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

It was well earned over many years of service and I wish him good luck. There are many new faces in here. I was going to say "in this House", but this is not actually the House. It is good to be here in the Seanad, however, and I welcome all the new Senators. There are many new faces and I am looking forward to working with everybody over the next couple of years. I had an important relationship with the Seanad during my previous term as a Minister of State, and I found it a great place to come in, work and bring through legislation, but also in many cases to commence legislation. We found it had a very effective role where some of my previous and current colleagues improved legislation. I am conscious that there are some people up there in the back row who have been very active over the years in constantly amending legislation in the Seanad and it is a great place to bring legislation through. I thank Members for their previous co-operation and I look forward to working with this new House as well under the direction of the Cathaoirleach.

We brought this Bill into the Dáil for its first day on Tuesday, with the Tánaiste, and yesterday was the second day we spent on it.We are trying to get all Stages complete with everyone's co-operation, if we can, because it is urgent to get money to many microenterprises. That is why the schedule is tight and I thank Members for their co-operation on that.

I am glad to be here in the Seanad as Minister of State with responsibility for employment affairs and retail business to bring forward the Bill. This is important legislation as part of the Government's response to support the enterprise sector, particularly microenterprises, in meeting the challenges presented by Covid-19. The purpose of this Bill is to make certain amendments to both the Microenterprise Loan Fund Act 2012, as amended, and the European Investment Agreement Act 2018 to help businesses access additional finance they need as a result of the Covid-19 crisis.

I will outline the background as to why this Bill is necessary. It is quite clear from all the contributions in the Lower House that Members really understand the importance of this. SMEs are under a lot of pressure as they try to reopen, restart and re-employ all the good employees they have had for years, but also access the funds they need to keep going. We are trying to support them with a range of different measures, but this one was key in that they also need to access funds. The fund was established in 2012 and has been useful not only for existing businesses but also for start-ups, and that same demand has increased tenfold over the past couple of weeks.

Covid-19 has affected all parts of our society and economy since early February. Due to the unprecedented nature of the shock to the business environment caused by the outbreak, my Department and its agencies have worked hard since then to help businesses meet the challenges presented by the pandemic, both locally and globally. This has included the roll-out of a wide range of measures and advice for businesses, engaging with stakeholders, economic analysis, providing evidence to Government on the needs of business and the impacts on the wider economy while also continuing with our regulatory and governance functions.

Some issues were raised yesterday that there has not been enough engagement. I want to be clear that the Minister who led our Department previously, Deputy Humphreys, and her junior Ministers, have had much engagement with the sector over the past couple of months. It was not possible to hold face-to-face meetings, as people will appreciate, but there was regular engagement by the former Minister and her colleagues via Zoom, WebEx and every other form we have become used to now, with the sector. It was quite fast moving and, therefore, there was not the detailed negotiation we would normally have with the sector when trying to bring forward changes, but there was regular contact. At the time I was Minister of State at a different Department, but I spoke to Deputy Humphreys almost every day, and she was engaging with the sector. I hope people will realise she made every great effort.

The Tánaiste, the Minister of State, Deputy Troy, and I have maintained that engagement on a daily basis with all the different voices for the business sector of all shapes and sizes. We are open to meeting people and we will try with great effort over the next week to do more of that before we complete the July stimulus plan. Every effort will be made to engage with them, work with them, and share and take on board their ideas. It does not mean we can implement everyone's idea, because that is not possible, but certainly the engagement will be there, as it would always have been in the past, and I hope we can continue that. Likewise, that engagement will be there for Senators as well.

To give an idea of the extent of the impact which we have seen, by the end of April 2020 the numbers on the live register, pandemic unemployment payment, PUP, and temporary wage subside scheme, TWSS, combined have increased to more than 1,177,000, but further job losses are still possible. While the number of people on the PUP is falling week on week, the scale of the crisis is unprecedented. This disruption has, in turn, given rise to a severe negative shock to domestic demand. The Central Bank of Ireland report summarised that the impact of social containment measures and restrictions remaining in place for a three-month period before rolling back will result in GDP decline by 8.3% in 2020.

