Richard Bruton (Dublin North Central, Fine Gael)
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I move: "That the Bill be now read a Second Time."

I am pleased to introduce the Credit Guarantee Bill 2012 to the House. The Bill has been long awaited and a concern of many, particularly in the small business realm. The Minister of State with responsibility for small business, Deputy John Perry, has been a strong advocate of the need for such legislation and has in recent weeks been engaged in consultations with small businesses, together with the Department of Finance, to achieve a better understanding of where the boot is pinching with regard to access to credit.

This initiative which is an important element of our ability to respond to the challenges for indigenous business is one of a suite of measures we are seeking to introduce. As Deputies know, the programme for Government includes an initiative for micro-finance for very small start-ups. This initiative deals with loan guarantees for established small businesses which are being turned down for credit because of the risk aversion of banks. We have also introduced a number of initiatives such as the development capital fund for larger but indigenous companies which have the capacity to grow but cannot access funding because their balance sheets are not strong enough. We also have the innovation fund which, to be fair, was an initiative developed by the previous Government. This allows access for companies to fresh capital, particularly in respect of high-growth opportunities in the innovation sphere. This suite of policies, with the traditional supports provided by Enterprise Ireland, probably the largest provider of seed capital funding in any state in Europe, represents an important and needed response to the challenges businesses are facing in accessing credit. Most Deputies will have numerous examples of cases in which this has been a real constraint.

I draw the House's attention to the Credit Review Office, which was set up by the previous Government. It constitutes a very important service whereby people can have reviewed decisions by the banks to refuse credit. The service is offered after an internal appeal has been made. Given the level of discontent over access to credit, I am surprised by the relatively small number of cases appealed to the Credit Review Office. It serves as a very important window for the Government on what is happening in the banking area. It is interesting that Mr. John Trethowan, the credit reviewer, has overturned the decisions of banks in approximately half the cases in which he has made a final decision. His office is an important means of review for businesses. The more people who use it, the better our understanding. Its work complements the work of the Minister of State, Deputy Perry, and the new Secretary General in the Department of Finance on getting a better handle on this challenge.

I am delighted to present the Credit Guarantee Bill 2012 to the House. The Bill presents one of the key targeted actions in the Government's Action Plan for Jobs 2012 to address access to credit and support lending to SMEs, and it will prove to be a practical way of facilitating additional lending to SMEs. I do not refer to a grant or support for ailing businesses; the scheme is intended to address specific market failures that prevent banks lending to some commercially viable businesses by providing a 75% guarantee to banks against losses on qualifying loans to job-creating firms. The target beneficiaries are commercially viable SMEs, that is, those which display a repayment capacity for additional credit facilities but which cannot secure credit facilities under current conditions due to two market failures, namely, insufficient collateral or a lack of appreciation by the credit institutions of the expansionary business model.

Let me outline the background to the rationale for introducing a credit guarantee scheme for SMEs. In February this year, the Government launched a range of measures under the action plan for jobs to improve the competitiveness of the economy, to improve supports for job-creating businesses and to remove barriers to employment creation across the economy. Every Department and more than 35 agencies and offices of the State are engaged with actions to support jobs which will be delivered in this calendar year. The plan is an engine for change and will be reviewed and revitalised every year. It is the start of a programme of strategic interventions designed to aid economic recovery, and clearly shows this Government's determination to get our economy back on the right path to sustainable, exporting, innovative and enterprise-led growth and through that the creation of sustainable jobs. The introduction of the State-backed guarantee scheme this year is one of the commitments my Department and I made that will quickly deliver positive results for the vulnerable SME sector.

The Government has placed supports for the SME sector at the heart of its strategy for economic recovery because of the important role that SMEs play and in recognition of the challenging environment in which they have operated in recent years. SMEs play a critical role in economic life and form the majority of all businesses in the State. They are the creative and innovative backbone of the economy and the job creators of the future. It is imperative that Government policy help them to grow and prosper. The Government is absolutely focused on ensuring that entrepreneurs and all companies throughout the economy are supported in every way possible to develop their businesses, to increase exports and to maintain and create jobs. This strategy will revitalise and rebuild the economy and lighten the burden we have all been carrying in recent years as a result of a failed economic model. The Credit Guarantee Bill is one of the Government's initiatives to give substance to this focus and commitment.

By far the most talked about problem in recent times facing the Irish small business sector is the lack of availability of adequate credit facilities. Financing of the economy is critical to long-term economic success. While large businesses have various options open to them, including the capital markets, SMEs are heavily dependent on the banking system. Therefore, a crucial aspect of supporting growth and recovery is fostering a favourable business environment including a well-functioning financial system. Clearly, to support the recovery, we need to find ways to ensure that creditworthy borrowers have access to needed loans. While this problem is not unique to Irish SMEs, but rather a worldwide phenomenon, it is a problem which the Government feels requires to be redressed urgently; hence, the movement on this Bill.

The Government has been, and remains, particularly active in the context of addressing the issue of credit accessibility since it took office last year. The House will be aware that the Government secured a commitment from the main lenders, AIB and Bank of Ireland, that each would make available not less than €3.5 billion next year and €4 billion in 2013 for new or increased credit facilities to SMEs. The aim is to restore the lifeblood of the market economy, that is, the lending and borrowing that help fuel business investments, run factories, buy machinery and equipment, pay wages, etc. This remains a key task, and the establishment of this facility is another step in addressing market weakness in this area.

New initiatives must complement, rather than substitute for, the main banks' lending commitments and activities under the recapitalisation package and they must represent value for money from the taxpayer's perspective. I have endeavoured to ensure this guarantee scheme facilitates additional lending of up to €150 million each year that otherwise would not have been extended by the banks. This is to assist businesses directly while at the same time ensuring appropriate safeguards are in place to protect the taxpayer.

Despite all the efforts of the Government on getting credit moving, I must emphasise that it remains the responsibility of the banking system to provide credit to businesses. The Government is prepared to offer additional targeted supports by identifying and addressing specific credit gaps or market inefficiencies that are impediments to lending. We have identified two distinct characteristics of the Irish SME lending market, namely, lack of collateral and lack of comprehension of new markets or models by the banks which provide the rationale for a temporary partial credit guarantee scheme, as follows. There are commercially viable companies in the SME sector with growth potential that have experienced difficulties accessing credit as they do not have the security required for conventional collateral-based bank lending. There is also an issue that predates, but which has been exacerbated by, the banking crisis whereby new or expanding companies engaged in new sectors, new technologies and markets struggle to secure finance. This can be due to a lack of familiarity or understanding on the part of the banks of the new industry, new product or potential of new markets. These market failures in the provision of credit to viable businesses became particularly acute in Ireland during the period of the property bubble, during which time the Irish banks lost capacity to assess credit risk in real-economy companies that were unable to offer property-related collateral.

The guarantee scheme will encourage lending to commercially viable SMEs and reorient lending to the real economy. It will encourage banks to lend to commercially viable SMEs in new sectors, technologies and markets and in so doing place Irish firms on a more level footing with other international competitors that have access to similar schemes, thus making them more competitive and their jobs more sustainable and secure. The scheme will allow a business not only to acquire a loan it could not otherwise obtain but also to establish a favourable credit history with a lender so it may obtain future financing on its own. It will realign bank lending with enterprise policy and secure the economic benefits from additional lending through increasing export creation, sustaining jobs and facilitating investment in the real economy.

The net Exchequer cost for an annual portfolio of €150 million of guaranteed lending is approximately €6.38 million. However, this cost should be seen in the light of the benefits that will be generated by the additional lending attributable to the scheme. Economic gains arise in terms of improving the financing environment for SMEs, encouraging a banking system that is fit for purpose, increased GDP, improved competitiveness, higher innovation activity, jobs sustained and created, savings on welfare payments and increased direct and indirect tax payments.

The benefits forecasted to arise from this intervention in each year of operation, assuming €150 million in additional lending, include the creation of more than 1,000 jobs, more than €25 million of Exchequer benefits in tax revenue and welfare cost savings, and a 398% return on the State's investment, in other words, a benefit-cost ratio of 4:1.

Section 1 defines certain commonly used terms in the Bill. Section 2 provides for certain conditions that must be satisfied by participating lenders. The Minister will enter into an agreement with each lender and accredit the lender to participate. For lenders to participate, we will require detailed consideration of how a lender will use the scheme to support lending over and above that being achieved. To demonstrate an understanding of the additionality principle, lenders will be requested to provide examples of where the scheme could have been used in the past, that is, examples of viable lending applications that were declined specifically owing to the circumstances the scheme is intended to address.

Section 3 provides for specific eligibility criteria for qualifying enterprises. The guarantee scheme is targeted at micro, small and medium enterprises employing not more than 250 staff as defined by the European Commission.

Section 4 confers on the Minister power to enter into agreements with the banks to give them a guarantee for qualifying enterprises. The aggregate of loans permitted within the scheme shall not exceed €150 million in any one year, thereby capping the State's liability. Having considered a range of possible combinations of guarantee rate and portfolio default limit which, when applied to the guaranteed portfolio, will deliver the desired overall risk share, a guarantee rate of 75% and a portfolio default limit of 10% have been agreed by the Government, in other words, 75% can be lost on an individual loan but the limit across the portfolio held by the banks is 10%. This sets the overall portfolio claim limit at 7.5%. For a given portfolio of lending allocated to each bank, each loan in the portfolio will carry a 75% guarantee, but potential claims under the guarantee are capped by portfolio claim limit. Therefore, the default performance of a portfolio may, in fact, exceed the portfolio default limit. However, the extent to which the State will cover overall losses is capped at the default rate of 10%. Any losses in excess of this figure must be borne by the lender.

