Oireachtas Joint and Select Committees
Wednesday, 3 November 2021
Joint Oireachtas Committee on Jobs, Enterprise and Innovation
Challenges to Ireland's Competitiveness: Discussion
Apologies have been received from Deputy Stanton and Senator Garret Ahearn. I welcome members participating in today's committee meeting in line with exceptional circumstances and measures we have to take due to the Covid-19 pandemic. Members and all in attendance are asked to exercise personal responsibility in protecting themselves and others from the risk of contracting Covid-19. Attendees are strongly advised to practise good hand hygiene. They will notice that every second seat has been removed in order to facilitate social distancing. I urge those attending not to move any chair from its current position. They should always maintain an appropriate level of social distancing during and after the meeting. Masks should always be worn during the meeting, except when speaking. I ask for members' full co-operation on this. Any member participating in the meeting remotely is required to participate from within the Leinster House complex only. Members will be well aware of this requirement.
Today we are considering the issue of the challenges to Ireland's competitiveness. At the end of September 2021, the chair of the National Competitiveness and Productivity Council, NCPC, launched the report, Ireland's Competitive Challenge 2021. As well as immediate competitive issues that require urgent attention, the NCPC identified in the report four broad medium-term and long-term strategic challenges aimed at enhancing Ireland's competitiveness and productivity performance, including ensuring Ireland has a dynamic business environment, increases productivity growth, delivers infrastructure to meet evolving demands and implements progress, sustainability and inclusivity policies. The report also made 20 recommendations to the Government to facilitate economic recovery and improvement in the standard of living across society.
More generally, there is a broad understanding of the difficulties, including bottlenecks, difficulties in securing supplies in materials and rising prices, being experienced by many sectors at present as the economy recovers. Many members have raised these issues in recent meetings of the committee.
To assist the committee in its consideration of the challenges to Ireland's competitiveness, I welcome from the NCPC, Mr. Oliver Gilvarry, head of the NCPC secretariat, and Ms Linda Kane, economist. The chair of the National Competitiveness and Productivity Council, Dr. Frances Ruane, was unable to participate in today's meeting.
I will explain some limitations to parliamentary privilege and the practice of the Houses as regards references witnesses may make to other persons in their evidence. The evidence of witnesses physically present or who give evidence from within the parliamentary precincts is protected pursuant to both the Constitution and statute by absolute privilege. Witnesses have already been advised that they may think it appropriate to take legal advice on this matter if they so wish.
Witnesses are again reminded of the long-standing parliamentary practice that they should not criticise or make charges against any person or entity, by name or in such a way as to make him, her or it identifiable, or otherwise engage in speech that may be regarded as damaging to the good name of the person or entity. Therefore, if their statements are potentially defamatory regarding an identifiable person or entity, they will be directed to discontinue their remarks. It is imperative they comply with any such direction.
The Department's opening statement has been circulated to members. To commence our consideration of this matter, I now invite Mr. Gilvarry to make an opening statement on behalf of the National Competitiveness and Productivity Council.
Mr. Oliver Gilvarry:
I thank members for the invitation to present to the joint committee on the recently published report, Ireland’s Competitiveness Challenge 2021. I pass on the apologies of Dr. Frances Ruane, chair of the National Competitiveness and Productivity Council, who, due to a family commitment outside the country, cannot attend today. I am head of the secretariat for the council and I will be representing Dr. Ruane today. I am accompanied by my colleague, Ms Linda Kane, economist in the secretariat.
The National Competitiveness Council, NCC, was established by government in 1997 under the Partnership 2000 agreement. The council serves as an independent voice and reports in an advisory capacity to the Taoiseach and Government, through the Minister for Enterprise, Trade and Employment, on issues affecting competitiveness and productivity in the Irish economy. Initially, the council’s mandate was concerned with competitiveness issues. However, issues concerning productivity have seen increased policy focus in all advanced economies since the establishment of council. This has been in response to the slowing pace of productivity growth in that period despite significant technological advancements.
The importance of supporting productivity growth has also been recognised by the European Union. In 2016, the European Council recommended the establishment of national productivity boards by all euro area countries. In March 2018, the Government designated the then National Competitiveness Council as the body responsible for analysing developments and policies in the field of productivity and competitiveness in Ireland. This was reflected in the NCC's change of name to the NCPC in 2020.
The council members, who serve in a voluntary capacity, are appointed by the Minister for Enterprise, Trade and Employment and are drawn from civil society. These members bring to the table an understanding and experience of the factors that affect the competitiveness of the Irish economy and of the policy domains that can influence productivity levels in Ireland.
While the council’s mandate is wide, involving both macro and micro perspectives on the economy, its particular focus is on competitiveness and productivity issues. It recognises the roles of other bodies that have been created since its establishment and draws on, rather than duplicates, their work. The council provides an evidence base for its policy recommendations. The NCPC regularly publishes two benchmark statistical reports, the costs of doing business in Ireland report and Ireland’s competitiveness scorecard. Each year, the council publishes the competitiveness challenge, which outlines the main challenges to Ireland’s competitiveness and makes policy recommendations to address these. Since last year, the Government, through the Department of the Taoiseach, issues a formal response to the council’s competitiveness challenge recommendations. It is expected the response to this year’s report will be published before the end of November.
In addition to these main deliverables, the council also produces a series of short bulletins on specific competitiveness issues. For example, so far in 2021, there have been a number of bulletins issued by the council examining topics such as remote working, insurance costs and international competitiveness rankings. I will now provide an outline the main issues discussed in this year’s challenge.
At the start of the pandemic, the Government moved quickly to introduce a suite of supports for employees and businesses. The cost of these measures has totalled in excess of €38 billion, or almost one fifth of national income as measured by GNI*, but these measures have helped to avoid an even more severe economic recession and massive economic hardship.
The council, in this year’s challenge, has made clear that in the short term there is a continuing need to support workers and businesses as the economy reopens and restrictions are relaxed. However, these immediate challenges resulting from the pandemic should not distract Ireland from addressing structural weaknesses that work against long-run competitiveness and more widespread productivity growth. In addressing these long-term issues, the council strongly believes that a systemic policy approach is required, with careful sequencing of targeted actions that can generate the greatest impact in the near term and position the economy for medium to long-term sustainable growth. This will require policymakers to tackle some major issues that have proven intractable in the past. The council has made 20 tangible, actionable policy recommendations to the Government in a number of key strategic areas which address both immediate competitiveness issues and more medium-term challenges, aimed at enhancing Ireland’s competitiveness and productivity performance. I will now outline these in more detail, starting with the immediate challenges identified by the council.
The economic recovery plan published by the Government in July, along with the recent budget, have outlined the Government’s plan for phasing out the various supports provided to businesses as the economy recovers.
This will require moving away from the broad-based supports provided to all businesses during the pandemic to identifying those businesses or sectors that may continue to need support but which have the ability to grow in the future. This will require designing appropriate new support mechanisms that will target aid to businesses that are viable but vulnerable.
As this process begins for withdrawing support schemes and better targeting others, it is vital we have the appropriate insolvency framework in place in Ireland to help struggling businesses restructure. The recently introduced new regime that provides an alternative route for smaller businesses to restructure their liabilities, the small companies administrative rescue programme, SCARP, is an important step. While it is important to support businesses as they transition to the new post-Covid environment, it is equally important employees who have either been out of work and in receipt of the pandemic unemployment payment, PUP, or who may lose their jobs in those businesses that will close or restructure in the coming weeks and months continue to be supported.
To manage this process successfully, the Government will need to allocate its resources to aid workers impacted by the pandemic, alongside and in line with the supports for businesses. This will include the ability for firms to access help to pay mandatory redundancy or to ensure workers are not disadvantaged from having a break in service due to PUP when their mandatory redundancy is being calculated in the future. In helping people back to work, the economic recovery plan includes a pillar focused on that objective. The plan’s objective to have 2.5 million people back at work by 2024 is welcome, but it is critical the required actions are undertaken quickly and there is a focus on those aged under 25 years. The Pathways to Work 2021-2025 Strategy will need to ensure this is achieved, and the council welcomed the specific focus this has on younger workers. In particular this includes the ring-fencing of roles for younger workers on workplace experience programmes, promoting apprenticeships, and incentives for employers when recruiting younger workers. The focus on apprenticeship as a core skills development option for employers across all sectors of the economy, and for workers across all sections of society, is one that can make a significant contribution to addressing Ireland’s skills needs, especially in response to the changes being brought about by the green and digital agendas.
As I stated earlier, these short-term challenges facing the economy should not distract policymakers from dealing with structural weaknesses that work against long-run competitiveness and productivity growth. The pandemic has ushered in new ways of working for many people in certain sectors and occupations. In turn, these may open up possibilities for new ways of living, potentially improving quality of life. In the face of these changes, Ireland must have a clear vision on our collective priorities in the years ahead. Our competitiveness and productivity performance must deliver for all parts of society, and this will require concerted effort from consumers, employees, enterprises and Government.
