Seanad debates

Thursday, 23 July 2020

Credit Guarantee (Amendment) Bill 2020: Second Stage

 

Question proposed: "That the Bill be now read a Second Time."

10:30 am

Photo of Damien EnglishDamien English (Meath West, Fine Gael)
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I am pleased to be appearing in the Seanad as the Minister of State with responsibility for employment affairs and retail businesses to bring forward the Credit Guarantee (Amendment) Bill 2020. The €2 billion scheme is a cornerstone of the suite of supports being announced by the Government as part of the July stimulus package. It is focused on SMEs, which is key. I want to be absolutely clear that the aim of the Government is to make money available to SMEs, including producers, farmers, fishers and so on who have not previously been included in such schemes. We need to make money easier to access at a lower cost. That is what we are trying to do.

This scheme is about businesses and specifically SMEs. I have listened to some conversations where people have said this legislation is about the banks. It is not. This is about using the banks to get money out. This is a business support, not a banking support, and I want to be absolutely clear about that. Some of the conversations I have heard seem to misinterpret what a credit guarantee is about. Similar schemes work very well all over Europe and beyond. We have used such a scheme here for the past number of years. Much of the criticism of the scheme that has been in place here since 2012 has focused on the eligibility criteria for that scheme. Those criteria will be completely changed by this legislation. I wanted to be clear on those points in case I do not get a chance to say it later on.People often use the statistics from the last seven or eight years but they are in no way reflective of what the scheme being brought forward now, during the Covid pandemic, should be like. They would be completely different. The purpose of this Bill is to make certain amendments to the Credit Guarantee Act 2012 in order to help businesses access the additional finance they may need as a result of the Covid-19 crisis. SMEs, primary producers and small and mid-cap companies have an immediate and urgent need for liquidity in order to meet ongoing expenses and to prepare for a return to more normal economic trading conditions. These businesses are essential to employment throughout the country. The debate we had here two weeks ago recognised the value these SMEs and microbusinesses of all sizes bring to our local communities, towns, villages and cities. They are essential and they are major employers but they are also part of our communities. It is important that we reach out to them. As a Government, we recognise that they need different kinds of supports and that it is not just a matter of access to low-cost finance or loans. This is only one part of the toolbox. We have already announced many other supports including various funds, the wage subsidy scheme, restart grants, online trading vouchers and so on. We also recognise that businesses will also require access to funding and that is what this guarantee is about.

According to the Central Bank's third quarter report for 2020, real-time data about the Irish economy pointed to a trough in activity in April. Activity is now, thankfully, above this low point as the economy has started to reopen. Activity, however, remains significantly below pre-Covid levels. Again, the levels are different in different parts of the country and in different sectors. We recognise that. There might be a quick return to activity for some but it may be a very slow journey over a long period of time for others. We want to be able to reach out to the different sectors that need that support.

The Central Statistics Office, CSO, survey measured the impact of Covid-19 on business in Ireland. Data from more than 3,000 enterprises were collected on 1 June 2020. The survey reports that almost nine in ten enterprises that responded were trading at some capacity as of 31 May. Just over one in ten had ceased trading either temporarily or permanently. Fewer than one in ten enterprises closed temporarily while 1% closed permanently.

The impact of Covid-19 on SMEs has not been uniform across different sectors. As the country has reopened over the different phases set out by the Government, different businesses have required different supports. We recognise that this will continue. Initially, supports were focused on cutting costs for businesses. These took the forms of the very successful wage subsidy scheme and the pandemic unemployment payment, alongside commercial rate deferrals from local authorities. These same businesses now have different needs. They need to buy stock and to make changes to comply with Covid-19 working conditions. They also need to refinance loans, where necessary.

Data from the CSO show that, in 2017, SMEs accounted for 99.8% of the total number of enterprises and nearly 70% of all persons employed. We went into those data when we debated the Microenterprise Loan Fund (Amendment) Bill 2020 but I will now add further detail. When these figures are broken down further, we see that microenterprises accounted for approximately 26.5% of persons engaged and the greater number of enterprises, at 92.1%. Small and medium enterprises combined accounted for 42% of total persons engaged in employment in 2017 and just under 8% of the total number of enterprises. Again, the statistics back up what we all sense, feel and know from the streets regarding the importance of SMEs to our country.

According the 2019 OECD review of SME and entrepreneurship policy in Ireland, the total number of people employed increased across all SME firm size bands over the period from 2011 to 2016. This was during another jobs-led recovery. We are probably back in that space again as we come out of the Covid-19 pandemic, which is to say we need another jobs-led recovery. That is why there is great demand for businesses to reopen, restart, re-employ and build capacity again so that we can recover from the effects of Covid-19 over the next year and a half or two years through a jobs-led recovery. I keep stressing that we need people at work and businesses open if we are to be able to collect the taxes we use to enhance and build upon all public services, including health, education and roads. That is often missed in many parts of this House. If we do not have economic activity, we cannot have the services we all want and demand for our counties every day.

The Central Bank’s SME market monitor for 2019 notes that loan application rates by Irish SMEs are quite similar to euro area averages, but rates for overdrafts are lower. Credit demand remains low compared with previous years. This is probably expected in light of what has happened over recent months. A large majority of micro, small and medium firms finance investment from internal funds. Working capital remains the most common reason for credit applications among micro and small firms, whereas credit for growth and expansion is more common among medium firms.

We are now, however, in a much different environment. We must anticipate an increased need for liquidity by companies and that this will in part be satisfied by way of debt.I know there will be a discussion about more grants and more of everything else, but what we need is a combination of supports, grants, access to loans and equity. We will stretch the taxpayers' purse as far as we can to reach and support as many people as we possibly can to get back to work and to keep businesses open. The Covid-19 credit guarantee scheme will be available for the products most utilised by SMEs, especially small and micro firms.

I wish to use this opportunity to give Senators an overview of other supports available to SMEs, because each business has different needs. I will not go into too much detail but I remind the House that we have the Covid-19 working capital scheme, which is a €450 million fund. We have the future growth loan scheme, which has an additional €500 million. It can fund for longer terms than the credit guarantee scheme, which is for six-year loans. The future growth loan scheme can extend to more than ten years. The sustaining enterprise fund is a €180 million fund that is specifically aimed at firms operating in the manufacturing and internationally-traded services sectors, with ten or more employees. There is a range of funds.

The pandemic stabilisation and recovery fund is also operated by the strategic investment fund. Its focus is on investment in medium and large-scale enterprises in Ireland. The fund is worth up to €2 billion. There are also grants available, including the €250 million restart grant, the enterprise support grant for self-employed people and the Covid products scheme of €200 million in targeted support to facilitate the research and development of Covid products. The Department is constantly trying to push the agenda of investing in research and development, and in innovation. The companies that do that are the ones that will expand, create more jobs and survive for longer. We also promote the online agenda and try to get people thinking about trading online. The trading online voucher is another support that was enhanced by the Department and the Department of climate action, communication networks and transport, under the Minister, Deputy Eamon Ryan, in recent months. I want to keep enhancing those schemes along with the retail online scheme grant. I wanted to bring this to the attention of Senators because the Covid-19 credit guarantee scheme will be one of the largest funds available to SMEs. It has an allocation of approximately €2 billion, with a potential draw on the taxpayer of €1.6 billion. It is a significant investment in business. The investment is in business, not the banks. It is about getting money out to businesses at a lower cost and with better conditions.

I will refer briefly to the July stimulus package. I have been working with the Tánaiste, the Department and with other Departments in recent weeks to build it to a stage where it can be announced today, with the approval of the Cabinet. It will be radical, of scale and far reaching. It will build on the €12 billion in supports in taxpayers' money that were already announced in recent months, but it will also lead us to an economic plan that we will produce around budget time in October to build on more supports and long-term strategies over three years. The stimulus package is about having an impact now, in the next couple of months to give businesses a chance to reopen, restart and to build capacity as well.

I thank all the Senators who contributed to the previous debate we had on the Microenterprise Loan Fund Bill. At the time we asked Senators to send their ideas for the July stimulus package, which many did. Many Members took the opportunity to highlight problems as well as solutions and we did listen to and analyse all of that. All of those ideas will not necessarily be in the July stimulus package but we will work on them and use them in the recovery plan we will bring forward in October. I thank Members for their feedback. Many others have engaged since then, some of whom have been in touch with departmental officials. That is a great system and I would encourage more of the same. I am very happy to engage with Members as we proceed in the coming weeks and months.

In considering the various analyses, I see five areas which we should focus on in helping our enterprises in the future: income support; direct grants for businesses; cheaper finance; new opportunities for future jobs; and support for the hardest hit sectors. That is where we will try to target the July stimulus, but also our ongoing supports as well.

I will now focus on how the credit guarantee scheme will work. The policy objective or mission statement is to maximise the impact of the scheme for borrowers in the short to medium term to address the liquidity requirements of small businesses. The main features are as follows. This is a scheme for SMEs, primary producers and small mid-caps with up to 500 employees. SMEs are expected to be the main beneficiaries. In order to qualify for the scheme, the borrower will have to declare an adverse impact of a minimum of 15% of actual or projected turnover or profit due to the impact of Covid-19. In reality, this will not be difficult for most businesses to demonstrate because they have already had three or four months of adverse economic conditions.