Section 5 provides for the Minister to make a credit guarantee scheme which may make provision for various terms and conditions such as conditions with which the participating lenders must comply, the purposes for which the loan may be given, reports and information given by lenders to the Minister, conditions with which SME borrowers shall comply and other matters. Section 6 requires the Minister to lay the scheme before both Houses of the Oireachtas as soon as may be after it is made.

Section 7 permits the Minister to appoint an operator via a commercial contract to administer the scheme, after consultation with the Minister for Finance and the Minister for Public Expenditure and Reform on the terms and conditions of the contract.

Section 8 provides for a premium to be charged to participating borrowers in respect of loans guaranteed under the scheme. The 2% premium will be paid directly by the borrower to the State. The costs of the scheme will be partially offset by the receipt of premiums paid by borrowers.

Section 9 confers on the Minister power to withdraw a guarantee if a lender fails or refuses to comply with the terms of the scheme. It also provides for protection for the SME borrower in the event that a guarantee is withdrawn from a lender, in that a lender cannot impose less favourable terms on the borrower, upon withdrawal of a guarantee.

Section 10 provides for review of the guarantee scheme at any time. I have committed to review the scheme after 12 months of operation. The Minister must also submit a report on the review to both Houses of the Oireachtas not later than two months after the review has been completed.

Section 11 provides that costs associated with administering the scheme will be subject to sanction by the Minister for Finance, with the consent of the Minister for Public Expenditure and Reform, and met from moneys provided by the Oireachtas. Section 12 provides for the Short Title, the Credit Guarantee Act 2012, and commencement.

I emphasise that facilitating small business financing is not particularly simple or straightforward. Notably, the term "SME" encompasses a heterogeneous mix of enterprises and each SME faces a unique combination of local economic conditions and complex relationships with customers, suppliers and creditors. Hence, I am not advocating a one-size-fits-all solution. The scheme is designed to support commercially viable small businesses which are on the margins of SME commercial lending decisions. We envisage the initiative will involve approximately 2% to 4% of total lending to SMEs. The initiative is a small step towards a more sophisticated and accessible financing environment for small and medium enterprise in Ireland. It is only one component in the suite of initiatives aimed at ensuring a flow of credit.

Backing enterprise by providing State guarantees for those who struggle to obtain credit from lenders meets a vital need. These are the types of Government interventions that give confidence and encourage small business owners and consumers to expand their business, invest in new plant and machinery, conduct marketing campaigns, be innovative, recruit new employees and get their businesses and the economy growing. Therefore, the initiative will add value to the measures already taken to address the SME credit supply issue and represent value for money for the State.

I thank the officials who worked hard to put this legislation together and the many who advised us in the development of the scheme. This is new for the Government. It was considered by previous Governments which decided not to adopt it.

In talking about extending credit guarantees to take on some businesses risks, many will probably be sick of extending guarantees to financial institutions. That is why this legislation has been carefully designed. I am sure some will say it should be more ambitious and be on a bigger scale, but we are using taxpayers' money to underwrite the risk. We must target businesses which clearly are viable in areas in which there is a genuine market failure and the banks are not stepping up to the mark. We are not in the business of substituting in respect of the risk banks should take. Banks need to learn that the future lies in funding small and export-oriented businesses which are the backbone of the economy. In some cases, they must re-learn their trade. We are willing to intervene in a targeted way, which is what the scheme involves, as in the case of other interventions I mentioned. We are in a challenging period and the Government must take new initiatives. That is why we are taking on this scheme.

I commend the Bill to the House. I am interested to hear how we can develop not only this scheme but others to support access to credit for business and get more sustainable employment creating enterprises off the ground.

Willie O'Dea (Limerick City, Fianna Fail)
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I am sharing time with Deputy John McGuinness.

I listened to the Minister with great interest because I have an interest in this scheme. It is over a century and a half since the potato famine devastated the economy. The effects of the credit famine we are experiencing are somewhat less pernicious but no less devastating in their consequences for the economy. It is ironic that the same institutions, the financial promiscuity of which did so much to bring about the problem, are practising a new form of financial parsimony which is preventing the crisis from being solved. The banks are engaged in an Orwellian exercise. I use the word "Orwellian" deliberately because they are behaving like the employees of the famous Ministry of Truth in Orwell's 1984 who are trying to convince us to disbelieve the evidence of our own senses. They have issued a plethora of reports, studies, interviews and analyses which ask us to believe there is no credit problem in the country. The banks and financial institutions were, according to the Minister for Finance, Deputy Michael Noonan, "stuffed" with capital which did not come out of thin air, rather it was borrowed on behalf of taxpayers and must be repaid with interest. It was not borrowed because we had a residual affection for the banks or because we regarded them as venerable institutions or national monuments that had to be preserved, rather it was borrowed because we wanted them to lend to the economy because credit was the oxygen of business.

The economy cannot grow without a proper supply of credit. The banks, however, have failed to adhere to their side of the bargain. It is a contemptible insult to the intelligence of the electorate for the banks to produce reports, as they continue to do, purporting to show a certain amount of people applied for credit, that 90% were successful and that, therefore, everything is normal. There is not one word about the majority of people who are told not to bother wasting their time or money because they will simply not qualify. Neither is there any mention of those who, in theory, satisfy the criteria but who will not be able to obtain loans because the bar has been raised yet again.

The attitude of the banks to Irish business reminds me of the famous scene from "The Simpsons", where Moe, the tavern owner, was seeks a loan and is advised by the bank that he cannot have one because it does not like either his collateral or his cash-flow projections. Eventually, he is directed to the leader of the local Mafia who offers him a loan. However, the latter also does not like his collateral or his cash-flow projections and states that while the money will be provided, the Mafia will have to take the preliminary precaution of breaking Moe's arms and legs in advance.

There are 200,000 small businesses in this country and they employ more than 655,000 people. Small business is the backbone of the economy but it is being starved of credit. The Minister need not take my word for that. No less an authority than the Governor of the Central Bank, Professor Patrick Honohan, has stated that for small businesses, Ireland is the most difficult country in the eurozone in which to access credit. That is some statement from the Governor of the Central Bank. As the Minister indicated, the Government imposed lending targets on the domestic pillar banks. The figures were €3 billion for 2011, €3.5 billion for this year and €4 billion for 2013. The difficulty is that a study produced by Fergal McCann of the Central Bank found that for the first nine months of 2011 - these are the most recent figures available - the amount advanced by these banks was €1.6 billion. At the same time, however, they removed €2.4 billion in credit through the closure of credit facilities. For the first nine months of 2011, therefore, overall lending to SMEs was down by approximately €800 million. This downward trend appears to be continuing.

The Minister referred to the Credit Review Office, which was established by the previous Government. While we like to claim credit for things we do in life, I am not going to claim any in respect of the activities of that office. The Credit Review Office accepted, at face value, the figures provided by the banks. The latter counted approvals instead of drawdowns as evidence of lending and the restructuring of loans as new credit. The Credit Review Office swallowed this whole and its figures reflected those provided by the bank, which were completely false.

A study carried out by the Irish Small and Medium Enterprises Association, ISME, last March indicates that 91% of small firms are of the view that the banks are making it more difficult to access finance and, unsurprisingly, that 92% of SMEs state that the Government is at best making no difference to the situation or is at worst having a negative impact on it. Mark Fielding, CEO of ISME, stated, "access to credit is abysmal, the application process is getting longer ... the banks are simply the living dead ... They restrict credit lines, delay decisions, miss deadlines and generally hinder progress". Mr. Fielding was not overly impressed with the Government and said, "While the Government dithers and waffles, vulnerable small business owners are being terrorised by bankers, leading to a massive build-up of anger and frustration within the business community."

I would like the Minister to address not only these issues but also that of the micro-finance guarantee facility from the EU. What is the exact position in respect of that facility? Will the Minister also comment on the commitment contained in the Labour Party's manifesto for the most recent general election and in the programme for Government in respect of establishing a strategic investment bank? I notice the concept of a bank has been dropped and that what is now proposed is a strategic investment fund. This sounds suspiciously like a strategic investment fudge.

On 4 April, when the Government had been in power for more than a year, we were at last presented with the legislation to establish a credit guarantee scheme. I take no satisfaction from stating that I find the Bill before the House extremely restrictive and very disappointing. I detect the hand of the Department of Finance in literally every line on each page. My heart sank when, for example, I read section 5(1) which gives the Minister the right, with the consent of the Ministers for Finance and Public Expenditure and Reform, to establish a scheme. We are some 15 months into the lifetime of this Government and thousands of small businesses have gone under while we were awaiting this legislation. However, what we are not told is that all the Bill will do is allow for the scheme to be established. When will it be established and - this is a matter of equal importance - to what sort of scrutiny will it be subjected? I very much doubt it will be brought before both Houses of the Oireachtas in order that Members might scrutinise its terms. The meat of this matter lies in the scheme, which the Bill gives the Minister only the right to establish.

