough in size to help them to plan their way forward.
They run on cycles. They need to know. This is why waiting until 28 August to extend the wage scheme means they do not know whether to keep people on the payroll for the following month or whether they will have the cash subsidy. We are talking about real people's lives. We need to recognise that we need to move quickly to find ways to help them to get through the crisis.
I will follow on from that and ask about what happens in the event of a re-emergence of this virus. Concerns have been expressed in this regard by Dr. Tony Holohan and the World Health Organization as world travel begins to reopen. We are seeing all over Europe at the moment that the virus is re-emerging. How potentially devastating could a further period of lockdown be for small businesses?
Mr. John A. Moran:
Again, it depends on the level of support from the Government. I am not sure if members heard the mayor of Leicester on the radio this morning. It was a really important reminder to us all that this virus has not gone away and that a second wave could come. The mayor was describing the fact that now, because of the lockdown in Leicester, balance sheets in businesses in Leicester will be disproportionately harmed, in effect because of the new lockdown measures in that city compared with businesses in other cities. Of course as part of the structuring of our new stimulus and what will happen in October, we could build in protections so that firms know exactly what would happen second time around if that were to recur in the country and to explain how they might get through that. Let us go back into history and look at what happened at the time of the Spanish flu. The cities that were absolutely devastated were those that got a second wave. I am unsure whether that was because the community could not quite do it a second time in terms of the support or, more likely, it was because firms and businesses were so significantly weakened by the first crisis that they simply could not battle their way through a second one. Deputy Butler asked me a question about timing. It is really important that we move quickly and find a way to do it. As we said in our plan, this does not mean that all the measures will happen straight away and that they will be put in place.
In his statement, Mr. Moran called for an immediate liquidity injection of €6 billion followed by a further €9 billion boost. Would a deferred loan scheme with 0% or low interest rates designed to help SMEs in the coming months be an effective way of getting liquidity flowing in the sector?
Mr. John A. Moran:
We could get money out quickly. Early on, the Central Bank identified that we may need as much as €5 billion or €6 billion in liquidity. We have disbursed €100 million and we are at the end of the crisis. That a really bad indictment of our schemes when we think about it that way.
We need to move quickly to get the money out. The fastest way is probably a very significant guarantee scheme that allows the banks and other lenders to get money out quickly. As Ms McCabe said, the problem is that getting money out as debt is not the answer either. Firms would be afraid to take on that money. The best way is to get the money out quickly as debt and then recapitalise it by doing a type of debt for equity arrangement. As the grants are disbursed, they could then be used to pay down the debt and firms would not have a legacy debt going into the last part of the recovery, where they would need more working capital to come through from the system.
I have one follow-up question. Mr. Moran mentioned the localised restrictions in Leicester. In the event of a resurgence in some parts of the country, would it be better to impose localised restrictions or should restrictions be applied at national level, as all the measures to date have been?
Mr. John A. Moran:
I am not equipped to answer that question. We have the benefit now of being able to watch what happens in Leicester. One of the advantages we have here is that many other countries have gone ahead of us and we need to learn from how their approaches have worked. The important message is that everybody listening to what is happening in Leicester today must realise the importance of good behaviour and of ensuring we do not have to answer that question by keeping the virus down. NPHET and other committees can analyse that much better than I can on the spur of the moment.
The programme for Government does not include any commitment to interest-free loans or new grants. There is only one Covid specific grant, the restart grant, which IBEC estimates to be worth on average €3,000 per firm, a minuscule amount in comparison with what other jurisdictions have provided as a restart grant for small and medium-sized businesses. I have spoken to small and medium-sized businesses and the various sectors and the greatest demand is for grant aid. Given that and in light of the costs involved in restarting businesses, is Mr. Moran disappointed that the programme for Government does not include specific interest-free loans or new grants?
Mr. John A. Moran:
We would have loved if the programme for Government had simply accepted our programme and worked it through, as all the firms and business representatives have done. I recognise, having been a Secretary General, the difficulties presented by politics and how it comes into this. I took great comfort from the fact that when we started this conversation and launched this programme, SMEs were not being talked about. We see now in the programme for Government a significant acknowledgement of the importance of SMEs. There is also an important line in the programme, which I assume meant that people did not know how much or what would be required yet, where it states the Government will consider providing much more grant aid for firms. We are taking that to mean that, hopefully, people in the Department of Finance and Central Bank are hard at work trying to work out the scale of the damage to SMEs in order to decide how to do this. We think it could be as much as €6 billion. Schemes that allow for €2,000 to be provided to businesses are simply not enough. It is important that we know what the damage has been. If we can work out the extent of it, whether it is €5 billion, €6 billion or €7 billion - whatever the right number is - we have to work out a way to recapitalise firms to allow them to recover from that loss. I reiterate that giving €6 billion of loans that people have to repay over the next six years is not going to be the solution.
Mr. Moran is not necessarily disappointed that there was no commitment in the programme for Government. Is he confident that these specific areas will be addressed in the Government’s July stimulus package? The strongest demand among small businesses is for some form of additional grant aid. For those who can afford to borrow, interest-free loans are the only option given the predicament in which they find themselves and the uncertainty about the future. Is Mr. Moran confident that these issues will be addressed to the satisfaction of many of the small businesses he represents?
Mr. John A. Moran:
I can only say I am hopeful that people are listening. I think that is happening. Of course, we do not decide. While we are delighted to have the opportunity to speak to the committee to try to explain matters, the committee will be a key part in ensuring that this happens. If its recommendations go across the Legislature, ultimately the committee will have decided, not us. We can explain what the problem is and we can try to explain what the solutions are, but we have to be dependent on all our politicians to make the right choices. I hope that they will because, as we said, this is an investment well worth making for the future of our country and getting out of this recession-----
I want to raise another issue that has come to the fore in the past week. Many small businesses have reopened, are coming under immense pressure from landlords in respect of their rents and are looking for repayment plans. Many people who have contacted me, particularly from small businesses, have said the pressure they are already coming under is intense. It might not just yet have come to the fore in vast volume but I suspect that in the coming weeks and months it will be a major issue. When I raised this matter with the then Minister for Business, Enterprise and Innovation, Deputy Humphreys, she responded that it is up to the business owner and the landlord. Does Mr. Moran believe that the Government should play a role in this in light of the pressure it is putting people under? Some local businesspeople have said that if their landlords continue to insist on specific repayment plans, it will put their businesses under enormous pressure, to the point where it may have to close.
Mr. John A. Moran:
Landlords and rents are just costs for businesses. Ultimately, the choice we all have to face is who bears the burden. The loss of €6 billion or €7 billion will not just disappear into thin air, so we will have to find a fair way to allocate the costs. In some European countries, there have been conventions, or what one might call codes, where governments have brought together some of the major landlords to agree what the fair resolution of that would be-----
Mr. John A. Moran:
There is no silver bullet here. It is a matter of having many different measures. Having a code and an understanding of what is fair for landlords, businesses and the taxpayer, who is caught in the middle of all this, to bear is very important.
There are tools that can help. We talked in our report about bringing in examinership lite. The UK Government, as we understand it at the moment, is rushing through a new Bill on corporate insolvency to ensure that the balance of power between large banks and large landlords, on the one hand, and smaller firms, on the other, is in a different place. It is very similar to what we introduced the last time around in the context of personal insolvency. While there are improvements to be made, it is all about ensuring that firms will have more negotiating power and will not have to pay a fortune to lawyers and others to do that.
The Government seems to be slow in taking advantage of changes in state aid rules and the very low interest rates available in respect of lending internationally. Has Mr. Moran an opinion on that in light of the vast number of SMEs looking for interest-free loans if they are in a position to apply for them? He might comment on the fact that the Government has been slow to recognise that that is what businesses need.
Mr. John A. Moran:
We want to have cash in the system. Interest-free loans are still loans and they have to be paid back. There are some things that firms need money for, such as investment in innovation, where interest-free or low-cost loans are absolutely the right answer. For the stock that Ms McCabe mentioned, however, which will no longer be sold other than in a liquidation sale, an interest-free loan would not help. We need to recognise that it is a loss and compensate the firm for the loss so that it can buy stock for the next season.