The council has recommended to Government that four key competitiveness and productivity strategic challenges should be focused on over the next decade. First, Ireland needs to have a dynamic business environment that supports entrepreneurs and enhances employment opportunities. To achieve this, it is important Ireland addresses the levels of costs businesses face in operating in Ireland. The council has focused on the cost of insurance, legal costs and the cost of credit and has made a number of recommendations in these areas.
Second, Ireland’s productivity growth needs to be more broad-based, requiring policies to be put in place to boost the productivity of indigenous Irish firms. To achieve this objective, the council has a number of recommendations, including support for research in the area of productivity growth; assistance for new ways of working, including remote working; and the provision of the appropriate training and upskilling initiatives so workers have suitable skills for the future world of work, including the need for employees to have the appropriate management skills for this new environment.
Third, Ireland needs to address the delivery of key housing infrastructure, together with other critical social and economic infrastructure projects. In addition to its vital direct contribution to national living standards, Ireland’s housing market should not generate pinch points that could damage long-run competitiveness. Housing is also not the only vital infrastructure needed. Other critical areas include water, wastewater, electricity, communications and transport infrastructure. The attractiveness of a location cannot be focused solely on it as a place to work; it must also be on it as a place to live. In delivering on the affordable housing objectives of the Government’s Housing for All Strategy, it will be important to address also the availability of other essential services for sustainable living in Ireland. It is critical the needs of social infrastructure in the areas of childcare, health and social care and in education are not ignored.
The final challenge is to progress sustainability and inclusivity policies as a matter of priority to ensure the Irish economy is less vulnerable to economic shocks and plays its part in the global effort to avoid a climate disaster. The council has identified the need to make substantial and sustained progress on the climate action plan along with the need for research on the interaction between competitiveness and measures to address climate change.
This year’s Ireland’s Competitiveness Challenge Report has highlighted a number of short- and medium-term challenges facing the Irish economy and has made recommendations on these to Government. While the council recognises these challenges, it has also drawn attention to the potential opportunities in the form of new ways of working, such as remote working. These opportunities can present possibilities for new ways of living and potentially deliver real improvements in the lives of people based in Ireland, with sustainability and inclusivity at the core.
I thank Mr. Gilvarry. I invite members to discuss the issue with the National Competitiveness and Productivity Council. I remind members participating remotely to use the raise hand function in Teams and to cancel it when they have spoken. The first to indicate was Deputy O'Reilly.
I thank the Chairman. I thank the witnesses, especially for being here. It is very welcome. I want to look at the issue of productivity. There are two parts to my question. Clearly our economic base is pretty unique in Europe. We went from agrarian straight to foreign direct investment, FDI, and did not stop on the way to build manufacturing or any indigenous industry. I would like to hear the officials' thoughts on what it is important for the State to be doing to develop our domestic SME sector into one of those high-wage, high-growth, high-productivity economies, especially in manufacturing, engineering, ICT, green technology and pharmaceuticals. I would be interested in their views on how we can grow that but equally in knowing why the officials think we have ended up where we have, that is, with a very heavy reliance for our productivity on FDI and there does not seem to be that stable, indigenous manufacturing base. In economies like those of Germany and the Scandinavian countries there are high-value, high-wage jobs we just do not seem to be able to replicate. They have a high-productivity indigenous sector we do not seem to have. I would be interested in the officials' thoughts first on how we ended up here and, more productively, what is our best route out. I do not see sustainability without a stable indigenous manufacturing base.
Ms Linda Kane:
The Deputy is absolutely right. We have a unique economic set-up here where there is quite a divergence between very high productivity growth within the multinational sector and a quite a diverse mix between the indigenous SMEs. One of the things that gets disguised in some of the aggregate data for Ireland is productivity looks quite high and that productivity growth has been remarkable compared with all our OECD peers. The areas driving that growth are ones like ICT and manufacturing in things like pharmaceuticals. Those are the areas that are driving that very high level of productivity, but the indigenous firms are more mixed. In the past the council has called for more research to be done on the underlying drivers of what is happening in the indigenous sector and the areas where we see potential for improvement. That would be things like investment in education and skills. We are talking about digital skills, management skills, areas where there is potential for growth where we want Irish SMEs to be doing quite well and taking advantage of the digital transition, the move to cleaner energy and the climate transitions. We are talking about getting investment in skills needed for those areas. We are also talking about innovation policies. We are talking about encouraging Irish firms to invest in new products and new services to enable them to compete internationally. We need to see that investment there on the skills side and on the innovation side to get those firms up to speed and ready to compete in those markets.
I thank Ms Kane. That is interesting because there is much we need to do in terms of training. I am conscious I do not see that this is being driven. There seems to be an element of contentment with the growth. As it is, I do not believe it is sustainable without that manufacturing base there and that is what we see in other jurisdictions. Notwithstanding that, to reference the report and the need for competitiveness and productivity again, when we look to Scandinavia and Germany we see states that have very strong collective bargaining rights for workers, very strong trade union movements and very strong and effective mechanisms for worker representation.
I would be interested in the witnesses' views on what role the right to collective bargaining would have in making Ireland a more attractive place for workers and contributing to the high wages and high growth that are necessary.
Mr. Oliver Gilvarry:
One challenge that I will try to bring across this year is the new way of living and working. The Deputy made a point about employees' rights, whether collective wage bargaining or, as we referred to, minimum wage or mandatory sick pay. Labour was always mobile. As a result of the pandemic, we have the added dimension of the blended working environment. People do not need to be in the same jurisdiction as the office. We can even see that with today's hybrid meeting, with some of us physically present and some of us having dialled in.
It is important for Ireland to be not just a good place to work but also a good place to live. We want to attract highly skilled people to fill different roles. Part of that is about the offering. In the report, we have called for measures such as mandatory sick pay and auto-enrolment to be brought forward so that people look at Ireland as a location not just to work but also to live. Linked into the living issue are issues with infrastructure and childcare costs, among others. In the report, we have sought to balance that with costs for employers. It is a matter of balance. It cannot be a case of saying it is okay for employers if workers cannot be attracted. That applies across the range of skills. We talk about ICT and pharmaceuticals but this applies across the board. If there are high housing costs and there are not the appropriate protections in place for staff, it will not be possible to get people in, whether for the hospitality sector or at the high end. While we did not talk about collective bargaining, we are saying that the Government needs to consider balancing from both employee and employer perspectives and to have Ireland be both a good place to live and a good place to work.
I believe that the right to collective bargaining has to be part of that. We cannot simply have a system whereby the State, when it feels like it, gives rights to workers or says to employers that if they do a certain thing, it will give them a certain thing and they have to respect workers' rights. If workers' rights are for sale, eventually the price becomes too high. I would like to see a focus on collective bargaining as a mechanism for workers to achieve a decent place to work and not for the State to somehow gift it to them. Eventually the State may run out of benevolence and workers would be left behind.
Mr. Gilvarry referred to the need for this to be a good place to live. We all know that it is not a good place to live for many people. With regard to childcare, its costs, the cost of living in general and the state of housing, do the witnesses have specific recommendations about what workers are looking for to keep them here and to attract them? I could not see anybody who lives in a place with a normal housing market looking at Dublin and thinking that it would be a good place to move to. The witnesses should not get me wrong. Dublin is the greatest place in the world to live but I cannot see people who live in a place with a functioning housing market looking at Dublin or Ireland and thinking that they want to move here. The cost of housing, the lack of protection for renters and so on drive workers out. It would be interesting to hear what steps the witnesses think we can take in the short to medium term that will bear fruit and have an impact on attracting workers.
Ms Linda Kane:
The Deputy is right that the cost of housing and childcare can be barriers to attracting the high-skilled and highly mobile labour we are seeking to attract to Ireland. The Department of Children, Equality, Disability, Integration and Youth is working on new funding models for the early learning and childcare and the school age childcare schemes. In our report, we have called for the analysis and recommendations in that report, which is due in the fourth quarter of this year, to be action on as soon as possible. OECD data show that we are the most expensive place in both net and gross terms to acquire childcare, if a place can even be secured. It can be quite difficult to even secure one. That lack of supply is acting as a barrier to attracting the highly mobile labour we are looking for.
There is a similar issue with housing. Following the last property crash, we saw the supply of housing dry up. That is only coming back on track now. A significant deficit has obviously been built up over the years. In our report in September, we called for the actions in the recently released Housing for All strategy to be implemented in a step-by-step fashion to make sure the supply comes online. We really need that supply to be boosted. We would like to see action on all the measures coming from that side. These are all quite big issues. Actions need to be taken with a sense of urgency now that will deliver in the years to come. That is one of the main things that we will push for.