The impact on SMEs has been enormous. SMEs are the backbone of the economy, representing 99.8% of business activities in Ireland. In May 2019, there were 238,000 SMEs in our economy employing more than 1.3 million workers at a time overall employment stood at 2.3 million. These enterprises are spread throughout the country in urban and rural areas and represent a vibrant and diverse range of economic activity. Our SMEs have faced significant challenges in dealing with previous economic difficulties and, more recently, in preparing for Brexit, but they have shown that they are adaptive, innovative and agile in their responses to such challenges. They also have specific needs when compared to other areas of the economy. The Economic and Social Research Institute, ESRI, recently published new analysis of the CSO data, which indicates the vital importance of the domestic sector as a whole to the economy. By looking at the economy on the basis of net national product rather than gross national domestic product we can see that compensation, that is, wages, mainly, in domestic firms in 2018 accounted for 75% of wages in the economy as a whole.Compensation in foreign multinational enterprises only accounted for 25%, or a little over €23 billion.

The overall contribution of the domestically-owned sector in 2018 was just under €117 billion, accounting for 79%, with foreign multinationals contributing €31 billion to the overall net national product when repatriation of profits to their foreign owners was taken into account. Many domestically-owned SMEs are microenterprises and it is clear that they are a vital part of our economy as they have grown and diversified over recent years, adjusting to challenges and globalisation, and responding to economic crises to become increasingly key contributors to Irish growth in their own right.

Various bodies representing the SME and microenterprises sectors have outlined the need for assistance, including access to liquidity funding, for that cohort of enterprises and many of the sectors within it. Many of those representatives met the previous Minister for Business, Enterprise and Innovation, Deputy Humphreys, the Minister of State, Deputy Troy, and the Tánaiste.

In late April the Central Bank published a research note on SME liquidity needs during the Covid-19 shock which indicated the likely need for some form of external liquidity support for firms if they were to reopen once the policies to contain the spread of Covid-19 were eventually relaxed. My Department was cognisant of this need and has already begun expanding existing schemes and developing new measures to help enterprises, particularly SMEs and microenterprises, to access crisis liquidity.

As part of the initial response of the Government to the Covid-19 pandemic, the Department has reprioritised and repurposed existing programmes to respond to Covid-19. These include: the repurposing of the Enterprise Ireland online retail voucher scheme; the lean continuity voucher and financial planning grant schemes; local enterprise offices, business continuity and trading online voucher schemes; InterTradeIreland's emerge and emergency solutions schemes; the credit guarantee scheme, legislation on which will come before the House next week or the week after; the working loan capital scheme; and the microfinance loan scheme we are discussing today.

There were also other schemes to assist businesses, in particular SMEs, which are run by other Departments such as the online retail voucher scheme under the Department for Communications, Climate Action and Energy, and the rates rebate scheme from local authorities through the Department of Housing, Planning and Local Government. There are two parts to the rebate scheme. One is the restart grant that most businesses can apply for, which is based on 2019 rates up to a maximum of €10,000. Nearly €88 million has been paid out under that scheme, but there have been delays in some local authorities. Businesses know they will get the money, but want it as soon as possible. We are trying to speed up that process. The second issue concerns the three-month rate waivers which, as things currently stand, are based on this year's rates. Some local authorities are still waiting for more guidance on that before they can confirm it, but I was happy to confirm to the Dáil yesterday that it is in place and will feed through. We will look at extending that in the July stimulus plan if it is worthwhile.

My Department has been at the forefront of developing actions to assist businesses during this challenging crisis. For example, in addition to the existing credit guarantee scheme remaining available for SMEs, a new Covid-19 credit guarantee scheme was developed under the flexibilities allowed by the European Commission in its temporary framework for state aid measures to support the economy. While we announced that, it cannot kick in until legislation is passed. That is why we will revisit the matter. It is to be hoped it will go to Cabinet next week and come before the House next week or the week after. It is an important Bill concerning loans through the existing retail banking sector guaranteed by the State, whereas microenterprise loans go through our State-owned bank. These flexibilities allow for credit guarantee schemes to include small midcaps and primary producers as well as SMEs, but the temporary framework is due to expire in December. That is why we will pass legislation well before that date.

Microfinance Ireland was established under the Enterprise Loan Fund Act 2012 to provide lending to microenterprises. It was established at another difficult time for business in this country, and we discussed issues around access to funding for businesses from 2011 to 2014. It was felt that a lot of companies at that time could not access funding because the banking sector was not willing to lend to them. That is why Microfinance Ireland was set up in the first place. It was meant to be highly risk tolerant and provide essential funding to support start-ups and other small businesses. I am conscious that the current demand is not necessarily from start-ups, but it will be in the future as people change career by choice or otherwise in the weeks ahead. The majority of applications are from existing businesses which are looking for support.

By the end of 2019, Microfinance Ireland had supported 6,030 net jobs in 2,400 microenterprises. It has a wide geographic coverage, with 79% of its loans granted to businesses outside Dublin. According to the Central Statistics Office latest business in Ireland report, microbusinesses accounted for 26% of the persons engaged.The sector is quite a big employer.