I turn to something that is starting to come to the fore. Mr. Moran represents small and medium-sized businesses. We are all looking to encourage people, through the staycation campaign, to holiday in Ireland.
Issues have been flagged recently regarding the many people, particularly families, who were quite stunned by what hotels quoted them for a short break. We are aware that hotels, and the tourism industry in particular, have been hit but families have been hit also. I have heard of quotes of €1,400 for a three-night stay in bed and breakfast accommodation. One could get to anywhere in Europe for a week or ten days for that sort of money. In the longer term, it is important that people do not feel they are being charged exorbitant amounts while being asked to stay at home for their holidays. If they are, it will do the hotel industry serious damage. If people feel they are being charged excessively for hotel stays when they feel they are doing the right thing by not travelling abroad, there is surely a point to be considered. Does Mr. Moran have an opinion on this? It will do the hotel industry damage in the long run if people feel they are being ripped off for staying at home. It is certainly not value for money for them or their families. Maybe Mr. Moran would have an opinion on whether hotels would be wise not to charge excessive rates for families in the forthcoming months.
Mr. John A. Moran:
There are a couple of points I wish to clarify at the beginning. The Deputy says I represent SMEs but it is important to remind people that I really see myself as an independent chairman. I am not part of any representative group; I am adding some experience and expertise to help to tease out the policy issues at play. I believe representatives of the Irish Hotels Federation are to appear before the committee this afternoon. I suspect they are the right people to ask the question. Yesterday I was talking to a hotel owner who predicts 25% occupancy in the hotel for the summer season. The hotel does not even break even at 35% or 40%. That is not to say the hotel will just increase its prices. To go back to first principles, it is really important that the Government act quickly and get ahead of the problem. If every one of the affected businesses, including hotels, understands what its cash flow is and that it is supported by Government measures to trade through one of the most difficult years of trading we will probably see in this country - a year even more difficult than any in the last crisis - it will indicate what the businesses need to have built into their processes. Whether a particular hotel is affected or not, it will allow all of the business to price properly in determining how to get out of this crisis.
I repeat what the Deputy said: we need to move quickly and at scale, and we need to find a way to give businesses certainty about what the next year and the year after will look like in terms of the supports they have from the Government.
I believe Deputy Colm Burke wants to contribute after me so I will take five minutes initially and then let him take the other five.
I would like Mr. Moran to clarify something in respect of which he might not want to speak or act in a particular way. He keeps saying we want money out as quickly as possible and that there is an estimate of approximately €6 billion. This leads to a discussion on debt and loans, including low-cost and interest-only loans, all of which have been mentioned. Specifically, what is the primary way in which Mr. Moran would like the grant aid to be introduced by the Government, maybe in the July statement? Is it a fixed amount? Is it a proportional amount? Is it a pure grant? Should there be an element of a repayable low-cost loan? Should it be broken down on a sectoral basis? If Mr. Moran had two or three primary wishes regarding the approach, what would they be? I would appreciate it if he could respond relatively quickly because I want to go into another area of questioning.
Mr. John A. Moran:
Let me try. This will help the conversation to run. When we set out the measures at the beginning of May, we identified three ways, or three periods, in this crisis. There was the initial emergency, for which cash was absolutely required as soon as possible at a low cost and in an attractive way.
There was a recapitalisation of the firms for the second phase as they reopened and looked for new stock. There is also the recovery phase.
I am going to interrupt Mr. Moran as I want to ask a specific question. When he states that cash is required in the initial period, I am trying to deduce whether he is seeking a scheme like that in Northern Ireland, where everybody would get €25,000. Is he looking for small and medium enterprises to be able to say very quickly that they need €7,000 or €47,000, for example? Is a no strings attached cash grant being sought? Is it the first initiative Mr. Moran wants to see, regardless of loans or anything else?
That is the point I was not getting and I apologise for that. I started a business in 1993 and ran it as a small and medium enterprise until 2016. The €25,000 would be absolutely brilliant for some SMEs and absolutely nothing to others. Is this in the first instance to get money out quickly? Is the organisation seeking variable amounts or some type of instant and one-off payment to fit everything?
Mr. John A. Moran:
The measure being used in other countries is to disburse loan amounts at very low interest rates quickly based on their trading, for example. They might get three months of their revenue or twice their salary bill, for example, and they would be able to apply for it quickly. They would owe it to the Government unless they can prove that the Covid-19 losses they incurred come to a certain amount, in which case the amount would be written off.
I thank the witness. I appreciate others hope to follow up on that. I have another question linked to a witness coming before the committee later today. The witness mentioned earlier the implications and real dangers of the necessity for a repeated national lockdown or a localised lockdown. Ironically, the SME sector feeds into hotels, restaurants and other businesses in communities and this is an interlocking matter. Ultimately, SMEs are part of the community. They comprise the people in the community, including neighbours, friends and families that we meet every day. They are the SME owners throughout the country.
Does the witness have a view on international travel into the country? There is much talk about Irish people going abroad, but what about opening our country to international travel? Without it, there are tranches of SMEs that will fail. That will happen if nobody arrives into Ireland, no matter how good a staycation is. Is Mr. Moran in favour of limited opening to support SMEs or does the organisation take a position on this?
Mr. John A. Moran:
The Deputy wants a quick answer but I do not have an answer I can give him in the short term. It is a complex matter and it depends on what measures are there and how we provide support. We must do everything we can to try to prevent a second wave and protect SMEs during that second wave if it comes.
With due respect, I have run an SME in that area. It seems an organisation is speaking for SMEs but does not have a view on this. Grant aid is important but it is also important to know the opinion of an umbrella organisation for SMEs. Many SMEs are very much affected by this but the witness has indicated it is not an area he wishes to discuss.
Mr. John A. Moran:
It is one of the decisions that will need to be made that will have an impact on the amount of losses that firms have. In the short term, by restricting travel, it may cause more losses. If a second wave were to be caused, that would create even more losses. There is a balance to be achieved.
Mr. John A. Moran:
I say that we could increase or decrease the amount of grant aid we get to firms in order for those decisions to be no longer mono-dimensional. The difficulty up to now is that many of the decisions we have taken about reopening dates, closing dates, 1 m or 2 m all have economic consequences. If the State is prepared to underwrite those decisions, I am sure many of the SMEs would not mind as much about it. When we do not underwrite the consequences of those decisions, like the people in Leicester today and the businesses opening, then it is a totally different analysis. If the Deputy were to tell me that there was a €6 billion or €7 billion grant scheme already in place, the answer to that question would be very different than it is without that grant scheme in place.
I thank Mr. Moran for coming in this morning and for his contribution over the past three to four months in dealing with very difficult issues within the small business sector. I want to focus on the banks and his own experience. In terms of the issues I am coming up against, a very simple one is where people are having difficulty in drawing down mortgages, which means builders do not get paid and are not able to pay their suppliers, whether it is the people doing the plumbing and electrical work or the people supplying those contractors. What is Mr. Moran's experience in respect of the banks and how does he believe they could further help at the present time? I have found that many of the decisions by the banks have not been helpful.
Mr. John A. Moran:
I was wondering how long it would take before banks would come up in this conversation since normally when I appeared in this committee room it was always to talk about banks. I might let Mr. Butler come in on this because, as a lender, he has much more experience directly on it. The important point to remember is that we are going through one of the worst recessions the State has ever faced and that will have an impact on firms and households and their ability to repay loans. We also know that banks are supposed to be making loans that they have an expectation of getting repaid. That is why it all needs to knit together. The guarantee scheme we have today is probably not appropriate for banks as enough support for them to be lending to firms that already are in weak shape. We need to fix those in order to then use the bank channel, which is a very valuable resource to move quickly-----
Can I interrupt Mr. Moran? I have quite a number of files on my desk, including a case where people have been approved a mortgage but where only one of the parties is being paid by their employer. They are not getting a Covid payment but their employer is getting one and the banks are refusing to allow drawdown, even though the other partner in the transaction is getting their full salary. Both parties are getting their full salaries but because one of the employers is getting the Covid support, banks are refusing to allow drawdown.