In the short term, we are talking about mobile labour that may be attracted to some of the work here. Is it necessary to put measures in place to control rents? At the moment, there is a difficulty with the rental market in Dublin. It is driving people out of the capital and to the regions. It is acting as a barrier for this highly productive mobile labour that may wish to move here. Are rents a barrier in the short to medium term? Could more be done in the short term to attract that labour?
Mr. Oliver Gilvarry:
When looking at the challenges this year, the real concern for the council was housing. There was always a debate in economic circles about rent controls. One of the concerns pushed out in the challenge is about the significant number of measures in the Housing for All strategy. The pinch point is that we should not have a situation where we see the demand measures all coming along together. If there are not supply measures at the same time, all that will do is push up prices, whether for the purchase of a house or on rental markets.
We are going to push up prices unless we control them. The raging free market got us the rental market that we have. I agree that more pressure on the rental sector will push up the prices unless controls are in place. I would like to focus on that in the short to medium term. I am talking about people who are scanning the rental sector here with a view to potentially moving, either from one part of Ireland to another or from abroad. Do the witnesses agree that we need to take somewhat more dramatic measures to ensure rental costs are controlled? I think that is what people will look at.
Mr. Oliver Gilvarry:
From the announcements that we have seen, the Government is supposed to bring forward proposals on Thursday on capping rent increases at 2% or the inflation rate, whichever is lower. The Government seems to be bringing forward some of those measures which are attempting to deal with the increases in rental costs. In reality, supply is needed. Controls can be put in place. There is always an economic argument that rent controls lead to properties coming out of the market. We need to see supply. Within the challenge this year, we need to be careful that the supply measures and the demand measures that have been put forward by the Government do not lead to an imbalance which makes the situation even worse.
It is important to flag that one of the recommendations is that we need to ensure the planning system has the appropriate people to move planning forward quickly so that we do not have developers waiting a long time for approval for developments or even the State waiting to build social housing. We should have the appropriate resources in place so that we can get those applications through quickly. In reality, the supply coming on will normalise the market and bring prices into balance.
Can the witnesses specify how our competitiveness is suffering because of the crippling costs of housing, childcare and living? The report states there is an impact. Can that be quantified, maybe not in pounds, shillings and pence, but maybe using another quantifiable figure?
Mr. Oliver Gilvarry:
I cannot put a quantifiable figure on it but there is a question mark over what we are seeing in the shortages in certain parts of the economy. Due to the pandemic with the restrictions imposed, we saw people leave and go back home. We can see it in Dublin. There are vacancies in the hospitality sector. There is a question mark there as to whether people have returned home and seen that the cost of living is lower in continental Europe. One thing we are seeing in discussions with other countries, not only member states of the European Union but also of the OECD, is that Singapore, New Zealand and, from an EU perspective, Denmark are all experiencing labour shortages. I cannot tell Deputy O'Reilly that it is X amount or, as she said, the pounds, shillings and pence, but there is a question in this regard. Something that we have put forward in the challenge is that we need to deal with these competitiveness and cost issues in order that Ireland is an attractive place, not only to work but also to live.
I welcome Ms Kane and Mr. Gilvarry and I thank Mr. Gilvarry for his detailed presentation.
The side of it I would be interested in is in the context of the 2021 report. The SMEs highlighted three costs in particular which are very challenging for the sector, namely, the insurance costs, legal costs and the cost of credit. Stating the obvious, the insurance firms pass on the costs of the legal bills to consumers. That is an issue. The report also states that new personal injury guidelines on award levels should be assessed and monitored. Naturally, that needs to be done. From my point of view, I wonder whether the council has a view on the guidelines as written. If they are implemented, is the council of the view that this will make a real impact in terms of reducing the cost of legal bills for insurance firms? If that is the case, it should result, I would hope, in significantly reduced premiums for SMEs. I would welcome Mr. Gilvarry's thoughts on that.
Mr. Oliver Gilvarry:
This has been an issue, particularly on the insurance side, which has been looked at for a number of years by the council, even this year and not only in the report. In February, we published a bulletin on insurance in which, from a council perspective, we welcomed the adoption of the judicial guidelines. When we look at what we are seeing in the context of some of them, since 2016, there have been high costs. We have seen, on the motor side, a reduction in costs. We are seeing approximately 30% of a decline from the peak in 2016. At the same time, we are seeing it in the employer liability and the public liability. From a council perspective, the judicial guidelines are a positive step. Within the challenge, we think they need to be reviewed in order to see what they impacts are, how they are working and the position regarding changes.
The Government has drawn up the action plan and appointed the cross-departmental working group. A number of actions have been delivered, but there are continuing issues. We are seeing an issue with employer liability and public liability in the context of availability and cost. There are a number of levers that are within our control regarding legal costs, and measures have been taken to try and attract new entrants to the market. We have to be realistic and recognise that some entities which were providing insurance here, particularly on the specialist side, out of the UK and with Brexit and the UK leaving the Union, are not passporting those services in anymore. We need to attract other entrant to establish operations here, either those out of the European Union or even for UK entities to establish subsidiaries in Ireland. There is work under way, I believe, with the Departments of Finance and Enterprise, Trade and Employment on a promotion or increased provision of an insurance office. There are all those measures.
I also wish to note the reforms relating to the Personal Injuries Advisory Board, PIAB. It has become clear that the national claims database, and the welcome extension of that into the area of employer liability, EL, and public liability, PL, is highlighting what is making up the awards relating to claims - both legal costs and the amount of awards. Putting more claims through the PIAB is completing settlements quicker and also drives through in a reduction. The more normalised the market in insurance, the more attractive the market ultimately will become for new entrants.
I referred to our bulletin in February. When you talk about insurance markets, you talk about soft markets and hard markets. A soft market, in essence, is a more normal market, where then you see a hard market with increased premiums and people pulling out because they have higher claims costs and reserving. We want to have a more stable market where there is consistency regarding claims and awards. That makes it more certain for insurance companies providing services here. Changes to the PIAB and the judicial guidelines replacing the book of quantum will assist that.
The council has been quite clear. We need to review how the judicial guidelines are working, sooner rather than later, and move forward to complete the other reforms in the action plan, particularly in the context of civil liability for work the Department of Justice and others are undertaking there, so that we can continue to drive down costs and have a more normal environment for businesses and individuals alike.
Mr. Oliver Gilvarry:
The claims database was established by the Central Bank on the insurance side. It shows the level of claims and the breakdown of claims - how much goes to the award and how much relates to legal fees. Something we have seen previously - the council has called for this for a number of years - has been the lack of information in respect of insurance. The more data you have coming through - we have seen that with the database - the more information policymakers have to move forward and identify what changes need to be made. The first Central Bank report on the national claims database was published more than a year ago. It identified that in reality the award to the individual, whether it was through the PIAB or going through the courts, was pretty much the same. It highlighted again the issue of needing to identify legal costs and also to look at the book of quantum. There is more information that we have coming through, and there is the expansion of that into EL and PL. The first report on that, which will be coming out from the Central Bank in the next week or so, will identify whether things are moving in the right direction or whether policy action has to be taken. It also will allow entities such as the council to look at the data and put forward recommendations to Government.
On the legal bills and the cost being reduced, does the council believe that those reduced premiums will come back to SMEs as a reduced cost? What I am asking is, now that the legal costs have been reduced, will that be passed on to the SMEs?
Mr. Oliver Gilvarry:
In reality, how it works is that if there is uncertainty regarding the level of awards, the insurance companies have to hold back more reserves. They would argue, because they have to hold back more reserves, it is an increased cost of doing business. As we see the reduction in the award levels, that argument falls away. Coming back to the database perspective, that is why it is so important to see that information flow coming through because then there can be a challenge put to the industry as to why prices not falling. More importantly, from a market perspective, if they are able to retain higher prices, it will make the market more attractive, particularly if there is certainty regarding the level of awards. If, whether it is through the PIAB or through the courts, an award has been made to someone and the insurance company knows roughly where it will be, it gives certainty and stability to the market and will make the market more attractive for new entrants which, in turn, will increase competition and reduce insurance premiums.
Thanks very much, a Chathaoirligh. Naturally, Government representatives will tend to see the glass half full and Opposition will see it half empty. I suppose it would be remiss of me not to say that while we may not be perfect as an economy, before Covid we had full employment and rising wage levels that would have been simply unthinkable a decade ago. In the context of the housing market, during the crash, house-building fell to zero. There was no building whatsoever. The latest housing starts number 30,000.
Some of the policies, such as that relating to the new State developer and the new approach to driving supply – there are many of them – are working but that is not what I want to ask about. Broadly speaking, the witnesses are saying the Government is on track but needs to implement existing policies faster. That is useful to know, and we all urge speed, but I would like to know about three specific policy changes that the witnesses would like to see that are not being made. It would be useful for the committee to hear about these.
