- Observatory: EMCC
- Published on: 14 May 2013
Disclaimer: This information is made available as a service to the public but has not been edited by the European Foundation for the Improvement of Living and Working Conditions. The content is the responsibility of the authors.
This CAR for Ireland considers public policy and support instruments for restructuring in SMEs as of May 2012. A range of existing and new policy instruments are outlined. The Fine Gael-Labour coalition governments’ ‘plan for jobs 2012’ contains a raft of measures designed to support SMEs. Yet the proposals in ‘plan for jobs 2012’ are largely supply-side instruments, and the social partners are in agreement that there is a need for a demand-side stimulus to promote employment and growth in SMEs. However, the current austerity climate militates against this.
Part 1: Overall policy context
1.1. Has there been public or policy debate on the specific challenges for SMEs and/or their employees in restructuring before the global recession of 2008/09? Please specify, for example:• If so, since when (e.g. up to 3 years before, 3-10 years before, longer), at which level (national, regional, sectoral, all of them) and in which form (‘real’ policy debate mirrored in policy documents or rather public debate mirrored in media, or both)?• Which policy areas (for example, SME policy, entrepreneurship policy, employment policy, social policy, regional policy etc.) were involved? Particularly: Does SME policy specifically deal with restructuring? Does ‘restructuring policy’ specifically deal with SME issues?• Did the public and policy discussions deal with restructuring as such or were specific types or phases of restructuring covered?• Which were the issues/contents that have been discussed? Which specific characteristics of SMEs in restructuring were considered in this context? Was the specific case of SMEs as subcontractors a topic for discussions?• Did the discussions rather deal with the enterprise perspective or with the employee perspective or both?
The public and policy debate prior to the recession on the restructuring challenges facing SMEs encompassed a mix of areas, including entrepreneurship and labour market issues. Before the financial recession took hold in Ireland in 2008, perhaps the main disincentive to job creation and expansion by SMEs that was the subject of considerable discussion for the preceding ten years or so was the rising cost of doing business in Ireland, rising cost of goods and services, rising energy costs, rising transport costs, rising labour costs, rising cost of office/retail/property space. In short, Ireland had become one of the highest cost economies in the developed world, and this was viewed as a big disincentive to many SMEs in terms of engaging in ‘positive’ restructuring. This was a matter for both policy debate and public debate.
1.2. Did the global economic and financial crisis of 2008/09 cause any change in focus of the above (for example, increased/decreased focus on SMEs and their employees in restructuring, change in policy areas or issues covered)?
Yes. The impact of the global economic and financial crisis of 2008/2009 has switched the focus somewhat from the high cost of doing business in Ireland (although this remains an issue) to a focus on the need to help SMEs preserve existing jobs, create new jobs, and access finance. There has been increased focus on SME engagement in ‘negative’ restructuring (that is, job losses) after 2008, rather than ‘positive’ restructuring (that is, job expansion) prior to 2008. This negative restructuring is illustrated by estimates from the Irish Small and Medium Enterprise Association (ISME) that over the course of the crisis 50% of SMEs have implemented job cuts and pay cuts of up to 13% have also been introduced. The severity of the ongoing financial crisis and recession in Ireland has illustrated the importance of public support instruments to support SMEs; especially given that the vast majority of enterprises in Ireland employ less than 250 employees. The Fine Gail-Labour Party coalition launched a new ‘plan for jobs 2012’, with many specific measures aimed at boosting job preservation/job creation in SMEs, described below.
1.3. Are social partners or employers’ and employees’ organisations involved in public and policy debate on restructuring in SMEs?
Ireland’s tripartite social partnership model broke down in late 2009, so there is now much less social partner-related discussion and activity in this area. But employer associations and employees’ organisations continue to lobby government on various restructuring issues pertaining to SMEs and their employees. There is a degree of consensus among the social partner organisations that government should do more to anticipate restructuring and facilitate job preservation and creation in SMEs. However, measures to support positive restructuring and innovation in SMEs are greatly restricted by the fact that government is hitched to an austerity-driven agenda, fuelled by a mix of domestic and external contextual conditions (notably factors associated with the financial ‘bail-out’ by the troika of the EU-European Central Bank-International Monetary Fund). In addition, some employer associations have been pushing for a reform of labour law – notably with regard to diluting sectoral regulations on wages and terms of employment (see below).