Mr. Derek Butler:
What the Deputy is seeing is a gradual withdrawal of confidence from the system. When we see banks starting to withhold mortgage approvals, it is the very start of the withdrawal of confidence in the economic system. To go back to a number of points the other representatives made, liquidity concerns beget solvency concerns and-----
Does Mr. Butler think this is fair? Two people are getting their full salaries and there is no risk to any of the companies they are employed by and the banks are saying that because the word "Covid" is on the payslip of one of them, they are not prepared to allow the drawdown?
Mr. Derek Butler:
I will not comment on that because each bank has to take its own position but I can say that unless there is a major injection of confidence through a major injection of liquidity into the SME sector, this is just the start of those types of announcements by the banks because they represent a withdrawal of confidence from the system. The banking sector has already come out regarding the credit guarantee scheme announced in May not being fit for purpose. That is an example of a measure that needs to be completely overhauled for it to be effective but this is just the start if we do not get the liquidity piece right in the next couple of months, specifically in the July stimulus.
I want to touch on one further issue, that is, State agencies paying suppliers or contractors.
Have the witnesses come across evidence of substantial delay in paying people who have completed work on the part of either State agencies or local authorities? What needs to be done to eliminate that problem? It is contributing to cash flow problems for companies.
Mr. Derek Butler:
We have not heard about that. This umbrella body has a network of local leaders in every constituency in the country. We regularly hear about what is happening on the ground, such as challenges with Strategic Banking Corporation of Ireland, SBCI, schemes, etc. We have not heard of that problem but it touches on a really important contagion risk. If we do not get the liquidity policy intervention right in the next couple of months, debtors and creditors throughout the system will be affected.
Mr. Derek Butler:
Our Government needs to act as a responsible payer of small businesses and pay in a timely manner. There is a range of EU directives on that matter. That practice will certainly help small businesses with their cash flow. Our Government absolutely needs to support SMEs by paying on time.
Mr. John Moran:
This was one of the things that worried me most about the May announcement. One of the practical steps recommended to firms was to conserve cash. I am sure that advice did not go to Government Departments and agencies, nor should it have. That is good advice for a business in trouble on its own in the economy. In May and June, businesses were in trouble while every other business was also in trouble. This is why liquidity is so important. If I stop paying my bills to a creditor, the creditor is in trouble. What I really need is a quick injection of cash so I can pay my bill to Deputy Burke and he can pay his bill to somebody else, who can then pay it to Mr. Butler and eventually Ms McCabe will get paid. Otherwise there is contagion; every bill across the system stops and everybody runs into trouble. A small amount of liquidity at the beginning of that chain releases the problem five or six links along it.
I thank Ms McCabe, Mr. Butler and Mr. Moran. I have a couple of questions about the SME recovery plan SME Recovery Ireland has published, and the figures examined therein. Has speeding up the Roadmap for Reopening Society and Business in any way reduced the overall losses or the burn rate of capital SME Recovery Ireland anticipated, compared to the extra month of closure called for by the original roadmap?
A post-crisis boost to demand is one of the steps recommended in the plan. A lot of savings have been accrued by consumers in the past three or four months. Do we need a consumer confidence stimulus plan to go with a business stimulus plan in order to instil in consumers some confidence to spend money in the local economy?
Another key action referred to in the SME recovery plan is the allocation of powers and resources to administer claims to Revenue and the National Treasury Management Agency, NTMA. Does that entail assessment and administration of claims? Could the witnesses give us a little more detail on that key action?
Mr. John Moran:
Our organisation cannot calculate the amount as well as other organisations with access to certain information such as the Central Bank or Revenue. The fact that firms reopened slightly more quickly obviously reduced losses as revenues started to increase. However, we are not seeing any big wave of spending. There are some high-profile media reports about the queues in front of barbers and Penneys but as Ms McCabe may be able to discuss, customers are not rushing back to spend as they were beforehand.
The important thing, as I said in my opening statement, is that somebody gets to the bottom of how much money has been lost. We must have an intense modelling exercise so that all of these things are factored into decision-making.
The situation reminds me of life in 2009, 2010 and 2011. As part of dealing with the banking crisis of that time, it was not until the winter of 2010 and 2011 that a deep dive occurred whereby we went into the banks to work out how many billions of euro we were talking about. At that time, a range of figures from €15 billion to €35 billion was mentioned, and the final figure was €24 billion. One needs to know the scale of the problem to prescribe the right medicine. It is important that this committee is given all the information it needs to be able to assess things accurately. It is to be hoped there will be a good assessment for the July stimulus package.
The Deputies are right in the points they made about spending. I am reminded of a conversation with the great T.K. Whitaker at the beginning of the most recent crisis in which he said that the problem at that time was debt. I would say the problem that is going to arise from this crisis will be confidence. There is a lot of pain out there and many people are shocked because their lives have changed and are different than they expected. It is really important that the July package instils confidence again in businesses and consumers as it relates to public health measures. That will release the savings. Savings are at historically high levels because people are afraid that they will lose their jobs. Even people who have kept their jobs are afraid they might lose them next week. People are holding their money back and if we cannot find a way to release spending into the system, perhaps by way of people taking staycations, we will have an incredibly tough 2020 and 2021. The recovery will be pushed out too far in that scenario. That is why this is the moment when the Government must borrow money to release funding and restore confidence in the system. That is not necessarily helicopter money, as it has been described, because there are a lot of savings in the system. We need to instil confidence again in people as to what tomorrow will bring. If tomorrow is not going to be worse than today, people will start to spend money and we will climb out of this.
I have two points to make and would be interested to hear the thoughts of the panel. The first relates to SMEs that have found it difficult to sustain tenancies with landlords during this pandemic. The majority of instances that I have come across over recent months are ones in which landlords have engaged with tenants to come to arrangements to see them through this crisis. However, I am aware of a number of incidents in my constituency where corporate landlords moved quickly to turn the screw on SMEs. One such business owner has had to end a tenancy and find new premises, so on top of trying to cope with the pressures of the pandemic, they now also have to bear the costs associated with finding a new premises and setting up a business again. What advice do our guests have for SMEs that have found themselves in that situation? What supports are there for them? They are feeling abandoned by the Government and representative bodies at the moment.
I agree that demand must be boosted. A large cohort of the population are immunosuppressed or are healthy but nervous and are not ready to go out and engage in the local economy. I went to a barber shop to get my haircut this morning. Every measure had been put in place on the premises. There was a temperature check on arrival and hand sanitisation, and screens had been installed. One of the most decorated barbers in Ireland was not giving haircuts but was spending the day sanitising the premises. It was a wonderful example of a business protecting its workers, customers and future viability.
I heard an example of another business in which an employee turned up with their own face mask to wear in work and was told by his or her employer not to wear it, that it was not allowed. The medical advice about face masks is now beyond reproach and the worker in question wanted to protect his or her customers and fellow workers. If there is a fund going around, I want to make sure that businesses that are protecting their workers and customers, such as the barber shop I was in this morning, will be prioritised and not the businesses that are putting their workers and customers in danger.
I would be interested in Mr. Moran's thoughts and the advice he would give to the small minority of SMEs that may be acting in this way.
Mr. Derek Butler:
The Deputy will note on page 21 of our plan that we call for the implementation of a measure to help small businesses reduce their overheads. This plan is based on a principle of solidarity in that small businesses are vital to our social fabric. If we do not have a tool to help small businesses enshrined in legislation to reduce their rental costs at this time, it will only compound the losses and the fragility of small businesses. To be clear, at the moment there is very little to help small businesses reduce their overhead costs. Landlords, institutional and otherwise, need to play their part, not just based on solidarity but on the reality that we are also advocating for an "examinership lite" regime that will resolve this matter most likely in the favour of small businesses. Everybody has to play their part. I will hand over to Mr. Moran on the employment piece.
