6th February 2023 – ISME welcomes the decision by IBEC to host a round table meeting of business groups this week, to discuss the impacts on labour costs and business competitiveness arising from recent measures implemented by Government.
“While we are frustrated it has taken so long to acknowledge the issues facing small businesses in particular, belated recognition is better than no recognition at all,” said Neil McDonnell, Chief Executive, ISME.
The carnage we have seen in the small business sector since the start of the year has been entirely predictable. In a letter to the Taoiseach and those ministers heading economic ministries last July, the ISME Chair, Marc O’Dwyer made clear the negative consequences of such a large adjustment in the minimum wage and other cost increasing measures being introduced by Government.
While Government has hailed the promised support package of €257m for small employers soon to be commenced, this amounts to one tenth of the increase in public sector pay announced last month; despite the fact that small and medium businesses employ about 1.4m workers; almost four times the workforce on the public payroll.
The increase in VAT and labour costs between November and January is simply too large for small businesses and consumers to absorb. Therefore, businesses are closing down.
Government will say that the drive towards the “living wage” is based upon adequacy metrics set by the EU, requiring minimum wages of 50% of average, or 60% of median wages, whichever is higher. This is true.
However, Ireland is unique in Europe in that 48% of our workforce is either employed by the public service or in a large or multinational business. Despite the fact that large businesses make up only 0.2% of Irish firms, they employ 34% of the workforce. Public sector wages are at a premium of 33% over private sector wages, and 53% over small company wages. This size of public/private pay gap is only seen elsewhere in Spain and Portugal, where private sector wages are far lower than ours.
The very high level of wages enjoyed by workers in multinationals and in the public service simply cannot be matched by small employers. Benchmarking our minimum wage against these high wages is therefore doomed to fail.
In order to prevent a flood of small business insolvencies, Government must immediately introduce a package of measures to mitigate the losses being suffered:
- The 8.8% lower rate of PRSI must be extended to cover the full extent of the minimum weekly wage.
- The 9% VAT rate must be reintroduced for the hospitality sector.
- The 23% VAT rate, the introduction of which the Department of Finance appears to have suffered a bout of collective amnesia, must revert to its historic 21% norm.
- Further increases in the national minimum wage must not exceed CPI.
- Until the fiscal rules restricting state spending on workforce training can be relaxed, the 1% training levy should be temporarily suspended, and the €1.4bn surplus in the National Training Fund should be wound down.
- Unless and until the state reintroduces the statutory redundancy rebate, which employers have paid for with a 0.5% PRSI levy since 1979, employers PRSI should be reduced by 0.5%.
- Government must immediately publish its report on the labour market impacts of its cumulative adjustments to labour costs.
- In order to avoid future repetition of recent mistakes, Government must provide for credible engagement with the small enterprise sector. The Labour Employer Economic Forum is a talking shop for Big Business, Big Unions, and the semi-states. By the recent admission of trade unionists, the last LEEF meeting did not even discuss the minimum wage change.
The ISME Chair’s letter to the Taoiseach is available here:
Issued on behalf of ISME by Heneghan