I want to probe a little the issue of the cost of finance. This has always been an issue in Ireland. Have the witnesses specific suggestions that could start to address the cost of credit, on the one side, and the cost of start-up finance, on the other? They are difficult issues, and we are not seeing new entrants from the banking sector. Are there initiatives we should be considering to address the costs?
The third question I would like to pose is on the obligation on, and need for, the enterprise sector to remove environmental damage from its entire supply chain. The climate aspect is a part of this but the so-called circular economy is also a factor. Do the witnesses believe enterprise is engaging seriously with this agenda? If not, what changes need to be made? To my mind, change is urgent.
Have the witnesses addressed specifically the concept of a circular economy – the idea of considering the entire supply chain and designing out some of the bad features that cause environmental damage? I do not see this figuring much in debates on competitiveness. I believe that in ten years, the companies that have not addressed their supply chain in the root-and-branch way I envisage will not be competitive in the emerging markets, which will be characterised by the European Green Deal.
Mr. Oliver Gilvarry:
On the question relating to the three policy changes, the first concerns productivity research. The council’s mandate and name were changed in 2018 but, from a State or Government perspective, we need to consider more how we are promoting productivity and what changes need to be made. This relates to other questions asked on the high levels of productivity in our multinational sector and the position in the other sectors. Along with examining how we can promote productivity, we must examine how the climate agenda will have an impact on productivity and competitiveness. This relates to the Deputy’s last point. We must ask how we can use the climate agenda to boost productivity. With regard to the focus on the climate internationally, a country can be a climate tech importer or exporter. Climate change is happening. As we can see with COP26 over recent days, the carbon agenda exists, it is not going away and we have to reduce emissions, but doing so will require technology. Countries may have to import it. Ireland needs to consider how it can be an exporter, be it through linking in on the manufacturing side with wind turbines, tidal power technology or other new ways of doing things. It all feeds into the productivity side, and we need to focus on that more in Ireland.
Another point that comes across to me, from Government and Civil Service perspectives, concerns the use of data and how we are using our information and data to make policy decisions. It is a matter of trying to utilise the information across Departments.
This is linked to the third area of change. We are still seeing very high levels of Covid infection but we introduced many measures very quickly as we shut down the economy in March 2020. We adjusted them and had measures for both employees and businesses, but we need to learn the lessons from them and stand back to see what worked well and what did not. In the context of the challenge we highlighted regarding schemes such as the Covid restrictions support scheme and others helping businesses with fixed costs, we ultimately ended up with about six or seven schemes supporting different types of businesses with fixed costs, different pay-out levels and different criteria. We need to see what we can learn from this in designing such schemes to avoid replication. That is my initial view on the three policy areas.
On the issue of credit, we have highlighted that the exit of two institutions – KBC and Ulster Bank, one of which is relatively large – presents a challenge of concern on the competition side. Whereas Ulster Bank has a significant SME book, KBC does not. It is still a matter of concern that a small business starting off in the first stage must often rely on an overdraft from its retail bank. The loss of two players is an issue for smaller businesses starting off. I am referring not only to businesses of medium size but also to small businesses and microbusinesses. It is another loss for the latter.
The question of what the competitive banking environment in Ireland will look like with the exit of Ulster Bank and KBC is an issue. We were speaking about insurance earlier. Deputy Bruton mentioned that we do not have new entrants in the banking sector. The one positive is that we have seen several non-bank lenders come into the market. These are relatively small, but they are growing. They are seeking to provide credit to the Irish economy in various areas. When Ulster Bank and KBC leave, it will be important to have the non-bank lenders. We are seeing that the credit union movement is more involved in a few the loan guarantee schemes that have been launched by the Department of Enterprise, Trade and Employment and other Departments. This is an issue. It is a one that the Department of Finance’s announced review on banking needs to take into consideration. Whatever emerges from the review on the competition side will need to be acted upon quickly so we will not have quite high costs or high interest rates, or circumstances in which people cannot avail of credit to start their businesses. This does not apply only to standard SME loans. Somebody seeking to set up a coffee shop or start a new manufacturing business will often have to work from a personal overdraft.
I thank the representatives of the council for attending our hearing today. I have read their detailed and long report Ireland’s Competitiveness Challenge 2021. I very much welcome some of the analysis in that report, particularly the comments on the pandemic unemployment payment and the need to have an adequate transition process in place. I welcome also the references to the need to introduce the paid sick leave Bill and to the right to request flexible working conditions. It is important to acknowledge and welcome those aspects of the report.
My question relates to labour supply. This matter has already been touched on in the context of housing. It was stated that the need for affordable housing is now a competitiveness issue as regards attracting workers to the country and retaining workers in certain sectors and areas. I want to understand a little more the work of the council on labour supply in construction. As we are aware, a significant ramp-up is planned for new builds and retrofitting over the coming years. When I examined the data, I saw that the construction labour figure in the first half of this year was as low as that for 2017.
Of course, that will improve in the second half of 2021. The labour supply into construction and the competition for skilled construction labour, in particular considering the strength of the Polish and eastern European economies and the need within the UK at present, poses a real challenge. I want to understand more about the work of the council. I note a report was produced last year, however, I want to know if work has been done this year in that regard. In addition, the report stated the Government's action plan to secure the pipeline of apprenticeships is taking effect. I would like to hear more detail on that.
Ms Linda Kane:
We highlighted in the report on this year's competitive challenge that attracting workers into the construction sector will be difficult, especially if some of that labour is being attracted from abroad. Due to the demand for workers, the number required could increase to 80,000, when housing construction ramps up, from the 40,000 full-time equivalents that are working in the construction sector at present. We referred to the expert group on future skills needs. It published a report that highlighted the demand for labour coming from construction. As the Senator rightly said, demand will not only come from houses. In addition, it will come from the many large scale infrastructural projects that are ongoing, and the retrofitting of homes and office spaces. We called for the training available to people who rejoin the workforce to be more widely available. I refer to apprenticeships and getting more young people involved in the construction sector. We must offer people entering the construction sector a good career and long-term prospects. They should be offered a career path to follow.
I refer to the work we are doing for climate change and the new modern methods of construction that are anticipated. We will need people who have those new skills who can look at digital ways of proving productivity in the construction sector. We must bring those higher skilled workers into the sector, as well as the labour on the ground for producing the homes.
It is important to note that in the recent budget, fewer apprenticeship places were announced for 2022 compared with 2021. Some of us remain to be convinced that adequate resources and effort are being put into ensuring we have a sufficient skills pipeline of training and apprenticeship programmes in the construction sector in particular, as in other sectors, that will be badly needed in future years.
I have another question about youth unemployment. We know youth unemployment levels have always been almost double that of the unemployment level for the whole population. On the initiatives taken at present, do we really believe we can dramatically reduce the pre-pandemic unemployment levels of between 15% and 17%? This has been a long-standing issue in the Irish economy, about which there have been some initiatives taken but no radical or comprehensive youth unemployment strategy forthcoming for some time. What are the witness's thoughts on these issues?
Mr. Oliver Gilvarry:
I have not looked at the most recent numbers on the pandemic unemployment payment, PUP, and employment wage subsidy scheme, EWSS. There has been a significant increase in the number of people under the age of 25 years benefitting from EWSS. One thing concerning the council as we move out of the pandemic, is to not see people who were in receipt of a pandemic unemployment payment or whose employment was supported by EWSS moving into long-term unemployment as those schemes come to an end. In particular, it is a concern in respect of youth unemployment. That is why, in the competitive challenge report, we pushed for the Pathways to Work strategy. We welcomed the focus on younger workers and the different measures within that for them but we need to see those activation measures introduced quickly. As supports are rolled back, it is a question of whether people under the age of 25 who are no longer in receipt of PUP therefore move into long-term unemployment. As EWSS is reversed, it is a question of whether people are let go from employment.
I take on board the Senator's point on the apprenticeship places but we consider the apprenticeships, as Ms Kane outlined, as a pathway to work for people in order that they can have a career from this. Pathways to Work focuses on payments to employers who take on younger workers. They all have an important role to play in this regard. On the question of whether we can drive the youth unemployment levels lower than what they were pre-pandemic, introducing those measures quickly, particularly as certain support measures are reversed, gives us the best chance of achieving that.
I thank the representatives from the NCPC for coming before the committee. Their organisation does very interesting work. It is important for all public representatives to get independent advice where possible on the health of the economy and in obtaining projections on where things are going in regard to the issues that may arise. The year 2020 was exceptionally difficult for many businesses across all sectors of the economy. I gather from the witnesses' contributions that we are facing a lot of uncertainty in the next 12 months.