Mr. John A. Moran:
This is an opportunity to use these funds wisely in terms of firms. If money from the taxpayer is being given to firms to help them through this crisis, it is only appropriate that we think about the right types of conditions that we would attach to that. In other jurisdictions, for example, they have restricted the ability of firms to upstream that money to the owners of those businesses and do other stuff. We can also think about rewarding them to follow the types of measures the Deputy mentioned regarding healthcare and things like that. In the next set of conversations the committee has, each sector needs to explain what measures work for it and what works badly. We are listening to SMEs. Ms McCabe might wish to add something.
Ms Jean McCabe:
Across my industry, retailers have been very compliant in putting measures in place to ensure that customers and employees feel safe. It is important to hear that about that business. Without the wage subsidy scheme, all of that cleaning and all the protocol around ensuring we are giving a safe environment for people to shop would not be possible. Businesses are currently trading between 30% and 50% down. They are not making money or making anything while their doors are open right now. While we are delighted to get our doors open, without the support and the wage subsidy scheme, those businesses would not be open at the moment. Once the doors are back open, that is when the landlord comes knocking for the rent and suppliers start looking to get paid. Mr. Moran mentioned confidence. We deal with suppliers all over the world and at the moment we are in negotiations. We are paying all our suppliers, which we are lucky enough to be in a position to do. Some are providing discounts. The only country that has been consistently strong in not providing any discount, because they are exceptionally confident in what is happening in their own country, is Denmark. Out of all our suppliers, they will not budge while every other supplier is offering between 10% and 40% off invoices because they need the cash fast and are starting to panic in their own business. In Denmark they are holding strong and will not discount anything. If anything is to be said about what confidence means and how it can help us recover quicker, whatever measures come out in the July stimulus have to be robust and they have to look after the SME sector.
Mr. Derek Butler:
If the Deputy looks at the Danish example, on which we have modelled much of our scheme, he will see that Denmark acted early and effectively. It designed its scheme to work effectively for small businesses and that has instilled confidence in the Danish SME sector. It is now recovering at pace. It is exactly that type of measure that we expect to see in the July stimulus.
I have spoken previously on the need not to add an additional burden of debt by way of loans. Mr. Moran said that somebody needs to do modelling in respect of understanding the debt and what needs to happen. Who should that be?
On institutional landlords, for example, it would be a very short-term approach not to deal with this in a sensitive way, because we will have a very high level of vacancy if that is the case, which obviously has a knock-on consequence. It cannot be left to individual businesses. What is happening collectively, if anything, that will aid businesses to deal with that component? Some people will come out of this relatively unscathed and some of the burden must be shared. For example, there will be premises that will have been closed for three months, but they will have a phone bill with a standing charge, and if it is left unpaid, the service will be cut off. It is that kind of thing where there must be some degree of fairness in terms of sharing the burden. If we were to tot up all of the demands or calls on the public purse, we would be very dishonest to say that they can all be met. Even though a stimulus package is the way out of this, there are sectors that have been greatly damaged and will take a long time to recover. Will Mr. Moran deal specifically with the issues of who will do the modelling and what is happening collectively about dealing with organisations like landlords who are institutional investors and about utility and other charges where there should be a sharing of the burden?
Mr. John A. Moran:
On the modelling, things may have improved, as I suspect, in the Departments since the previous crisis, but it is some combination of the people with the right information working together. It is the Central Bank and the Revenue, probably led by the Department of Finance and backed up by the ESRI, which has robust models to be able to look at different scenarios as to how we do that. That probably helps on that one, but with proper information. We need to ask SMEs and others what losses they have incurred. We are running a survey but others can run them too.
On the sharing of the burden and institutionalised landlords and small landlords, just the same way as business is both big and small, landlords are big and small. The Deputy is absolutely right that we have a burden that has hit a particular sector, but if it collapses, the burden moves along through the system and others recover. There is a need to find a fair mechanism to share that burden. Ultimately, the fairest and simplest way to share a burden in this country is for the State to take it on, in effect, and redistribute it either to specific sectors or through general taxation. As the Deputy has said, there is not enough money to pay everybody, so it is by reimposing levies or taxation measures on sectors that can do it. It is really important that we do not stop the decision about whether to lift the burden from SMEs by not being able to figure out who should pay for it in the next year or two, the next ten years or whatever. The State is uniquely positioned to lift that burden, spread it over a number of years and reimpose it as it sees fit, whether it is on institutional landlords, smaller landlords, utility companies or wherever else. That is the mechanism of State, and it is the job and responsibility of politicians, which is a heavy responsibility at times like this, to make those hard choices. That is why July and October are really important in respect of this.
The unemployment rate for June is 22.5%. The economy will recover when we get people back to work. Very often sole traders employ just themselves, but the SME sector employs a lot of people. How should the relationship between supports and job retention fall? What should be done there?
Mr. John A. Moran:
The SME sector employs 1 million people and 1.5 million people rely on the SME sector for their livelihood. This is the most significant employment part of the State and it therefore needs to be supported.
The way in which this has been analysed is that if we are going to have people on employment anyway, it makes more sense to support their employment while they are with SMEs. That is very helpful because it keeps those people on income support and, therefore, they can spend money in the economy. Also, they get safety and security, like we talked about confidence earlier, of knowing that they will not lose their jobs because their employers run out of money to pay their wages.
However, the employers may still run out of money, and that is why relying only on income support is not going to work.
If those employers are not supported and run out of money trying to pay other bills, they will not have a business in which to employ people, no matter how much we try to support employees' income in the coming six to ten months. We will have a significant problem.
The Deputy is correct that the unemployment rate is 22%. She may remember that in the previous crisis we had the advantage of knowing that Irish unemployment rates would plateau at a certain level because people could emigrate to other countries where things were going better. As we know, they did so. This time around, it is very different. There is no emigration release for those who are being made unemployed. What is even more frightening than the 22% unemployment rate to which the Deputy referred is the number of young people who are unemployed. They were predominantly employed in the SME sector, particularly outside Dublin, in rural areas and smaller towns and cities. We are at rates of 50% or 60% in respect of youth unemployment. It is essential that we get those people back to work as quickly as possible. Not only are there mental distress issues eating away at their hearts, these are the formative years of their careers. This is not just about one year of income lost - it will have a much bigger impact on their working career throughout their life. That is why Ms McCabe and other small business owners need to hire young people to get back into work and be trained at an early age. They are the ones who will probably decide to leave the business next year after having received good training and go on to open their own shops and hire more people. That must be the methodology we use to climb out of this situation.
I thank Mr. Moran and his colleagues. All present agree on the need to inject money into the economy, SMEs and the pockets of workers in order to get the economy moving again. It would be useful, particularly in light of the worrying indicators from around the world and possibly even in Ireland in the context of the pandemic, for those representing the business sector to clearly acknowledge that although all of that is true, public health must come first. Mr. Moran and other business representatives should make that statement. That is particularly important given that although many, if not most, SMEs are compliant with the public health guidelines, there may be, for obvious economic reasons, pressure on them to cut corners on public health guidelines or, indeed, to accelerate the lifting of restrictions to the detriment of protecting public health. It is important that Mr. Moran address that issue.
I hope Mr. Moran will agree that the wage subsidy scheme and income supports such as the pandemic unemployment payment, PUP, should be maintained for as long as is necessary and until we see recoveries in the affected sectors where people are facing mass lay-offs and unemployment. That may be the case in several sectors for the foreseeable future. The supports are necessary for the sake of the workers, but also in order to keep money flowing through the system. I ask Mr. Moran to make a clear statement on that issue.
I wish to tease out something I thought I heard Mr. Moran state earlier. He made an argument for grants rather than loans because he does not wish for companies to be indebted. That is a reasonable point, but do we not have to be careful to ensure that it is directed at those who really need it, rather than having those who do not need it profit from it? There are probably not many SMEs registered offshore. I do not think offshore companies should get grant supports. Rather, they should have to repay any support they receive. I acknowledge that many businesses are in real trouble, fighting for their lives and in need of support, but should there not be a clawback mechanism for the State when it comes to companies benefitting from State support that are profitable or using the money for non-essential expenditure?