The Bill has finally been brought forward but we remain in the dark. More importantly, business people who want to access the scheme are also in the dark in respect of fundamental matters such as the minimum and maximum amounts that can be lent, the conditions that will apply and the type of enterprises that will be covered and the type that will be excluded. There is no information on whether the banks will be still able to request personal guarantees in respect of Government-guaranteed loans or on whether they will still be able to insist on people using their private residences as security for such loans. We are completely and utterly in the dark in respect of these fundamental details.

The Minister stated that there is additional lending involved here. He paid lip service to the idea that it must be additional. I can envisage what will happen here, namely, in respect of loans they would issue in any event, the banks will inform the Government that they will not issue them unless they are guaranteed. There is a grave danger that there will be no additional lending and that the Government and the taxpayer will end up guaranteeing loans which the banks would have advanced in any event. The Minister indicated that he does not want this to happen. That is fair enough and I agree with him in this regard. He states that he has taken steps to ensure that it will not happen. What are those steps? I have perused the Bill from beginning to end and I cannot find them. There is nothing in the Bill which will prevent what I have outlined from happening.

What constitutes a loan is defined in section 1 and overdrafts are specifically excluded in this regard. That is very disappointing because it means the re-financing of existing loans will not be covered by the credit guarantee scheme. As a result, the scheme will be extremely restrictive. I have considered the schemes in other countries and I am convinced, without a shadow of a doubt, that Ireland's will be by far the most restrictive scheme in the world. The Minister will be aware that many companies have overdraft facilities which are used for day-to-day trading. This is because payments in respect of goods and services are being made later and later. It is small wonder that ISME described the scheme as marginal.

In the United Kingdom, new guaranteed loans can cover the re-financing of existing loans where the loan is at risk due to deteriorating value of security or where for cash-flow reasons the borrower is struggling to meet existing loan repayments. The UK scheme also allows for conversion of an overdraft to a loan in order to release capacity in the overdraft to meet working capital requirements. It further allows for guarantees on invoice finance facilities. The type of activity in respect of which loans can be granted in this country is nowhere to be found in the Bill. This will be only contained in the scheme, whenever it is brought forward.

In Canada loans can be used for financing up to 90% of the cost of purchasing or improving land, real property or immovables, purchasing new or existing leasehold improvements or purchasing or improving new or used equipment such as commercial vehicles, etc. In the United Kingdom, loans can be given for the re-financing of existing loans. The overdraft guarantee which will provide a guarantee on new and increased overdraft borrowings for small and medium sized enterprises, SMEs, is viable but it is inadequate security to meet a lender's normal requirements.

In the UK, there is a target of 20 working days from application to decision. In Canada, the UK and even in Chile, the schemes are more imaginative, expansive and more accessible than what is in prospect here. The Minister stated it will be a three year guarantee. In my experience, many SMEs cannot get a loan for three years or less and, instead, have to take a five year loan. What happens in year three when the guarantee is withdrawn? Technically, at that point the borrower is in breach of the terms of his loan because it is no longer covered by the State guarantee. Can the loan be instantly withdrawn at that stage?

The 2% upfront charge may seem small but it must be remembered SMEs are experiencing unprecedented cash flow problems as well as lack of access to credit. Why does this have to be an upfront payment? The Irish Small and Medium Enterprises Association, ISME, and others accept there has to be some charge but it should be payable in instalments and at the same time as full loan repayments are made. This suggestion seems to me to be imminently sensible.

In the last 12 month period for which figures are available, the loans outstanding to small businesses were in excess of €58 billion. This Bill proposes an extra €150 million a year in extra lending. It gives me no satisfaction to say it but we are barely scratching the surface with this legislation. The explanatory memorandum and several press statements made by the Minister state this scheme will be demand led. At the same time it is capped, however. Those two concepts are mutually exclusive.

The Minister has stated that while the scheme may cost €6.38 million per year, the direct benefit to the Exchequer from increased business activity will be €25 million, a 400% return on the investment. If there is going to be a 400% return, why not increase the investment? If someone was offering me a 400% return, I would mortgage my house and get access to as much cash I could from whatever sources to rush in to invest in it.

I thought this scheme would be an imitation of the UK's scheme. Now I find it is just a pale, skeletal and restricted imitation. It is supremely ironic that on 4 April, the day this Bill was published, it was announced in the mainstream UK media that the Chancellor of the Exchequer, Mr. Osborne, had brokered a deal with the organisation representing hedge funds in the City of London to arrange for them to lend to small businesses. The reason for this was the UK scheme, which is in many ways superior to ours, had proved to be a failure.

My party has asked me about this legislation. Whatever we might say about the scheme, it improves the situation somewhat, however marginal that may be, so I cannot, in conscience, advise my party to vote against this Bill. I am not trying to be political but my advice to the Minister is that, as we have waited 18 months for the Bill anyway and there is a real, pressing and genuine problem for SMEs, he should go back to the drawing board with this scheme. He must go back to the Minister for Finance and Minister for Public Expenditure and Reform and introduce legislation to expand this scheme which will contain the scheme's details so at least we know where we are going and will give real hope and opportunity to small businesses which are starved of capital.

Small businesses are the backbone of this country and employ almost 700,000 people. In many cases they are under the most immense and unimaginable pressures, struggling from week to week to survive without much help from the banks. This legislation has been a long time in gestation. The Minister is correct the previous Government considered the scheme but did not go ahead with it. That Government was wrong and should have gone ahead with it. If it had, I would have been extremely disappointed if it had produced a scheme as restrictive and limited as this one, however.

I do not doubt the Minister's sincerity or intentions but I believe this scheme is not enough. It will not make any difference in reality. It is a marginal improvement on the situation in place. However, that is setting the bar very low because it would not be very hard to improve on that. Fianna Fáil will not be opposing the legislation but I urge the Minister, if only between now and Committee Stage, to rethink it.

Peadar Tóibín (Meath West, Sinn Fein)
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Tá sé deacair go leor fáilte a chur roimh an mBille seo. Ní thugann sé an tacaíocht atá riachtanach do ghnólachtaí beaga na tíre seo. Dúnadh 1,600 ghnólacht an bhliain seo caite. Dúnann sé ghnólacht gach uile lá. Tá sé sin níos mó ná an méid a osclaíonn gach lá.

It is difficult to welcome this Bill because each of the 1,600 businesses that become insolvent every year represents jobs lost, hope broken and debt incurred. No one starts up a business to fail. It is a significant challenge, as well as an emotional and human investment, never mind the financial end of it. It is a tragedy for a business owner when his or her business fails, as well as for the families and communities involved. What makes it more frustrating is that many businesses are closing because of a lack of credit. Credit flow to business is a disaster. ISME stated just under 50% of its businesses which it surveyed have been refused credit. Not long ago, the Dáil debated the Construction Contracts Bill which highlighted the contagion effect in different sectors of enterprise when a subcontractor does not get paid. Credit is a major part of the hole in the system which is bringing down these businesses.

This legislation could be used as a possible component in a suite of solutions for small business funding. However, it has been very slow in coming. For many businesses it is too late. Since this Government took office, almost 2,000 companies have become insolvent. With ISME's figure of 50% of SMEs not being able to get credit, just under half of those would have had a better chance of survival had credit been available to them. This proposed credit guarantee scheme is not new. Partial loan guarantees are in place in up to 100 countries with up to 2,000 schemes in operation.

A scheme in the North has been operating since the 1980s. That is another example of how, if there is joined-up thinking on the island of Ireland, we could learn from and work with each other.

Loan guarantee schemes have been evaluated and developed over decades but this Department only started such a process in 2009. It was promised over a year ago by the Government and only now are we getting a chance to scrutinise an enabling Bill that does not fully outline the scheme it is hoped to operate. The idea of "better late than never" does not have currency here for the thousands of businesses which have closed in the interim. This Bill has come about due to the failure of the banking system and the inability of banks to understand small businesses. Over the past two decades we have seen banks migrate from giving loans to small businesses to giving loans to property developers, with property as the basis. In that period, an entire generation of expertise in banking that delivered loans to small businesses has left the banking industry, and many individuals in the banking industry currently do not have the expertise to formulate loans to small businesses. They do not have the expertise to examine cash flows and understand the necessity for loans to those businesses.

We need a complete refocusing of the banking industry on the small and medium enterprise, SME, sector. The Minister has outlined how the Bill is measured, as it were, in scale, but in reality it is very modest. The State seeks to guarantee up to €150 million in any year over three years, targeted at growth of SMEs and small businesses, especially those with a lack of collateral. We welcome that targeting but the scheme is limited, with benefit accruing to between 2% and 4% of SMEs. Market failure is not limited to 4% of SMEs, and I have noted how almost 50% of ISME's clients cannot get credit. The question must be considered of what will happen to the 96% of businesses which still have difficulty in the market.

Bank of Ireland and Allied Irish Banks, AIB, are by far the biggest lenders to SMEs and they have both failed to step up to the plate in delivering credit. The Central Bank recently found that a third of SME loans went to the construction sector and of these, 60% went to roll-over funding for non-performing loans. The construction sector, which is now only a small part of the SME area, is still a massive target of lending for Bank of Ireland and Allied Irish Banks, with a good chunk of the lending roll-over lending rather than new lending.

