The wave of restaurant closures may only be the start of it

Ireland’s small businesses and those in domestic industry have complained for years that they are the poor relation of the multinational sector in the eyes of government. In many ways, this is true though of course it is regularly played up by lobbyists to try to win some new package of assistance. And domestic consumer-facing businesses did get extraordinary —and entirely justified — supports through the pandemic.

Now, however, a lot of domestic industry is under pressure, still nursing the financial fallout from Covid and hit by the cost-of-living crisis and labour shortages. And costs imposed by a range of Government policies are now a significant part of the story moving into 2024. The combination of the increase in the minimum wage and its knock-on impact, higher PRSI, the plan for pension auto-enrolment and extended sick-pay entitlements are threatening to push up costs significantly further through this year and into 2025.

Business lobby group Ibec has warned that this combination of higher costs will lead to rising prices and closures and has called for more generous terms for a Government support scheme due to help businesses facing rising costs.

All this comes as companies who availed of tax debt warehousing arrangements during Covid are due to have repayment plans agreed with Revenue by May

And now there is a new factor, set to become a big issue in some industries. Increased wage levels for those on employment permits have big implications for the meat, horticulture and healthcare sectors in particular.

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All this comes as companies who availed of tax debt warehousing arrangements during Covid are due to have repayment plans agreed with Revenue by May, though the Government is now signalling flexibility on the terms that will apply.

The various Government measures are aimed at legitimate goals. Increases in the minimum wage aim to give people a decent living. Ireland’s social insurance bill for employers is low by international standards and it is reasonable to expect companies to pay a bit more. Auto-enrolment tackles a key problem of pension underprovision. Aiming to offer higher salaries to those coming to work here in lower-wage jobs is reasonable. Getting businesses to catch up on the tax payments missed during Covid needs to happen.

But the combination of all this coming together will bring a sudden cost and cash flow squeeze to domestic businesses, in addition to the challenges many are already facing. We have already seen a string of closures in the restaurant sector and among smaller private nursing homes. Unless the Government comes up with a plan to phase in extra costs on a much more gradual basis, more will follow in these sectors and others in the months ahead.

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There are tactical issues here and also strategic ones. Ireland is already a higher-cost economy and many sectors, including the multinationals and those serving them, pay wages to match. This has been a factor in increasing price levels across the economy — including in housing but also more generally — and in pushing up wages. Add in the cost surge as inflation spiked over the past couple of years and companies in the domestic part of the economy — many of them SMEs and in lower-margin sectors — have felt the heat. They are lower-wage players in an increasingly higher-cost economy.

What does the Government see as the future of these sectors? Its goal is to eliminate “low-wage” employment, moving via successive increases in the minimum wage to a national living wage by 2026. In today’s price terms that would be close to €15 an hour, or about €30,000 a year.

An interesting test case is provided by the increased wage levels under the employment permit systems which provide a floor on earnings for those coming to work here from countries outside the European Economic Area. It is a system heavily relied on by the meat and horticulture businesses and by the healthcare sector which have been allowed to pay rates below the general floor of €30,000 up to now.

In a document issued just before Christmas, Minister of State at the Department of Employment Neale Richmond seemed to take these sectors by surprise. He announced that the minimum pay level for healthcare assistants would rise from €27,000 to €30,000 by this week, with “indicative” rates of €34,000 by January 2025 and €39,000 by 2026. This would mean that new or renewing applicants under the work permits scheme would have to be paid this amount — and would inevitably lead to pressure for increases from staff doing the same job.

The meat and horticulture sectors are also facing immediate increases under the proposals

Discussions between Government officials and Nursing Homes Ireland, the representative body for the sector, led to this increase being put on hold. Nursing homes say that setting such a target requires higher State funding under the Fair Deal scheme and from the National Treatment Purchase Fund. The planned increases for future years, meanwhile, have raised eyebrows in a sector where one-third of businesses lost money in 2022 according to a PwC report.

The meat and horticulture sectors are also facing immediate increases under the proposals. The current threshold for a general operative in these sectors is due to rise from just under €23,000 to €30,000 this month with indicative rates of €32,000 in January 2025, €34,000 in July of that year and €39,000 by 2026. Again these rates apply to new and renewing permit holders, but would quickly set a floor. A senior source within the food sector that these kinds of increases are not affordable and would eventually lead to closures, with implications for farmers.

Setting a €30,000 target is reasonable. But it is a question of how — and when — to get there. There are also issues of affordability of the higher rates pencilled in for subsequent years. Is the State prepared to pick up the bill for higher nursing home wages? And how are the meat and horticulture sectors, price takers on competitive markets, expected to cope with a rise of some 70 per cent in the pay of operatives by 2026?

There is no sign here that the various Government policies are being co-ordinated or that anyone is looking at the sharply rising costs that will now be imposed on businesses when all the initiatives are taken together. Having already given ground on the debt warehousing and delayed the nursing home wage changes, the Government will inevitably be forced into a range of further retreats in the months ahead if it does not quickly get its act together.