Should there be a quid pro quosuch that if we give a company money, we can be sure that the chief executive of that company is not paying himself an extortionate pay rate or salary and those payments would be capped? Can we ensure they are not abusing schemes in terms of laying workers off or making them work longer hours and so on? There have been a number of reports along those lines, where people at the top are benefiting from the schemes and doing very well, while workers they employ are often not being treated so well. We need to be sure the supports are going to the people who need them. I ask the witnesses to comment.
Mr. Derek Butler:
I will address the Deputy's first point. It is absolutely clear that we will not have a recovery if we have a public health crisis. Everyone in the small and medium-sized enterprise community really buys into that. In recent weeks and months, we have seen the SME community buying into a new social contract under which everyone gets behind our collective public health. Almost every small business in the country was closed with the exception of some essential businesses. We are now seeing the public health crisis recede. We have a collective responsibility to ensure the public health crisis continues to recede. We are all clear that if it does not, the recovery of the economy and a decrease in the unemployment rate will not happen.
Mr. John A. Moran:
Deputy Boyd Barrett raised so many issues that it is difficult to respond. We are here to try to speak on behalf of small businesses. Much of the reaction that has taken place during the crisis to their troubles has been interfered with - if I can use that expression - by conversations about big business. The Deputy mentioned offshore firms and large salaries. I cannot speak for Ms McCabe in terms of her individual salary but I doubt she is the type of person Deputy Boyd Barrett is thinking about.
It is important that political representatives treat the sectors fairly right across the system. They should not try to take away measures that need to be implemented for those who are suffering badly because of a prejudice or view they have about someone else or a story from the United States or somewhere else where other things happen. I urge Deputy Boyd Barrett to park those biases as he thinks through all the measures we are talking about in terms of how we want to do it.
Our schemes are designed in a particular way. It is a little more painful to do it the way we are doing it. It involves a calculation by the individual firms of the compensation they need to get for the losses they have suffered. It is not about throwing large amounts of money at large numbers of firms. It is a fine analysis to be done by Revenue. We know Revenue is never generous when it comes to giving away anything. If members are concerned about tax games or whatever, no entity is better placed than Revenue to know what firms are playing those games. I do not believe most SME owners in the country are playing games with their taxes. They are trying to survive, as they have done for many years. They are trying to employ people and to eke out a salary from the business. That is very much the position.
If members need to do so, they should travel to other parts of the country. They should go to rural towns and other parts of the country that will not have the same recovery as Dublin will have. As we saw last time around, the presence of big companies in Dublin meant the others could feed off that recovery.
The wage subsidy issue Deputy Boyd Barrett raised is really important. I have already said it would be a nice idea to keep it going for a little longer, because ultimately it helps the businesses to actually keep people employed. There is, however, a philosophical debate on this at all times. I would prefer to have someone employed and earning money, in particular in the private sector, than being supported by the State either on a wage subsidy or by unemployment support. We can go back to the paper Dr. Stephen Kinsella delivered to the committee to see why that should be the case. Investment by the Government in capital spending means we get back two or three times the money we put in. If we simply provide it in income support, we may only just about get the same amount of money back because it gets spent in the economy.
I thank Mr. Moran and his colleagues for attending. I often sit in this Chamber and find myself in agreement with Deputy Boyd Barrett. In his most recent intervention, however, he spoke about a country that I do not know. I know quite a bit about the SME sector and I echo Mr. Moran’s comments to the effect that the SMEs are a mile away from what Deputy Boyd Barrett outlined.
I wish to discuss the ideology among those at senior level within the Civil Service. We have had some introductions to some of the most senior people in the Civil Service and, in that context, I intend to refer to some comments that have been made at this committee in recent few weeks. We had a comment from Mr. Jim Breslin, the Secretary General of the Department of Health, some weeks ago to the effect that the Department was mandated by Government regarding the contract it agreed with the private hospitals, which ultimately prevented full-time private practitioners carrying out certain activities. The latter has added to the caseload of elective surgeries. I asked the Secretary General whether, if a new contract was to be pursued, the Department would impose the same conditions and he replied that he was being mandated by Government. However, it is the Department that advises the politicians.
We also had one of the senior people from ISME in here some weeks ago. The individual in question told us that at a meeting with senior officials in the Department of Finance, he was informed him that those in the SME community are basically only interested in fiddling their taxes. It was stated in a long article in the Irish Independentlast week that the foreign direct investment, FDI, sector will lead the recovery in this country. This is an absolute joke, particularly if anybody knows the difference between GNI and GDP. That said, does Mr. Moran think this is one of the issues that we have where ISME, for instance, is not allowed to be represented in its own right to talk about pay bargaining or pay agreements in the wage sector? This indicates to me that the SME community has been ignored and is still partially continuing to be ignored. Can Mr. Moran provide us with some comments on those points please?
Mr. John A. Moran:
One of the reasons I was so quick to support Mr. Butler when he asked me to do this as an independent voice for the SME sector was that the last time around I found that the SME sector did not really have a strong voice or, certainly, not as strong a voice as the FDI sector has with IDA Ireland. The larger indigenous businesses, as Enterprise Ireland has evolved, also have somebody to speak for them. Many SME groups have very different businesses and, therefore, have their own representative groups to reflect their interests. What is brilliant about what is happening with the SME Recovery Ireland movement, if I can call it that, is that is just how many of these groups have been able to put aside their differences and get behind the same plan in order to help policymakers to understand. I know from being on the other side of the table that there is nothing worse than receiving 150 different consultations and 150 different sets of ideas. What is powerful about what is happening is that all of these SME groups, including ISME, the Hair and Beauty Industry Confederation Ireland, those involved in childcare, people who drive coaches, and Ms McCabe and her retail businesses, have all come behind this report to say that this explains their problems and offers solutions to these problems. It is not the FDI sector, which, as the Deputy says, is a world apart. The rest of the global economy is not going to recover quickly so it is not like the last recession where we could rely upon an export-driven economy. We need to get SMEs back working again in order to do this.
When I used to attend meetings like this in the past, I could not talk about policy. I can state now, however, that policy is decided by the Government. The civil servants and public administrators across our system may give their advice but, fundamentally, what the Government decides is what needs to be implemented in the State by the system. The direction of travel needs to be very clear in July in terms of where we need to go on that.
I thank Mr. Moran. On the other point he or somebody else made regarding the functioning of the economy and a resurgence of the virus, one of the other issues that arose at out meeting last week related to the contact tracing activity that is happening. Some 10% of contacts are turning out to be asymptomatic Covid cases. If we are going to have a resurgence, it is going to happen because of the lack of social distancing that I see happening on the streets and in shops; it will not be because of the activities of SMEs.
I know from being the owner of an SME that one of the things SMEs require is visibility. They need to know what the landscape will be into the future. Is there any provision for Government to put some sort of architecture together to bring rents, rates, utilities and wage supports all under one catch-all structure whereby SMEs can be protected, obtain access to negotiating expertise, etc.?
If businesses reopening at the moment do not have long-term visibility of the likes of rents, rates and utilities, many of them, and particularly those that are marginal, will not use the last of their savings to try to reopen the business. It is a non-runner.
The question alone has exceeded the time allocation, without any time for the answer. Unless Mr. Moran can answer the question in two seconds, which I doubt, he might provide a reply in writing. I apologise but we are constrained by the time available to us.
I thank our guests for appearing before the committee. SMEs are dotted throughout Ireland but in my constituency of Cork South-West, in particular, they are the life and soul, employing many people in towns and villages. I have had many meetings with representatives of SMEs in recent weeks. Their main concern is that, to reopen their doors quickly, they need grants to be made available immediately but, to date, that has not happened. Do our guests know of any grant aid that SMEs have access to and have received to date?