• If so, which (types of) organisations and at which levels?• What are their opinions, perspectives, recommendations?• Did they succeed in convincing governments or public authorities at various levels of their viewpoints?
One initiative from the social partners regards jobs in the construction sector. The Irish Business and Employers Confederation (IBEC), the Irish Congress of Trade Unions (ICTU), the Dublin Chamber of Commerce and the Construction Industry Council have joined together to call on government to reinvigorate the economy by investing in Ireland’s infrastructure. These representative associations believe that the Public Capital Programme should be maintained at a minimum of €5.5 billion per annum over the next five years, with a target of 5% of GDP for government capital expenditure. Given Ireland’s remaining infrastructure deficit, this level would represent a positive investment plan relative to our EU partners, they maintain. Furthermore, they have argued that an increase in domestic demand will also reinforce the improving performance of the export sector and will ensure a balanced return to growth. This has had limited impact on public policy, however, given the aforementioned climate of austerity in Ireland. The construction industry remains in very bad shape: direct employment in construction has fallen from a peak of 286,000 to 129,000 in 2010 - with further job losses in construction-dependent industries. Many of these job losses would have been in SMEs.
Employer associations in the construction sector and elsewhere have demanded reform of labour regulations due to the perceived impact of the crisis. In July 2010, the Labour Court recommended a pay cut of 7.5% for construction workers following an application from the Construction Industry Federation (CIF) seeking pay cuts of up to 20% because of the collapse of the construction sector.
Furthermore, new sector employer associations representing the interests of SMEs (such as the Irish Hotels Federation (IHF) and the Quick Service Food Alliance (QSFA) group of fast food operators) have strongly lobbied government on the reform of sectoral wage regulations in low-paying industries and mounted legal challenges against the system in the higher courts. These activities culminated in a review of legally binding sectoral wage agreements, regulated by Employment Regulation Orders (EROs) and Joint Labour Committees (JLCs). New legislation has subsequently been unveiled by the government through the Industrial Relations (Amendment) (No.3) Bill, 2011, which includes measures for temporary exemptions from sectoral minimum wages, easier enforcement options and detailed procedures for establishing, varying and cancelling sectoral wage orders. It also sets out for the first time a detailed process by which individual employers can seek temporary derogation from sector-level minimum pay and conditions set by EROs, on grounds of financial difficulty/inability to pay. Therefore, it can be suggested that employer associations have been successful in convincing government of their viewpoint in this regard.
Part 2: Support instruments
2.1. Please provide an overall assessment about how accessible and suitable public and social partner based restructuring support for companies in general are for SMEs or their employees.
A reported lack of availability of credit and finance is a hugely problematic issue for Irish SMEs. On the jobs front, in the main, the social partners – both employer and employee representatives - have been critical of government support provided to SMEs and their employees during the crisis and both sides have strongly called for a demand-side large-scale jobs plan or stimulus programme to aid employment in SMEs and in the wider economy. In addition to perceived lack of available finance and the jobs crisis, SMEs in Ireland face issues concerning fixed costs, labour costs, and the cost of utilities.
Going beyond ‘crisis specific instruments’, there are a number of general restructuring support measures for SMEs, some of which are detailed below, but not all of them are SME specific.In terms of policy response, in early 2012 the government launched its ‘plan for jobs 2012’ containing a number of new, mainly supply-side, initiatives specifically aimed at supporting jobs in SMEs and access to finance (specific SME initiatives described below). http://www.djei.ie/publications/2012APJ.pdf
‘Jobs plan 2012’ promises 100,000 net new jobs by 2016, 20,000 of them in manufacturing. Much of the emphasis is on supporting an SME sector that has born the brunt of the recession. The new plan contains considerable policy detail (there are 270 proposals in total) but the test will be deliverability and implementation – especially in the current climate of austerity.