This current pattern of SME lending highlights the need to deal definitively with underperforming loans that are dragging down viable businesses. Throughout the State one can see people who have functional businesses on one side but investments in property portfolios that no longer function on the other. The businesses that are functioning are being brought down and annihilated by the non-functioning elements of business. Therefore, people who are working daily to keep a business running and make a profit, and who may be doing a good job in that element of business, are losing their jobs. That issue should be tackled.

The Government must assert its position as owner of AIB and major stakeholder in Bank of Ireland, and the Minister and his colleagues must assert the power of that shareholding within this sector. It is ludicrous these banks have access to low-cost loans from the European Central Bank, yet many SMEs struggle to gain access to loans at accessible rates. We have seen time and again in this State how the unreal economy is flush with cheap loans but the real economy struggles to get any credit flowing. The Government must exercise the full extent of its investment within the banks. This legislation may be part of a suite of action to address the issue, and as such, we are giving it a cautious welcome. We must look to shape the practices of the banking sector, holding it to account for the significant sums of money it has received over recent years.

Other sectors involving SMEs should also be addressed, including the micro-enterprise sector. That is the layer which sits at the bottom of the SME sector and requires specialised and tailored support. It is often the most vulnerable of the elements of small business. When the Government first announced it would proceed with a partial loan guarantee scheme, it also promised to proceed with a micro-enterprise scheme. More than a year has gone by while this has been talked up but not a single loan has been delivered. At the same time, €200 million became available under the European Progress micro-finance facility, which was operational since before March 2011. In February this year I asked the Minister of State responsible for small business, Deputy John Perry, and the Tánaiste and Minister for Foreign Affairs and Trade about this but neither gave a satisfactory answer as to why 11 other countries in Europe had managed to draw down from that pot of money but this State had not drawn down a shilling.

We have concerns about the Bill and want to see them addressed. This is enabling legislation and gives the Minister considerable power to determine the range and conditions of loans. We welcome the fact that loans are limited to firms with fewer than 250 employees and €50 million in turnover. Larger firms would have a bigger draw on the fund, meaning the money would not see to as many business needs. Those firms would have a better chance of gaining loans from the traditional banking sector in any case, and companies further into development should be dealt with through the banks.

This programme cannot allow the banks to abdicate or substitute in any way their responsibilities towards SMEs. The programme is designed to deal with market and banking failure but it should be additional to existing bank lending rather than lead to any level of displacement. I ask the Minister to outline the steps he intends to take to ensure loans which should be dealt with through the banks are not added to in any significant way. We have heard through the grapevine the stories of funds coming through the European Investment Bank to Irish banks to be delivered to new businesses, but some banks use the funding to supplement existing loans. In other words, they would deleverage from the risk initially involved by substituting new funds from Europe for those loans. The real economy does not see those loans.

We welcome the arrangement by which the risk is shared with lenders and the liability of the State is set at a maximum of €11.25 million per year on a total guarantee of loans not exceeding €150 million per year. However, in limiting the exposure of the State, the legislation is silent on the value of any security offered if there is a default. If the lender requires security against a loan, will there be a pro rata process with the Government on any call on security if the loan fails? Will the lender recover the losses before the State can take a call? I note this will be an issue for discussion with the lender but I ask the Minister to outline his thinking on the matter.

Section 7 deals with public accountability. We welcome that the credit guarantee schemes will be placed before the Oireachtas and I ask the Minister how that process will be used in practice. Will there be a statement, debate or publication of the scheme and how will the approach deal with commercial confidentiality and accountability for the spending of public money?

We are concerned about section 8 which places a 2% charge on the borrower, which may be an excessive burden on an SME and undermine the objectives in the scheme in the long run. It should be noted the banks have received €64 billion in bailouts by successive governments and can achieve cheap European loans. We are putting an extra burden on the real economy, made up of small businesses, and flushing the unreal economy with cheap loans and free money. It may be more appropriate for the lender - the bank - to absorb the cost, or if the EU requires that the lender pay this fee, it should be paid to the Government.

Will the Minister outline the options the Department examined to minimise the costs to business and to ensure the cost of the loans will not be prohibitive?

Section 10 provides for the Minister to conduct a review of the operation of a credit guarantee scheme. This is a sensible provision. Given this is a new programme, will the Government agree to produce an annual review of the operation of the whole scheme? This will allow for greater oversight and assessment.

I note in publishing the Bill and within the regulatory impact assessment, a number of assumptions were made that would provide a robust framework for the assessments, including the target of 1,875 business loans, with an average value of just under €80,000 and the creation of 1,000 jobs, as well as other assumptions regarding additional sales, default rates and so on. In a reply to a question from my colleague, Deputy Sandra McLellan, the Minister set a target of 1,300 new jobs and more than €25 million in Exchequer benefits through tax revenue and welfare savings. If these assumptions are to be of any value, they should form part of the annual report on the operation of the scheme. There is a danger that we set targets at the launch of these schemes but the targets are like seagulls flying over Phoenix Park, they are never analysed.

I ask the Minister to look again at the cost of the scheme and identify where savings can be realised. I note again in the reply to my party colleague, Deputy McLellan, the Minister said the operation of the initiative would be outsourced by the Department as it would not have the infrastructure, capacity or skills to resource and operate the scheme. I ask that the infrastructure, capacity and skills, if they are not available in his Department, should be sought in the Department of Finance or Central Bank so the State delivers this.

Administration costs are set at €500,000 per year and are aggregated over the potential eight years of the programme. Does this mean that over the last two years of the project, when there are no functioning loans, or the loans have all been given out, the State will continue to pay €500,000 to administer possible defaults?

I hope the Minister will clarify these points. We all share the common concern and desire to see businesses have the opportunity to develop and grow. Small businesses are key. It is a fragile area of Irish society. Six businesses are closing every day, more than are starting up each day. The trend for business closure has accelerated in the first quarter of this year compared to last year. It is vital this is expedited and that micro finance is made available. It is important costs are not levied on businesses that are already struggling. It is also important that the banks are re-engineered to do the job they are meant to do and that the Government flexes its shareholder muscle in the banks so they function for the real economy. That must be to the fore of the Minister's thinking when he is developing this Bill.

Maureen O'Sullivan (Dublin Central, Independent)
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Everyone agrees growth is the key to recovery; just yesterday the Taoiseach made that point in this House. We are asking what will stimulate growth, and central to that are jobs, not just job creation, but job retention as well. We have not been paying enough attention to job retention and we have seen small businesses going out of business needlessly, when injections of small amounts of capital would have prevented that. I hope this Bill will provide the practical support to allow banks and credit institutions to do this.

We all know of small businesses, many in families for generations, that are part of the fabric of the community that have had to close. Apart from the effect on business and employment, there is a demoralising effect on the community when people are looking at a boarded up premises that was once a thriving business. These premises also bring another problem; they become targets for vandalism.

Over the years we have seen the banks use marketing slogans to give the impression that they are friendly, supportive and available. Unfortunately that was true for the bigger businesses, multinational corporations and developers, where prudence and caution were replaced by reckless abandon, which led to disastrous consequences as a result of the lack of good governance. I would not get into a car without brakes but that seems to be how the banks functioned. They went on and on and on but never helped those who might have been able to stay in business if even a small proportion of this capital had been directed towards them.

I was alarmed to read the press release from the Simon Community some days ago that reported an increase in the number of former business owners who are now homeless. The figure was 2% during the boom but it has now increased to 4%. It is a small number but the fact it has doubled is significant. No one wants to see that number increase. This shows how homelessness can happen to anyone. The Wall Street Crash and Great Depression show us many examples of this.

The Simon Community pointed out that the steps from unemployment to homelessness can be gradual and take years. We are only now seeing business people affected by the crash becoming homeless. With the loss of employment and businesses come the loss of homes and, significantly, loss of confidence and self esteem, with resulting effects on health. For some we see a drift into alcohol and drug dependency. For each of those people, there are other people, families, friends and employees, who are also affected and I hope this Bill will do something to prevent those journeys.

During the debate on the second referendum on the Lisbon treaty, we were practically brainwashed that voting "Yes" equated with voting for jobs. That did not happen, instead there was an increase in unemployment. Current unemployment figures would be even higher were it not for emigration. In the lead up to the referendum on the fiscal treaty, the "Yes" campaign consistently refers to the need to increase confidence in the euro to increase foreign investment in Ireland. That is fine but I have seen an email from the American embassy in the past day on a conference the ambassador is hosting in June called "Levelling the Playing Field - Strengthening Ireland's Competitiveness" and it is being addressed by various well known figures. The blurb makes the point about diversity and opportunity being key drivers of economic recovery and the importance of ideas and innovation for Ireland to be a strong competitor. On the foreign investment line, there have been examples of foreign investment where jobs were created that were beneficial to the local communities where the businesses were located. Sometimes, however, we place too much focus on the foreign investment to the detriment of domestic business. Foreign investment can be sporadic and inconsistent. How much do these foreign companies contribute to the economy? Our corporate tax rate is low, which attracts them in. I do not believe an increase of even 1% would be a deterrent and I have my doubts that we are collecting all of the 12.5%. It also does not prevent foreign investors from high-tailing it when it suits them.

