RGDATA tells Harris: support for independent food/convenience retailers that address the huge increases in wage bills

RGDATA has made its Budget 2025 submission directly to Taoiseach Simon Harris urging him to back up his stated commitment to SME businesses by adopting a whole of government approach to delivering specific supports for independent food/convenience retailers that address the huge increases in wage bills prompted by Government policies.

In a letter to the Taoiseach,  RGDATA said it would usually make an annual Budget Submission to the Minister for Finance and the Minister for Public Expenditure, NDP Delivery and Reform.

Reasons

‘However, this year we are directing our Budget Submission to you as Head of the Government for a number of reasons:

‘In the first instance you have identified supporting SME enterprises as a core focus since taking office as Taoiseach. As we face into a series of elections, the measures introduced in Budget 2025 will very clearly set the context against which the SME sector, including the 3,000 retailers that RGDATA represents, will judge if this Government is truly committed to supporting their businesses as key socio-economic hubs within their communities.

‘Secondly, the issues impacting on the food/convenience retail sector which need to be addressed in the Budget straddle a number of different Departments and are not the sole preserve of either the Department of Finance or DPER. A whole of Government approach is required which carefully targets interventions required to support SMEs. As Head of Government, there is a special responsibility on you, as Taoiseach to ensure that the Government in the round, gets this right.

Concessions

‘Finally, if this Government wants to genuinely show that it supports SME businesses then it needs to ensure that all employee related proposals and any other policies, that directly add to the cost of running an SME, must be cost neutral to the business, now and going forward. In other words, if Government policies create an increase in costs for SME businesses, the Government must also give a concession that negates the increased cost.

‘Otherwise, State imposed costs are going to increase inflation and the cost of living, reduce employment, reduce competition and cause shop closures that will wreak havoc with rural town centres and villages.

Extremely Difficult Year

‘The last 12 months has presented significant challenges for SMEs in Ireland, particularly businesses in the food/convenience retail and hospitality sectors. The slew of Government imposed increases in labour costs over the last number of years has presented serious challenges to SME employers, who have had to face unprecedented State imposed increases in the cost of employing people and running a business.

‘These increases have been introduced without any regard for their affordability by SMEs and have placed many viable businesses in serious peril.

‘The Report on the Assessment of the Cumulative Impact of Proposed Measures to Improve Working Conditions (DETE, 2024) recognised the impact of these measures on SMEs in the Food/Convenience Retail sector. In particular the Report noted that the increase in the Living Wage would have a massive impact in terms of pay relativities and follow-on costs.

Reduce overheads

‘The Report contained a specific annex (D) examining the cost implications of the increased measures and indicating the limited options available to these retailers to reduce overheads or increase prices to compensate for the additional labour costs.

‘Ultimately as the Report noted, the consequences of these unrestrained increases in costs would lead to Food/Convenience Retail SMEs floundering as they are unable to maintain a business that depends on high turnover, low cost, high payroll value and numbers to remain viable. These are low margin businesses.

‘The main response from SME shop owners in the food/convenience retail sector has been to cut the number of employees, reduce employee hours and work longer hours themselves–measures which have been necessary to ensure business survival, but do not achieve the public policy objective of improving working conditions.

May 2024 SME Supports Inadequate

‘RGDATA notes the programme of business supports that were announced by Minister Peter Burke on 15 May 2024. Minister Burke had already indicated that he could only introduce measures within the context of the existing budgetary framework, which emphasises the need to ensure that Budget 2025 provides meaningful measures and supports for a full year.

‘Regrettably there was very little of any tangible benefit for independent food/convenience retailers in the Minister’s Programme of Business Supports. There were very limited proposals to address the increased cost of labour. In addition, one off supports like the Increased Cost of Business Grant do not address the on-going increased cost issues for SME businesses that employ significant numbers of people. These viable local shops require ongoing measurestargeted specifically at reducing wage costs.

