Damien English (Meath West, Fine Gael) | Oireachtas source

I move: "That the Bill be now read a Second Time."

I thank the Ceann Comhairle and Members for their co-operation in getting the Bill to this stage and the committee for having this Bill prioritised for publication. I am pleased to bring forward the Credit Guarantee (Amendment) Bill 2022. It is further important legislation as part of the Government's efforts to help the wider enterprise sector to meet the considerable challenges presented by the invasion of Ukraine and the subsequent significant rise in business costs.

The main purpose of this Bill is to make certain amendments to the Credit Guarantee Act 2012, as amended, in order to help businesses to access essential liquidity through their banks and other financial institutions. The finance is needed as a result of the pressure increased costs have put on viable but vulnerable Irish businesses. The Bill also includes a short technical amendment to the Loan Guarantee Schemes Agreements (Strategic Banking Corporation of Ireland) Act 2021. This will enable the Ministers for Enterprise, Trade and Employment and Agriculture, Food and the Marine to enter into further agreements with the Strategic Banking Corporation of Ireland, SBCI, to facilitate access to finance for qualifying enterprises.

I will explain why this Bill is necessary. The impact on the Irish economy of the invasion of Ukraine and the knock-on effects on costs, especially in fuel, have resulted in a surge in operating costs for businesses and a drop in confidence across the board. With the increasing duration of elevated energy prices, the negative economic impacts are and will continue to be felt by all sectors.

The Central Statistics Office, CSO, consumer price index, CPI, states that costs rose by 8.2% between September 2021 and September 2022. The highest level of inflation for 38 years was recorded in June 2022 at 9.1%, a level not seen since 1984. September marked the 12th straight month where the annual increase for the CPI has been at least 5%. These increased costs will cause significant strains on the working capital position of our SMEs and they will need to spread their costs over the next one to three years to deal with the oncoming price spikes. It is also expected that the increase in energy prices, as well as other raw materials, and some essential inputs required by Irish businesses such as fertiliser and feed, will drive price inflation for goods heavily reliant on energy and other mentioned inputs for their production. These developments may damage profitability and growth, thereby resulting in a reduction of economic activities, potential job losses and business closures. Businesses will need assistance to adapt their operations to a changing business environment and to restructure suppliers and their cost bases. Confidence is being negatively impacted by the ongoing uncertainty and so an important part of the rationale for Government intervention is to rebuild confidence. A significant and ambitious credit guarantee scheme will assist lenders in providing liquidity to these companies and send a strong signal of support and confidence to both lenders and borrowers.

For context, there are approximately 270,000 SMEs in Ireland, based on CSO figures. SMEs account for 66.4%, or two thirds of all persons employed in businesses in Ireland. SMEs generated 43.6% of total turnover in the business economy and 36.9% of gross value added was attributed to these enterprises. They are the majority of businesses in every county. They are the dairy farmer, the family-owned newsagent and the software startup. They create jobs and generate wealth in locations where large businesses do not establish themselves. They are in every sector and the people who own them and work there are from every background. SMEs are very much the fabric of Irish society. They are more than just numbers. Every time we have this discussion in the House the desire to assist SMEs through difficult times is evident in Deputies from all parties and none. I recognise that and recognise the support to bring this Bill through as quickly as we possibly can. That is why I and my Department are so keen to provide any support we can to keep these businesses afloat and help them survive through the next few difficult months. We hope they will be in a position to thrive thereafter when we get through yet another difficult time for businesses.

The Government has been busy in making assistance available to businesses to allow them to tackle and overcome the expected costs pressures of this year and next. The first of these is the €1.25 billion temporary business energy support scheme announced on budget day. It will provide qualifying businesses with up to 40% of the increase in electricity or gas bills up to €10,000 per month. It will help small businesses most, but also medium and larger businesses. It will be administered by the Revenue Commissioners, backdated to September and will run until at least February 2023. We hope to be in a position to have that open before the end of this month. The second initiative is a €200 million targeted Ukraine enterprise crisis scheme and was launched last week by the Tánaiste and the Minister for Public Expenditure and Reform, Deputy Michael McGrath. This is designed to assist viable but vulnerable businesses in the manufacturing and internationally-traded services sectors that are suffering the broader effects of the war in Ukraine, as well as increasing energy costs. One strand of the scheme will provide up to €2 million in grant aid for energy-intensive companies impacted by the exceptionally severe increases in gas and electricity costs. It will be administered through Enterprise Ireland, IDA Ireland and Údarás na Gaeltachta and eligible businesses must produce an energy efficiency plan which shows how they will get their energy costs down in the months and years ahead. Operating in tandem with the Ukraine credit guarantee scheme will be the new growth and sustainability loan scheme. This will make up to €500 million in low-cost investment loans of up to ten years available to SMEs, including farmers and fishers as well as small mid-caps, with no collateral required for loans up to €500,000. A minimum of 30% of the lending volume will be targeted towards environmental sustainability purposes. Amendments in this Bill to the Loan Guarantee Schemes Agreements (Strategic Banking Corporation of Ireland) Act 2021 will facilitate my Department in establishing the growth and sustainability loan scheme.

