BusinessOpinion

Simon Harris needs to reset policies on labour costs to support small businesses struggling to make ends meet

PwC Insolvency Barometer released last week showed a 41 per cent increase in insolvencies, with SMEs accounting for 85 per cent of all business failures

Small businesses in Ireland need renewed support to help them cope with a surge in operating costs, much of which has been driven by Government policies.

Danny McCoy
Mon Apr 1 2024 - 06:00

If a week is a long time in politics, then perhaps there is still time for this Government to turn around the fortunes of many SMEs struggling right now. Two things we can be certain about: we will have a general election by spring 2025, and incoming taoiseach Simon Harris is likely to have a clear vision of how the Government should spend the rest of its lifespan.

In outlining his key priorities to the Fine Gael party in Athlone, enterprise, or more specifically, delivering for SMEs, featured prominently.

With the majority of Ibec members falling into this category, and the rest heavily invested in their success through services, supply chains, or overall quality-of-life experiences they contribute, a renewed focus is welcomed.

Feedback we receive from relevant affiliates such as the Small Firms Association and Retail Ireland indicates that the landscape is stark. Not to mention the competitiveness challenges faced by those in sectors such as manufacturing, struggling to survive in export markets amid excessive cost increases.

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If there were any doubts about the problem, the PwC Insolvency Barometer released last week provides further evidence, showing a 41 per cent increase in insolvencies, with SMEs accounting for 85 per cent of all business failures.

Moving to a more European social model took decades in other countries, while the Government here is trying to make that transition in a few short years

The government’s recent report on the cumulative impact of imposed labour costs on businesses, which Ibec called for, shows that Government decisions made businesses more vulnerable. Some SMEs, as noted in the Government’s report, are projected to experience nearly a 37 per cent rise in labour costs over the next two years, 20 per cent of which will be driven directly by Government measures.

This is even before factoring in fully subsequent knock-on pay pressures in the labour market.

Ibec has been supportive of the merits of the introduction of additional benefits related to sick leave, parental leave and the move towards pension auto enrolment. However, moving to a more European social model took decades in other countries, while the Government here is trying to make that transition in a few short years.

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The problem for small business was the onslaught of costs that came together at a time when they simply couldn’t absorb them.

If the new taoiseach seeks a straightforward solution, the Government must send a clear signal by committing to a new Competitiveness Charter. This would cap the cumulative increase in any one year in labour market costs imposed on businesses and ensure better co-ordination of policies.

Ultimately, what SMEs, and even larger businesses facing similar cost pressures, want is for the timeline for the introduction of planned measures to be significantly extended so that firms can adjust and prepare properly. The PRSI system offers the easiest way to offset cost for struggling businesses by implementing a PRSI rebate tailored to the most vulnerable companies, aligning with their exposure to escalating costs. Additionally, the Government should raise the top-rate employer PRSI threshold beyond the minimum wage.

Having been the first higher education, innovation, and science minster, Simon Harris fully appreciates that the higher education sector and apprenticeships model are critical to the future economic preparedness of our country. A key focus for Ibec has been the need for enhanced business support for SMEs to upskill, potentially funded through a voucher scheme via the National Training Fund. Our ability to support businesses to digitise, decarbonise and embrace new technologies depends on developing the necessary skills to do so.

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Our members, regardless of size, know that they play a key role in helping Ireland reach our sustainability targets.

Ireland has a real opportunity to build a dynamic and competitive zero-carbon industrial base. We have more natural resources in wind and water than most, but this is irrelevant if we cannot build the infrastructure to harness them. It is time for a more complete vision for our future energy system, one that embraces energy affordability, system resilience and opportunities to grow demand in high-tech manufacturing, data and AI.

We must also launch of a new super deduction capital allowance to supercharge business investment in environmental and sustainability-related capital investment.

Ibec is advocating for the establishment of a new co-ordination unit in the Department of An Taoiseach, working with all relevant agencies and delivery bodies, to focus solely on reducing infrastructure and housing delivery timelines

The incoming taoiseach talked about housing in the context of security or the insecurity that is created for those who cannot afford to purchase a house or even find suitable rental accommodation. A core message from Ibec is social cohesion, how we take a whole-of-society approach to address challenges that impact every aspect of our society.

Thanks to economic fortunes, money is currently not an issue. No one can deny that more infrastructure and housing are being built than in previous years. The problem is the excessive timelines the delivery of much-needed infrastructure takes in this country. Ibec is advocating for the establishment of a new co-ordination unit in the Department of An Taoiseach, working with all relevant agencies and delivery bodies, to focus solely on reducing infrastructure and housing delivery timelines.

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The decision by Leo Varadkar to step aside as Taoiseach and subsequent messaging coming from Fine Gael and his successor signals the beginning of a period of change. Whether it’s due to a change in leadership, the Government sensing the approaching end of its term, or the upcoming significant local and European elections, there’s a palpable sense that the next few months are important.

However, amid this transition lies an opportunity for material change, coupled with a fresh and focused agenda. This could offer the much-needed breathing space for SMEs, which, after all, form not just the core of the Irish economy but of our wider society too.

Danny McCoy is chief executive of Ibec

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