I want to raise an important point. I am a rural Deputy from Cork East constituency, where the agrifood sector is by far the largest employer. There are many thousands of jobs in the processing sectors within agriculture. At the primary level there are those who work in farming with basic English, and those working in the production of cheese, whey and powder. We are a major constituency in regard to those areas. Following on from that point, a matter which is repeatedly brought up in my constituency is the difficulties facing employers who try to bring in employees from outside the European Union. From the engagement I have had with employers working in agriculture, it is increasingly the case that they find it more difficult to bring in workers from eastern Europe. Many have faced almost impossible challenges in hiring workers living in the Republic of Ireland, be they Irish or other European citizens who have moved to Ireland. That is one issue that has been identified to me. Will the witnesses expand on the points made in regard to the NCPC's work in trying to solve current labour shortages in the area of the agrifood sector and the wider economy, in addition to the issue of work permits?
Mr. Oliver Gilvarry:
While this year's report on the challenges did not consider the specific area of work permits, there was a recent announcement by the Government about changes to work permits and a number of them involved the agrifood sector. This issue comes back to the points made earlier about trying to have Ireland seen as a location that is attractive for people to come and work in. There are a number of aspects to that. First, if people come from outside of the European Union, we need to have the permit system in place in order that the process is relatively smooth. I note the Minister of State at the Department of Enterprise, Trade and Employment, Deputy English, announced the Government's intention to improve that. Ultimately, however, we need to be a jurisdiction that is attractive for people to want to come to work in. This comes back to the concept of Ireland as an attractive place in which to both work and live. We must have the other supports in place such as mandatory sick pay and affordable housing. Those different aspects will help to attract people into the country. The agrifood sector has always had labour shortages. In primary production, employers have been trying to recruit workers for fruit picking - not so much in east Cork but certainly in other parts of the country - and to get people in to support the dairy sector. While we did not consider it in our report, we regard it as a new way of living and working and it must, therefore, be an attractive jurisdiction.
In addition, from a state perspective the Government must have a process in place where the permit system is working appropriately, it is identifying where there are shortfalls in relation to workers and that they can come in. Ultimately, however, it is that people are willing to come in and see Ireland as an attractive place to come and work, whether that is within the Union or outside it.
I feel that is something that is a serious risk to the agrifood sector, which is accountable for about 6% of GNI* which is significant. It is something I would like to see the NCPC do work on. I know its board has representatives from the agrifood sector. It is a significant issue.
If the council could see the Government solve or make progress on any issue in the next 12 months, what is the single biggest risk to our competitiveness in the next year or the medium term?
Mr. Oliver Gilvarry:
We flagged it in the challenge. At more of a macro level, there was the large debate and the challenge before the OECD reform on corporate taxation was agreed. I would not say it is the one specific challenge but there has been a lot of debate on the multinational sector here and what will happen with the minimum corporation tax rate. One thing would be the levers and costs, whether insurance, legal fees, cost of credit etc., the old reliables that we talk about in the council, so that the costs of working and doing business in Ireland are managed. Those things are in our control and we should reduce those costs as much as possible. Insurance, cost of credit and legal fees are somewhat interlinked and they are one of the more immediate issues. Action that has been taken by Government need to be delivered on. The housing side is linked to that so that we do see the supply coming through and the measures in the Housing for All strategy. I would say that it would be those old reliables.
I have noticed that the NCPC has some integration with several Departments, which is interesting in terms of the work it does. Does Mr. Gilvarry feel the co-operation between those Departments to tackle the issues of competitiveness are being done in the most efficient manner? Joined-up thinking is a phrase often used in politics and political jargon but are we maximising our ability to bring Departments and different sectors together? There is the approach to housing and to taxation but has the body of work been approached in the most efficient manner possible for the benefit of the economy?
Mr. Oliver Gilvarry:
From the council perspective, if there is a significant issue, we have the bulletins we can use. They are more statements of fact but they can highlight the issues. Look at where we are in the challenge and some of the recommendations on the climate action plan. I refer to the actions arising from that plan, which is supposed to be published this week. The Housing for All strategy was in September. We need to give time for these actions to come true but the council does have that soft power if things are not being done that were promised by the Government, particularly in the response, the council can call attention to that. The Deputy raised timelines. The Government will respond to us by the end of November, the next challenge will be out by September. There is ten months or so of a gap.
A number of Government strategies have come out during its term so far. We will have to see deliverables but with the council's soft power, as the independent body to provide advice to the Government, we have that ability.
I promise I will be brief. The reason I am putting that question is that with the Covid-19 pandemic and everything else going on with the world economy, the next 12 months will be crucial as we go into a new financial year. That is why I was pushing that particular matter.
I thank the council for coming in. It is great that the council exists, however, its opening statement has no mention of climate and I find that quite disturbing. To quote a billionaire, which I rarely do, Larry Fink, "climate risk is investment risk". That is what we need to move towards. Deputy Bruton touched on it but there is a lot of work to be done on carbon calculation of businesses to enable them to compete in the market. I have spoken to businesses in the community, ISME and local enterprise offices. They want help with the SME sector getting decarbonising supports and knowing their carbon footprint. It is not only an issue for themselves locally. Many in the private sector are working on their carbon reductions. You can see that with SuperValu, SAP and other multinationals. They say their biggest challenge is that their suppliers do not have carbon calculations or that they have not done enough on reducing their carbon footprint. When a large company puts in its carbon calculation, it must take all its suppliers into account. I raised this with the Tánaiste and, in fairness to him, he gave good money for it in the budget, with some €22 million for the SME sector to be digitalised and decarbonised. What does the council intend to do to support the SME sector into decarbonising so that it can be more competitive? The two are inextricably linked.
Ms Linda Kane:
The enterprise sector currently accounts for 13.3% of our national emissions. Under the current climate action plan commits to reducing those emissions by 10% to 15%. That is likely to increase in the new climate action plan.
Making investments in new sustainable methodologies and products requires a level of certainty. The council welcomed the announcements in budget 2022 that the carbon tax will increase to €41 to tonne and a planned increase to €100 per tonne. That certainty really helps enterprises when they are making those long-term investment decisions. They need that element in place to know the playing field.
On our competitiveness, there is a global shift where consumers are demanding more environmentally conscious products. That is a niche market that our suppliers can work into. If they want to expand their businesses, they need to respond to what their consumers are demanding.
Ms Linda Kane:
Our report had a recommendation under the sustainability and inclusivity chapter that any interaction between competitiveness and measures to address climate change would ensure that enterprises can decarbonise while simultaneously improving their competitiveness and productivity. At local enterprise office level, we are talking about peer-to-peer learning and advice for enterprises on how they can transition to a low-carbon future. We are also talking about working within those networks to explore options for electrification, the use of substitute fuels, efficiency projects and supply chain management, as the Senator mentioned. It is about getting those firms to change their suppliers sometimes, to more environmentally conscious ones, and to change some of their own practices to make them lower emitters.
Mr. Oliver Gilvarry:
In the 2020 challenge, we had a specific chapter on climate and the decarbonisation of the energy network or the gas network. This year, in one of the chapters, it is a key issue for competitiveness and productivity. There is work under way and we will see what comes out of the climate action plan tomorrow. I refer to measures that have been discussed before such as the carbon calculator for businesses, a one stop.
The Department of Enterprise, Trade and Employment is leading on that.
On a broader issue that Ms Kane has flagged, there is a need to see what is the impact on carbon reduction and how that impacts on the productivity and competitiveness of different sectors in our economy. We also have to focus on where we can take the opportunities. The Senator made the point on the supply chain for businesses and their suppliers. I would see that all linked in to what I mentioned before about being an exporter of climate tech. We can think about having a wind turbine as that kind of tech but it can also be processes and the way businesses identify within their supply chain where carbon has been removed, whether that is the removing of plastic packaging or different packaging methods, for example. We need to keep pushing that. It is something the council has been very focused on so that businesses have that support to see how they can improve their own carbon footprint, not only from their own perspective but also from that of those supplying to them and then onwards in regard to them supplying to others. Consumers will look for this, ultimately, whether that consumer is an individual or a business.
Can the witnesses send me information on or links to those supports for businesses to decarbonise because I have not found them? It is great that the council is aware of it but I did not see it mentioned in the opening statement, which is why I asked. All businesses, given consumer demand, know the plan is that we need to go green and decarbonise. Irrespective of carbon taxes or the targets we get in the climate action plan, we have to support businesses which want to do the right thing because it can be costly. I am focused on helping small businesses. It is easy for big businesses to have full-time staff whose job it is to decarbonise, but small businesses in general are flat to the mat just working and they find it difficult to find the time to decarbonise, source grants, get green loans and all of those things. I am coming from the perspective of small businesses and I am looking for them to get clear supports. If the council has it available, I would like to receive information on that.
