Arthur Morgan (Louth, Sinn Fein)

I thank the Labour Party for sharing time and I welcome the opportunity to address the motion. The roof structure was threatened a number of times during Deputy Penrose's contribution but he did well.

We broadly support the motion and urge the Government to show leadership in what is becoming an increasingly dangerous situation for small and medium-sized enterprises. The financial drought facing such enterprises is clear for all to see. We have all had representations from local small and medium-sized enterprises desperately trying to find capital. The latest ISME survey shows that more than half of its members are being refused new finance or extensions to their existing credit lines. These are not unknown or high risk companies without a credit history but well established enterprises, as Deputy Penrose said, that have been trading for more than a decade and have a long-standing relationship with their banks.

The reason for this almost blanket refusal is clear. Having recklessly given billions of euro in loans to developers, the banks, which are faced with whopping debts, have responded in an ultra conservative way, virtually shutting up shop and rejecting even the most solid enterprises. The response from the banks demonstrates senior managers have buried their heads in the sand and are devoid of any forward thinking. Having bailed them out in the first place, the Government must ensure the banks live up to their responsibilities and provide credit to our enterprise sector. The consequences of allowing banks to refuse loans to SMEs will be dire.

A shortage of credit coupled with delays in payment from customers invariably leads to serious cashflow problems for even the most financially healthy enterprises. This means companies will find it increasingly difficult to pay the wages of their employees, ultimately resulting in lay-offs and even liquidation. Companies that are otherwise structurally very sound will be forced out of business with the consequent loss of crucial employment. Like Deputy Penrose, I refer to the Johnny Owenses of this world. SMEs form the backbone of the economy and they are one of our best hopes of economic recovery. If the Government does not act, the credit drought will perpetuate the recession and lead to immeasurable economic and social problems.

The banks created this credit crisis through reckless behaviour and the Government and the Fianna Fáil Party, in particular, blinded by their love affair with dubious developers, turned a blind eye to irresponsible lending practices. The crucial difference between then and now is this time the public are acutely aware of every move the Government makes and will recognise any failure on its part to act properly. The Government will have to abandon its hands-off approach and play a leading role in providing credit for SMEs because our economic future relies on taking radical measures.

Options are still available to access finance. One option is the European Investment Bank small business operational fund. The fund was launched a month ago to address the difficulties facing smaller enterprises and, since then, lending institutions in 22 EU member states have joined. Ireland continues to be one of only a handful of states yet to access this fund through its financial institutions. Under the fund, the bank has earmarked up to €15 billion for 2008-09 with a further €15 billion for 2011. This is something we will have to get the banks to adopt if SMEs are to have any chance of surviving in the current economic climate.

While banks form one part of the cashflow problem, the late payment of bills is another serious matter. Small and medium-sized enterprises have been highlighting this problem for a long time. Small businesses are waiting, on average, 65 days for payments, which is a two-week increase since the adoption of legislation aimed at reducing the delay. The 2002 late payments legislation, for which a number of the Government parties are responsible, did nothing to improve repayment of bills. Rather than addressing the cashflow problems of smaller businesses, the legislation exacerbates delays in payments between small and larger companies, resulting in higher dependence on credit streams. While obliging the banks to join up to the EIB fund will have a positive impact, we firmly believe that the late payments legislation will have to be revisited in the short term if business transactions are to be radically improved.

Trade between enterprises comprises the bulk of business transactions and we will have to do something more concrete than simply calling on Departments to settle their bills within 10 days, though that would be useful. I have doubts about the practicality of the suggestion and whether it can make a significant difference when SMEs are waiting for other bills for up to 120 days. Enforcement of the 30-day rule is lacking and the establishment of proper mechanisms to ensure companies comply with the rule would be the most effective remedy. This could be achieved by examining a number of proposals that have been suggested, such as a type of small claims court for business debts, to which Deputy Penrose alluded. That would be a practical, worthwhile solution. This legislation needs to be revisited as a matter of priority as companies will continue to be overly reliant on credit to meet their cashflow problems.

I support strengthening the role of county enterprise boards. Such boards will continue to play a crucial role in supporting our smaller companies while encouraging new enterprises into business. We are in a fundamentally different economic climate but many businesses are still trading and many entrepreneurial opportunities exist if the right structures are in place. The support structures of enterprise boards should be enhanced to meet these new challenges. The current grant structure for boards, which has been in place for more than a decade, has set grant aid levels that are too low and quotas which are too rigid. Employment grant aid has remained at €7,500 for the past decade, despite increases in, for example, the minimum wage, whereas quotas relating to the number of businesses that are approved for funding is too rigid. County enterprise board support schemes should be revised with increased employment grants, stock grants and cashflow support grants. Overall, boards need more flexibility and the Government must ensure they are properly resourced going forward.

The problems facing SMEs must be met by a rapid response from the Government. The Government cannot continue to just sit back and do nothing while SMEs go to the wall. It is time for the Government to re-engage and it is also time for a proactive, realistic response to the credit crisis, particularly, if businesses such as Johnny Owens's and thousands like his are to be survive.

See this speech in context