The main social partners have welcomed the document in general terms, but have been critical of its supply-side focus and the lack of demand-side measures to stimulate demand, employment, and growth. According to Irish Business and Employers Confederation (IBEC) Director General, Danny McCoy: ‘New measures to improve access to credit for SMEs are welcome, along with the commitment to improve competitiveness and make Ireland a more attractive location for key sectors.’ ‘However, the primary cause of unemployment is the lack of consumer confidence and domestic demand in the economy. There is little in the jobs plan to address this problem. New thinking and greater ambition from both the Government and the troika will be required in the coming months and years.’ Similarly, Irish Congress of Trade Unions (ICTU) General Secretary David Begg remarked that there is a heavy weighting in the plan toward supply side initiatives when ‘the real problem is lack of growth and a collapse of domestic demand in the economy.’
• Do SMEs and/or their employees generally have access to the available instruments and are these suitable for their specific needs in restructuring?
See comments above.
• Are there specific (types of) instruments (for example, targeting specific types or phases of restructuring, offered at specific administrative levels) that are more/less accessible and suitable for SMEs and/or their employees that for larger firms? If so, why?
2.2. Do there exist specific public or social partner based support instruments explicitly targeting at SMEs and/or their employees in restructuring? Please specify, for example:• If so, by whom are they offered (public vs. social partners/employers’/employees’ organisations) and at which administrative levels (national, regional)?• Are the activities of different support service providers coordinated? If so, how and how well does this work?• Which phases of restructuring do they target?• Which types of restructuring do they target?• Do they target SMEs in general, or specific size classes, sectors, regions, legal forms, roles (for example, as subcontractors) etc.? Do they target employees of SMEs in restructuring?• What type of support do they provide? What specific challenges for SMEs in restructuring do they address?• Is there some information about how well they are known among SMEs and their advisors and about how they are generally assessed by the SME sector? What are their strengths and weaknesses? Are there recommendations for improvement?
A range of existing supports, both financial and non-financial, are available from Government Departments, Offices and agencies to assist SMEs to grow, improve competitiveness, create employment and improve productivity. Not all of them are SME specific, however. Some of the main supports which are available to SMEs are featured below:
Revenue Job Assist
Revenue Job Assist allows employers a double wages deduction in their accounts, if they employ a person who has been unemployed for 12 months or more. The double wages deduction may last for three years and applies to:
- Wages paid to a qualifying employee
- Employer's PRSI contributions paid in respect of such wages
Employers' PRSI Exemption Scheme
Under the Employers' PRSI Exemption Scheme employers can employ an eligible worker without having to pay employers’ PRSI contributions for the first two years of their employment. There is no limit to the number of people that can be employed under the Scheme. The current scheme runs until the 30th December 2011.
Business Expansion Scheme (BES)
BES allows an individual investor to obtain income tax relief on investments up to a maximum of €150,000 per annum in each tax year up to 2013. Relief is available at the investor's highest rate of income tax. An investor who cannot obtain relief on all his/her investment in a year of assessment, either because his/her investment exceeds the maximum of €150,000 or his/her income in that year is insufficient to absorb all of it, can carry forward the unrelieved amount to following years up to and including 2013, subject to the normal limit of €150,000 on the amount of investment that can be relieved in any one year.
In order to qualify, investments must be made in companies engaged in certain manufacturing; service; tourism; R&D; plant cultivation activities; in the construction and leasing of advance factories; or, in certain music recording activities.
County and City Enterprise Boards (CEBs) Grants
The County and City Enterprise Boards offer a variety of supports to assist the start-up, development and expansion of micro-enterprises (employing ten or fewer employees), with priority given to the manufacturing and internationally-traded services sectors. The forms of financial assistance, which are available, subject to certain restrictions and conditional on an agreed business plan, include the following:
- Priming Grants can cover all business costs directly attributable to starting a new business.
- Business Expansion/Development Grants are available to micro-enterprises to grow and develop the micro-enterprise.
- Feasibility/Innovation Grants are available to micro-enterprises to assist with the cost of necessary pre-start up studies carried out for the purposes of assessing market interest in/demand for a proposed new product or service.
Subject to eligibility criteria, Priming and Business Expansion/Development grants may include Salary Costs for first year of employment. Click here for full details and further information on the County and City Enterprise Boards Grants.
In addition, non-financial business advice, training and mentoring supports are available through local County Enterprise Boards.