I thank both speakers for coming in today. It is a very valuable report as there is a lot of very good content in there. It is welcome to have this debate. I was struck by one of the comments made by Mr. Gilvarry in response to Deputy O'Reilly on the importance of making this country a good place to live, which I think comes through in the report. We have one of the highest proportions of low-wage workers in any economy in Europe. Does Mr. Gilvarry think it is a good country to live in for those workers at the moment? People are taking home €380 a week despite the challenge of the costs they have to face in terms of rent, ever-spiralling bills and the cost of living. What steps does Mr. Gilvarry think we need to take in regard to those workers to make the country a good place to live? Does he have a view on the EU minimum wage directive, for example, which is an issue that has come up with the Government? Unfortunately, it looks to date as if the Government certainly wants to water down that directive and it does not want to make it binding, yet that is the type of directive that could actually influence increasing collective bargaining in this State and giving workers a decent and better pay packet. I will start by asking Mr. Gilvarry for his views on that issue.
Mr. Oliver Gilvarry:
I thank the Senator. When we look at the level of low wages for workers, the counter-argument is in regard to the level of redistribution within the economy. If we compare the situation to the UK, for example, in regard to the percentage of tax that is taken for someone on the minimum wage in Ireland compared to a person on the minimum wage and aged over 23 in the UK, people have more take-home pay here. As I said in regard to the challenge, a good place to live is one that gives certainty to employers. When we look at the issues on mandatory sick pay, again, that is very much targeted at the lower paid. Whether it is in the coffee shops or on the hospitality side, people are not there for 20 years and they are in and out, changing jobs, and we see more churn there. Those are important things to have in place for people.
Moreover, from a lower pay perspective, remote working is not as much of an option for those people. It has to be that we have a lower cost of living here for those people so there is access to the healthcare system - we referenced the Sláintecare package - as well as housing. Auto-enrolment is another aspect so those workers know they have another scheme for a top-up when they are coming towards retirement. It is all of those measures, which do increase costs on businesses, but that balance makes us an attractive place for people to come to work and live, as the Senator referenced - it means it is a good place to live as well as a good place to work.
I am not sure about the higher percentage in terms of the minimum wage in Europe but, again, it is that balance. We can see that the tax take out of that minimum wage is quite low but we have to ask what are the other aspects. That is why we have called on the Government to move forward.
Another point we made in the document, which is quite important for the lower paid in the economy, is that when we look at the PUP numbers, many of those who were on the lower wage were impacted again, as were many in the hospitality sectors. Again, it is about ensuring those people are not going to be disadvantaged when mandatory redundancy calculations are coming through and aspects like that, and that measures are being taken in that regard. We need to see things happening there. It all feeds into having people say, “Yes, Ireland is a good place. I can get housing at an affordable level. The minimum wage is X but there is not a huge tax take and I am not spending a lot of it in other areas, and the healthcare and education systems are good.”
I do not know a huge amount about the minimum wage directive and what the minimum aspects are, so I could not comment on those.
I appreciate the feedback on that issue. In terms of the social infrastructure that was emphasised in the report, can the witnesses share a view on how out of kilter this country is in terms of the cost of childcare for working families when compared to our competitors in Europe?
Ms Linda Kane:
I apologise but I do not have the figures to hand. We had a chart in last year's report, Ireland's Competitiveness Challenge 2020, which highlighted that we were the most expensive jurisdiction in the OECD, and I can make those figures available to the Senator. It is very important that we get in place those schemes which make childcare more affordable to lower income and middle income families, so it makes going to work worthwhile.
That would be great. I want to raise the issue of housing. Again, I praise the very clear way in which the council has called out the issue of housing. The report states:
The prolonged undersupply of new housing has led to chronic shortages of properties in both the rental and home ownership markets, resulting in house price increases, rental market pressures and increased homelessness, as households are priced out of local markets. The dysfunction in the housing market has spill-over effects on private enterprises as firms struggle to recruit skilled labour, and face wage pressures as employees demand higher compensation packages ...
We have spoken about the struggle in terms of attracting people into the country but do we not face another challenge, which is hanging on to the young generation of workers we have here in Ireland at the moment? Certainly, that is the case for the people I speak to. I can even cite the guy who works with me at the moment, who has had to move back in with his parents this week at the age of 26 because he cannot afford to rent a house in Limerick. Is the real danger that we are going to lose some of our brightest and best people if we do not tackle the cost of housing in this country?
Mr. Oliver Gilvarry:
Yes. It is the whole cost issue. It is not just that Ireland is a good place to attract people, whether, as I said earlier, that is the very highly paid people working in ICT or pharmaceuticals or people who are working on the minimum wage or just above minimum wage, and it also applies to our own domestic situation so that we hold on to our people. People will always move and they will come back again, but it is a point worth making.
The issue on the housing side is that we see the supply coming through but given the large number of measures that have been put forward in the Housing for All strategy, we need to step back and look at whether they are having the correct effect. We need to ensure that adjustments are made quickly so there are proper monitoring frameworks and, in particular, that we do not see certain measures coming in on the demand side earlier than we are seeing supply coming through, which then makes it even more difficult for people to get housing. That can put them at a disadvantage compared to other jurisdictions in Europe which have huge labour shortages, so people decide to go there rather than here, or our own people decide to go there rather than, as the Senator said, that we keep the brightest and best and the skills here.
It is always great when people go and come back. That will always happen but we should not have a situation in which we educate people who go through the system and then we have huge skill shortages because we are losing loads of people.
Mr. Oliver Gilvarry:
The council is concerned about the number of measures, whether it is the cost of insurance; the cost of credit; getting a mortgage; or being able to get a home to purchase or rent at affordable levels. All of those issues impact our competitiveness and if we do not deal with them that will cause an issue with Ireland not being an attractive place to live and work.
I thank the witnesses for coming in for this informative engagement. Much of what I was going to raise was brought up by my esteemed and learned colleagues so I will be short and sweet. I want to focus on a point that has been raised by a number of speakers and that is green finance. One of the issues facing many businesses is the need to decarbonise. There is a particular catchment of businesses such as mom-and-pop shops and the small SMEs that are at sea in this area. If one looks at firms that are associated with Enterprise Ireland, EI, IBEC and IDA Ireland, they are probably decades ahead in this challenge but there is another large cohort of businesses. We repeatedly remind the public that the engine room and driving force of rural Ireland is SMEs and they feel isolated. I am conscious that there may be some direction for them in tomorrow's announcement but we need to see a specific green energy finance programme for them. We saw a good initiative from the credit unions last week on finance for private home-owners to future-proof their homes but there is nothing in that space yet for the SMEs.
We all appreciate and know that the finance market has contracted significantly and that is a challenge. Deputy Bruton also mentioned the circular economy and for rural Ireland in particular there is a huge opportunity in this. We are seeing some progress in this area such as the EDI centre in Longford, for example, which is doing excellent work but it is still too hard for smaller businesses to get proactively involved in this area. If one looks at the big retailers one can see that there are opportunities for small businesses to grow on the back of a circular economy. On efficiency and businesses moving forward, those are the two key opportunities for SMEs if we could give them advice. As Mr. Gilvarry rightly says, there may be an outline of that in tomorrow's announcement. We need green finance and a clear pathway forward for the circular economy. I would welcome any observations on those points that have not already been given.
Mr. Oliver Gilvarry:
The banking system has a role to play in green finance and we have seen that more on the mortgages side with building energy ratings, for example. The Deputy mentioned the credit unions and retrofitting and we might get further details tomorrow in the Housing for All strategy on the retrofitting of housing. It is being touted that 500,000 houses will be retrofitted over the period of the strategy.
We are seeing more happening at a European level on the circular economy and there is a greater push on that. Different supports are being provided by the LEOs and EI and a number of those would be targeted at the smaller businesses. This has to become more of a focus because of what I said about the supply chain earlier. Either the suppliers of a business or those being supplied by it will ask the business what it is doing and what it can do in that area. There is a role for the banking system in this and it is fulfilling that role. A portion of that is being driven at European level such as advantageous capital requirements because money is being loaned for green projects. We will see more of that coming through under this Commission and the existing support schemes from the LEOs and EI will help businesses to adjust but let us see what is announced tomorrow.
I would like to return to the issue of enterprise and the environmental adaptation it needs to make. I am not sure if enterprise has seriously addressed this and even the way Mr. Gilvarry presents it, that enterprise is responsible for a small share, understates the contribution of the enterprise sector. Enterprise uses substantial amounts of transport, which is attributed to the transport sector but is still coming from enterprise, and it has a lot of buildings which are generally poorly energy rated. Huge adaptations are needed in the enterprise sector and while the climate plan will set out its first cut at the policy tools we need and the choices we make the council needs to focus on this more because the choice of those tools will affect our competitiveness.