Small and medium enterprises, however, create sustainable employment for local people and use local expertise. The Governments says it is doing what it can to make business life here easier but small and medium enterprises are being crippled by austerity measures. Most struggling businesses agree that the cost of doing business has been increasing. There is no doubt that upward only rents have been an absolute scourge to small business. In times of recession, it is incredible this cannot be altered. I know there are legal obstacles but surely the law exists to serve the people, not to inhibit them from living full lives. There are businesses that would exist today if there had been greater accommodation on the rent issue. I cannot understand how getting no rent is better than getting some rent.

Comparable businesses in other countries are aghast at the rents small businesses must pay here. Commercial rates are also a heavy burden on small, struggling businesses. Surely it makes sense to be accommodating to prevent a business from closing. An ISME survey published last year showed that one third of small businesses are unable to pay rates. In times of recession we increase costs and the recent increases in gas and electricity prices have added to the pressures on small businesses.

A phenomenal amount of money is spent annually on public procurement. This is an important market to which small and medium sized businesses should have access. However, the tendering process tends to favour larger companies which have greater resources. The system is rather bureaucratic, costly and time-consuming. There is a basic unfairness in this area and it results in the squeezing out of small businesses. This is partly a result of agencies bundling contracts and using only a limited number of suppliers. Usually multinationals and large companies do this as well. There is a need for improved public procurement policy to encourage more involvement of small and medium sized enterprises.

One particular segment of the small and medium sized business sector is the printing industry. This area involves many small, long-established businesses which are under severe pressure. Several have closed recently. The Government and previous one could have done a good deal more to ensure the printing business could survive in this country. We should be fair to businesses in this country. I have heard of soccer, rugby and GAA ticket contracts worth €1 million in total being printed abroad. There will probably always be someone abroad who will do things cheaper. This is because rates, rent, service charges, etc. are cheaper abroad. If the economy is to survive, however, and if we wish to stem the increase in unemployment, we must hold on to the jobs already in place here. I know of printers who had invested heavily in new machinery to secure contracts but they were unable to secure them. Quality or ability to do the job were not the issue and, therefore, price was the only issue.

There should be an opportunity for negotiations to keep contracts in the country and to keep jobs here. Recently, large tenders involving the Courts Service and the Garda Ombudsman went to the North. We must concentrate on our businesses here. The loss of revenue to the State as a result of those companies sending printing requirements out of the country is no wonder. An issue arose during the last election whereby certain posters and literature carried the imprint of a name and address in Dublin. However, when people investigated the matter, it turned out that the printer was not based in Dublin or in Ireland. Certain parties sent work abroad but gave the impression that they were giving to work to printing companies in this country. Magazines and books are not being printed here but are being sent for publication in England, Spain and even to China instead.

There is a need for positive discrimination in favour of Irish businesses and jobs. I have seen many examples of entrepreneurship during my teaching career, involving young people with great ideas and great innovation. Mini-companies have been set up by young entrepreneurs and young scientists and so on. The Minister of State, Deputy Sherlock, envisages great potential in the social enterprise and entrepreneurship areas. Science Foundation Ireland is funding a vast amount of research. Dublin has been recognised as the European city of science for 2012 and a major forum is due to take place here in July. This is another potential area for employment. Other positives include the micro-finance fund and the development capital scheme. There is a need to consider upskilling as well.

The late payment of invoices is also an issue for smaller businesses. They are not being paid on time by larger businesses. There are examples of larger businesses leaving the country to secure lucrative contracts abroad while smaller businesses are left here. We must tackle the banks' bias to lend to larger companies and corporations. I hope the Bill will do so. Although long awaited, it is a good initiative. However, it is only one initiative and I hope there will be more.

Séamus Healy (Tipperary South, Workers and Unemployed Action Group)
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I am pleased to have the opportunity to speak on this legislation and I welcome it. Small and medium businesses have long been a vital and important part of the Irish economy. Many of these are family businesses which have been handed down over the years. Most, if not all, are local businesses that employ local people and buy in local services. In recent years, small businesses have been especially hard hit by the recession and by the lack of and cost of finance. Most, if not all, Members will have heard from entrepreneurs and local people in their constituency offices who have detailed the difficult circumstances of old, established family businesses going to the wall. This is having a serious effect not only on the local economy and local jobs but also on the families and friends of those involved and on their medical situations as a result of stress related illnesses. There is no doubt this has been an horrific time for small businesses, which have been and continue to be a vital part of the Irish economy.

Anything we can do to retain or create jobs in this area is important and welcome. We have put vast sums of money into the banks in recent years. I understand the figure is approximately €60 billion. We are informed we own most of the banks now. There is an obligation on the banks to ensure small and medium enterprises are supported and finance is made available to them at a reasonable cost. The Bill represents an attempt to help in this regard and is welcome. A recent Central Bank report stated:

From a policy perspective our key findings are as follows: the lending market for all enterprises has become more concentrated since the onset of the 2008 crisis; the lending market for SMEs is significantly more concentrated, and the trend is towards even higher concentration; foreign bank penetration has diminished in Ireland since the crisis. Having distilled the lessons from the literature on the likely effect of increased concentration and lower foreign bank penetration in the Irish SME lending market, it appears most likely that the predictions of the Market Power Hypothesis will prevail, leading to tougher conditions for SMEs seeking to access finance. Policy measures such as a loan guarantee scheme, microfinance fund and credit register should help to mitigate these adverse effects somewhat, but it is clear from the analysis presented here that challenges will remain in the medium term.

The Governor of the Central Bank, Patrick Honohan, also stated recently that "credit conditions for SMEs are tougher in Ireland than anywhere elsewhere in the euro area both in terms of cost and availability".

This is the background to this scheme, which will facilitate up to €150 million for small and medium enterprises each year. I hope the €150 million will be additional moneys. I realise this is the intention of the Oireachtas. Under the Bill, the funding is supposed to be from additional moneys but in the past this has not happened and similar funds were put into another area. I hope there will be constant monitoring and reviews of the situation to ensure the €150 million represents additional moneys made available to small and medium enterprises.

Any initiative to maintain or create jobs is vital and should be undertaken and I welcome the Bill on that basis. However, as everyone is aware, the Bill is, of itself, only scratching the surface. In terms of the background to this Bill, this economy has been bled dry in recent years. We have taken approximately €20 billion out of the economy and under this fiscal treaty we are proposing to take huge sums of money out of the economy again in the next few years. It will be in the region of €6 billion between now and 2015, in addition to the €8.5 billion we have already earmarked to take out of the economy. Meeting the 60% debt to GDP ratio will require further austerity for a period of almost 20 years from 2018, something in the region of €4.5 billion per year. In that situation job creation is not at the races, so to speak, because if we continue to take that amount of money out of the economy, it will contract and jobs will be lost. Already, approximately 430,000 people are unemployed and about 100,000 people are emigrating and if we take that amount of money out of the economy on an ongoing basis, we will be faced with economic stagnation. One only has to walk down the main street of any city, town or village to see the effects of what has been happening. Shop after shop is closed. There have been a significant number of closures and liquidations in most of our towns and villages, and there is a very high level of unemployment. If we continue in this vein, the future for employment and the economy is bleak. The Government should now examine that situation because austerity is not working. Anybody who has eyes in their head can see austerity is not working and that we need growth and stimulus in the economy.

If budgets are run here on the basis of cuts and additional taxes year after year, and if that is done by our trading partners in the rest of Europe such as is proposed in this fiscal compact, it will result in markets reducing, loss of jobs and stagnation. That is something that has never worked. There is no historical precedent for getting out of a recession by imposing austerity. The priority of this Government is on imposing more austerity. It will have to ensure there is a real growth package and that jobs are created.

While jobs will be maintained as a result of this measure, and I hope some jobs will be created as a result of it, the bigger picture is that the very wealthy people in this country are on an investment strike and have been for recent years. If jobs are to be created here they will have to be created directly by the State because the so-called entrepreneurs are on an investment strike and have not been putting the money into job creation. It is not that they do not have the money. We know from various reports, including from the Central Statistics Office, that significant moneys and assets are available to a very small number of people here. Approximately 5% of people own assets to the value of about €239 billion. Those are the people who are on strike, so to speak, and it is not only that they own those assets. In 2009 and 2010, they increased those assets by €46 billion. That was done in the teeth of the recession. Those figures are not mine; they are from a Central Statistics Office report. A further report from the Central Statistics Office shows that while 90% of the population lost income in recent years and 25% lost significant income, 10% of people made additional income during the course of this recession. Those are the people who are on an investment strike and if they will not invest, the State must urgently create the investment. Otherwise, middle and lower income families will be bled dry. They are under severe pressure as we speak and it is the duty of the State to create jobs, not just the environment for jobs. The State must become directly involved in job creation. Otherwise, we will have a continuation of the current high unemployment and emigration levels.

Richard Boyd Barrett (Dún Laoghaire, People Before Profit Alliance)
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I have mixed feelings about this Bill. Any measure that would assist in any way the struggling small and medium enterprise sector must be welcomed and any measure that focuses on enterprises that may lack collateral or that have a track record in that regard, new businesses and so on and can afford them some support in terms of credit would be helpful. For that reason I support the Bill, not that I am enthusiastic about it but because if a single extra cent can get to the struggling small and medium business sector, which is on its knees, and help even one extra business create a few jobs and get some economic activity going in an economy that is being decimated, one could not possibly oppose it.