Sustainable Energy Authority of Ireland
SEAI provide information in their Business Support Centre on how saving energy can help cut SME business costs as well as details on resources and financial assistance available to help companies make savings. These include a list of ‘Top Ten Quick Wins’ which outline simple changes that can be made immediately to start saving money.
New government proposals for instruments supporting SMEs – ‘plan for jobs 2012’
A number of new measures contained in the Irish government’s ‘plan for jobs 2012’ aimed specifically at SMEs are outlined here. Given the breakdown of social partnership, they are all government initiatives, rather than social partner-led instruments. First, in the area of public procurement, the jobs plan calls on government departments to play their part by opening up public procurement contracts to SMEs. The plan appears to envisage a cultural change at the heart of the public administration when it comes to the promotion of enterprise. It proposes that mentors be assigned to SMEs to assist them in taking advantage of procurement opportunities, those mentors possessing ‘specific public sector knowledge’. Enterprise Ireland (the state agency supporting indigenous industry) and the local authorities are to be tasked with ‘highlighting to major contracting authorities the supply potential of indigenous businesses, SMEs especially.’ The plan also envisages a more flexible approach to tendering. Every 1% increase in public procurement contracts won by small and medium sized firms would deliver €150 million extra in business for this crucial sector, the government has claimed. This measure is intended to support ‘positive restructuring’ – that is, job growth, in SMEs.
Secondly, a new ‘micro enterprise’ support structure is also being put in place. This will establish a ‘one-stop-shop’ for small business supports, by dissolving the existing County and City Enterprise Boards (CEBs) and creating a new Micro-Enterprise and Small Business Unit in Enterprise Ireland that will work with Local Authorities to establish a new network of Local Enterprise Offices in each Local Authority.
Third, in the area of financial support to SMEs, boosting access to finance remains the key short run challenge as the lack of credit is acting as a barrier to SMEs seeking to implement expansion plans. The plan appears to side with the SMEs over the banks, which have long argued that the problem is not lack of supply of, but rather a lack of demand for, credit. The report is highly critical of the handling of SME loan applications. However, it is accepted that the quality of the applications is often indifferent and that SMEs need to be supported in preparing business plans and ‘realistic’ cash flow forecasts. In terms of specific financial measures, the plan envisages implementation of a range of new supports for SMEs struggling to access credit, including a €150million Development Capital Scheme aimed at addressing a funding gap for mid-sized, high-growth indigenous companies with significant prospects for jobs and export growth. A Loan Guarantee Scheme and a €100million Micro-Finance Loan Scheme are also due to ‘go live’ in 2012. It is claimed that a Loan Guarantee Scheme will be of particular help to the innovative companies the government is trying to encourage as part of its growth strategy. For every €400million that is guaranteed by the State an additional 4,500 companies can get further credit that will in turn create more than 8,000 jobs, the Minister responsible suggests. In addition, the new Micro-Finance Fund will provide funding for small loans to SME start-ups. Many start-ups lack the small amounts of finance that can be the difference between success and failure. This commitment on a micro-finance fund is the government’s contribution to filling this enterprise finance gap in the market.
Fourth, the plan proposes better support measures for indigenous companies to improve their performance, including:
• establishing a new Potential Exporters Division in Enterprise Ireland to identify more and better support indigenous exporters;
• up to €1.2 million per year in extra funding for mentoring and management development networks;
• increased mentoring of SMEs by top business leaders, multinationals and large Irish companies;
• assisting small businesses to engage in R&D and innovation.
Fifth, the government will identify a number of key sectors which will be major sources of job-creation and economic growth, especially for SMEs, such as:
• Manufacturing, including establishment of a Manufacturing Development Forum;
• Establish a Health Innovation Hub to drive collaboration between the health system and the life sciences industry;
• Publish and implement a Cross-Departmental Plan for the Green Economy;
• Agri-food – including winning more investment from multinational food companies for Ireland;
• Cloud computing – including a Cloud Computing Strategy for the Public Service and establishment of a research centre in cloud computing;
• Establish a cluster development team for digital games;
• Establish industry clusters in targeted sectors.
