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

I thank the House for facilitating the Bill this week, which I am pleased to bring forward. It was something that we discussed quite a lot here individually with Senators as well, who were asking for a scheme such as this in response to what happening with Ukraine and the pressure it is putting on businesses here as well. The scheme has worked quite well through the past couple of years in other forms as well.

The Bill will facilitate the creation of the Ukraine credit guarantee scheme. The scheme will make low-cost lending available to small businesses, fishers and farmers without collateral or personal guarantees. Lending will be at reduced interest rates and allow for those businesses to spread the current rate increase in their costs over the medium term.

The purpose of the Bill is to make certain amendments to the Credit Guarantee Act 2012, as amended, to help businesses access essential liquidity through their banks and other financial institutions. Businesses often need loans to cover cash flows and this need has been deepened by the spike in cost increases since the invasion of Ukraine by Russia.

The Bill also includes a short technical amendment to the Loan Guarantee Schemes Agreements (Strategic Banking Corporation of Ireland) Act 2021. This will enable the Ministers for Enterprise, Trade and Employment and Agriculture, Food and the Marine to enter into further agreements with the Strategic Banking Corporation of Ireland, SBCI, to facilitate access to finance for qualifying enterprises.

The first thing is to understand the need for this, and most Senators will. I will explain to then in general why the Bill is so necessary. The impact on the economy due to the invasion of Ukraine and the knock-on effects on costs, especially fuel, has resulted in a surge in operating costs for businesses and a drop in confidence across the board. With the increasing duration of elevated energy prices, the negative economic impacts are being felt by all sectors and will continue to be felt for a number of months ahead. The consumer price index of the Central Statistics Office, CSO, states that costs rose by 8.2% between September 2021 and September 2022.The highest level of inflation for 38 years was recorded in June 2022 at 9.1%, a level not seen since 1984. September marked the 12th straight month where the annual increase for the CPI has been at least 5%.

These increased costs will cause significant strains on the working capital position of SMEs. They will need to spread the costs of the next 12 to 24 months over a longer timeframe to avoid heavy cash flow losses. The increase in energy prices, as well as other raw materials, such as fertiliser and feed, are driving price inflation. This is affecting every sector from butchers to clothes shops and from food processors to cafes. We can already see the impacts of that on the high streets, with some businesses under extreme pressure and some businesses reducing their hours or, in some extreme cases, having been forced to close as well. This is in response to that, to enable them to have the working capital or access the finance they need to get through the next couple of years.

These developments may damage profitability and growth, thereby resulting in a reduction of economic activities, potential job losses and business closures. We must protect those hard-earned jobs. As I said in the other House last week, we have more than 2.5 million people at work and we cannot take that for granted. The number one response of any Government to protect the jobs one has as well as try to continue to grow more. I recognise that jobs come and go and one always must have more jobs coming into the system in the years ahead as well.

Businesses will need assistance to adapt their operations to a changing business environment, to restructure suppliers and their cost bases. Confidence is being negatively impacted by the ongoing uncertainty and an important part of the rationale for Government intervention is to rebuild confidence. A significant and ambitious credit guarantee scheme will assist lenders in providing liquidity to these companies and send a strong signal of support and confidence to both lenders and borrowers.

For context, as there are quite a number of champions for the SME community here, I reaffirm that there are approximately 270,000 SMEs in Ireland, based on CSO figures. Small and medium-sized enterprises, SMEs, account for 66.4% or two thirds of all persons employed in businesses in Ireland. Small and medium-sized enterprises generated 43.6% of total turnover in the business economy and 36.9% of gross value added was attributed to these enterprises.

They are the majority of businesses in every county in Ireland. They are the dairy farmer, the family-owned newsagent and the software start-up. They create jobs and generate wealth in locations where large businesses do not establish themselves. They are in every sector and the people who own and work there are from every background. Small and medium-sized enterprises are very much the fabric of Irish society. They are more than just numbers. That is why I, and my Department, are so keen to provide any support we can to keep these businesses afloat.

The Ukraine credit guarantee scheme should be viewed as one arm of the Government assistances being offered to businesses. It cannot and does not claim to be a panacea to every issue businesses are facing in the current environment but it is an important element of the Government’s offering. These measures will allow businesses to tackle and overcome the expected costs pressures of this year and next.

I would have said previously when we discussed other similar credit guarantee schemes that when it comes to crises such as this and businesses are trying to plot their way through it, generally the way through it is a combination of tapping into some of the Government grants and schemes that are there, access to low-cost finance at the right price that is de-risked by the State which is what this scheme does but also sadly having to dip into their own reserves as well. It needs all three and an effort by everyone to get through a tough time. There is no point in kidding ourselves by saying to businesses that they will get through this without borrowing. That is probably unlikely. That is why our duty is to make it as cheap as we possibly can and as easily accessible as we possibly can as well.