The total amount available under the Covid-19 credit guarantee scheme is up to €2 billion. The guarantee rate is 80% for the State with the lenders retaining 20% of the risk of the loan. We believe that is the right balance or blend. I heard references to what different countries are offering but the majority are in the same space of roughly 80:20 and we think it is the right place to be because we want the lenders to do their job properly too and to also take some of the risk, which reduces the exposure of the taxpayer as well.

There is no portfolio cap for lenders in the Covid-19 credit guarantee scheme. Members might note that a portfolio cap has been a feature of the previous schemes and they might quote statistics from today.The removal of the cap is essential to ensure lenders provide an interest rate reduction to borrowers and also comply with capital requirements regulations. That is probably a game changer. We could achieve lower interest rates by removing that cap. Many in this House and beyond have called for that as have our own officials and agencies. We targeted it there and we believe it is the right decision.

The facility size available is for financial products ranging in size from €10,000 to €1 million, which is a fair offering and will help generate activity.

The products covered under the scheme will include a broad range of credit facilities including overdrafts, working capital and term-loan facilities up to six years. There have been calls to go beyond that. I will be clear in case I do not get an opportunity to respond later that under the EU framework, six years is the maximum. We cannot go to seven years. We agree with every Member that the longer the better but in this scheme under this EU framework, it is six years as it stands. If that changes, we will change accordingly.

The scheme will permit lenders to refinance and to roll over credit facilities, which will be beneficial for many people in difficult circumstances at the moment. Capital or interest moratoria for up to one year will be permitted under the scheme but it is important to emphasise that any decision regarding this will be at the discretion of the lender on a one-to-one basis with their customers, whom they know best. Naturally, we will monitor that and work with the banks as we introduce this scheme in the next weeks and months.

I can confirm that, based on recent discussions between the Tánaiste and the three main pillar banks, the banks have indicated that an interest rate reduction for facilities will be included in the Covid-19 credit guarantee scheme. Precise reductions are still under discussion. That work will be completed over the next couple of weeks and it will be transparent to everybody on what the difference in interest rates is and what the reductions are because it is important that lower interest rate products are developed out of this. That is the aim of the scheme.

Members will ask why it is the three pillar banks. I want to be clear that this applies to all the banks, the credit unions, An Post and anybody involved in lending. Our engagement so far has mainly been with the three pillar banks because they have used this scheme so far and they are responsible for about 90% of lending to SMEs. The initial part of this will be for the three banks and then there will be an open call involving more than 70% of the funding under the scheme for anybody who wants to avail of it and supply good products to the SME sector.

There has been considerable comment on the schemes being operated in other countries. I will take a moment to compare our scheme with those in the UK and elsewhere around Europe. There is a lot of misinformation and it is important that we understand what we are comparing. Sometimes, one hears people comparing apples and oranges.

The UK's bounceback loan is targeted at very small businesses and covers loans of up to €50,000. It is 100% guaranteed by the UK Government and there are no fees or interest to pay for the first 12 months. After 12 months, the interest rate will be 2.5% a year. It is similar in structure to the Microfinance Ireland loan discussed in this House a couple of weeks ago, when I said we are looking, in terms of that scheme, at a lower interest rate for the first 12 months of 0% or the best we can do, but that the effective rate would be 2.5% to 3% over a three-year loan. The product is similar and in a similar space at about €50,000. The UK's coronavirus business interruption loan schemeis very similar to the proposed Irish credit guarantee scheme. It is 80% guaranteed by the UK Government with no portfolio cap. Through that scheme, lenders can provide an eligible business with loans of up to £5 million, with repayment terms of up to six years. It is pretty similar to our scheme and people can choose to use the other one when comparing to our scheme, as opposed to using like-for-like. This will help the debate.

Denmark and Austria’s guarantee schemes are also operating as 80% guarantees. People often tell me they are great countries and we should learn from them. To be clear, we are on the same level as them. Portugal is operating different schemes depending on the business size, with microbusinesses able to access a guarantee of 90% and small and medium businesses, 80%. France is operating its scheme as a 90% guarantee. Some schemes in European countries such as Spain and Sweden are lower than the Irish guarantee at 70% and others are lower again at 33%. We will monitor all these schemes. We keep an eye on what is happening and if we see something working better in another country, we will naturally try to adapt our own schemes to match that but we think we are more or less on the right track with this. We will monitor the results of this and it will be transparent with regular reporting.

The Irish scheme will also fulfil the criteria set out in the European Commission’s state aid temporary framework. It is a temporary framework and if it changes, we can change. The framework allows for the relaxation of state aid rules for participating enterprises. It means that the Government can raise the thresholds of state aid to €800,000 for an SME and €120,000 for a primary producer.It also allows for small mid-caps and primary producers to take advantage of the credit guarantee scheme and I hope they do so. It is something that is not permissible under normal state aid rules. Members have been calling for years for Governments to allow these players to have access to this fund and that will now happen. As such, not only can the businesses be supported to a higher level but the breadth of businesses being supported has been also greatly improved. The businesses can also use the guarantee scheme with other loans and grants from the Government and there are the new raised cumulative totals within the temporary framework until the end of 2020. Companies have a window of six months or so to avail of these schemes and I hope they do so. I also hope they use the other supports we will announce as we go along.

I do not know how much time I have left but it might be helpful to Senators if I go through each section briefly. Section 1 provides that references to "Act of 2012" means the Credit Guarantee Act 2012. This is not brand new legislation. We are adapting existing legislation from 2012 which was amended in 2016.

Section 2 amends section 2(1) of the Act of 2012 to provide for the inclusion of a new definition of "COVID-19 credit guarantee scheme". For clarity, the existing credit guarantee scheme, which has had a much smaller impact than this one will have, continues on its journey. This is a new element but all of it comes under the same legislation.

Section 3 amends section 3 of the Act of 2012 to allow for the extension of classes of enterprises which can qualify for the Covid-19 credit guarantee scheme. As I said, these include small mid-caps and primary producers, albeit in the statutory instrument when we name the producers.

Section 4 amends section 4 of the Act of 2012 to include the new Covid-19 credit guarantee scheme within certain subsections of that section, thus giving the Minister the power to give guarantees. This section also disallows subsections (3) and (4) of section 4 of the Act for the purposes of the Covid-19 credit guarantee scheme, as different provisions are being made for those aspects through the new section. We can discuss that further on Committee Stage.

Section 5 introduces a new section 4A into the Act of 2012, which gives power to the Minister to give guarantees in accordance with the Covid-19 credit guarantee scheme. I addressed this earlier but the gist of it is the six-year timeframe, the sum of up to €2 billion and the 80% guarantee.

Section 6 amends section 12 of the Credit Guarantee (Amendment) Act of 2016 to ensure that the maximum liability of the Minister in relation to the existing credit guarantee scheme shall remain as not exceeding €15.6 million. It is a much smaller scheme with a maximum drawdown of €150 million. If it were all drawn down and all the loans were unsuccessful or did not work out, the taxpayers' exposure would be €15.6 million. That scheme is separate and is still in play. We are talking here about additional guarantees with an exposure of €1.6 billion to the State.

Section 7 contains the Short Title and commencement arrangements.

That is a quick description of the Bill. I look forward to Senators' contributions. I hope I will have time to answer any questions but, if not, I will be pleased to engage with Senators afterwards.

Ollie Crowe (Fianna Fail)
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I will share time with Senator Casey. I thank the Minister of State, Deputy English, for coming to the House and providing a detailed overview of the Credit Guarantee (Amendment) Bill 2020. This legislation is vital to the overall economic response to Covid-19. I have been speaking to business owners in Galway city and county and across the west since the crisis began. Now that businesses are reopening every week, we need to show them support and be flexible in our lending, as the Minister of State outlined. In challenging economic times, credit, be it cash flow or whatever the case may be, can dry up fairly quickly so it is imperative that we support business.

As the Minister of State noted, the scheme will be available to SMEs, primary producers and businesses with up to 499 employees. Thankfully, SMEs are expected to be the main beneficiaries of this scheme. The inclusion of primary producers is very welcome. The agrifood sector is a vital part of Ireland's economy and society and is especially important in rural and coastal areas. Farmers, fisheries and food companies played a major role during the pandemic in ensuring a supply of quality food and beverages despite very challenging times.We are living in extraordinary times and we need to take extraordinary actions. The length of these loan terms, which is up to six years, will provide businesses with the flexibility they require. I also welcome the structure of the guarantee, with the State guaranteeing 80% of the loan. It is the right balance because at the end of the day, the taxpayer must be protected as well. We do not need to give 100% guarantees to banks and if we did, there would be a very real risk to lending thereafter. It is vital that the scheme is up and running as soon as possible. I know the Minister of State will take that into account. Of course, we need to ensure the scheme is thorough and that applications are well vetted, but we do not need too much red tape and we must operate in a straightforward fashion that is easily understandable for both SMEs and banks. The applications should be made in a speedy manner and the banks should reach their decisions quickly.

I again thank the Minister of State for his participation in this debate. He already outlined this in his speech but I ask him to give further consideration to expanding the grants available, because many SMEs and businesses across Ireland are struggling with the level of loans they have. I ask him to prioritise the grants, although I heard him say he is doing that. A number of supports have been put in place, including the restart grants and the July stimulus package which we will hear more about today. That will further enhance the supports. There is no question that the wage subsidy scheme has been excellent but having spoken to businesses in the hospitality sector, their main point is that there needs to be an increase in the level of grants. It is something they feel would be a significant boost in the long term and for the sustainability of their businesses.