Finally, in terms of reducing costs to business, the government has also announced continuation of a scheme for reductions in employers’ Pay Related Social Insurance (PRSI): employers’ PRSI for new low-paid workers has been halved on jobs paying up to€356 per week. The existing Employer Job (PRSI) Incentive Scheme is also to remain in place. This scheme exempts employers from the liability to pay their share of PRSI for certain employees for 12 months. There is also targeted VAT reduction for the tourism sector - VAT is reduced from 13.5 to 9 % on all tourist-related ventures.
Some of the new actions in 2012 that the government and its agencies say will be delivered on relating to supporting restructuring in SMEs can be summarised as follows:
- Design and implement a new Development Capital Scheme, aimed at addressing a funding gap for mid-sized, high-growth, indigenous companies with significant prospects for jobs and export growth. €50million of State investment is expected to leverage up to an extra €100million in private sector funding.
- Restructure the enterprise agencies in order to better target supports at indigenous businesses with job-creation potential: - Establish a new Potential Exporters Division within Enterprise Ireland to target a wider group of potential exporting companies; - Establish a new ‘one-stop-shop’ micro enterprise support structure through the dissolution of the existing CEB offices and the creation of a new Micro Enterprise and Small Business Unit in Enterprise Ireland that will work with Local Authorities to establish a new network of Local Enterprise Offices (LEOs) in each Local Authority; - Establish a joint Enterprise Ireland/IDA senior management team to work jointly on cross-agency priorities such as attracting international start-ups, improving mentoring for SMEs, and helping SMEs win supply contracts from multinationals,
- Extend the corporation tax exemption for start-up companies until 2014.
- Help more small businesses win big contracts, including: - Measures to make public procurement more accessible to Irish SMEs, such as amending prequalification criteria, prequalification panels for SMEs and a new Procuring Innovation Programme where solutions rather than prescriptive products or services are procured; - Measures to help more SMEs to win contracts with multinationals based here.
- Measures to target improved performance by indigenous companies, including: - greater funding for mentoring and management development networks; - long-term development programmes for 250 managers and short-term programmes for 700 managers; - increased mentoring of SMEs by top business leaders, multinationals and large Irish companies; - 750 new buyers for exporting Irish companies in 2012; - 200 investments over €500,000 in EI-assisted firms in 2012.
- The Partial Credit Guarantee for SMEs struggling to access credit will go live – for every €100million extra in loans guaranteed under this demand-led scheme, over 1,200 small businesses will benefit. The scheme has been designed and an operator has been selected for the scheme, legislation is almost finalised, and it is expected that the scheme will go live shortly.
- The Micro Finance fund will go live, generating up to €100million in extra lending for micro-businesses over ten years.
- The second call for Innovation Fund Ireland will go live, worth approximately €60million, to invest in small Irish based high-tech companies.
- Attract more mobile international entrepreneurs to start businesses in Ireland through a €10million State fund for investment in international start-ups, improvements to immigration arrangements, a targeted marketing campaign, greater use of existing networks in the IDA and the diaspora.
- Accelerate the delivery of economic outcomes from Government investment in research by implementing a Research Prioritisation Plan and enact new legislation to target the State’s research funding towards applied areas of research with strong potential for commercialisation and job-creation.
- The R&D tax credit system will be further improved, making it easier for small and large companies to invest in research and development.
- Initiatives targeting a number of key sectors with particular potential for job-creation, such as:- Manufacturing, including establishment of a Manufacturing Development Forum;- Establish a Health Innovation Hub to drive collaboration between the health system and the life sciences industry;- Publish and implement a Cross-Departmental Plan for the Green Economy;- Agri-food – including winning more investment from multinational food companies for Ireland;- Cloud computing – including a Cloud Computing Strategy for the Public Service and establishment of a research centre in cloud computing;- Establish a cluster development team for digital games;- Establish industry clusters in these targeted sectors.
Note: many of the above instruments are in addition to measures relevant to Ireland already investigated in the ERM CAR Public measures to support self-employment and job creation in one-person and micro enterprises’ /ef/observatories/emcc/erm/comparative-information/public-measures-to-support-self-employment-and-job-creation-in-one-person-and-micro-enterprises.