Mr. Derek Butler:
The measures announced in early May allowed for a small restart granting scheme. This was useful because it allowed the Government to cross the Rubicon of determining that granting is important and necessary. It is too small, however, and is only for those businesses that are rateable. A very large cohort of small businesses are not rateable and all small businesses need much more than the €3,000 on average that the scheme is providing. The rest of the schemes are debt-based, too hard to access and too expensive.
Start-up businesses have been hit hardest. I spoke last night to the owner of one based in a west Cork town, who, like many others, is facing a massive uphill battle to keep his doors open. He cannot avail of the back-to-work grant because it is based on how his business fared last year. Other than giving the man plenty of sympathy, which people in his position are hearing enough of on the phone, is some grant aid available, in our guests' knowledge, for people who have started a business this year and have been caught with Covid-19?
Mr. John A. Moran:
Grant aid is available in other countries but not in Ireland, and that is the point we have been making from the beginning. We need a much broader and larger grant aid scheme that allows each of the different sectors to apply it differently. Some countries, in the case of new firms starting up, have allowed quick cash to be based just on the number of people employed. They have found other mechanisms to provide grants but we have just not got that yet.
Many SMEs are unable to avail of grant aid because it is determined by the rates paid, but many of them are using mobile units or places other than a building where rates apply. Has Mr. Moran any solution to offer to such SMEs or does a solution even exist?
Mr. John A. Moran:
These things are done artificially. A grant is some sort of refund of the rates a business has paid, as Mr. Butler said. Many sole traders, such as people working on gardens or the average taxi driver, do not pay rates and they may have the same start-up costs as others. We need to find a way to give them a start-up grant and not simply tie it to these things artificially. Who cares, given that money is fungible? The rates will have been paid last year. If it is to be tied to anything, it should probably be tied to the profitability of firms because that is a quick and easy way to work out which firms were trading last year and making money, but that would not deal with start-up businesses. We think it would be better to release the artificial constraints on the grants and just tie them to the losses that firms are incurring, which they can prove.
I have spoken to west Cork small businesses, representatives of which are on the phone day and night at the moment. I represent a constituency where tourism is a significant employer, as it is in other constituencies. Tourism this year has been almost wiped out and a worry hangs over next year. The greatest fear of these businesses is that there is nothing else available to them but to borrow - in effect, kicking the can down the road. Most such businesses do not want to borrow because paying back the loan would be a nightmare at this time. Emergency funding needs to be put in place for all struggling SMEs and not in the months down the road. Is there any indication that this will happen?
Mr. John A. Moran:
I congratulate the Deputy on talking to representatives of SMEs, so he understands the real problems in terms of his analysis. The indications we are picking up are the same as those the Deputy has picked up, namely, that the stimulus package in July should address these various issues. A better understanding of the scale of the problem is developing daily and we will, I hope, see something very important and off-scale in the July statement.
Mr. Moran will know well, from dealing with SMEs daily, that there is a considerable need to reopen Ireland, and in particular the tourism industry, in a safe manner.
Can the witnesses encourage the Government in some way to invest in testing in our airports and ports, with the results available in one day, to bring in people to start opening up Ireland as a safe place to holiday and ensure the survival of our businesses?
Mr. John A. Moran:
We and the Deputy have a slightly different view on that. We are trying to pick our battles and cannot be defenders in every battle. What we are trying to do is focus on the measures we believe SMEs need to ride their way through the crisis, whatever the restrictions are. With all due respect, that is probably a better use of our time because others are advocating measures such as those identified by the Deputy.
The representatives of the small businesses - the butcher, baker, candlestick maker and others - have told us at previous meetings that they have approached the Government and met senior officials, and they have impressed on them the urgent need to deliver a package that would have an impact on those businesses and restore them to some form of normality. The representatives' voices, instead of not being listened to, should be heard and championed by many Members of the Oireachtas because we represent them in every corner of our communities.
What I consider to be the kernel of this problem is the fact that the senior Department figures have decided to turn a blind eye to this sector and attempt to force it to trade out of difficulty itself. The same thing is happening here. The proof of it is that while there is a sum of €6 billion available, only €100 million has been drawn down. The scenario is that family businesses are holding on out of pride and by their fingertips to see whether there will be an upturn in the economy. They are expected to trade out of difficulty using a business model that is not compatible with their current position. In other words, a restaurant cannot be filled to its maximum capacity and instead can take in only a certain percentage. That immediately affects turnover. A family business or business with a small number of people is probably carrying debt from the financial crisis. Therefore, we must tackle the day-to-day issues SMEs face. I refer to the boutique owner or shop owner who has seasonal stock worth €1 million that is now out of date and who has to invest in stock for next season, with demands coming from the suppliers. The problems of such businesses have to be addressed. Regardless of whether those affected are serving a pint or driving a bus, the individual sectors have to be addressed. Representatives of the coach operators appeared before us. Their response from the Department on the supports they need was what I suppose could be said to be nil because it did not match the demand they face and requires considerable paperwork.
The banks are not lending. They refuse to give money to the SME sector and we now face the threat of a further wave. Therefore, we are ill prepared going into this because of the financial crash. The Government and Departments are not responding in a tangible way to the SME sector. As a result, they are being hung out to wither on the vine. That is basically what is happening here.
Can Mr. Moran, as a former Secretary General, describe for us the mindset in the Departments that causes this to happen time and again?
We referred to the €6 billion in terms of the commercial rates paid and so on. The commercial rates structure is simply outdated and should be abolished.
If I were a publican who had improved the property, I would have a revaluation. The publican beside me who did no work with the property would not have the revaluation. It is so stacked against the microbusinesses in this country that the Government needs to provide money free of interest and a restructuring of existing debt with a low interest rate of zero to 1%. It must make grants available and easily managed so they can be drawn down quickly and effectively. We need to address in a sectoral way the various businesses we are speaking about. Does the witness agree in any way with that analysis of the current position of the SME sector?
Mr. John A. Moran:
Yes. The Deputy has analysed it very well and hit the nail on the head in that cash and grants should be put out relatively easily and there should not be high interest charged on loans. It is important that the Deputy also reached into the third phase of our plan, which is to deal with sectoral matters, as not every sector is the same. We can agree on the general principle that we cannot ask those in the SME sector, which is critical to job creation, to bear the burden of these losses on their own. However, how they come back into normal trading activity will differ from sector to sector. It needs a more fine-tuned approach in the third phase. As the Deputy has said, the important factor is getting the money out there quickly and in ways that are attractive.
I can go back to what I said at the beginning. Despite €6.5 billion in schemes, although some are still not legislated for, the proof of the pudding will be in the eating. There has only been €100 million disbursed, and I suspect we have the lowest percentage of disbursal across the whole of the European Union. That puts our firms at a disadvantage to other firms. They are the ones struggling. As Ms McCabe has said, going back to the Danish example, their level of confidence is higher because very quickly they put in place approximately €5 billion or €6 billion in a compensation scheme. They were not handing loans but rather grants to their companies. They have managed to recover much more quickly so the firms are not doing fire or liquidation sales across the economy, even when they trade internationally. We must get ourselves into that same place. The most dangerous result here would be if sectors collapse and firms have liquidation sales where they sell valuable assets cheaply. Some foreign company that was better protected will buy them.
With respect to Mr. Moran, I know that analysis. I am asking him to comment on the fact that the €100 million is not €6 billion. Is that the fault of the construction of the scheme by the Civil Service? Mr. Moran has insight into this because he worked there and he might be able to tell us. Will he tell us why the banks, which are owned by the State, are not lending properly and appropriately to the business sector? Will he tell us what response he has got from the Government?
Somebody is at fault here and the sector is dying on its feet. The response from the Government and the civil servants has been so bad that the schemes they have in place are simply not working. Will the witness please comment on why that is the case? Is this related to the Civil Service and how it interprets policy or is there something else wrong? Going back to Deputy Shanahan and the commentary from this committee over recent weeks, are microbusinesses seen as fiddling taxes and making profits? I know people in these businesses who are on their knees and we seem to think that is okay when it is not. The witness has made a presentation today and I fully support what he is saying, but why is it that the place he worked previously is not responding in the constructive way one might expect in an emergency?