I have done a report on the circular economy for the Committee on Environment and Climate Action. The council should be advocating for sectoral audits that look at creating a sense of obligation in enterprise to redesign its supply chains and look at things like the repairability and end of life treatment of its produce, the necessity for packaging and so on. I do not see another way for Ireland to get a competitive edge in this new economy unless advocates such as the council recognise and point out to Government and enterprise the changes that are needed. I urge that more work would be done in that area.
Has the council made a contribution on the reform of the leaving certificate? One of the most important decisions that will be made in the next 12 to 18 months is the direction of reform in the leaving certificate because it will trigger many of the things Mr. Gilvarry is talking about in the areas of productivity, skills, capacity for innovation and so on. Has the council looked at this and has it given Government any guidance on the direction of travel of reform of the leaving certificate?
Mr. Oliver Gilvarry:
Leaving certificate reform has not come up with the council. The focus and challenge this year has been on pathways to work and apprenticeships but it is a good point. We need to foster the skills, start at that stage and feed that through. Reforms have been led by colleagues in the Department of Further and Higher Education, Research, Innovation and Science to look at the CAO system but from what we have seen from the pandemic the leaving certificate will be reformed and restructured going forward so that we will have the appropriate skills coming through into our labour force from colleges, institutes of technology or apprenticeships. The starting point will be that people come out from the leaving certificate system and that they have the basic skills or qualifications coming through. However, we have not looked at contributing to the reform of the leaving certificate.
On the climate side of the circular economy, a productivity research programme has been called for and that is in the process of being established by the Department of Enterprise, Trade and Employment. That will have a significant climate component because as the Deputy rightly said, the climate agenda is not going away and it will be coming more and more to the fore. We are seeing proposals at an EU level on the circular economy such as directives on the repairability of appliances and the like. From the council's perspective it would be important for the Government to consider the export of climate technology. It must also consider how our businesses are established, how they can take advantage and how our support schemes that are being put forward can deliver on that project. In that way we will see people and businesses putting solutions in place that can be utilised elsewhere.
With regard to the point on the climate side, there will be a research programme and that will be a big part of it. As I said, this relates to how the climate agenda is affecting the productivity and competitiveness of firms, and looking at advantages that might be gained. A number of other projects will also be in the climate area.
I thank the witness and I look forward to that work. I recommend the review of the leaving certificate because there is a tendency for only insiders in the education system to engage on questions like this when it really affects our entire society, not least our enterprise sector. These are big choices that will shape Ireland for quite a while to come. They deserve a certain input from groups like the council, which has a wider perspective.
I thank Mr. Gilvarry and the other members of the council. In his statement Mr. Gilvarry has spoken about the renewed focus on productivity and I wonder whether, in the context of the programme for Government, the NCPC has looked at the productivity of our Civil Service. We will have protests outside the Dáil later today regarding forestry, and it looks like the five-year forestry targets will undershoot by over 80%, and this is essentially, I suppose, down to problems within the Department of Agriculture, Food and the Marine in processing afforestation claims, felling licences and all of that. It is something that should be examined.
There is a similar issue with wind development. We are still waiting to designate a wind port. We need to get that done or we will lose much of that business to other markets, whether it is in the UK or on the Continent. We also have issues with the grid infrastructure, and it again seems to be largely vested in problems with the Civil Service. My first question relates to Civil Service reform and whether the witnesses have any remit to speak to the Civil Service or meet the Government to discuss it.
My second question relates to the construction sector and the embedded costs, particularly the Government's take of development costs. There is also the issue of dominant suppliers. I have mentioned it before at this committee that if people buy building materials on the Continent, they will be up to 30% less than the equivalent in Ireland. That 30% difference does not comprise the cost of shipping those materials to Ireland. We definitely have a cost disadvantage. Is the council giving consideration to that?
A third question has been covered a number of times but it concerns apprenticeship schemes. There is a particular problem in the country with the wet trades, particularly plastering and blocklaying, as well as carpenters and electricians. I know many subcontractors in the area and they have no sons or nephews coming into the business. Nobody is following those people into the business because they do not see it as an attractive area in which to work. In Germany, there are two streams of higher education and the guilds can lead to a qualification at graduate level. Is that something the council is examining?
The fourth matter is insurance and we now have a wholesale exit of underwriters from the UK leaving the Irish market. There are a number of business sectors that will fail to get any adequate insurance as a result. What is the NCPC doing in looking at schemes of self-insurance or further legal reforms to this process?
Mr. Oliver Gilvarry:
I cannot comment on the particular case mentioned by the Deputy relating to productivity aspect of the public sector and the Civil Service. The council is looking at productivity in this area and the plan is that before the end of the year or early in January, we will have a bulletin examining the question of productivity in the public sector. In the initial look at this, not only from an Irish perspective but a European, global and definitely advanced economies perspective, there is not a huge amount of data. The council is looking at it and we will have a bulletin on productivity within the public sector.
On the insurance side, the council's role is to provide independent advice to the Government or the Taoiseach via the Minister for Enterprise, Trade and Employment. With insurance, we have seen entities providing insurance into Ireland from the UK but which had no other operation in the Union, and that process was affected by Brexit. There options were either to stop providing insurance into an EU member state such as Ireland or to establish a presence in the Union. If they were really only servicing the Ireland and UK market, a number of them would have decided, because of the size of our market, it was not worth their while.
We should focus on the measures that have been put forward to reduce the costs of premiums, including changes to the PIAB judicial reforms and civil liability reforms. This will give greater certainty over the cost of claims and make the market more attractive for entrants. It is very much where we were in council this year and we pushed for those reforms. In particular, we want an early review of the judicial guidelines that replaced the book of quantum to see if the process is working and what tweaks need to be made. That is how we are looking at dealing with the issue of firms leaving the Irish market that have been operating out of the UK.
Ms Linda Kane:
We have seen some evidence on the construction issues raised by the Deputy. The Ulster Bank purchasing managers' index has indicated consistent increases, so we are seeing not only higher prices but also longer lead times. Part of that is driven by a very significant increase in demand for those inputs and there is also a global shortage of materials, including steel, certain types of plastics and copper. In Ireland, there is the addition of some Brexit delays and hiccups with the supply chain. Given that ours is such a small economy, we must import quite a bit of that material, which is leading to shortages coming down the track, especially when we must ship across various supply chains.
We also expect that some of the global increases in prices are likely to be temporary and related to Covid-19. We anticipate that these will unwind in the coming months. We will be keeping a close eye on these matters, particularly as there will be much planned construction activity in Ireland over the next couple of years under the Housing for All strategy and various infrastructure projects. We expect to see a very high level of demand for those construction inputs. The council will keep a close on production inputs.
Mr. Oliver Gilvarry:
The Deputy mentioned skills shortages, especially in the wet trades. Again, the greater focus on apprenticeships will come through in trying to bring in people. We mentioned earlier that within the new Pathways to Work strategy people need to see what is their career path and how it can develop over a career. We need to make it more attractive to get into this area. A greater number of apprenticeships are being offered and it is an option for people.
The other issue in that sector is that we saw no or very limited building for a number of years post crash. With the targets for the Housing for All strategy and the money being put into the building sector, we should see greater demand for those wet trades as greater work comes through. There is no easy answer per seon this but we see apprenticeships and Pathways to Work as key to continuing development. It is an issue for such trades to get in younger works and reduce youth unemployment levels. It is important for people to see a career path and it can be developed.
Mr. Gilvarry mentioned a bulletin relating to Civil Service productivity. He may not wish to comment before this committee, but he will have to look at specific matters like what is happening currently with the forestry sections. We have put in extra resources in the past year and yet the time it takes to complete the licensing process is lengthening. We are not even dealing with the number of applications coming in. We have a significant problem and the NCPC should look at it in considering the broader topic of climate change.
Mr. Gilvarry spoke about the PIAB and trying to expand its use and so forth. Has the NCPC looked at any increase in post-traumatic stress disorder, PTSD, attachment claims to soft-tissue injuries? I believe this is something that must be examined in the context of further legal reforms. We cannot introduce legislation to try to cap awards and then have it circumvented by other attachments bringing them back into the Circuit Court and High Court.
With regard to Brexit, the report has highlighted how challenging it will be for Irish exporters to replace UK customers with customers on the Continent given the barriers that exist with language, culture and so forth. Are there any actions the council would recommend that the Government take in the coming months to support exporters?
Mr. Oliver Gilvarry:
The point we were making in the challenge there is that we put a box in the first chapter outlining the changes in trade flows. Some of the numbers there show a continuing decline in UK imports over a number of years. There is a question about whether that has been exacerbated by Brexit or is basically people stockpiling. We are still seeing trade flows coming through, but the trend for more than a decade has seen a smaller percentage of imports going through and the UK becoming a smaller proportion of our exports. The issue we were trying to convey on this is similar tastes. The example of cheddar cheese is always used. Ireland, the UK and the US are jurisdictions where one sees cheddar cheeses, but not so much in Europe. There are very similar tastes and a shared language.