The context of Microfinance Ireland's lending changed significantly with the onset of the Covid-19 crisis last March. In response to an urgent need for liquidity in the face of an unprecedented challenge in economic activity my colleague, Deputy Humphreys, as Minister for Business, Enterprise and Innovation, announced at that time a €20 million Microfinance Ireland fund for Covid-19 impacted microenterprises. This fund makes loans of up to €50,000 available to impacted businesses with reduced interest rates of between 4.5% and 5.5%, and a six-month interest-free period.

Microfinance Ireland has experienced a significant and growing demand since the Covid-19 loan was launched in March, with demand having risen tenfold compared with last year. As of June 2020, 581 loans have been approved amounting to a total value of just under €16 million. It seems likely that this demand will continue to accelerate as the economy moves into a recovery phase. Accordingly, the proposed amendments to the microenterprise loan fund have been drafted to provide a legislative basis for increased funding from Microfinance Ireland, which is needed as a matter of urgency. In many cases, Members will have received feedback to the effect that businesses were told that their loan applications could not be processed because Microfinance Ireland cannot access additional money until we pass this legislation.

It is also required that Microfinance Ireland can have access to additional funding, which was agreed by Government, to allow it to continue to help microenterprises seeking to access funding to facilitate a return to economic activity as soon as possible when allowed by public health conditions. As a significant majority of these microenterprises that are assisted by Microfinance Ireland are located outside of Dublin, it is likely that many of them are in rural communities. Their survival will assist those communities to recover from the effects of Covid-19 and return to work, rather than cause large unemployment black spots. As I mentioned yesterday, I am very conscious that some of these businesses tried to stay open, where allowed, and provided a local service in many areas during Covid-19 but the majority of them were asked to close and told they could not open. Now these businesses need an extra bit of help and cash liquidity to reopen and provide those services or goods again.

Given the exceptional circumstances that have resulted from the Covid-19 crisis, it is prudent to increase legislative ceilings to ensure that Microfinance Ireland's lending will continue to be available to assist very small businesses for as long as required. Given the extreme urgency of processing this Bill and the need for microenterprises to access the necessary finance schemes, these increases have been included as amendments in the Bill as presented for publication. However, very high demand for the Microfinance Ireland Covid-19 loan has put pressure on the funding position, which is why it is urgent that we bring this legislation through here. Importantly, with 79% of Microfinance Ireland's lending to businesses outside Dublin, the scheme will be an essential tool for very small regional businesses that hope to reboot their economic activity over the coming weeks and months. It is essential that the legislation needed to provide further funding to Microenterprise Ireland for this lending be progressed as quickly as possible. Again, I thank the Senators for their co-operation in facilitating this discussion here today.

There are a number of amendments to existing sections of, as well as the inclusion of one new section in, the Microenterprise Loan Fund Act 2012, which are intended to facilitate making increased funding available to MFI to allow it continue to provide short-term credit facilities to microenterprises in order to help them to survive and begin to return to normal working conditions. In addition to allowing increased grant aid to Microfinance Ireland, the amendments are intended to facilitate Microfinance Ireland in sourcing efficient and affordable financing through the Strategic Banking Corporation of Ireland, which was established in 2014. Again, due to the unprecedented nature of the shock to the business environment caused by the outbreak of Covid-19 there has been significant demand placed on Microfinance Ireland for liquidity and, therefore, the existing limits no longer suit its business model.

Today, we are also discussing the European Investment Fund Agreement Act 2018, as this Bill will amend the Act to allow my Department to enter into new counter-guarantee arrangements with the AIB Group to underpin financing schemes for SMEs and small mid-cap businesses. According to the CSO's latest Business in Ireland report, small and medium enterprises, excluding microbusinesses, account for 21% of the gross value added and 42% of persons engaged. Hence, it is important to help the sector to return to or maintain economic activity in the short term and facilitate its return to growth in the longer term.