Mr. John A. Moran:
I have said that one of the most important things we could do as a next step would be to understand the scale of the problem. There was a misunderstanding of the scale of the problem in earlier weeks of this crisis and perhaps there was hope it would not be as bad. That reminds me of what happened with the banking crisis and similar things happened. The Deputy was on various committees analysing that.
The Deputy knows how important it was to take the right measures to understand the scale of the problem. At the same time, it is also fair to remember we had a caretaker Government. We did not know who would be making decisions and, ultimately, the Deputy, and the rest of his colleagues, were probably hamstrung in terms of bringing in legislation.
It is a cop-out. The Government, at any stage, could have brought in the appropriate legislation. Mr. Moran is dancing around the issue. Why, in his opinion, is the money not being made available as freely as it should be by the different Departments managing the system? Are they ignoring the policy or are they deliberately making it difficult?
Mr. John A. Moran:
I think the priority was put into different areas in the past couple of months, particularly the health area and the income support level. We are the ones who have been advocating for this, so I am no longer the Secretary General who has to defend what is happening. I am agreeing with the Deputy that we needed action and that we needed it quicker but what I am saying is that it took us a lot of time and effort to get SMEs front and centre into the solution of what we need to do because this crisis is different. It has taken a lot of time to understand that some of the measures that were not possible the last time are the right measures this time around.
That will not be happening. I thank Mr. Moran for coming in and for his opening statement and the supporting documentation he sent. He is right to say that he and his organisation cannot be defenders of every battle and that he has to almost ruthlessly single out the supports which are necessary for SMEs. That is a reasonable position for him to take. He will understand, however, that as politicians we have to have a wider view and that it is like a jigsaw; there are many different pieces to all the issues that make up the overall solution. I want to focus on some of those supports needed for SMEs but, equally, I want to touch on issues like regional development as part of the solution and also the quid pro quo, which I believe would be necessary. If the State is being asked to invest billions of euro in the SME sector, and I believe it should support it, there are obvious quid pro quosthat would be necessary coming back from that sector as well.
My first question is to follow up on the logic of the questions put by the previous speaker. Mr. Moran said in his opening statement that we cannot be afraid to spend this money. I agree. That is the overall package that he believes is necessary for the SME sector. He said earlier that there may have been a misunderstanding of the scale of the problem in the Department. That is not the first time that has happened. As Mr. Moran pointed out, we had the banking crisis. It does not paint a rosy picture of the Department of Finance if it keeps getting the responses wrong to the crises the country faces, but I do not believe it is as simple as that. Mr. Moran has some experience. He is a former Secretary General in the Department. To be fair, I am not sure that if he was still the Secretary General he would be saying exactly what he said in his opening statement but he is here now wearing a different hat, and I understand that. Is it not the case that there is almost a fear of radical action and of putting in place the solutions that are necessary? If we look at some of the loan schemes, for example, they are existing schemes. We are tinkering around with schemes rather than making the quick decision which needs to be made - SMEs need liquidity, and they need it fast. Leaving aside the political for a second, what is the problem with the thinking in the Department that it does not allow it make these very quick decisions to respond to the type of crises SMEs are now facing?
Mr. John A. Moran:
I do not want it to be taken that I said the Department does not understand the nature of the crisis. If the Department does have numbers that explain the scale of the crisis, we should find a way to publish those so that everybody can interrogate them. That is the first thing I would-----
I am sorry, Mr. Moran. It is their job to understand the problem. It is their job to have the data. It is their job to have the solutions. I did not say that there was a misunderstanding of the scale of the problem - I happen to agree with it - but Mr. Moran said it. I am only quoting the words he said. I am trying to understand the reason that is the case, time and again. To go back to the question I asked about liquidity, why is the Department so slow to put in place the solutions in regard to liquidity and why does it continue to reach for schemes that we know will not work?
Mr. Butler set up SME Recovery Ireland because there are 100,000 firms in Ireland, each employing an average of five people. We wanted to make sure that the impact of the crisis on those firms was understood by people like Deputy Cullinane and the other people in this room, and ultimately by the policy advisers in various Departments as the Government makes its decisions. I am not in the Department of Finance and I do not know what the process is. We have been explaining our problems to the Department, but I suspect that lots of people have been explaining lots of problems and somebody has to make a decision. Making those choices is ultimately the job of politicians and the Government. As has been said, this is a jigsaw. We need to find ways to balance all of those issues.
In response to Deputy Cullinane's comments I note that if I was the Secretary General of the Department of Finance today, I would still be saying that we need to base the recovery on job creation. Given the nature of the crisis, our best engine for job creation is the SMEs we have talked about. With European solidarity, which we did not have the last time around, we have an opportunity to borrow and support those SMEs in recapitalising and creating jobs. I do not change my advice depending on what hat I am wearing. I am giving my advice as an independent observer in this situation. I am not running an SME that is looking for aid. I am trying to explain what I think we should be doing based on my experience. However, as I am not in the Department of Finance, I do not know who else is looking for money or how politicians will balance those demands in the discussions of the new Cabinet that has now formed.
I have given Mr. Moran a fair wind to respond because I wanted to hear his response. There seems to be agreement here that liquidity is the key issue and that small businesses need it very quickly. We have proposed 0% interest loans and cash-for-equity initiatives. There are lots of ideas out there. The real issue is that money needs to get to SMEs very quickly to pay fixed costs, keep them afloat and prevent them from withering on the vine, as a previous speaker put it. Hopefully we will see a new approach with a new Government and a new dynamic. The witnesses did a good job of identifying and highlighting the challenge.
I want to address regional development very quickly. The last time I met Mr. Moran was in one of the galleries in Waterford at the launch of the national planning framework. There was some discussion of regional development at that event. There is an awful lot of talk of regional development now because it is absent from the programme for Government and there are whole regions without Ministers. That is a different issue, however. Let us take the south east as an example because it is the area I live in. It underperforms economically and has higher levels of unemployment and lower levels of educational attainment. It does not have a university. It does not get the capital funding it needs to stimulate its economy, even for big projects. We seem to be battling all the time. What is Mr. Moran's advice to a new Government on genuinely embracing regional development?
Mr. John Moran:
The Deputy knows I have been one of the biggest fans of balanced regional development. Ms McCabe and I complained on the way in here that we could have been in a committee room in Limerick and we would have had to travel a lot less, since we do not have the pleasure of sitting with the committee. The public service and Government have to lead in this respect. There are serious challenges concerning population dispersal across the State. There are parts of the country where birth rates are not keeping up with deaths. Meanwhile there are areas, such as the greater Dublin area, that were booming before this crisis and will continue to have those dynamics. Economic growth will follow population growth.
Returning to today's agenda, this issue is one of the reasons saving the SME sector is so critical. SMEs disproportionately employ people outside of the greater Dublin area. I love going down to Waterford as much as I can, although I would prefer if the road from Limerick to Waterford was a little easier to travel or there was a better train system. Today's agenda is very important to saving social fabrics throughout the country. If we do not save SMEs, we will be faced with empty towns and boarded-up shopfronts all across Ireland. That might not be the case.
I come from the south east and know the importance of these things. I speak to the chamber of commerce members and owners of small and medium-sized businesses all the time. Big infrastructure and capital investment are important. Some big projects need to be funded. Having money in people's pockets is also important, as is footfall on our streets.
My final question is about the quid pro quoI described earlier. Some organisations that support and represent businesses have shown a reluctance to pay the living wage or provide decent work and wages. I believe that the State should invest in SMEs. It should provide the liquidity that is needed and pump billions of euro into the economy. That would save jobs, which is important. We also need to face the reality that there are many people on low pay who do not have money in their pockets to spend. They do not earn a living wage and the cost of living for those people is too high. It would be good to hear a representative business organisation state that it would support the living wage, decent work and decent pay as a quid pro quofor the levels of investment that the SME sector receives. Will our guests respond to that point?