The first of the supports announced in the recent budget is the €1.25 billion temporary business energy support scheme, TBESS, providing qualifying businesses with up to 40% of the increase in electricity or gas bills up to €10,000 per month. It will help small businesses most, but also medium and larger businesses. It will be administered by the Revenue Commissioners, backdated to September, and will run until at least February 2023. Much information went up over the weekend about that. Hopefully, we will see businesses making the applications and drawing down funding this side of Christmas. They will be able to continue funding thereafter in the new year as well.

The second support that was announced in budget 2023 is a €200 million targeted Ukraine enterprise crisis scheme. This is designed to assist viable but vulnerable businesses in the manufacturing and internationally traded services sectors which are suffering the broader effects of the war in Ukraine, as well as increasing energy costs. One strand of the scheme will provide up to €2 million in grant aid for energy intensive companies impacted by the exceptionally severe increases in gas and electricity costs. It will be administered through Enterprise Ireland, IDA Ireland and Údarás na Gaeltachta and eligible businesses must produce an energy efficiency plan which shows how they will get their energy costs down. That is open already for applications. There will be strong demand for that as well.

Operating in tandem with the Ukraine credit guarantee scheme will be the new growth and sustainability loan scheme. This will make up to €500 million in low-cost investment loans of up to ten years available to SMEs, including farmers and fishers and small mid-caps, with no collateral required for loans of up to €0.5 million. A minimum of 30% of the lending volume will be targeted towards environmental sustainability purposes.Amendments in the Bill to the Loan Guarantee Schemes Agreements (Strategic Banking Corporation of Ireland) Act 2021 will facilitate the Department in establishing the growth and sustainability loan scheme.

Today we are debating the legislation that will make the amendments necessary to implement a specific Ukraine credit guarantee scheme. This will replicate many elements of the highly successful Covid-19 credit guarantee scheme. That scheme resulted in more than €700 million in lending to 9,850 businesses. This helped maintain 81,000 jobs in just 21 months of availability. Under the Ukraine credit guarantee scheme, the State will guarantee 80% of the loans included in the scheme. Lenders will retain 20% of the risk to ensure they have skin in the game. Viable businesses will be supported. The aim of this scheme is to make it much easier for that money to be made available to those businesses and to cut out some of the delays we often see. The scheme will include farmers, fishers and small mid-caps with under 500 employees. This is something we can do under flexibilities from the European Commission in its temporary crisis framework on state aid, introduced to respond to the aggression by Russia against Ukraine. It is similar to the framework that the Commission created for the Covid pandemic.

The Bill is aimed at putting in place State-backed guarantees so that businesses that employ up to 499 people can go to the banks and other participating financial institutions for lending across a range of financial products. If a business defaults in its repayment of those loans or overdrafts, the financial institution can then call in the guarantee from the State, which will cover 80% of the outstanding debt. The financial institutions will still have to carry 20% of that default themselves. The State is providing significant certainty to the banks with this guarantee as we propose to also remove the portfolio cap for the financial institutions. Due to these measures, it is a requirement that all financial institutions taking part demonstrate a reduction in the interest rate charged to enterprises for those loans and other financial products covered by the scheme. As part of state aid requirements, the businesses will pay a fee to the State for a guarantee related to their borrowing. I assure Senators that this fee will be far less than the interest rate reduction legally required from the finance provider.

I will now explain the key elements of the Bill. Section 1 provides that references to the Act of 2012 mean the Credit Guarantee Act 2012.

Section 2 amends section 2(1) of the Act of 2012 to provide for the inclusion of a new definition of "Ukraine credit guarantee scheme" in the Act of 2012, which is needed for other changes made elsewhere in this Bill.

Section 3 amends section 3 of the Act of 2012 to allow for the extension of classes of enterprises that can qualify for the Ukraine credit guarantee scheme to include small mid-caps. Primary producers, that is, farmers and fishers, also qualify.

Section 4 amends section 4 of the Act of 2012 to include the new Ukraine credit guarantee scheme within certain subsections of that section, thus giving the Minister the power to give guarantees. The section also disallows sections 4(3) and 4(4) of the Act of 2012 for the purposes of the Ukraine credit guarantee scheme, as different provisions are being made for those aspects through the new section 4B, which is being inserted by section 5. The existing scheme is subject to a portfolio cap of 13% under the 2012 Act, as amended, but there is no portfolio cap for the Ukraine scheme. The existing scheme has a maximum yearly credit amount that can be guaranteed of €150 million, whereas the Ukraine scheme has an overall maximum credit amount of €1.2 billion.

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

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

Section 7 amends the Loan Guarantee Schemes Agreements (Strategic Banking Corporation of Ireland) Act 2021, by increasing the aggregate liability limit to €180 million from a limit of €50 million in respect of contributions committed under all agreements between the Ministers for Enterprise, Trade and Employment and Agriculture, Food and the Marine and the SBCI for the time being in force. Section 8 is the final section and contains technical matters about the Short Title, commencement arrangements and citation.

I again thank Members for their time and for facilitating this debate. Hopefully, we will have an opportunity to discuss the Bill today, and on Committee and Report Stages later in the week.