Photo of Pat CaseyPat Casey (Fianna Fail)
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I thank Senator Crowe for sharing his time and wish him the best of luck. He opened his doors last night for the fist time in four months, and I opened mine about a month ago. We are living examples. We are both living through this so we have a full understanding of the huge benefit this credit guarantee scheme can bring. I welcome it. It is the largest guarantee scheme in the history of the State and will hopefully facilitate low-cost borrowings through products, overdrafts, term loans and working capital. That is what is required at the moment. I welcome the change in the portfolio cap and the increase in the size of the scheme. The exposure to the State of €1.6 billion is significant. It is 80% of the loan fund and we must remember that when we are dealing with the banks. The State is taking the high risk of 80% here. The last thing businesses want to do at the moment is go further into debt. Any businesses that have been closed down are looking at a reduction of 80% in turnover figures. They are trying to service their existing borrowings out of a reduced income and the last thing they want to do is increase their debt further. Grants and tax incentives help give businesses that extra margin to pay suppliers or employees. That would be the preferred way to go. In business, as we all know, we need working capital. In my industry we get HSE, Fáilte Ireland and fire reports every year saying that work needs to be done. This could be targeted towards such funds, and the small working capital required could be repaid over a six-year period although we would prefer if we did not have to incur further debt because it questions our viability.

The Minister of State mentioned the banks. This is not about the banks but they are a key actor in this and they have to deliver as well. I do not think they have delivered through the credit guarantee scheme since it was initiated. There are some fundamental problems there. The Central Bank stated yesterday that while almost €160 million was applied for through that scheme, less than €5 million has been approved, and the working capital scheme is similar. All the other schemes, which actually help the bottom line of businesses to survive, have been oversubscribed.The timeframe for this is the end of December. Small and medium sized business will put together a business plan, get it to a financial institution, receive a negative outcome and go through an appeals process, which is the same process as that of the original application, with the same people making the decision. There is a need for some independence in the process in order that those in the SME sector can feel it has been fair and equitable. Some of us have chequered histories with the banks and we need to move on from this because some people have the potential to be very successful and they need to be treated in a fair and equitable manner. It is in everyone's interest that this works. There is no point in the Government backing a scheme to 80% and not getting the results it and the SME sector need if the sector is to survive. I have other suggestions but I might speak on them on Committee Stage.

Garret Ahearn (Fine Gael)
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I welcome the Minister of State to the Chamber. I also welcome the Bill before the House, which is the largest credit guarantee scheme in the history of the State. It has been brought in on the day we are announcing the largest stimulus package in the history of the State. It certainly shows the Government is recognising the supports that businesses throughout the country need. This is significant because I have spoken to businesses and the chamber of commerce in County Tipperary and what they need are supports such as low cost loans and grants, and recognition of the challenges they have had in recent months. While they are very grateful for measures such as the temporary wage scheme, which has kept an awful lot of people throughout the country employed, the big challenge in the coming months will be restarting businesses and moving into the next phase of Covid-19 from a business perspective.

It is very important to recognise that 80% of this loan is guaranteed by the State and a ratio of 80:20 is a good balance. It would not be right to fully guarantee loans because the banks should carry some of the responsibility. However, it is also very important that the State guarantees a high enough percentage to encourage banks to give a low interest rate so that businesses feel comfortable taking out loans to restart. This is all about restarting businesses and giving them the confidence to get going again after an extremely difficult four or five months.

The credit guarantee scheme is part of the July stimulus package, which is the second of three stages of the pandemic. The number of measures introduced by this Government and the previous Government to support people and businesses since Covid-19 arrived on our shores in February and March is staggering. Approximately 600,000 employees were on the temporary wage subsidy scheme and 66,500 employers registered with Revenue for it. Almost 600,000 people were on the pandemic unemployment payment at its height. This number has almost halved, which is very welcome, and even in the past two weeks we have had a reduction of approximately 200,000 people on the pandemic unemployment payment, which is very encouraging. This means people are going back to work, which is very good. Many loans have been announced, including the €450 million Strategic Banking Corporation of Ireland Covid-19 working capital loan scheme, the €2 billion pandemic stabilisation and recovery fund and the €118 million sustaining enterprise fund. There are also grants and loans, including the €2,500 trading online voucher scheme, which has been extremely popular with businesses and I encourage it to be brought forward even more.There is the €2,500 lean business improvement grant from Enterprise Ireland and IDA Ireland and the €5,000 business financial planning grant from Enterprise Ireland. Then there was a range of different supports from the local enterprise offices, a stay of three months on commercial rates, which I suggest be continued, the €75 million funding package for the reopening of early learning and childcare services and the €50 million support scheme for beef farmers. That sets the context for the measures introduced in recent months to support different sectors. They are almost like a list setting out what a Government would do in five years rather than four months.

We are now moving into the second stage of this process, the third stage being the budget in October. One of the things I often hear from business owners in County Tipperary, who understand the Government has been supportive of them through this time, is that increased grants are needed. The restart grant is currently between €2,000 and €10,000. There is a real need for it to be increased to a much more significant figure and extended to more businesses such as bed and breakfast accommodation and sports clubs. These businesses will take up the grants because these types of grants are needed.

I spoke to a business owner yesterday who was in the unlucky position of having invested a substantial amount in opening a restaurant in a bar. He was ready to open in April and applied for a loan from the bank amounting to approximately 20% of his investment in the business to finish off the premises. He told me he fell into a bracket of people who were unlucky. As he recognised, a large number of grants were available for businesses that are up and running but not for businesses that are about to open. These businesses have to restructure their premises, whether restaurants or pubs, just like any other business would have to but they were not necessarily trading at the time of the Covid-19 outbreak. We should recognise that. The investment in these businesses is small money in the grand scheme of things but it is recognition these businesses have had to go through the same changes as every other business. The credit guarantee scheme, as the business owner in question would recognise, gives him the opportunity to secure a loan at low interest to finish off his own premises, safe in the knowledge that the cost will be much lower than he initially expected. That is encouraging and he was very positive about that.

I was pleased to note in section 3 that small and mid-caps and primary producers have also been included in the credit guarantee scheme, meaning farmers, fishermen and those in the horticultural sector will be covered. As someone who comes from a farming background, I know that farming is the one sector that is well able to take risks and get loans to spend on new machinery or investing in land or produce. It is well able to get loans. The fact farmers have been brought into this scheme is hugely welcome because they invest locally. The scheme is about encouraging people to spend locally and keep businesses up and running. Including the agricultural industry in that means money will come back into local areas, which is welcome. I welcome the Bill.

Sharon Keogan (Independent)
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It is with a heavy heart that I address the issue of the Credit Guarantee (Amendment) Bill 2020. Whatever view one takes on the details of the Bill, it is clear the effects of Covid-19 on our economy will be profound. I am not convinced that debt through loans is the way to proceed. That is certainly what the SMEs I have contact with are all indicating.Taking on further debt through loans, in any form, is not something that they want to do.

In the shorter term it may be more effective to focus on the implementation of grant schemes which will help SMEs get back to work, and then begin to drive forward some level of economic recovery. In the longer term, however, loans are an essential part of driving the economy forward and it is with that in mind that I look to the legislation before us. The Bill, while quite technical, essentially makes changes to the Covid-19 guarantee scheme by increasing the amount of credit that will be guaranteed and increasing the cap on such credit from 50% to 80%. Given the effect of this on future generations and the speed at which the Government wants to enact this proposed legislation, which will prevent close scrutiny of it, the Government has an obligation to be straight with the people.

It is absolutely right for it to take the necessary measures to protect and sustain jobs in the SME sector, but we cannot be blind to the problems with the Bill. When risk was shared evenly between banks and the State, there was a disappointing take-up. Even at a 50% take-up, the banks in this country were unwilling to take on the risks involved and advance credit. Opposition parties such as Sinn Féin said this would be the case. The Government has now had to move the cap to 80%. Is there any principled reason the banks here, unlike those in Australia, are resisting sharing the risk with the State? If so, we should be told.

Why do we continue to enable the same banks that are treating SMEs so badly? This is a firm indication that the Government needs to consider community banking as an alternative to this proposal to prop up the banks. My colleagues in the Dáil have described the proposed system as socialism for the banks and capitalism for the taxpayer. I cannot put it any more bluntly and aptly than that.

Much is made of the fact that the banks are applying their normal underwriting decision-making processes to applications for loans. How realistic, or even desirable, is it to expect that these standards will be applied if the banks are only on the hook for 20%? The Tánaiste said the revised cap will ensure that banks have skin in the game, that is, they will share the risk of default with the State. He is entitled to believe anything he wishes. If the banks truly have skin in the game, on what basis does he know that they will release funds if the cap is set at 80%? If moving the cap to 80% means the banks do not perceive themselves to have taken on any real risk, would it not be more honest to take the same approach as England and simply accept that the State will have to shoulder the entire burden of defaults?

Some £30.9 billion has been approved through the loans scheme in operation in the UK, a scheme which is widely regarded as being significantly less risky and easier to access than the Irish scheme which, by contrast, has issued a mere €1.6 million in loans. It is apparent that there must be multiple underlying issues if a scheme with funding of €2 billion has issued so few loans. Instead of serving SMEs, this Bill only serves the banks. They are the only ones in this situation that are being insulated from risk.