The ability to replicate a large market of 60 million people by switching into a European market where there are different languages and different tastes across those jurisdictions is not easy. Our point in the challenge is that there has to be a greater focus on this from the enterprise agencies to see how to support businesses going into, for example, the Austrian or the Belgian markets, which will be quite different in how to support them. The point we were trying to make is that it is not easy to replicate and say we are not going to export to the UK anymore but will export to the European Union. The European Union is made up of a number of different jurisdictions that have different cultures, languages and tastes, so it is not as easy to replicate and that has to be considered as we help our business to transition away from the UK market.
I have a few questions about the report. What is stated on page 60 is very interesting. It relates to the feedback that has come from employers on the effects of remote working and how it has and has not worked. I wish to delve into that a little. The report states that 44% of managers said it is more difficult to manage their teams remotely compared to those on site, 47% said there was no difference and 9% said it was less difficult. That is fascinating data. As regards the future of remote working or a hybrid working model, can the witnesses comment on the competitiveness or the analysis of the competitiveness of that from talking to employers? What is the feedback on that and is there a future for it? In the context of people who may have younger children, they are trying to manage the work-life balance. Working from home might save them a significant amount of time that otherwise would be spent commuting. There are other aspects as well. Could the witnesses expand on those points further for the committee?
Ms Linda Kane:
We also released another bulletin in May on remote working. We had the opportunity there to delve into much more of the academic evidence. There is very positive evidence that there is a productivity boost by remote working. There are many studies internationally and serving evidence from within Ireland. Obviously, it is a little early to get the hard data for Ireland yet, but we will be monitoring that very carefully. The Western Development Commission has been responsible for doing the national survey on remote working and it is seeing that self-reported productivity has increased by 68%. There definitely are benefits for both the employer and the employee. It is about bridging those two groups so both can see the benefits of this future arrangement.
One of the issues we pointed out in the challenge was equipping those managers with the skills to manage the teams remotely. A slightly different set of skills will be required to be able to communicate more effectively with one's team, to have possibly difficult conversations remotely as opposed to face-to-face and to motivate a team when one does not see its members every day. There is definitely great potential in Ireland to reap the benefits of this. We will do it the right way by making sure that people have the right skills, both digital and managerial, and making sure they have the right equipment and access to good quality broadband. Those are the things we can put in place to ensure that there is the most productive outcome from the move towards remote working and blended working.
Excellent. To follow up on that point, there is the important overall point, and it was mentioned earlier regarding our competitiveness, that there is extreme strain at present on the energy grid. It is something I have received feedback on from employers. What is quite interesting is that if people are working at home there is a change in the demand being placed on the grid versus people working in a centralised hub. From an economic point of view, and taking the social aspect out of it for the moment, one could argue in that context that it is less efficient having people working in the domestic home versus working in the workplace. Have the witnesses any thoughts on that and on the future management of it in terms of the pressures that may arise environmentally? I have in mind things such as heating in homes and energy bills. Has there been any analysis of that for the report?
Mr. Oliver Gilvarry:
Not per se. There is one thing more generally. I will take some of the numbers from the top of my head on the Deputy's point, but our emissions from transport last year were down significantly. The number for transport for 2020 was down something like 15% or 16%, but from households it was up 9%. On the Deputy's point, one has to heat one's home so that one can hold a pen or type on the personal computer, PC. If everyone is in one building, it is more efficient. Everyone is there for heating. A modern office building will be more efficient than people working in ten or 20 different types of houses. However, first, we have to be realistic and accept that we are now in a blended working environment.
The second point comes back to the retrofitting of the housing stock. Regardless of whether we are doing blended working or we are back in offices, we are still heating homes so we must do that in the most efficient way possible. That involves insulation, heat pumps and other things. Yes, it would be more efficient if everybody was in the office, but the pandemic has shown a new way of living and working. One could argue that it is a better quality of life, with people having more time but still being able to be as productive as if they were in offices. It is an issue. The retrofitting of houses will ultimately deal with some of that. In some ways, we cannot reverse it now. People will be in the offices for some of the time and then will be working from home. That is not just in Ireland, but globally. People will have blended working so we have to offer that and have it in Ireland so we are competitive and an attractive place to live and work.
To pick up on remote working, we know it will be a growing feature. We all should recognise that people are not returning to work because they have been working all along. They are just returning to the office a little more. I note the contribution about the stress that remote working perhaps causes for managers. With regard to workers and the stress caused for them by working remotely, however, the always-on culture and so forth, would the witnesses recommend that the inclusion of a right to disconnect as part of any future legislation would be important in terms of giving us a competitive edge, first, but also for the health, safety and welfare of workers in their new workplace, which will be at home for many?
Ms Linda Kane:
We had that as well in our bulletin that came out in May.
That presented more opportunity to go into depth. We called for the right to disconnect and we welcomed that because inadequate mental health protections for employees who are working in their homes, where the line between home life and work life gets blurred, can lead to long-term stress issues, poor productivity and poor performance, which, again, is bad for the business as well as being bad for the individual. Therefore, as I mentioned earlier, the NCPC sees remote working as an opportunity to benefit both the individual employee and the employer and broader society, so having those protections in place is very important. It is also a matter of having things like guidelines as to how you work and where you work, making sure that people are safe in their homes, that they have the right equipment and technology and a broadband connection to be able to do their work safely in their homes without back issues from a poor chair or poor lighting and so on. We think it is very important to have those protections in place for employees.
It is also worth noting that the state of our dysfunctional housing sector means that many people are living in overcrowded or inappropriate accommodation. I have spoken to workers who, out of necessity, have conducted their business balanced on the edge of the bed in the box room in their parents' house because they have nowhere else to go. All these things need to come together. I am aware of the bulletin. I just wanted to pivot back to the workers in this regard because there has been a heavy emphasis on managers. Of course, managers are workers too, but we should probably be cognisant of the impact of this on workers generally.
The NCPC's paper touches on investment in research, development and innovation and the fact that, since 2011, as a percentage of the modified GNI*, the Government's investment in research, development and innovation has been decreasing. Given that we hear from academics, specifically those from the Kemmy Business School, that for every euro invested in research and development, more than €5 is returned to the economy, can the witnesses elaborate for the committee on the importance of RDI for economic expansion and how it can make our economy more robust? Does the NCPC see scope for an increase in investment, which, by my reckoning, has been decreasing as a percentage of GNI*?
Ms Linda Kane:
On the innovation side, one of the recommendations we have in our report is that the successor strategy to Innovation 2020 be published. It is due to be published in quarter 4. The council is eager to see the recommendations that will come out of that report. One of our key roles is to keep an eye on all those recommendations, which we will do in order that they will be implemented in the way they were set out in the strategy. They refer to making Ireland a global innovation leader. That was one of our previous commitments under the old strategy, so we would like to see what the proposals are for that next stage. That is incredibly important because we have seen the link in the latest CSO data, when it did the productivity in Ireland statistics for 2019, that those firms that were investing in innovation, research and development were the ones that had the highest level of productivity growth over the past ten years. It is circular. The ones that innovate are productive, but then the ones that are productive also have the capacity to invest in the innovation, so it is very hard to disentangle the causality there. They are intrinsically linked, though, so we would like to see more of the smaller firms, maybe, engage in that innovation as well so they could also benefit from-----
Presumably, then, if we are talking about SMEs and family-run businesses, there will have to be a specific focus on training. We are talking about research and development, but the people who will invest in and conduct the research and development will also need some training themselves.
As Ms Kane says, these things are all interlinked. Does the NCPC see a role for the education sector in this or would it be done through the local enterprise offices? How does the NCPC see this innovation happening?
Ms Linda Kane:
I think it will be a combination of both. We have seen during Covid the digitalisation of small businesses. For example, there are now lots of food ordering services that can be provided through an app on your phone. Lots of smaller restaurants have signed up to apps that they do not have to manage themselves but with which they can integrate their business. That is a small sign of the digitalisation. An innovation, from that business's perspective, saves one person answering the phone so the business can grow and serve more customers. There are smaller elements like that. Again, improvements in digital skills will help those businesses. There are also opportunities through the local enterprise offices for peer-to-peer networks so they can learn from other businesses in similar areas and help them to grow.
As nobody else is indicating to speak, that concludes our consideration of the matter for today. I thank Mr. Gilvarry and Ms Kane from the NCPC for attending and assisting the committee in its consideration of this matter today. It is nice to have witnesses physically present. We are moving back into some sort of normality.
That concludes the committee's business in public session for today. I now propose that we go into private session to consider other business. Is that agreed? Agreed.