Part 3: Good Practice
It is too early to assess the new instruments for assisting SMEs in ‘jobs plan 2012’, so an existing instrument has been identified as a ‘Good Practice’ example: the Employer Job (Pay Related Social Insurance (PRSI)) Incentive Scheme.
- Name of the instrument in national language and English:
The Employer Job (PRSI) Incentive Scheme
- Justification for selecting this measure as Good Practice:
Aimed at facilitating job expansion in SMEs across the economy, so not selective or sector specific.
- Date of launch of the instrument and end date (if applicable):
Launched in 2010. No end date announced yet.
- Initiator/administrator (organisation):
Government. Administrator is Department of Social Protection.
- Other involved actors and their roles:
- Source of funding:
State, tax payer.
- Target group/eligibility/coverage:
all enterprises creating new jobs for persons unemployed for at least six months
Employers can only get an exemption from employer’s PRSI for a limited number of employees. This limit is 5% of the existing workforce or, for smaller companies, a maximum of five new jobs. It is understood that the measure applies at each point in time in relation to periods of new job creation.
- Phase of restructuring targeted:
- Type of restructuring targeted:
‘Positive restructuring’: expansion.
- Purpose/content/characteristics/description of services provided:
The purpose of the scheme is to support job creation and counter the drift of people into long-term unemployment and welfare dependency. If an employer takes on an additional member of staff who had been unemployed and in receipt of social welfare payments for six months (156 days), s/he would be exempted from paying employers’ PRSI for 18 months. The job must be new and additional (employers are not allowed to substitute existing employees to avail of the scheme), be for at least 30 hours a week and last for at least six months. If the employment ends within six months of getting the exemption, the employer may be liable to pay the employer’s PRSI contributions for that employee.
- Outcome of the instrument (e.g. number of beneficiaries, effects):
No up-to-date outcome assessment, but as of October 2010, 650 of the 665 applications made to the scheme were from SME companies employing less than 250 employees (ranging between 1 employee and 223 employees). The effect seems to be that SMEs have been notable beneficiaries.
- Strengths/success factors of the measure:
As above, SMEs appear to be notable beneficiaries in the sense that it seems to be quite accessible and an attractive option for SMEs.
- Weaknesses/bottlenecks of the measure:
A possible weakness perhaps is the cap of a maximum of five jobs in SMEs.
- Was the instrument formally monitored/evaluated? If so, please specify (by whom, how, what were the finding and how were the findings used etc.)
Yes. See number of SME beneficiaries above. However, this constitutes monitoring by the administering body rather than evaluation.
Further information is available on www.welfare.ie
- Information sources used for filling this section:
Department of Social Protection website above.
The fall-out from the financial crisis and recession in Ireland has illustrated the importance of public support instruments to anticipate and support restructuring in SMEs; especially given that the vast majority of enterprises in Ireland are categorised as micro entities. However, influenced by the scale of Ireland’s banking and economic crisis and austerity responses to this, insufficient policy attention has been paid to supporting job preservation and creation in SMEs since 2008. Furthermore, many initiatives have tended to be quite small-scale in nature, and there could be better coordination between the various components of support for SMEs across government departments and agencies. This is because a targeted whole policy package would work better than if individual components are implemented in a reactive, uncoordinated and ad hoc manner. There are signs that the current Fine Gael-Labour Party coalition recognises the requirement for an integrated interventionist policy response and it subsequently launched its ‘plan for jobs 2012’, which contains a raft of policy measures to support SMEs. However, ‘plan for jobs 2012’ primarily contains supply-side proposals, and the social partners are in unison in calling for a demand-side jobs stimulus to generate growth and employment. But the social partners no longer have the same policy input following the breakdown of Ireland’s social partnership model in late 2009. More significantly, the government’s jobs plan is restricted by an austerity-driven cuts agenda - fuelled by a mix of domestic and external contextual conditions (notably factors associated with the financial ‘bail-out’ by the troika of the EU-European Central Bank-International Monetary Fund and associated cuts in public spending). In the current climate, then, there is little evidence or possibility of politicians constructing a large-scale coordinated labour market demand stimulus to address the jobs crisis (with or without the social partners).
Tony Dobbins, Bangor University