Under this scheme, the banks will become what could be termed middlemen. It seems logical, then, to do what many do in circumstances involving middlemen, namely, cut them out. We will be picking up the bill for the significant number of potential defaults coming away over the coming months. Why allow the banks to profit from the potential success of the scheme?

I understand the objectives of the Bill are to protect and support employment in the SME sector by counting credit. The problem is not those objectives; rather, it is how it is proposed to go about them. I seriously question whether it is an effective way to go about serving those objectives. The failure of the loan scheme will lead to the failure of our SMEs, an outcome that cannot be allowed to happen. I urge a complete and candid statement from the Minister of State on these matters.Two issues are important. Who can qualify for the guarantee scheme? For example, a firm in difficulty, FID, cannot access funds because that would be state aid under EU law. A FID is an accounting exercise and affects one's balance sheet while ignoring one's profit and loss, cash flow and growth plans. An FID will not be eligible for the scheme. More than 90% of Irish companies do not qualify because of the FID criteria. Who will be eligible? These loans have been around forever. They were provided by the EU in 2008 and only 15% of them have been distributed.

The other question that must be asked is: will the banks lend? The banks treat the applications as normal business loans. They test a company's ability to pay and its security. The Government provides security through the guarantee but most companies will not meet the repayment criteria the banks apply, well outside the terms of the credit guarantee system loans.

I understand the objective of the Bill is to protect employment and the SME sector. I urge the Minister of State to address the issues I have raised. I would also like him to address the issue of the enterprise support grant that was put in place and announced more than a month ago. Under that grant, non rates-based payers who are self-employed can access a grant of €1,000. That grant has not yet been made available by the Department. There is €1,000 available for each self-employed company that is not a rates-based payer. When will that grant become available to small businesses?

Photo of Paul GavanPaul Gavan (Sinn Fein)
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The Minister of State is always welcome to the Seanad. On behalf of Sinn Féin, I welcome the Bill. The main reason for it is to remove the 50% portfolio cap under the Government's Covid-19 credit guarantee scheme. The removal of the cap is a welcome move by the Government. It negates a problem relating to the scheme whereby banks were refusing to lend to small businesses in dire need of affordable credit. This aspect of the scheme was a problem that Sinn Féin identified many months ago and outlined in a letter to the Ministers for Finance and Business, Enterprise and Innovation of 13 May. That letter stated that the design of the scheme was not fit for purpose and had resulted in negligible take-up from businesses and negligible loans issued from banks. The portfolio cap meant that banks saw it as unattractive to loan moneys to SMEs through the scheme. It also resulted in extremely high interest rates where banks did loan moneys. The removal of this cap should make it easier and more attractive for banks to lend to SMEs.

However, in addition to the removal of the caps, the Government should consider 90% to 100% State guaranteed loans with no repayments from businesses in the first 12 months, the State covering the cost of interest over that period and severely reduced interest rates thereafter. We believe that should be the case because of the depth of the crisis into which we are facing. Such measures would make the credit guarantee scheme much more attractive to business during this unprecedented and extremely difficult period.

There have been rumblings in the media that the Government will also follow up with changes to the scheme along the lines of what Sinn Féin has been suggesting, namely, no repayments for businesses over the first 12 months and the State covering the cost of interest over that period. The Government is also proposing low interest rates but we have not been told what "low" means. We have proposed capping interest rates at 2.5%, with a preference for interest rates to be much lower than that. The Minister of State might comment on that.

The removal of the portfolio cap by the Government shows it is willing to listen to economic proposals from Sinn Féin. I, therefore, ask the Government to go further and consider the full suite of measures laid down in our letter to the Minister for Finance of 13 May. I will briefly run through those proposals. Our scheme is called the back to business loan scheme. It is a €2 billion scheme that would have the following features: businesses would be able to borrow between €2,000 and €800,000, up to 25% of their annual turnover; zero interest with no repayments for the first 12 months; affordable rates of interest with no more than 2.5% applying after the first 12 months; no portfolio cap applied, with a 90% Government guarantee on loans; the level of guarantee to be reviewed each month with consideration given to the guarantee to 100% based on lending performance under the scheme; and no premium required to be paid for the cost of the guarantee.To be eligible under our scheme, businesses would have had to have suffered a 25% reduction in turnover as a result of Covid-19, to employ fewer than 250 people, and to have a turnover of €50 million or less. Those are our alternative proposals, which we believe would make the scheme much better.

I refer to the banks. One issue our party has been very clear on is that the banks should not benefit from this scheme. We do not believe they should defer any tax on profits. Every year, Sinn Féin seeks to amend the finance Bill to disallow banks from deferring tax on their profits. They especially should not be allowed to defer tax on a Government-backed loan scheme. Under previous schemes similar to the scheme before us, they have charged commercial interest rates to businesses even though the loans were backed by Government with negative borrowing rates from the European Central Bank. If the banks make profit under this scheme, they should pay tax on it and not be allowed to defer one cent.

The Minister of State, Deputy English, has agreed to meet with my colleague, Deputy O'Reilly, with regard to the interest rates charged, which is the real issue. The Government has said it has a commitment to ensure interest rates for loans under this scheme will be low. That is essential. The interest rates charged on loans under similar Government-backed schemes are subject to normal business loan rates from the respective banks with an additional 0.5% charge because of the Government guarantee.

Businesses themselves have pointed out the flaws in this scheme as have organisations such as Chartered Accountants Ireland. This organisation has highlighted first-hand reports of the problems businesses have had in accessing loans with interest rates as high as those under this scheme. In its document, "The Next Financial Year: Making Irish Business More Competitive", it states that the Covid-19 credit guarantee scheme is "too onerous and complex to administer and that the interest rates are prohibitive." It also states that interest rates charged for any Government-backed schemes "need to be closer to ECB rates than commercial interest rates."

Sinn Féin has called for similarly low interest rates for a number of months. We have been calling for interest rates to be capped at 2.5% and preferably for interest only to be applied at the level necessary to cover the overheads of administering the loans scheme. Low interest rates for this scheme will encourage SMEs to take up the available loans. We have heard that at first hand from businesses and their representatives. They have also said that it would be a significant incentive and help if the loans were to be given free of interest and if repayments did not have to be made for the first 12 months. I ask the Minister of State to consider the points we have made as he progresses the Bill further.

Mark Wall (Labour)
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I wish my two colleagues on the opposite side of the House well on reopening. I also take the opportunity to wish all of our SMEs well on their reopening and to welcome the Minister of State to the House once again.

I welcome the opportunity to contribute to the debate. I am sure we all recognise the importance of providing finance as quickly as possible to all businesses that have been affected by Covid-19. This pandemic has had a devastating effect on every corner of this island. Every small village, rural town and city has been affected. It is vital that the Government responds quickly as we all know it is much easier to maintain jobs than to create them.

During debate on the Microenterprise Loan Fund (Amendment) Bill 2020, we discussed the importance of SMEs to our local communities. They played a vital role in supporting us in the past and are doing so again at this, our most vulnerable time. It is time that Government recognised this and supported this most important sector. It is beyond time that these businesses can access essential finance through their banks and other financial outlets. The impact of Covid on our SMEs cannot be underestimated. We all know that, as has been said on many occasions, SMEs are the backbone of our economy. They employed 1.3 million workers when the number in employment stood at 2.3 million.

The success of this Bill, which the Labour Party will support, will be judged on how well it makes finance available quickly and effortlessly to those who need it most. We must see a greater volume of lending than occurred at previous times. I mentioned during the debate on the other legislation the amount of assistance provided by LEOs throughout the country under the microenterprise loan scheme. I ask the Minister of State to ensure the financial institutions involved in the administration of this loan assist those who need it and do not put unnecessary obstacles in the way of those applying. As has been said by other speakers, the companies in need of this finance do not need red tape at this time.I ask the Minister of State again to ensure the Government guarantee, as part of this loan, is met with similar assistance and help during the application process from the main financial providers.

He mentioned in his address the much-talked about, but more important, much-needed July stimulus package. I continue to hear words such as "radical", "of scale" and "far-reaching". It is simply the case that the stimulus has to be as such. The Labour Party will judge the Government's July stimulus package and economic plan on the basis of five tests. We have suggested a stimulus package of €10 billion. Whatever is announced today, there can be no going back. This is a once-in-a-lifetime opportunity to create a modern Ireland where a living wage is the norm rather than an aspiration. It is an opportunity to target and address, once and for all, the weaknesses in Ireland's public infrastructure, including proper and resourced public transport, public housing and public care services including, most importantly, childcare.

I was pleased the Minister of State mentioned in the Dáil the other day, on proposing the Bill, the enormous problems we have in this country with youth unemployment. He indicated in the Seanad debate on the Microenterprise Loan Fund (Amendment) Bill that the July stimulus package would address what is simply a national disgrace. I use this opportunity to highlight once again that 45% of young people are unemployed, and of those employed, some 40% are in insecure work. We have one of the highest youth unemployment rates in Europe. We must address this through the stimulus. Every 25 year old not currently in employment must have a guaranteed access to decent work and training. We must recognise and develop a proper apprenticeship scheme, develop in-work training and provide access to remote learning for all those that need it. We all recognise that the youth are our future; it is time that this recognition was translated into a youth work guarantee.