While we support this Bill because it might give some assistance to a few businesses, at best it is piddling in the wind, so to speak, and at worst it is more mollycoddling of the banks which caused the crisis and were responsible for small and medium enterprises being devastated, and half the towns in the country looking like ghost towns. The way things are going it will not be long before tumbleweed is rolling down the high street of towns and villages throughout the country. When tumbleweed is rolling down O'Connell Street and Dublin city centre has become a ghost town, the penny might drop with this Government that we need serious, radical measures to stimulate economic activity, get people back to work and support small and medium enterprises. This Bill is far from that radical measure and it will do nothing to stanch the massive haemorrhaging of jobs in the domestic economy and the massacre taking place of small and medium enterprises where those enterprises are going out of business day after day, week after week and month after month as a result of the activities of the banks which crashed our economy and the austerity this Government continues to impose at the diktat of the troika. It is now proposing to sign us up to even more austerity with this insane fiscal treaty which will further devastate the very small and medium enterprises this Bill purports to want to support.

The premise of the Bill is that by providing the banks with a guarantee because they are not lending, we may encourage them to lend. Although we will welcome the Bill if the banks lend money to struggling small and medium sized enterprises, why do we have to incentivise and guarantee the banks given that we finance them? They would be on the floor but for the decision to shovel €70 billion into them. Despite this, we still do not control their policies, nor can we make decisions on who they lend to, whether they invest in the economy and whether they support the small and medium enterprise sector. It is unbelievable that, having given the banks €70 billion, we must now provide them with guarantees to persuade them to give money to small and medium enterprise. Given that we financed them, why do we not bloody force them to give money to small and medium enterprises? Why do they remain a law unto themselves? One could not make up this.

The same position obtains across Europe. Almost €1 trillion has been given to banks across Europe in the past two or three months, yet this money is sitting in the banks while the European economy contracts under the impact of austerity. Small and medium enterprises all over Europe are starting to go to the wall and are being crushed while the money we provided is sitting in the banks. We still are not telling them what to do, even though they would have collapsed but for the money we shovelled into them. Perhaps the Minister will explain the bizarre logic of shovelling money into the banks, praying they will reinvest it in the economy and providing them with a guarantee, because I do not get it.

This is a win-win scenario for the banks. If a bank provides a loan to a small and medium enterprise which is then successful, as I hope it would be, the bank makes a profit on the loan it has provided and the State gets nothing. If, however, the business which secured the loan goes belly up, the State covers the bank's losses. If citizens must take the risk of a possible failure of the business, logic dictates that we should also benefit if it is successful. The Government's approach is a mini-version of the madness evident in the blanket bank guarantee provided by the previous Government under Brian Cowen. It offers another win-win scenario to the banks which knew at the time of the guarantee that they would make a fortune if their speculation worked out, but that Muggins, in other words, members of the public, would pick up the tab if their speculation failed. As it transpired, it failed and the banks' losses were covered.

Rather than introduce a piddling measure worth €19 million which will have an infinitesimal effect on a domestic economy that is being massacred, why not do the job properly by nationalising the banks and forcing them to provide credit to small and medium enterprise? The banks are not the only problem in these circumstances. While I do not have any time for bankers, there is a certain logic to their position of refusing to lend. If the owner of a small or medium enterprise visits his bank manager seeking a loan to sustain and develop a business, it is hardly surprising that a banker, who can see the collapse in demand in the economy and knows austerity will be imposed for the next three, four, five or six years under a fiscal treaty that will slash incomes, cut social welfare payments and depress spending power in the economy, will not be convinced the business has a sustainable future. Aware that nobody is spending money, the bank manager will choose not to give out loans.

If we are serious about promoting the interests of small and medium sized enterprises, the other side of the equation must be to stimulate demand in the economy. This will require abandoning the austerity madness that is directed at low and middle income earners. Demand on the high street is depressed because people no longer have money to spend as a consequence of Government decisions to cut social welfare payments, including rent allowance, lone parent's payments and child benefit, and slap on to incomes the universal social charge and other levies. The shops in which people used to spend are going out of business.

We also have cuts to public services. The biggest employer in the centre of Dún Laoghaire, which is turning into a ghost town, is the hospital, a public service employing some 600 or 700 people. If the Government continues to cut health budgets, nurses' pay and the number of people in the health service, the hospital in Dún Laoghaire will have fewer staff on lower pay spending less in the local economy. If, God forbid, it is closed down as a result of further cutbacks in the years ahead, what will be the effect on the small and medium enterprise sector in the town? One could ask the same question about any town or village in the country. The decline in spending power caused by cutting the incomes of public sector workers is depressing small and medium enterprises in the private sector. Playing off the public and private sectors is utterly futile and stupid because they depend on one other. Investment in public services and improving the incomes of ordinary workers will stimulate demand in the economy and promote the interests of small and medium sized enterprises.

I do not have time to discuss in detail the issue of cartels other than to note that promoting the interests of small and medium enterprise requires measures to break up cartels such as CRH, which is engaged in price fixing activities in the concrete sector that are driving small and medium enterprises out of business. The Government should also address issues such as rates, parking charges and other costs that are crippling small and medium enterprise.

While we welcome the Bill, it is nothing more than a gesture given that the domestic economy is being slaughtered by austerity. It is madness to propose to continue austerity for another decade by signing up to the fiscal treaty madness. The Bill is piddling in the wind.

Joe O'Reilly (Cavan-Monaghan, Fine Gael)
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I congratulate the Minister on the initiative provided for in the legislation. In contrast to the previous speaker, I believe it is more than a trifling matter and will have a considerable impact. I will elaborate on that issue presently.

The Bill forms part of a strategy and sequence of actions taken by the Government that have put jobs to the fore. The jobs budget early in the lifetime of the Government included significant initiatives such as the lowering of the VAT rate on food in the tourism and catering sectors which continues to have a significant impact. The JobBridge initiative taken by the Minister for Social Protection, Deputy Joan Burton, has also had a considerable impact. The entire strategy of putting our public finances in order has won us international confidence, resulted in the postponement of the payment of the €3.1 billion promissory note and delivered a reduced interest rate on our borrowings, accruing savings of €10 billion. In parallel with these tangible achievements, we are increasing economic competitiveness, which is a sine qua non for creating employment. All the actions of this Government are concerted and strategic and they are part of a pattern of activity with the goal of creating jobs. This is a further important step. The businesses which do not have sufficient collateral or which have a unique idea can access funding because of the State guarantee. That is critical for them and it is very important when the assets do not stack up. That is the reality for many small and medium enterprises and it will make a huge difference.

It is interesting to note the statistic that €125 million lent to small enterprises has a net gain to the Exchequer of €25 million, due to unemployment assistance not being paid and the multiplier effect in the economy from taxes and so on. The impact of lending in this area is colossal. We all have enough anecdotal evidence from our clinics and from canvassing that the banks have not been lending as freely as is required by the small enterprises. This initiative will help that. Not only will it be valuable to those who access it, but also it will help to accelerate general lending, and that is an important consideration.

The legislation will empower the Minister to give a 75% loan guarantee. It will allow him to establish procedures for participating institutions, to establish a 2% premium charge by the participating borrowers, and to set up eligibility criteria. A review is possible at any time and a contractor will be assigned to oversee the scheme. These are the salient elements of the legislation, but the important thing is the money will come on stream for small businesses. The State will enter into an agreement with each lender and will accredit the lender to be part of the scheme for a three year period. I understand from the Minister's speech that it will be reviewed after a year, and that is important.

In 2007, 90% of loan applications by SMEs were successful, but that was down to 50% in 2010. The level of applications was down from 37% in 2007 to 31% in 2010. Professor Honohan has said that credit conditions are tougher here than in any other eurozone member state, and that was the case up until the creation of this Bill. It is important to note, with reference to what Deputy Boyd Barrett said earlier, that there are lending targets for the banks and that they are being scrutinised. This Bill has been welcomed by Mr. Mark Fielding, the CEO of ISME, which is significant because the people in ISME are at the coalface and will be affected by it one way or another.

We all accept the basic thesis of Deputy Boyd Barrett and his colleagues that we need a stimulus. While there has been a level of it, we need increased stimulus. That is not in question, but where the Deputy and his colleagues get it wrong is that we have to create the conditions. We had to win international confidence, we had to get the national finances in order, and we had to work in a strategic tactical fashion to arrive at a point where we would have the international confidence to get the stimulus in place. This is a good Bill, it is a step in the right direction and I hope it will work in practice. We will monitor that.

Damien English (Meath West, Fine Gael)
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I welcome the chance to say a few words on this Bill, and I am glad the Minister has had a chance to bring it in. I know it was a complicated Bill to bring together, but it is something we have been talking about for a number of years and we should have had it as far back as 2008 and 2009 when it was needed immediately. It will still be very beneficial. It is still needed and Deputy Boyd Barrett is right in that respect. It is to be hoped this Bill will help close the gap where banks are afraid due to the risks involved, or when they cannot assess the risk, or whatever, and encourage extra lending. I have no doubt it will be successful. It has worked in other countries and is another small step that will make a difference.

