Business

The Government’s small business package unpacked: What is in it and why is it coming now?

What measures has the State introduced or promised and how have they been received?

SMEs have been hit by a significant three-pronged increase in costs in recent years. Photograph: iStock

Eoin Burke-Kennedy
Wed May 15 2024 - 17:16

What has the Government announced?

In his maiden speech as Fine Gael leader and incoming Taoiseach last month, Simon Harris promised two things: increased housing targets and enhanced supports for small businesses. The latter came on Wednesday in the form of a new enterprise support package for small and medium-sized businesses, particularly those in the hard-pressed hospitality sector.

These include increased cash supports under the existing increased cost of business scheme (ICOB), which targets businesses with commercial rates bills of up to €30,000; an increased threshold for the higher rate of employers’ PRSI; and increased energy efficiency grants.

There was also a widening of eligibility for the Trading Online Voucher and a raft of other measures. The Government has also committed to financially stress-testing any additional sick pay entitlements on small businesses and has separately pressed the pause button on planned moves to a minimum living wage.

Why are they coming now?

SMEs have been hit by a trio of cost drivers. The first relates to enhanced wage costs as workers seek higher wages to compensate for higher living costs and on the back of successive increases in the national minimum wage, which rose by 12 per cent to €12.70 per hour this year. This has been particularly onerous on the labour-intensive hospitality sector where there has been a string of restaurant closures.

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The second relates to the Government’s move to discontinue the long-standing reduced rate of VAT for hospitality (it was lifted from 9 per cent to 13.5 per cent last year). Costs have also been driven higher by the energy price shock and associated jump in input costs.

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Combined, these factors have seen the cost of doing business in Ireland mushroom. According to the Restaurant Association of Ireland, a typical food business with a turnover of €1 million will see its total costs increase by €97,000 this year. The single biggest driver, accounting for €37,000, relates to the increased VAT rate followed by wage inflation (€36,000); increased supplier costs (€13,500). Pension auto-enrolment, which is incoming, has been costed at €5,000.

What were the most significant measures in the Government’s new package?

Perhaps the biggest measure is the doubling of the Increased Cost of Business (ICOB) grant from €5,000 to €10,000. Separately, the increase in the employers’ PRSI threshold from €441 to €496, which comes into effect from October, will ensure that businesses with employees earning the weekly equivalent of the national minimum wage will pay the lower rate of employer PRSI rate of 8.8 per cent.

The impact assessment of future changes to sick pay entitlements and a review of the pace of transition to the living wage were also heralded as significant.

How have the measures been received?

Employers’ group Ibec gave them a guarded welcome with chief executive Danny McCoy saying he hoped “today’s announcement by Government signals a new approach to addressing the very significant competitiveness pressures facing business”.

The head of the Restaurants Association of Ireland Adrian Cummins was more critical, saying the measures did not go far enough and would not stem the current string of restaurant closures.

“The only way the Government can stem the current tide of restaurant closures and secure the vibrancy of local towns and villages across the country into the future is by reinstating the 9 per cent VAT rate for our industry,” he said.

Eoin Burke-Kennedy

Eoin Burke-Kennedy

Eoin Burke-Kennedy is Economics Correspondent of The Irish Times

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