In his contribution in the Dáil and again today, the Minister of State indicated that the Tánaiste has made it clear in recent meetings with the chief executives of the three main banks, namely, Allied Irish Banks, Bank of Ireland and Ulster Bank, that the Government expects a significant reduction in the interest rates charged to enterprises for the loans and other financial products covered by this scheme. In his reply, the Minister of State might elaborate on what he and the Department consider to be a significant reduction in the interest rates charged. Surely, at a time the cost of borrowing is at an all-time low, the pillar banks should show their commitment to this country by charging a rate of interest that will encourage applications and, more important, reflect the fact that we as a nation assisted them when they needed our help. The wheel has turned and now SMEs, which employ more than 60% of people working in this country, need our help. I will not hold my breath waiting for the banks to respond.

The Bill should put in place a State-backed guarantee for companies and SMEs with up to 499 employees to enable them to go to their banks and access much-needed finance. The business owners I speak to in Kildare are tired of applying for loans, taking on a further burden on themselves and, in many cases, their families. The Minister of State rightly indicated that SME owners are the backbone of our communities, employing so many in the workforce, and from whom we seek support for voluntary clubs and associations. In fairness, they have never been found wanting in supporting their communities. They are the ones who worry in these exceptional circumstances how they will continue to operate or even to keep their doors open. We will support the Bill to expedite the loans but we ask the Minister of State to consider further grant assistance rather than loans to this sector. Notwithstanding what the Minister of State has outlined, perhaps it is time for a State guarantee of 90% or even 100%, as is happening in other countries. We have all said that it is much easier to maintain jobs than to create new jobs. The template has been created by the owners and management of SMEs. It is the Government's job to ensure that template is maintained. Perhaps the Department could look at the models outside Ireland and work to take the burden of debt away at this time.

I welcome the commitment by the Minister of State to track the guarantee in other countries. We all appreciate that we are in unprecedented times. We have a record number of people in unemployment and in receipt of State assistance. It is the job of the Government to create the conditions for recovery, to ensure that citizens return to work and that young people have an outlet for employment rather than the local Intreo office.

The tourism sector is on its knees. The Government must ensure that the conditions for the loans are clear and painless for those who so badly need help. The interest charged by the banks must be minimal. I thank SMEs for their ongoing support of our communities in the past and assure them of all our support in the future.

Photo of Alice-Mary HigginsAlice-Mary Higgins (Independent)
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I welcome the Minister of State to the House. This is another piece of legislation in the context of stimulus, which is badly needed for society and the economy in Ireland, across Europe and across the world in the aftermath of the Covid crisis. As we identified many years ago, stimulus is the best response to a period of potential recession, rather than the austerity that was chosen in the past. In that context, it is important to note that yesterday the European fund was put in place. There were some disappointments in the decisions made about the EU recovery deal yesterday. It is important and good that a deal was struck. That is something everybody welcomes. It was disappointing, however, to see that the portion that was grants rather than loans was reduced. Many people in the House today have spoken about the fact that there are times when grants, rather than loans, are the right tools. The portion that was grants was reduced from €500 billion to €390 billion.

With regard to that portion of the €390 billion that is for the recovery and resilience fund, each country will put in place a national plan. It seems likely that the portion Ireland will get in the national plan for grant money - not for loans - may be €3 billion to €4 billion. I hope that money is given to public expenditure. This is a chance to have public expenditure, public employment, capital schemes and national infrastructure. There will be many parts of all the schemes. We heard all the measures today and they are appropriate for SMEs of the private sector but it is vital we invest in the public sector and in public jobs. As described earlier, we have huge youth unemployment and it may have to be, in some cases, the State employing people to do important work. The State may have to build and buy things. That is part of the economy. That is a crucial part of keeping our economy vibrant. It is something we have control over and can actually do. We have heard lots of measures in relation to some parts of the economy but we need to hear the Government's plan on public spending, services, infrastructure and employment. How will we increase that and make sure that creates the jobs, stimulus, dynamic change and new public goods that we will have for generations into the future and that the State needs? Will the national plan under the recovery and resilience fund be one of those instruments?

In relation to the legislation before us today, everybody supports the need for loans to the SME sector, especially with regard to some of the smaller businesses, as has been talked about here. I welcome, as everybody has, the idea that was spoken about of primary producers. We know many primary producers during the period of Covid have had to become their own retail. It has been interesting to see many primary producers going directly into communication, sales and relationships with customers. That is cutting out the middleman, which sometimes has to be done and it was put eloquently by Senator Keogan. The issue with this Bill and the concerns around it relate to the banks and the fact the banks have not been lending and are not taking risks. We have businesses that are taking risks. We have workers who are turning up and standing behind counters, taking real personal risks to keep businesses afloat and keep their families provided for. Businesses, workers and the State are taking risks and banks are still not taking risks of any kind. However, when they make profits, they also do not contribute.We have a situation with the credit guarantee whereby the State underwrites 80% of the risk. Many of these loans may allow businesses to succeed and thrive if they are managed right, with long-term vision and the 12-month suspension as recommended by Sinn Féin. If the banks make profit from those loans, they are going to keep all of that. This is because the banks in Ireland have been using the deferred taxation asset scheme to write off all their taxes and effectively pay zero taxes for a long time. They have been using the losses of the last crisis as an excuse to not pay tax on very large profits they have been making for many years. Now we have a new crisis and the banks have an opportunity to be part of the stepping up and the taking of risks to contribute and help support the society and economy in which they exist. Once again however, they are not doing so. We as a State, every citizen, took a risk for them but they will not take one for us. Despite this they want to keep every penny of their profits.

I have tabled two amendments but as one is going to be ruled out of order, I will mention it now. It was a simple thing. It provided that if the State is taking 80% of the risk and the banks are taking only 20%, then they should only be able to write off 20% of the profit. That is very reasonable. If we are basically putting up the stakes then why should everything go back to the banks when something is profitable? Again, my suggestion in this regard will not be taken up but I am seeking a report on this. We are going to have a chance to discuss that with the amendments. We need to have a conversation on the direct economic, moral, political policy link between the State guaranteeing the banks and the banks not contributing to the State. Those two things are not compatible.

I am suggesting a report which will look at this guarantee and at the previous guarantees. In the past, Fianna Fáil very reasonably had it at 50% at one point, in that deferred taxation could only be used for the write-off of 50% of the profit. That is a reasonable measure compared to using it for 100% of the profit. Apparently it is estimated that the deferred taxation asset scheme will be used to ensure that Permanent TSB does not pay tax until 2038 and AIB will not pay any tax until 2037. The overall loss in forgone tax revenue from the financial sector is €12 billion, which is substantial. That money coming into the State could be used for direct State loans. It could be used, for example, to make the State a major customer of small businesses through public procurement. It could be used for State-supported and subsidised employment. It could be used to cut out the middleman and have direct State support for enterprise, business, SMEs and primary producers. It is one thing for us to protect them from the risk associated with the loans they give out but it cannot be both things. If we are giving with one hand, the State needs to be able and willing to take with other hand when it comes to taxation and to make sure that whatever revenue is available in this State is directed where it should be, namely, into our society and into our economy.

Photo of Eugene MurphyEugene Murphy (Fianna Fail)
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I must say that the debate has been good from every side of the House. Some good points of view are being expressed and some genuine concerns are also being expressed right around the House.

Like my Fianna Fáil colleagues, I welcome the legislation, which provides, as has been said, the largest credit guarantee in the history of the State.I welcome the Minister of State. I have no doubt he will give all his energies to ensuring this scheme is a success. As everyone knows, we are in a unique situation. We all know what has happened to businesses up and down the country and the struggles and worries they have. Employees in those businesses are also unsure of their futures. It is crucial that additional lending is made available to businesses seeking to restart. The SME sector has already endured massive challenges in dealing with previous economic difficulties and more recently, in preparing for Brexit, which is another challenge on the way. SMEs have shown that they are flexible, pioneering and nimble in how they rise to many challenges. They also have clear requirements when compared with other areas of the economy. Those needs are what we are trying to address.

The measures in this Bill are vital and must be progressed through the Houses of the Oireachtas as quickly as possible. We welcome the move to take all Stages of this Bill in both Houses this week. This comes in the wake of the speedy passage of the Financial Provisions (Covid-19) Act 2020 last week and the Microenterprise Loan Fund (Amendment) Act 2020 the week before last. The Companies (Miscellaneous Provisions) (Covid-19) Bill 2020 is also due to come before us soon. All this indicates the seriousness with which the new Government is facing up to this economic challenge. There is no hanging about here because we cannot afford to do so. We have to show every bit of support we can to businesses at this point because if the businesses cannot survive and re-employ people, a whole new problem will be created for workers, their families and communities. SMEs, which can have up to 499 employees, will be the main beneficiaries of this legislation. I am glad to see that agriculture, horticulture, aquaculture, fishing and all those areas will be included as well.

This Bill is mostly about overdrafts, term loans and working capital, but I will briefly refer to the banks. Like others, I hope the banks will be very honourable in this situation and that they will not come up with excuses that lead to them deciding some businesses are not viable for the future. The Government, and therefore the taxpayer, is taking the main part of the risk here through the 80% guarantee. It is very important that banks do not dictate, use red tape or deny a company because a direct debit bounced during the extraordinary situation we have been in recently. That all needs to be cut out because if that starts to happen, many of the smaller businesses will not survive and will not be part of our reviving economy going forward. That is the reality.