Mr. John A. Moran:
The best way for this country to get better is for people to earn more. That is clearly the case. The first way to do that is to stop unemployment, get people into work, provide training and everything else. Cost bases must be reduced because they have an impact on the ability to pay a living wage.
On the point about SMEs, the more we help businesses to recover, the more of a responsibility those business owners have to ensure that their employees are treated well from the perspectives of safety and wages. We will not get to that desirable outcome if we cash starve the businesses in the first place because the first thing those businesses will have to do is to let people go or not pay them properly. Ms McCabe would like to come in on that point and it would be appropriate to ask her about it as a business owner.
Ms Jean McCabe:
The three biggest costs for any small business are wages, rent and rates. At the moment, small businesses are facing increases in rates and rent is a huge issue and will continue to be, going forward. I would love to be in a position to say that I could afford to pay a living wage but, as a small SME owner, I cannot because my other costs are too high. If more supports were provided to the sector, small businesses might be able to pay a living wage somewhere down the line but wage costs are the largest costs for any business and it is already a challenge to manage them and keep a team employed.
We have a little more time than we had anticipated and I thank members and our guests for their discipline. I will ask a couple of questions before opening it up to the floor. We saw various Exchequer returns. Mr. Moran, in a previous life, spent a lot of time examining Exchequer returns. Would it be useful if VAT returns were split between online and on-street sales? There has been a considerable reduction in VAT returns and that was not unexpected. We know that there has been an increase in online sales, particularly in the grocery sector, and that is not obvious from Exchequer returns.
Does Ms McCabe think there is increased competition from online sales? It must have been incredibly difficult for Ms McCabe, having a shop full of stock and suddenly and unexpectedly having to shut down. People are trading online more and more. Are Irish SMEs moving towards online trading? Do they need more supports to do that? Are there SMEs that have moved from having a high street presence to trading online? Are SMEs still trading without opening their doors? There are a number of questions there but I would appreciate if our guests could answer them.
Ms Jean McCabe:
I thank the Chairman, who is a native of Clare, like myself. We were lucky enough to be able to trade online. We were well established online, traded throughout the lockdown and it was our saving grace. Some €6.4 billion is spent online annually by Irish consumers and 70% of that revenue is going to multinational retailers. That money is not going into the Exchequer. That is due to the lack of attention that SMEs have got over the years. Much of the grant aid that was available through Enterprise Ireland has been export driven. The focus has been consistently on that market.
The opportunity for SMEs is on our doorstep. For me, as the owner of a small business, my online presence is not about international trade. It is actually about capturing the domestic trade and giving the consumer a chance to shop local and shop small. Some 50% of our online trade is within a 30 km radius of our business. If the Deputies are looking at the future of town centres, cities and small businesses across the country, online is going to be a big piece of that in driving footfall back into towns, driving people back in the door and keeping the bricks-and-mortar stores dotted along the streetscapes of every town and village alive. Online will definitely play a big part in that, but up to this point it has been completely neglected by policy and by the way grants have been provided for SMEs. It has been too focused on multinationals and we already know we are over-dependent on FDI. During the Covid crisis, online sales saw a 200% to 400% increase and again most of that went abroad. Could the Chairman confirm the final part of his question?
I was just wondering if Ms McCabe thought more supports are necessary in order for businesses to move online. There was a second question specifically to Mr. Moran as to whether he thinks that we should be able to see from Exchequer returns whether VAT was received from online sales or regular sales.
Ms Jean McCabe:
More supports could definitely be put in place. There is a local grant of €5,000 that is provided by the local enterprise offices. This is a drop in the ocean if someone really wants to go online properly. On the question for Mr. Moran about Exchequer returns, for most businesses the trade online is quite intertwined with their in-store trade. To differentiate between the two would be a challenge for businesses in filing VAT returns.
Mr. John A. Moran:
I had not heard the idea before, nor was I looking at the VAT rates to see whether they were split. As Ms McCabe said, these things could come with an extra burden in terms of how we do it. I am sure technology can surmount that. We have said throughout the session that the worst way to deal with a crisis is not to have information. The more we can learn from every crisis and issue to improve the level of information that is available for people to analyse, the more likely it is that we will get the right answers to the problems we have. If, as is happening, business is going on line - and Ms McCabe says even domestic consumers are now looking for that facility when they are spending - we should be able to analyse these trends and know they are happening and where they are happening. Going back to what was said earlier about regional balanced development, we should also be able to analyse whether spending from people who are resident outside Dublin, Cork, Limerick or the other big cities is actually happening in their local neighbourhoods or indeed transferring across to different parts of the country, whether it is Kildare Village or wherever else. That is the only way in which we can make the right policy responses to the problems that are developing.
We have looked at the response of national Government to date. The Lean on Me initiative in the mid-west was not specifically a local government response but it was excellent. Are other responses required from local government in general?
Mr. John A. Moran:
I have to thank the Chairman for the call-out for Lean on Me. That is how Mr. Butler and I got to know each other. We were trying to produce a voucher scheme for people to spend money in their local shops, which went to Clare afterwards and up to Galway. We would love to go further so I thank the Chairman. The real point for me - I know Mr. Butler probably has some views on this - is that this is an opportunity to reapproach to the way the country works. We need to think about things in a holistic way. We need to think about the shopping demands, the online productivity, where decisions are made, the devolving of power to those in local government so they can actually do it. Even in the Lean on Me initiative we ran into many obstacles with county councils and others who wanted to support it, but schemes designed effectively in a single place in Dublin left them without the discretion to do that. If we are going to think seriously about balanced regional development, it will require devolving power, including devolved budgetary power, to the various regional assemblies or local authorities so they can move nimbly and act properly. That is where a lot of the opportunity exists but we must ensure that we do not make the problem worse by holding back on the responses needed today.
Frankly, having a new Government, the October statements in respect of the budget need to really pick up on that.
Mr. Derek Butler:
There is definitely a need for more firepower at local level. We are here to speak for the 100,000 businesses which employ 500,000 people across this country and which have a disproportionate effect on rural communities in particular. They are in a fragile state. They are vital to local communities and our social fabric. We have reached a tipping point. The Government has the choice to either back small businesses in a way that has never been done before and recognise their importance to the communities located up and down this country or we let them fail and suffer the consequences. Those consequences would involve a more painful recovery, greater levels of unemployment and a recovery that cannot be fuelled by emigration and exports. We have that choice and it is going to be made in the next few weeks in the context of the July stimulus. Some 26 organisations have backed this plan. Before we came in today, I asked them if they had been consulted about the July stimulus and they said they had not. I can tell the committee that the July stimulus will be dead on arrival if SMEs are not listened to. Those programmes are not designed to be effective in the same way that they have been effective in other European constituencies. I implore the committee members to use whatever power they have to make sure that the July stimulus is of the magnitude, scale and appropriate design for small businesses so that we can ensure that the 100,000 businesses which employ 500,000 people are saved.
The message cannot be ignored. The package had better be heavily geared towards the sector we are discussing. We must take note of the fact that at other hearings - in different scenarios and in the context of different sectors - we heard the same message that the stakeholders were not consulted. I am shocked to hear Mr. Butler say that. I hope the Government and the Departments have noted what has been said because the cat is out of the bag. The stakeholders have not been asked and they need to be asked.
I wish to add to the comments made by Deputy McGuinness. The comment about youth unemployment is very important. We have seen what happened in Spain, which has had a very high level of youth unemployment over the years. I hope that, in the context of the July stimulus package, the Government will consider offering some additional supports to allow businesses to take on youngsters and get them working, particularly as these are the formative years of their employment lives. It is very important that this need is also addressed.
I thank Deputy Shanahan. I thank the witnesses for attending. I am sorry that they had to travel from Limerick and Clare, respectively. Had they not done so, however, they would not have been covered by privilege if they had decided to defame somebody. I also thank Mr. Butler for joining us.