This legislation which will make the amendments necessary to implement a specific Ukraine credit guarantee scheme. This will replicate many elements of the highly successful Covid-19 credit guarantee scheme. That scheme saw over €700 million in lending to 9,850 businesses. This helped maintain 81,000 jobs in just 21 months of availability. In the Ukraine credit guarantee scheme, the State will be guaranteeing 80% of the loans included in the scheme. Lenders will still retain 20% of the risk to ensure they have skin in the game. Viable businesses will be supported. The Ukraine credit guarantee scheme will include primary producers such as farmers and fishers as well as small mid-caps with under 500 employees. This is something which we can do under flexibilities from the European Commission in its temporary crisis framework on state aid introduced to respond to the aggression by Russia against Ukraine. It is very similar to the framework the Commission created for the Covid pandemic and its efforts during Brexit as well. This Bill is aimed at putting in place State-backed guarantees so businesses that employ up to 499 people can go to the banks and other participating financial institutions for lending across a range of financial products. We had a mix of lenders involved in the previous schemes, including credit unions and non-traditional lenders, as well as the main banks. Likewise, we hope to see a similar number of people offering this scheme as well. As part of the state aid requirements the businesses will pay a fee to the State for a guarantee related to their borrowing. If a business defaults in its repayment of those loans or overdrafts, the financial institution can then call in the guarantee from the State, which will cover 80% of the outstanding debt. The financial institutions will still have to carry 20% of that default itself. The State is providing significant certainty to the banks with this guarantee as we propose also to remove the portfolio cap for the financial institutions. Due to these measures, it is a requirement that all financial institutions taking part demonstrate a reduction in the interest rate charged to enterprises for those loans and other financial products covered by the scheme.

I will go through each of the sections. Section 1 provides that references to the "Act of 2012" mean the Credit Guarantee Act 2012. Section 2 amends section 2(1) of the Act of 2012 to provide for the inclusion of a new definition of "Ukraine credit guarantee scheme" in the Act of 2012 that is needed for other changes made elsewhere in this Bill. Section 3 amends section 3 of the Act of 2012 to allow for the extension of classes of enterprises which can qualify for the Ukraine credit guarantee scheme, to include small mid-caps. Primary producers, namely, farmers and fishers, also qualify. Section 4 amends section 4 of the Act of 2012 to include the new Ukraine credit guarantee scheme within certain subsections of that section, thus giving the Minister the power to give guarantees. This section also disallows section 4(3) and section 4(4) of the Act of 2012 for the purposes of the Ukraine credit guarantee scheme as different provisions are being made for those aspects through the new section 4B, which is being inserted by section 5 of this Bill. The existing scheme is subject to a portfolio cap of 13% under the 2012 Act, as amended, but there is no portfolio cap for the Ukraine scheme. The existing scheme has a maximum yearly credit amount which can be guaranteed of €150 million whereas the Ukraine scheme has an overall maximum credit amount of €1.2 billion.

Section 5 introduces a new section 4B into the Act of 2012 that gives power to the Minister to give guarantees in accordance with the Ukraine credit guarantee scheme. The Ukraine scheme will be open for guarantees to be put in place until the 31 December 2024. These guarantees will not extend beyond six years in duration. The maximum amount of credit to be covered by these guarantees will not exceed €1.2 billion and the Minister’s liability in respect of those guarantees will not exceed €960 million. Section 5(4) includes definitions relevant to this scheme.

Section 6 amends section 12 of the Credit Guarantee (Amendment) Act of 2016 to ensure the maximum liability of the Minister in relation to the existing credit guarantee scheme shall remain at not exceeding €15.6 million and that there will be a separate provision for a maximum liability in relation to the Ukraine scheme of €960 million included through section 4B(3), which I have already mentioned.

Section 7 amends the Loan Guarantee Schemes Agreements (Strategic Banking Corporation of Ireland) Act 2021, by increasing the aggregate liability limit to €180 million from a limit of €50 million in respect of contributions committed under all agreements between the Minister for Enterprise, Trade and Employment, the Minister for Agriculture, Food and Marine and the Strategic Banking Corporation of Ireland for the time being in force.

Section 8 is the final section and contains technical matters about the Short Title, commencement arrangements and citation.

In all parts of Ireland, large numbers of people are employed in small firms. When we talk about SMEs we must appreciate that these businesses account for over 1 million employees and this represents just over 68% of total employment in the Irish business economy. It is important people realise when we talk about using taxpayers' money to support businesses it is to support jobs and the jobs those businesses have. The businesses often take the risk and put all the effort in and there is often great employment there. We are clear in the Houses, and I think it is supported by everybody, that in supporting businesses we are supporting jobs. It is an important connection to keep emphasising to the taxpayers whose money we use to assist through these schemes. By implementing this new credit guarantee scheme we will ensure finance providers can provide these businesses with access to liquidity. The scheme will be available to the end of 2024 to give SMEs certainty that they can access funding for their working capital needs. Certainty can breed confidence and we have seen the benefits of the credit guarantee schemes over the last number of years. I think Deputy Nash was a Minister of State back in 2012 when we working on the original credit guarantee schemes. It is a pity they were not in place a little earlier because they would have helped in those early years.

Fortunately, we have been in a position, with Brexit, the Covid crisis and now the war in Ukraine, to operate schemes of a significant nature that can make a big impact in supporting businesses and keeping jobs in place.

The amendment to the Loan Guarantee Schemes Agreements (Strategic Banking Corporation of Ireland) Act 2021 is important as it will allow the Ministers for Enterprise, Trade and Employment and Agriculture, Food and the Marine to enter into agreements with the SBCI to implement loan schemes based on funding available from the European Investment Bank Group to Ireland. If we want to ensure businesses throughout the country succeed and prosper in the face of the fundamental challenges we face, it is essential that we take the necessary steps to ensure appropriate loan schemes are in place. This Bill is aimed at assisting the vast majority of businesses throughout the country. We had a very positive experience in the Covid-19 credit guarantee scheme. We can now replicate that widely available and cost-effective measure. I look forward to hearing the views of Members. I hope they can all support the intentions of the Bill. I look forward to working with them on some of the details on Committee and Report Stages.

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