I am glad to see that the local enterprise offices, LEOs, will be expanded. The LEOs in every county are very important for local businesses, connections, contacts, groups and mentoring. Much of that is very important and I am glad to see it.

I do not see anything about credit unions having a role in this. Maybe they have-----

Photo of Damien EnglishDamien English (Meath West, Fine Gael)
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They do.

Photo of Eugene MurphyEugene Murphy (Fianna Fail)
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That is good. The Minister of State might give us an explanation of that role. The most important thing now is getting this legislation through the Houses and implementing it as quickly as possible. That is so important. We must move forward and help those businesses and the many small business people to whom I have spoken who are so determined to get back, to survive and to take back their employees. They want that helping hand from the State. This legislation and the stimulus package that will be announced this afternoon should give them great hope, which will drive the country on. Hopefully, in time, this virus will disappear.

Photo of Seán KyneSeán Kyne (Fine Gael)
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The Minister of State is welcome to the Chamber. I welcome the publication of this legislation and the opportunity to say a few words on it. As the Tánaiste has highlighted, this scheme will be the largest credit guarantee scheme for businesses in the history of the State. That is not by accident. The impact Covid-19 continues to have on businesses of all types and sizes in Ireland is unprecedented.It demands an unprecedented response from the Government and for all of us in the Houses to do everything we can to protect jobs and businesses throughout the country. This scheme is different in that it is targeted primarily at SMEs as well as the agribusiness and marine sectors.

The importance of SMEs to our country cannot be overstated. Last year, the Seanad Public Consultation Committee compiled a report on small and medium-sized business in Ireland. That report, on which some of my colleagues worked, examined the SME landscape in Ireland, the challenges and stresses facing SMEs, the type of supports needed and the opportunities. The report emphasised that the SME sector is the backbone of the economy. It is the main source of jobs and enterprises, in that SMEs operate in a wide range of sectors. The data back up these facts. For example, in Galway, more than 92% of businesses are microenterprises that employ fewer than ten people, and more than 50,000 people in the city and county work for an SME. It is clear the new guarantee scheme will benefit the vast majority of businesses and, in turn, workers in Galway should it be needed. Another important observation from the report is that larger companies and multinationals have access to funding from international sources so when there are difficulties in accessing credit and financial support domestically, SMEs are the businesses that suffer. Through the credit guarantee scheme the Strategic Banking Corporation of Ireland will support the provision of financial products through AIB, Bank of Ireland and Ulster Bank to SMEs whose actual or projected turnover or profit has been impacted by a minimum of 15%.

Earlier this week, following lengthy negotiations, a €1.8 trillion agreement, including at a new seven-year budget and Covid support package, was agreed by the European Council. It is timely, therefore, to note the credit guarantee scheme will operate through the EU's temporary framework for state aid measures to support the economy in the current Covid-19 outbreak. While I fully understand the need for a level playing field in the Single Market, in my time as a public representative I have seen up close the negative impacts that state aid rules can have. That communities in the west, such as Gaeltacht areas and islands, face completely different challenges to communities in the conurbations of the continent cannot be ignored. These challenges exist at the best of times. At the worst of times, they can mean the demise of businesses and jobs with knock-on consequences for communities.

The recent developments regarding vaccines, particularly from Oxford, are very encouraging but we need to accept that Covid-19 will continue to be a serious challenge for our country, and for all countries, for some time to come. Use of the word "current" in the EU framework to describe the Covid-19 outbreak is an acknowledgement that a solution to Covid-19 is not imminent. In this context, the time limit of the end of this year for lending under the guarantee scheme is a concern. It would provide much needed certainty for businesses if we agreed that section 5(2) be extended until the end of 2021. Is it is anticipated, based on the calculations, that the fund will be exhausted by the end of the year? What direct engagement with businesses will the Department have on awareness and promotion of the fund? I certainly welcome the Bill and the fund it incorporates, as agreed by the Government last May.

Photo of Jerry ButtimerJerry Buttimer (Fine Gael)
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I welcome the Minister of State and the Bill. As many Members have said, it is important legislation given the gargantuan impact that Covid-19 has had on our SMEs. They are run by people we all know in our communities such as the hairdresser, the restaurant, the cafe and the play centre. Senator Kyne and the Acting Chairman also referenced various communities.

It is important that access to finance be made available. I concur completely with Senator Murphy that there cannot be red tape. There must be prompt immediate access to credit and finance. We speak about stimulus, and the stimulus plan being announced today is important. It will be a strong key pillar of the recovery. Access to credit is profoundly important. If we are to do anything differently, and Senator Higgins made reference to the banks earlier, we must get the balance right between how the banks behaved in the early part of the century and now. I agree with the Senator that they must take some risks now to help employers.I agree with Senator Higgins. They must take some risks now to incentivise and help people who are employers.

Tourism, hospitality and aviation have been the hardest hit in this pandemic. The scaffolding we put around all sectors of our economy, whether it is overdrafts, term limits, working capital or Government saying, through local authorities, to put a long-term pause on rates, is one that we should consider. I welcome the decision of the European Council this week. There must be a balance between the loans and grants referenced by Senator Higgins. I agree with her that there must be a balance. If we are to be resilient as a country then our national plan is important.

It is not the Minister of State's responsibility but the aviation sector has been particularly hit. I am referencing Cork Airport, the second busiest airport in the country and a key economic driver of jobs in the southern region. The half-year results show that Cork Airport will potentially lose €23 million this year with passenger numbers, as we know, plummeting and jobs being lost in a variety of ways. The aviation sector is a key enabler of our biggest indigenous employer, namely, tourism and hospitality. I hope the Government will consider the economic impact through the task force report on aviation recovery and start looking at its implementation.

The path to rebuilding our economy begins with us and through the work the Government undertakes today with this Bill and the stimulus plan, but also through working with people to rebuild our economy. Our economy is about the men and women who are risk-takers but who are also employees. We must ensure that we get our country back in a safe and sustainable way. Members have referenced the numbers of people involved in employment being approximately 2.3 million, or 238,000 small and medium enterprises. It is critical, in fact it is essential, that our banking sector is not just spoken to, but is given targets to meet, and is held to account in how it deals in a fair way with business owners. We all have stories of how banks treat people. It is absolutely essential that the banks work with people. I know we must get the balance and we cannot go back to where we were. The Government should look at the credit union movement and how it can work with it. Money is sitting on deposit in credit unions that can be used to rebuild our economy.

I will conclude on this. It is about income support, grants, access to cheap credit and ensuring we can retain and create new opportunities for jobs. I welcome the Minister of State's commitment to youth unemployment. I thank him for his work and wish him well.

Photo of Tim LombardTim Lombard (Fine Gael)
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I thank the House for the opportunity to speak on this important legislation. How small-sized and medium-sized businesses will survive in the future is one of the key issues. That is why this legislation is so important. I welcome the indication that the primary producers are being included. The fishermen, farmers and food companies are all very much a part of our rural enterprise and rural economy and the ability for them to access the actual funding is welcome.

Going forward, we need more of these schemes. To have a scheme with this ability to have an 80% guarantee to the State is a really important initiative. In many ways, it gives confidence to the sectors that they can actually go out and invest again. The pressure the tourism industry is under at the moment is immense. Hotels would say if they are opening at 20% capacity they are probably losing drastic sums of money. The ability for them to invest and keep going, particularly during the winter period, will be an enormous challenge. In particular, the rural parts of this country, whether it is the west or south, really need to have that stimulus package required for our tourism industry because if we do not, we will not have that industry going forward.If it is not provided, the industry will not continue to exist.

The food industry has been included in the package. It needs help and support because it is a major employer in rural areas. The package will give the industry the confidence it needs to invest and drive forward. The Bill is putting confidence back into these sectors. That is why it is important. We are in troubled and unbelievable times. We are living through history and because of that, we need a different approach which this Bill provides.

I welcome the Bill. We need to enact it as soon as possible. It is one of the most important Bills that has been brought through the Oireachtas in the past number of months. It will provide the kickstart and safety net required for industries to drive forward.

Photo of Damien EnglishDamien English (Meath West, Fine Gael)
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I will try to answer as many questions as I can. I will also deal with Committee and Report Stages.

I thank Members for their support for the Bill. I sense that there is general support for it, although some have concerns and worries about the ability of the banks to respond to the situation. The discussion is similar to that which we had here two weeks ago. It is a recognition by Members of the importance of supporting businesses and reaching out to them as best as we possibly can.

It is important to remind Senators that this is only one part of our toolkit to support businesses. There are a range of supports. The July stimulus plan will be announced later today and if it is agreed by the Cabinet, it will enhance those supports, including the restart grants mentioned by Senators. There will be confirmation in respect of the wage subsidy scheme, as well as support for the tourism sector, which has been mentioned by many Senators. Ongoing supports for certain sectors are needed. We will be able to build on what is in the Bill.

The Bill addresses liquidity and access to finance, which companies need and want. We would all prefer for there to be grants rather than loans, a point made by Senators Casey and Crowe and many others. We have to introduce a combination of both. It would be great if, as a country, we were in a position to grant aid everything but we are not. I do not think any country in its response to this crisis is able to do that. It is important to have the right combination of grants and loans.

We must recognise that the initial response to Covid-19, after the health response, involved support of about €12 billion. The wage subsidy scheme alone comprised over €2 billion in taxpayer subsidised support as of yesterday. The July stimulus will build on that. The €2 billion fund in the Bill is part of previous announcements and is now coming through.

