Ibec has warned the Government that its plan to cut wage subsidies while imposing further coronavirus restrictions will push many businesses over the edge.

In its latest quarterly report, the employers’ group said new restrictions and more stringent messaging around social distancing had resulted in a spate of Christmas booking cancellations across the hospitality sector.

This has plunged many businesses and their suppliers into financial trouble and now was not the time to withdraw supports, it said.

Hospital Report

Ibec called on the Government to reinstate the Employer Wage Subsidy Scheme (EWSS) on full rates as a matter of urgency. EWSS rates were reduced by approximately a third last week as part of the Government’s plan to gradually wind the scheme down.

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"Given the changed circumstances, the risk of withdrawing supports too early remains material and could result in higher costs of business failures and lost employment in the long run," said Ibec chief economist Gerard Brady.

“The short-term maintenance of the Employer Wage Subsidy Scheme is crucial given that it is well understood, targeted to those with major losses in revenue and is designed to keep people in contact with their employer,” added Mr Brady.

Changed landscape

While Ibec had originally supported the Government’s plan for a phased withdrawal of supports, the changed public health landscape warranted a change of course, he said.

He also queried the Government’s plan to tailor the Covid Restrictions Support Scheme, which provides working capital to struggling businesses, to specific sectors, saying that many badly off companies would fall through the cracks.

In its report, the lobby group said stronger than expected growth and tax revenue would allow the Government to further extend support to the worst-hit sectors.

Ibec said the economy is “going through a period of exceptional growth despite the backdrop of Covid” fuelled by income growth and significant savings.

It predicted the economy, in gross domestic product (GDP) terms, would grow by 13 per cent this year and 6 per cent next year. The double-digit growth this year reflected the rapid rebound in consumer spending and year-on-year base effects.

“The Irish economy continues to see rapid demand growth. This is exemplified by a tax take which was up by €7.4 billion (13 per cent) in the January to November period relative to the same period in 2019,” said Mr Brady.

Consumer fundamentals

“This growth is broad based and being felt by most households and businesses. Income growth and significant savings mean the consumer fundamentals will remain strong in 2022,” he added.

Following a contraction of 10.4 per cent last year, consumer spending – the largest component of domestic demand – is expected to rise by 5.3 per cent this year and by 8 per cent next year.

Ibec said the current cost-of-living squeeze was a reflection of a worldwide trend,with spiking energy costs and a crunch in freight capacity being felt across the globe.

“As pandemic-driven costs continue, pressure is mounting on the world’s central banks to respond by withdrawing some pandemic buying programmes,” Ibec said.

It predicted unemployment would fall to below 6 per cent next year and that “significant tightness in the labour market remains the greatest permanent threat to competitiveness”.