The European Investment Fund is a subsidiary of the European Investment Bank. The European Investment Fund Agreement Act 2018 allows relevant Ministers - currently the Minister for Agriculture, Food and the Marine and the Minister with responsibility for enterprise, trade and employment - to enter into agreements with the European Investment Fund, which have a cumulative contribution committed up to a limit of €75 million. The amendment included in section 8 of this Bill will increase the limit to €500 million. It is imperative that the option for relevant Ministers to engage in further agreements with the European Investment Fund is made available immediately in order that those Ministers are in a position to act quickly to engage in new agreements with the European Investment Fund, which will then allow us to further facilitate access to finance for small, medium and micro-sized enterprises. The current limit on the aggregate liability in respect of contributions committed by relevant Ministers, under all agreements, is €75 million.The mandate agreement with the European Investment Fund, in partnership with the European Investment Bank group, for the future growth loan scheme announced in budget 2019 includes an Irish executive contribution committed of €44 million. This leaves insufficient scope for further meaningful agreements with the European Investment Fund or the European Investment Bank at this point in time. The expansion of the Irish limit is necessary to allow expansion of schemes such as the €500 million expansion of the future growth loan scheme, which will provide for the long-term lending needs of SMEs, including farmers and those in the fishery sector, that are looking from emergency liquidity supports and looking to reboot and reinvest in their businesses in the long term.

Given the significant demands on the resources of the European Investment Bank group, this funding may not be available to Ireland at a later date and so it is prudent to put this legislation in place to facilitate negotiations with the European Investment Bank group on this €500 million expansion of the loan scheme as quickly as possible. Amendment of the European Investment Fund Agreement Act 2018 will enable Ireland to further draw down from the European Investment Bank funding. This includes funding for schemes that are targeted to facilitate business investment in addressing climate change challenges and opportunities. Such investment will create opportunities for businesses to deliver environmental and climate change benefits, reflecting the policy goal of a climate resilient Irish economy. Current indications are that there is a cohort of companies seeking long-term financing which will enable them to invest in their enterprise, including making the changes which are becoming necessary to address the climate change challenges.

On the progression of the Bill to date, the Minister's predecessor, Deputy Humphreys, has been actively engaged in efforts to assist all sectors and all regions of the economy since the pandemic started. As part of those efforts, she sought the urgent drafting of this Bill, which we are considering, and obtained Government approval on 1 May to draft the Bill. The Government approved it on 29 May for publication but we had to wait until both Houses sat before we could bring it through.

I will briefly go through the Bill section by section. Section 1 is a standard provision, which defines the Microenterprise Loan Fund Act 2012 for the purposes of the amendments being made in this Bill. Section 2 is a standard provision, facilitating the inclusion of the definition of a promotional financial institution within the definitions already contained in section 2 of the 2012 Act. Section 3 amends section 5 of the Microenterprise Loan Fund Act 2012 to increase the overall amount the Minister can grant to Microfinance Ireland by €70 million from the current total cap of €35 million to a new cap of €105 million. Section 4 amends section 7 of the Microenterprise Loan Fund Act 2012 to reflect the fact that the amended Act will allow Microfinance Ireland to borrow from promotional financial institutions as well as from its parent social finance foundation. Section 5 removes the restriction on Microfinance Ireland from borrowing on its own behalf. Section 6 inserts a new section 8A into the 2012 Act, which gives Microfinance Ireland the power to borrow moneys from persons or sources other than its parent social finance foundation. Section 7 is a technical amendment to section 19 of the 2012 Act, to reflect the fact that the Bill will allow Microfinance Ireland to access borrowings from other lenders as well as from its parent social finance foundation. Section 8 amends section 2 of the European Investment Fund Agreement Act 2018 to raise the maximum contribution committed to €500 million from €75 million. Section 9 provides for the Short Title and the commencement provision.

I am pleased to be able to take this Bill forward to the Oireachtas and put in place the necessary measures for this vital support to the Irish economy. I am conscious that it is a relatively small Bill so I ask that Members take the opportunity in their contributions to add in any ideas or suggestions they want to put forward for the July stimulus plan, which we are working on. The main focus of that plan in the programme for Government will be to try to sustain existing jobs, help companies that are restarting, secure jobs and help companies to reopen and to continue to grow and thrive. We are all conscious that all sectors of business throughout the country are under immense pressure. The July stimulus plan will be targeted at certain sectors, if needs be. It is an initial attempt to put funding into key areas to protect jobs and to restart businesses and we will build on that with a later long-term strategy that will come forward at the time of the budget. That will be the economic recovery plan and it will be brought forward in October. We will probably have a lot more time to go into detail on that and it will be more of a long-term plan but the July stimulus is to provide quick interventions that will help to save many jobs and businesses and help businesses to open their doors. I ask Members to bring forward any ideas they have today if they have time and, if not, I am happy to engage with them over the next week. It will be our aim to try to finish that July stimulus plan and produce it either late next week or the week after but certainly before the end of July so today is a good chance for Members to put forward their thoughts.