We will add to this in the budget and the economic plan. The previous Government and this Government, as well as future Governments, will add, respond and make changes to the Bill where necessary. This should not be seen as being just one intervention.

I want to allay fears around what will happen with the banks. The Tánaiste and the team in my Department and other Departments have already sat down with the banks, and will do so again in the weeks ahead once the Bill has been passed, to go through the details of the scheme. The requirement of the scheme is that there is an reduction in interest rates and greater access for SMEs in order that they can draw down funding under better terms and conditions.

As I said, there will be a range of policies. Senator Gavan asked for this to be put into legislation, but that cannot be done. There will be different schemes and solutions, and a table will show the better offerings available compared to what was previously available. That will be very clear and transparent. We will monitor that through the Strategic Banking Corporation of Ireland, SBCI, and our own network.

Senator Kyne asked about engagement. We will engage with the sector, through representative bodies, individual businesses, our Department and all our networks and we will keep an eye on and monitor the situation to ensure the scheme is working. We can come back to the House if it is not. Most Senators will recognise that we cannot put everything into the Bill. There can be discussion and debate.

Senators Crowe, Casey and others are in business and can see what is happening. They know how difficult things are and understand the nature of the response will involve a blend of solutions that can be adapted and increased as we go along. As Senator Crowe said, the most important thing is that the scheme is up and running as quickly as possible. That is why I want to thank the House for facilitating the debate today and fast-tracking the Bill through the House. We want to reach out to businesses as quickly as we possibly can. Ideally, this would have been signed off on in May.We were not here in a formal capacity as a new Government so we could not do that but we are here now. It is important that we react and that is what we are trying to do.

Everyone welcomes the wage subsidy and it is important that we recognise it as a subvention for jobs and businesses from the State through the taxpayer. Everyone benefits from that. We are looking to expand grant levels, which was an issue that many Senators raised. We are looking at the restart grants to make them more accessible and include a different range of businesses and make a larger amount available than that in the July stimulus package. That will have to pass at Cabinet level and we will see how that goes.

I totally get Senator Casey when he says that businesses do not want more debt. I get that. Part of this scheme will involve refinancing existing debt and making loans cheaper.

Issues about grants, deferral of tax and many other matters were raised. Senator Casey also asked about an independence in the system, which is a fair point. The Credit Review Office is there and has worked quite well over the past number of years. That office is there to bring independence. There is an appeal mechanism within the existing bank network and a credit review for all credit decisions. That can be utilised more because it is a good service. I think decisions are overturned and a loan issued in approximately 50% of the cases with which that office deals, although I stand to be corrected on that. I think that figure is roughly correct but I will check it when I meet with representatives of that office next week.

Apart from the usual system of monitoring what is happening with bank loans and the issue of lending, the Strategic Banking Corporation of Ireland, SBCI, which will administer the scheme on behalf of the Government, will also monitor activity. The way the scheme works is that banks will be apportioned some of this guarantee funding and if they do not use it or draw it down, or if they make their terms sufficiently unattractive that their customers do not want it, we can reapportion it and the guarantee will be given to another bank. That is what we will try to do there. We can monitor things and that should bring the independence the Senator wants. I know what he is saying overall about independence. There is a doubt and mistrust of the banks from most people, and I accept that. We are trying to work on that issue.

Some Senators have talked about restaurants and bars. Senator Ahearn raised the example of a restaurant that was ready to launch but was not an existing business. We will look at that area and see if we can do anything. There is an effort with the restart grant to try and accommodate businesses that were not rate payers. It may be under that space that a restaurant that was not a rate payer, such as the one the Senator mentioned, might come in. We were looking to increase that from €2,000 so there may be space there. Others are probably able to give examples from around the country. We try to adapt or look at schemes where necessary.

Farmers and producers are very happy that they are to be involved in this scheme. Senator Lombard, Senator Ahearn and others mentioned those types of people. It is important that farmers and producers are included and that is the change in criteria. Many Senators have referenced the existing credit guarantee scheme, saying that it has not been effective enough and has not worked. I reiterate that the schemes are totally different. The Senators who have drawn the comparison are comparing two different schemes, the old one and the new one. Farmers and farm producers will be a part of this scheme and we will try to reach out to them as best we possibly can.

I recognise the network of LEOs, be they in Tipperary, as mentioned by Senator Ahearn, or anywhere else. LEOs are doing great work. We are trying to find ways to beef up their staffing and give them more resources to allow them to do more work. LEOs have an even greater reach now, since the Covid-19 crisis, and have been helping many more companies with financial products and drawing down available supports through filling out financial application forms and so on. LEOs have been offering advice on the different funds available and online trading. We will try to work with LEOs because they do great work. We will do work through local authorities, along with Enterprise Ireland and our Department. LEOs will be well stretched and we recognise the increase in their reach and in the demands on their time, along with all other agencies, over the past few weeks.

There was a request that the restart grant would reach out further to include bed and breakfast accommodation and sports bodies. Many Senators made that point today and in recent days. GP surgeries were also mentioned. There is a range of areas that were not catered for in the existing grant scheme for which there will be an attempt to cater in announcements to come in the days ahead.

Senator Keogan raised a couple of issues. Some of the information she has about the scheme is probably out of date and she might want to check some of her sources. It is absolutely not true to say that 90% of businesses cannot avail of this grant. That is not the case whatsoever and I am not sure where she is getting that statistic. If it is helpful, the term she used referring to "firms in difficulty" is to do with old state aid rules. Under this framework, some of those state aid rules have been adjusted in part. This temporary framework recognises that firms are in trouble and the majority of them will need help. To be eligible this time around, firms must show that their turnover has been affected by more than 15% in the past few months or the time period ahead. I would like the Senator to recognise that change. She stated as fact that 90% of businesses cannot avail of the grant but I will state as fact that it is not true. This scheme will be very accessible for SMEs and will be used but they will have to address the turnover issue I have mentioned. Some Senators have expressed issues with the banks. We want to get this support out as quickly as we can and the best, most effective and cheapest way to do that is to use the existing bank network. If we were to set up an entirely new system, we would not have the offering out to the companies before December and we would not be able to do it at this cost. We are not giving the banks additional profits. The aim is that the benefits of the scheme be passed on to businesses through low interest rates.

A number of speakers have a concern that we are de-risking the banks and taking all the risks with the 80:20 arrangements whereas some want 90:10 and so on. The reason we give a guarantee and de-risk is to have a lower cost of finance and to reach out to the companies who cannot borrow under existing terms and conditions. There is a reason we take that risk. The reason the taxpayer is potentially on the hook for €1.6 billion is the banks will pass on a reduction in the interest rate and make available lower cost money. The banks do not have to do that if they do not want to. If they want to draw down our guarantee, it will come with a request to them regarding interest rates, availability and terms and conditions. That is what it is about; it is not about the banks not taking risks. We are subsidising their risk because we are asking them to do something they might not want to do or be in a position to do. That is the difference and that is why we have a credit guarantee scheme and why it has been successful all over Europe and will be successful here.

Many Senators are quoting figures from recent months or years. They are not comparable because they refer to a different scheme. Under this legislation, we are amending the credit guarantee scheme. The portfolio cap is a major difference and that is why money will be made available cheaper and we fully expect to see a massive increase in the drawdown on this scheme. It will be a much more successful scheme. The credit guarantee scheme was introduced in 2012, not 2008 as stated by some Members and it was amended in 2016, but there was not a massive draw on it because it probably was not needed. We had a jobs recovery, and businesses and the economy were doing well. It was brought in to deal with a problem of the 2008-2012 period but by the time it was up and running and with different conditions, it was not of great benefit. It was not needed and there was no big demand in either House to change it but there is now because of Covid-19. We need a new scheme and that is what we are getting.

As I said would probably happen, Members used the UK scheme to compare ours, without going into the proper details. There are two schemes in the UK. One is for microloans below €50,000 and it is similar to ours. Above that, there is another scheme, which is also similar to ours, for loans ranging from €10,000 to €1 million with an 80:20 guarantee. There will be lower interest rates and it is comparable to the UK model. I would rather people did not compare apples and oranges. They should compare like with like and if we are still different, we can row over that. However, there are two different loan schemes in the UK. The bounceback loan is for under €50,000. We have a similar scheme here from Microfinance Ireland. We debated it in the House two weeks ago. There is a massive draw on that. Applications are up eightfold. It is a successful scheme and we are building on that, as we said we would last week. We committed to working on the interest rates, and we are doing that as well so we are making good progress there.

The enterprise support grant, which Senator Keogan asked about, is not administered through our Department. The grant is available to self-employed people who close their PUP claim after 25 June. It is administered by the Department of Employment Affairs and Social Protection. The Minister, Deputy Humphreys, is in charge of it. It was available to those who had closed their PUP claims and who had employed fewer than ten people. It was only available after 24 June, which is literally four-----

Sharon Keogan (Independent)
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It is not available.

Photo of Damien EnglishDamien English (Meath West, Fine Gael)
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It is available, but only as of four weeks ago so it would be hard to judge the full drawdown. My understanding is that it is available. I will check it because the Senator has raised it.

Sharon Keogan (Independent)
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There is no application process.

Photo of Damien EnglishDamien English (Meath West, Fine Gael)
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I will check it. I am telling the Senator what it is about and I will check it with the Minister.