I have said in opposition and I will say again now that businesses need credit. Credit is a tool of business. Almost all businesses cannot function unless there is access to credit. I accept there have been some improvements in the past year, but we still do not have enough improvements and there are still far too many businesses which cannot get the credit they need to survive week to week, do their business, create jobs and increase their turnover. I know this because I deal with people weekly, either as a Deputy in Navan or on the Oireachtas committee of which I am a member. I know of people who own businesses that have ideas, who have a chance to grow their business, who could do better and create more jobs, but who cannot get credit. I have met representatives of the banks in recent months, and while I can see there have been improvements, we need Bills such as this to force that improvement, because we simply have to get money out to businesses.

This Bill is one part of the jobs action plan. I think there are about 270 actions in that plan this year. Some of them are very basic. The managing director of Hewlett Packard was at our committee today and he made it very clear that even those basic things need to be done. For too long in this country, when it comes to business and enterprise, we have not been ticking those boxes. They have been ignored. We must get back to basics and get things right. That means cutting red tape and having access to money, information, planners and so on. The action plan for jobs focuses the minds of officials in every Department to think jobs and enterprise. I commend the Minister, the other Ministers who helped me and the Taoiseach on driving it on. This is part of it and it is needed.

There is an issue with the banks in respect of the skills base required to assess risk. I do not believe the banks have enough people with the skills needed to assess loans, to judge cash flow statements and to work it all out. That is why they are reluctant to lend, even when they have got money, because there is no doubt they have been recapitalised. They should have money and there is no excuse not to have money, but they have not got the ability or the skills in some areas to lend that money. This Bill, which takes some of the risk away from the banks, will encourage that, and one hopes we will see credit being given out more quickly.

Credit has to be given to viable businesses. There is no point in giving credit to businesses which are not viable and which do not have a market in which to operate. It has to be for businesses that have an opportunity and a chance in the future, and there are many of them. It is important that people realise there is hope for this country. We meet people of all ages every day with a new idea and a new business, and they have the guts to go out and try it. The Government is trying to help them get those ideas off the ground. They will do that and create jobs. We meet people every day whose businesses are beginning to grow again and who are creating jobs. There are now 11,000 extra jobs than there were a year ago, and yet most people we talk to on the doorstep do not know that. I accept 11,000 is a small amount compared with more than 300,000 people with no job at all, but it is a step in the right direction as it is the first time in four years we have had growth.

It is about time we started talking about positive things. I have no problem dealing with negativity. I go through problems and answer queries and so on, but there is a duty on all Members of this House to let the people know there is some hope. This Bill will increase that hope. We have to sell the positivity and let people know about this. I ask every small business owner to engage fully with the process, whether in this scheme or even just with the banks. They should see the process through. They should not accept the telephone call telling them they will not get it. They should see it through, do the paperwork and make the application, and then we can follow it up to ensure it was dealt with properly, or find out why it was refused if it was refused. It is no longer acceptable to be taking a telephone call saying it will not be granted.

May I say one last thing on behalf of the Select Committee on Jobs, Enterprise and Innovation? The members of the select committee know this is an urgent matter and we will make arrangements to expedite Committee Stage of the Bill. We know this is an important Bill and we will deal with it as quickly as we can.

Kieran O'Donnell (Limerick City, Fine Gael)
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I am delighted to speak on the Bill.

Deputy Boyd Barrett made reference to public sector jobs in, for example, hospitals. I agree with what he said but we must not forget that enterprise provides the taxes to pay for public services. It is my fundamental view that we must support private enterprise. It provides jobs as well as taxes. It enables us to provide public services and to look after the less well-off and the vulnerable. People working in the public sector also contribute to the economy through their taxes.

The Bill will assist banks in providing credit to the SME sector. I agree that the banks should be lending more. They have become extremely risk averse. We have come from a situation where all bank lending to the SME sector was underpinned by property as security and there was not sufficient oversight of cash flows, business projections and project viability. Banks have now swung away from property related lending. The scheme to be established by the Bill specifically excludes property related lending, and that is good. We are getting back to the core of what the SME sector is about, which is showing a viable project.

As an accountant in my constituency of Limerick city, I worked for many years with the SME sectors. There is an old saying that cash is king. A business that does not have credit cannot survive. This is why I welcome the Bill. Based on projections, it will contribute to a gain of 1,344 jobs over the three years of the scheme, consisting of 1,020 direct jobs and 324 indirect. There will be a net Exchequer gain of more than €25 million. That is positive.

Banks have become so risk averse that marginal projects which should be getting funding are not being given it. The scheme will guarantee up to 75% of the value of a loan, it will apply to new lending and is completely geared to the SME sector.

Businesses that avail of the scheme will pay a premium to the State. It is extremely important, therefore, that banks do not put an interest loading on loans given under the scheme. Qualifying businesses should be charged the same competitive interest rate as loan applicants who are not availing of the scheme. I feel strongly about this. We must ensure that banks work within the spirit of the scheme and do not use it as a means of placing an interest loading on customers who badly need credit.

The loans given must facilitate business. We do not want to see people taking loans for too short a period. The scheme runs for three years and applicants may be anxious to have a three year loan, although repayment in such a short time might put too much pressure on the business. The scheme should provide a cushion of an initial three years after which time a business should not need to have its loan guaranteed.

It is important that the maximum possible number of banks take up the scheme. Any bank that is involved in SME lending should be encouraged to apply for the scheme so that a broad range of businesses can be catered for. Every Deputy in the House has spoken to people who have good viable businesses but, because banks have become so risk averse, cannot get loans. The scheme will guarantee up to 75% of the value of a loan over a three year period. This puts it up to the banks to deal with business people and to lend to them.

The multinational sector is extremely important to the economy. It provides in excess of 200,000 jobs and is a huge contributor to growth and employment, certainly in the Limerick and mid-west region. Equally, the SME sector is the lifeblood of the economy. The issue most often raised by those working in the sector is access to credit. The banks will now have to step up to the plate. The Government is introducing a loan guarantee scheme and it is now up to the banks to lend in a transparent and proactive manner to the SME sector.

I have been calling for a scheme such as this for a long time, even when in opposition. We must support the SME sector. On a related matter, I have always felt the self-employed should be entitled to some form of job seeker's payment. We must establish a model of fostering enterprise. Some businesses will not succeed. We must create a culture in which a person who sets up a business and fails is given the opportunity to try again. People learn much from being in business. Business owners who are forced out of business will probably not qualify for job seeker's allowance, and if they do it will be a considerable time before they receive it. Such people go through a difficult time and many of them have young families.

The Bill contains a tapestry of measures to deal with the self-employed. One of its key measures is access to credit. I welcome the Bill. It is important that the banks do not put an interest loading on qualifying businesses. People are entitled to competitive interest rates. We need to ensure the scheme is administered efficiently so that the loans come through quickly. The scheme will lead to the provision of extra jobs and the further recovery of the economy. I salute all those self-employed people who are going through difficult times. I hope this measure will ensure many of them survive and will encourage many new entrepreneurs to set up their own businesses and contribute to the economy.

John McGuinness (Carlow-Kilkenny, Fianna Fail)
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I welcome the opportunity to discuss the Bill and associated issues, including small businesses in this country. I welcome the Bill and what it sets out to do. It has been a long time in the making. While the Bill will assist with the provision of finance to small businesses in this country, it is not necessarily the answer to all their problems. We must reflect on what is happening currently and focus on the ISME research into the feelings of business people throughout the country and the actions of banks in regard to those businesses.

The issue was raised today and yesterday with the Taoiseach on the Order of Business. We have been talking about it since the crisis began a number of years ago. Nothing has been sorted out with the banks. The Minister made the point that this is no substitute for the regular business of lending by the banks, but there is no regular lending going on from banks to the small businesses of this country. That is the problem.

Regardless of what the previous Government did and, in particular, what the Government is doing in the current year, small businesses are not being approved for loans. That is what is happening. It is not just I who is saying it; it is the result of the quarterly banking watch conducted by a national business representative organisation in this country. We must ask what exactly the banks are doing with the €3.5 billion they are supposed to lend to small businesses. We must ask what they were doing last year and the previous year. They have been calling in businesses throughout the country, restructuring their overdrafts into loans and describing it as new business. That is not new business. They have been grabbing lodgements made to businesses and offsetting them against loans rather than putting them into a current account and holding businesses to account in that way. That is not necessarily doing business as the Government set down for the banks in this House in terms of the money they received to fund the small businesses of this country. We should not tolerate it. Somebody must call in the banks. I am regularly told the Government calls in the banks and sets down the reasons they should lend. The Government gives the banks the money but small businesses are not getting it. One could ask how the economy could function properly and how jobs could be sustained or created on the basis of banks simply not banking. They are not acting as bankers to businesses in this country.

In the survey to which I referred, 92% of those surveyed said the Government action was having a negative impact, or no impact, on banks and their relationship with banks. We must understand that because by announcing the Bill and the money associated with it or the announcement again by the Taoiseach of the €3.5 billion for the two pillar banks, one is creating an expectation that in some way the problem will be solved when it is not being solved. Until the attitude of the banks is changed, they will not lend money to SMEs. What they are doing is correcting their own balance sheets, doing their own business and not lending money. That cannot continue. Everyone on all sides of the House has articulated that point of view. We are not making up the stories. We are giving the facts in the course of many debates in the House, yet nothing has happened. There is a great deal of activity but no action. That is not a political point. It is what is being said by small businesses throughout the country. They are looking for real action and real banking. Until they get that, this economy will perform poorly or not as well as it should and is not going anywhere in terms of job creation. We continuously await a new direction from Government or a new direction from the banks.

The Governor of the Central Bank, Mr. Honohan, has said the same thing, that this country is the most difficult place within Europe to get credit. The Central Bank is concerned there is very little competition in this country and that foreign banks have left the marketplace, which essentially leaves people to deal with AIB and Bank of Ireland. I do not know what they are telling the Minister but it cannot be the complete truth about small businesses because what small businesses are telling their business organisations, representative groups and Members of the House, and what the Taoiseach said today, is that banks simply are not lending. One could ask how long more this can go on.

A total of 700,000 people rely on jobs created by small businesses in this country. Small businesses include single entrepreneurs, families and businesses that are central to every community and parish in this country. They are telling us they cannot function because of the banks. Currently, most people involved in conducting a business – if they are lucky enough – are transacting in cash, not because they are avoiding tax, but because they are avoiding the banks. The banks in turn are getting substantial sums of taxpayers' money and are not doing what they were told to do with the money. They are not supporting businesses.

I dispute the policy the Government is now to undertake on county enterprise boards. Bringing them under the remit of local authorities is the wrong step. There is no culture of entrepreneurship in local authorities. Let us examine what they have done. They privatised waste disposal because they could not do it themselves.

Seán Sherlock (Cork East, Labour)
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The memorandum of understanding has not been agreed yet.

John McGuinness (Carlow-Kilkenny, Fianna Fail)
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Everywhere there was money to be made, they outsourced it. They got rid of it because they could not manage it. Now we are asking local authorities to do the work of the county enterprise boards.

Seán Sherlock (Cork East, Labour)
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The Deputy is being a bit premature.

John McGuinness (Carlow-Kilkenny, Fianna Fail)
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Why do we not leave them alone and give county enterprise boards substantial funding in order that people can access the funding directly and deal with county enterprise boards which understand local needs? Credit unions seem to understand their client base much better in terms of their business needs by comparison with banks. Why do we not allow them to do that business? Why is it that this debate goes on in an endless way with very little happening to support those businesses of which we are all so proud?

It is time for the Government to think differently about relying on the two pillar banks and to take into consideration the much more effective way of dealing with the issue through current structures such as county enterprise boards and credit unions. Why do we not create that alternative space in the market for those businesses to engage with? They are grossly misunderstood by the banks which almost refuse to give a decision in some cases. I am aware of business people whose application is with the bank for the past 18 months with no decision. I can give a list of such cases. Businesses do not function like that. They have to function on the basis of being able to decide in reaction to the market or by leading the market in an immediate fashion knowing that they either have a loan or an overdraft to do the business. They cannot do that anymore, and not because they have a bad business – I do not expect anyone to support a poor business idea. We should support businesses in a different and more direct way. The Bill goes some way towards providing a resolution but the Government has a lot more work to do.

Dara Calleary (Mayo, Fianna Fail)
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I welcome the publication of this Bill and pay tribute to the Minister and his Ministers of State for their persistence in bringing it to the floor of the House. Work on the legislation began under a former Minister, Batt O'Keeffe, but the persistent blockage to which it was subjected came, as with so many other measures, not from the sponsoring Department but from the Department of Finance. The latter simply does not comprehend the real world and how serious the situation is, not only for small businesses but for everybody in this country. Its stake in the so-called rescue of our banks and their return to a feasible situation means the Department of Finance is blind to the reality of our domestic economy. By focusing on restoring our banking system at all costs, it will continue to be blind. Against that opposition, credit must be given to the ministerial team at the Department of Jobs, Enterprise and Innovation for bringing the legislation thus far. However, I remain sceptical, in view of that opposition, as to whether this scheme will see the light of day. I am concerned that it will end up, like other schemes, choked by administrative and other obstructions. It will be a good day for business when we see people actually receiving money under the scheme.

It is important to note the finding - provided not by the Fianna Fáil research office but by the Central Bank - that in the first nine months of 2011, €1.6 billion was issued in new loans to the small and medium-sized enterprise sector. The banks have pointed to this headline sum as evidence of the great job they are doing in regard to new lending. What they are not telling us, however, is that in the same period, they withdrew €2.4 billion in funding by closing existing credit facilities. For example, a business owner who seeks to renew his or her overdraft is informed that it is being converted into a term loan. Likewise, cashflow loans, stocking loans and so on, facilities that were always previously available to businesses, are instead offered as term loans, if at all, and overdraft limits are halved. This is not the fault of local branches whose staff are familiar with their customers' needs. Instead we now have a bizarre, Russian politburo-style central decision-making process whereby everything is done on a form. In contrast to the madness in lending that went on for many years, we are now at the other extreme where the lack of lending and withdrawal of credit facilities are bringing businesses throughout the State to the brink of closure.

I do not doubt the Government's good intentions in bringing forward this Bill, but the reality is that it is too late for the tens of thousands of SMEs which, in the two years it has taken the Department of Finance to get its act together and provide funding for these provisions, have had to shut up shop for want of credit. Many of these were solid businesses that were operating for generations and had already come through very difficult economic times. Their failure in recent months and years is a consequence of the inability to access the traditional forms of bank lending that are the oil of any economy. Against this background these provisions are to be welcomed, but we must wait to see what happens after they get through the House and past the great purveyors on Merrion Street.

As other speakers observed, we have no problem talking the talk in regard to SMEs. There is no doubt that we are having a very good year in terms of foreign direct investment, with several excellent announcements in recent months, to be followed, we all hope, by more. However, the real powerhouse of this economy is the small business sector. It is the companies throughout the State which employ as few as five, three or even one member of staff that are keeping the country going. Yet there is no trumpeting of their achievement in managing to keep their doors open despite the bizarre odds stacked against them. Some, for example, are faced with rents that were negotiated back in 2005 or 2006. As a consequence of the ancient property law enshrined in our Constitution, we are afraid to take on that situation. The proposed constitutional convention will discuss a range of important social issues, but here is an issue that is closing businesses down and leading to job losses. Once again, it comes back to the Department of Finance and its mother ship, the National Asset Management Agency, which tells us nothing can be done on upward-only rent reviews.

We all, Government and Opposition, must start walking the walk when it comes to providing support to SMEs. It is not good enough to participate in a debate on this issue every few months in which we merely outline our concerns and then return to our constituency offices to pull our hair out in an effort to deal with the problems facing small businesses. One of these problems is rates. The basis of the rating system in this country is to be found in pre-independence times. The Government has indicated its intention to undertake a re-rating of every property in the country. That will take ten years to complete and, knowing how these matters proceed, will probably be based on 2005 or 2006 values which are entirely unrealistic. Local authorities do not have the capacity to offer flexibility in the form, for instance, of offering new businesses a rate remission for one or two years and attaching that remission to employment targets. As a result, many businesses are not even getting off the ground. The working capital is there to get them through but because of these rates, for which they receive nothing in return, they cannot get up and running.

Will the Minister of State indicate who will be responsible for running the scheme? Will it be the banks or will there be some type of independent mechanism for that purpose? With all due respect to the Credit Review Office, it is simply not hitting the target because it is not taken seriously by the banks. One is put in mind of the teacher who puts on a good show on the day of the school inspector's visit before reverting top type the following day. The Credit Review Office says its targets are being met, but its calculations are based on credit approvals. As Deputy McGuinness observed, it is all very well for banks to say they sanctioned such and such a credit facility but, in reality, they are demanding as security an applicant's left arm, right leg and, for good measure, the family home if it has not been taken already. There is an enormous difference between credit approval and credit draw-down, a difference which is found in the comparison between the €1.6 billion issued in new loans and the withdrawal of €2.4 billion in existing credit facilities.

If the Credit Review Office is to be taken seriously by the banks and the SME sector it must change how it does it business, part of which is to report what is actually happening as opposed to accepting the pronouncements of mission control at bank headquarters. If the banks have control of the day-to-day running of this scheme they will simply reassure us, a year or so after it is established, that they are lending the amount they undertook to provide, but they will not tell us the conditions attaching to that lending. They will not tell us how much money they have withdrawn from other business facilities as a result of being able to hide behind the funding allocated under this initiative. Whatever authority is charged with arbitrating the scheme must have robust powers, the necessary resources and staff who know what it is like to work in the private sector, who understand the pressures of having to keep one's door open and pay one's staff while forgoing one's own salary because there is no money left. Those charged with rolling out the scheme must have experience at the coalface of the small business sector. Only then will there be the possibility of it having the impact that is required in terms of job creation. Only in those circumstances can the initiative have a chance of instilling a culture of respect for the endeavours of small business.

SMEs fail for many reasons. We must ensure the supports are in place to get them back on the horse. Government policy - not just party policy - must change in order to take the small business sector seriously and give small business owners the break they need. This legislation represents a small start in that direction, but I am concerned that it will be mangled by the system before it can be put into operation. The scheme includes several restrictions which are unfriendly to some sectors. For instance, the agricultural sector is being talked up as the great saviour of the economy, yet these proposals do very little for small food businesses. I genuinely hope to be surprised by how this scheme works out in practice. Until then, however, I am obliged to be sceptical.