Senator Higgins asked about the EU recovery plan and what it can be used for. She made a good point about using that funding for public investment and public services. A major part of the response following Covid-19 will be building public capacity and investing in our public services, our public response and our public capital spend as well. It is different from what happened following the previous crash.We had the austerity versus stimulus conversation two weeks ago. We were not in a position after the previous crash to invest in capital. No one would give us money; we could not get it. Thankfully, we are now committed to spending more than €150 billion on capital and we will increase that figure. There is plenty of capacity for public investment, both capital and current, and also for investing in our ability to respond as a country to health scenarios and so on. The Senator is right to flag that but it is well flagged in the programme for Government that it is also our intention. Senator Keogan has put it in clearer, more straightforward terms but we are on the same page. We need to make sure it happens and businesses have access to different types of funding. This could be our own funding or, as the Senator said, maybe we could draw down some funding from the EU recovery plan. I am sure that is being looked at. The plan was signed off on by the European Council this week but it still has to go through the European Parliament. We have to ensure that happens as well. I have no doubt Irish MEPs will have a say in that as well. That European funding will not be used for the credit guarantee scheme but in other areas. I have no doubt Ireland will be able to benefit from it. We worked hard on that scheme to ensure there was the right balance of grants versus other funding, although I know people have different concerns on that.

I think I have covered nearly everything. Senator Wall mentioned the living wage and youth unemployment. There are strong commitments to a living wage in the programme for Government. It is a matter of setting out how we get there. I will be honest and say that these initial efforts were to aimed at providing a quick response to all the businesses. When everything has stabilised, we can focus on the plan to have a living wage in place in the lifetime of the Government. That is what we are trying to do and there are different ways of achieving that. A motion on this was tabled in the Dáil last week and there are different versions of the living wage. The minimum wage system has worked well so we might see how we can use that scheme or other schemes. Some people have called for a task force on the issue. While that is a conversation we need to have, it is not one for the next couple of weeks. We want to get the July stimulus plan out and get businesses reopened, stabilised and growing again. We want to get people back to work and that is happening, thankfully, every week but we need to built on that. That conversation is definitely one to be had.

Senator Wall correctly raised youth unemployment and I fully support him on the issue. There will be some initial responses today and we will build on that. I totally agree with the Senator that young people have to be protected during this crisis. They are a very vulnerable cohort in employment terms. They are highly skilled and motivated and we need to work with them to ensure they are either in education or in a job. That could involve a form of youth guarantee or whatever it takes. There are different ways of doing this but we must do it. The Taoiseach, the Tánaiste and others are very much committed to that and the Minister for Social Protection and Employment Affairs, Deputy Humphreys, and Minister with responsibility for Higher Education, Deputy Harris, will probably lead the charge on it.

Senator Wall mentioned apprenticeships. I firmly believe in education on the job. We have much to gain from the further education and training sector. The conversation is too often focused only on higher education. That is a mistake that many countries in Europe have made. The further education and training sector has much to offer and it certainly offers a very affordable way to access education. Many careers are best served by on-the-job training as opposed to a higher education course in college. The blend provided in further education is correct. We should look at what the job and career need. The conversation too often focuses around a person and what they want or need whereas it should be what is best for the particular career. People often forget that some very high profile people like Alex Ferguson were apprentices. There are loads of different ways to look at this. In fairness to the Labour Party, it has done considerable work on this. Five or six years ago, I worked with the former Minister for Education and Skills, Ms Jan O'Sullivan, on changing the whole story as regards apprenticeships. At that time, there were fewer than 29 routes to apprenticeships. That figure is now well over 60 and there is a commitment to go much further. More than 4,000 new apprentices have signed up this year, which is a very positive story. We need to build on that and ensure those apprentices are protected during the Covid pandemic. There are strong commitments on apprenticeships and funding has been allocated. The Senator was right to identify this issue. Apprenticeships are available for everybody, not only young people, although there is a particular focus on young people. We need to have a plan of action so young people know where they are going and how they can develop careers across various sectors.

Senator Higgins spoke about building resilience, which is what we are trying to do with these supports. While I recognise that some people want grants rather than loans, loans give businesses a bit of space. If businesses get a low-cost loan over six years, they will have time to reaffirm what they are doing and respond, adapt and grow.

Irish SMEs have shown great resilience over the years. We need to build on that. The Department also wants to encourage those same SMEs to think bigger and to think of growth plans. That is why we invest a lot in research and development, and innovation. We want businesses, especially in retail, to trade more online. A massive amount of money is being spent daily, or even hourly, on retail abroad and that money is leaving the country.There is no reason our retail sector cannot take part in that because we are a very successful exporting nation. Even in retail, there are many opportunities to win some of the market share of other countries, as well as holding on to some of our own market share. The Senator is right about recovery, resilience, and investing in business. That is what we will do and keep doing.

I will come back to the banks in a moment but Senator Gavan asked about the 90:10 guarantee ratio. We think a 80:20 ratio is the right place to land, although different countries are doing different things. I referred to Denmark, Austria, and a few others but I acknowledge that France has a 90:10 ratio. We think we are in the right space here, but we will monitor it. The Strategic Banking Corporation of Ireland, SBCI, is there and we are working with the banks.

Senator Murphy asked about the credit unions. The initial conversation around this scheme was with the three main pillar banks because they cater for 90% of the market. However, more than 70% of this guarantee will be made available in an open call to all lending institutions. Credit unions and other sectors can compete for that and I hope they do. As a few Senators, including Senator Buttimer, mentioned, credit unions have a lot of money available, which they want to either loan or invest. There is great potential to tap much more into the credit union movement. From a housing point of view, there is a lot of capacity for credit unions to invest in housing for people who are ageing and to get into that market, so we look forward to that. They can access this guarantee, as it is for them as well.

Senator Kyne noted the significance of microbusinesses and SMEs in Galway. That importance is common to all our areas because that is what we are trying to achieve. He requested that the Department link in with all businesses about this guarantee fund and the other supports we have. That is something we try to do regularly and we use a network of our various agencies to do so. However, it is an ongoing battle. For example, many companies which are entitled to the restart grant still have not claimed it. We have to constantly reach out to companies and we do so through all Departments and through Government messaging. We all have a role in that because these businesses are coming to us every day of the week and that is our job as public representatives. We get the message out through our councillor network to try to reach them, but we will get it out directly through the Department as well.

Senator Buttimer raised play centres, leisure centres, activity centres, cafés and all those different sectors, which often fall between two stools. I am committed to working with those sectors to ensure they get the supports they need because it is a difficult space. Some businesses will find it very hard to get their customers back in the door again and they will need us to help and protect them through that. They have a great organisation themselves, namely, Play Activity and Leisure Ireland, PALI, which is doing good work. We need to be able to work with them because there are issues in respect of restart grants, wage subsidies, insurance costs and so on. We believe the restart grant is a decent amount of money to help with some of those initial fixed costs and we will try to build on that with rates and so on as we go along.

The deferred tax credit for banks was raised and is the subject of some amendments. However, it is not overly relevant in this piece because the profits are to be passed on to the SMEs. This scheme is not for the banks to make a profit. I want to be clear on that. The deferred tax assets scheme, which Senator Higgins and others raised, is not really impacted by the Covid-19 credit guarantee scheme because the benefits of this guarantee are going to the enterprises and not the finance provider, in line with the requirements of the European Commission's temporary framework for state aid. That is what this is about. It is about supports for businesses, not banks. Senator Higgins has tabled an amendment on this issue so we will touch on it in that discussion as well. The loss relief for corporation tax is a long-standing feature of the Irish corporate tax system. It allows for losses incurred in the cost of business to be accounted for when calculating the business's tax liabilities and this mechanism is a standard feature of corporation tax systems in all OECD countries. We have it here. Senator Higgins raises this issue quite a lot when it comes to banks and we can discuss it again. Banks can bring forward that trading loss for a number of years. It is not really a conversation for this Bill because it is a matter for the Department of Finance but the benefits of this credit guarantee scheme go to businesses, not to banks. The Senator's issue is-----

Photo of Alice-Mary HigginsAlice-Mary Higgins (Independent)
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There is interest.

Photo of Damien EnglishDamien English (Meath West, Fine Gael)
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Again, there will be interest at a lower cost, and we have to work on that as well. The benefits of the scheme are to be passed on to the SMEs and our job is to ensure the focus is on them.

Photo of Alice-Mary HigginsAlice-Mary Higgins (Independent)
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Will the interest be going back into the SMEs?

Photo of Damien EnglishDamien English (Meath West, Fine Gael)
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This is about interest rate reduction. Currently, banks can loan to those companies at a certain percentage rate. This scheme will mean that the banks will be lending at a lower interest rate. The profits and benefits from that will go to the businesses and that will help them stay open, trade and create jobs. That is the focus here. The Senator wants to have a conversation about the tax assets scheme.I understand the amendments proposed but they are not really relevant to this discussion. They belong to a discussion that various Departments are having. As far as we are concerned, the benefits of the Covid-19 credit guarantee scheme are to be passed on to businesses and SMEs.

Question put and agreed to.

Photo of Mark DalyMark Daly (Fianna Fail)
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When is it proposed to take Committee Stage?

Garret Ahearn (Fine Gael)
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Now.

Photo of Mark DalyMark Daly (Fianna Fail)
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Is that agreed? Agreed.