SME – means Small and Medium Sized Enterprises

‘As a general comment it is important that business supports that are directed at the SME sector actually deliver to that sector. Regrettably some of the eligibility thresholds for the various reliefs introduced to date have excluded businesses that fall within the medium sized classification of SMEs.

‘For instance, the rates refund announced in Budget 2024 did not apply to medium sized businesses that paid more than €30,000 in commercial rates. The most recent list of measures to support SMEs also excluded business that employ over 50 people from some of the reliefs proposed.

‘This is misplaced, as businesses in the medium sized category will have been increasingly adversely impacted by raised labour costs and face more significant operational challenges.

‘A “medium sized” food/convenience shop employing over 50 people and operating from a town centre in rural Ireland is a tiny minnow in the overall retail/convenience sector and yet competes on a daily basis with the biggest global players in the world. These businesses also need support to meet the increased costs of business arising from new State imposed measures.

Enterprise policy

‘Surely it is a core part of Ireland’s enterprise policy to support businesses within the SME sector to grow and thrive in scale and not for the State to constrain growth by adding significantly to the cost base of businesses or by preventing SME businesses that employ more than 50 people from accessing State supports.

‘For any relief proposal to be effective it must be tracked to employment numbers and overheads – this is the most effective way of providing support for increased employment costs as it directly relates to the headcount in businesses.

Specific Budget Proposals

‘In the context of reviewing measures that might be contained in Budget 2025 with the direct aim and purpose of supporting and sustaining SME businesses, including those in the independent retail grocery sector, RGDATA believes that there are seven specific measures that would make a real difference to Retail Grocery SME employers struggling to keep costs under control and businesses afloat as a result of recent Government imposed costs:

1. Employers PRSI reduction – a lasting reduction in the Employers PRSI rate is a targeted and direct intervention related specifically to employment costs. It would not require any additional direct outlay by the State and would be proportionate to numbers employed and the earnings provided. Consequently, it would be targeted, measured and proportionate, without imposing a direct funding requirement on the Exchequer. Noting the very limited and inadequate concession on Employers PRSI made in the May 2024 SME supports, RGDATA believes that a meaningful concession on the Employers PRSI rate is required to reduce the rate to 6% until 2028, to facilitate any adjustment to the Living Wage and to compensate for the increased costs associated with the roll out of the new Statutory Sick Pay Scheme. This would make a meaningful contribution to Retail Grocery SME Retailers to offset the increased employment costs arising from State measures.
2. Reduced Employers Student PRSI rate – RGDATA also believes that there is a public policy rationale to reducing the rate at which the Employers PRSI rate is charged on earnings of students who are in full time education and working in SME enterprises on a part-time basis. The employment of students for part time work has a significant training element and is often the students first time in the workforce with employers devoting considerable time and effort to supporting and training in students seeking to subvent their income during school or college years. RGDATA believes a reduced employers PRSI rate should apply to such employees given the nature of the work, the training element involved, and the limited duration and earnings of the employment concerned. The employers PRSI rate that applies to Community Employment Schemes would be a comparable measure at .5% would be appropriate and could in part be subvented by a contribution to the Exchequer from the National Training Fund to take account of the vocational nature of the employment. The retail food/convenience workplace in particular provides student employees with lifelong workforce skills and should be recognised as such from an Employers PRSI perspective.
3. Increased Cost of Doing Business Scheme – the ICOB relief scheme announced in Budget 2024 is too limited in scope and application. It excludes many SME food/convenience retailers with higher employee headcounts, for whom the cost of living increase is a real burden. The Scheme needs to be recast so that it is available to all town centre and village food/convenience SMEs shops and not just those with rates bill of less than €30,000.
4. Accelerated Capital Allowances – at the same time as facing prohibitive operating cost increases, retailers are also facing additional new costs to ensure compliance with sustainability objectives and requirements – for instance the new Reverse Vending Machines required to give effect to the new Deposit Return Scheme involvessignificant capital outlay. The eligibility of such investments for new Accelerated Capital Allowances needs to be confirmed beyond doubt – at present it is caught in a bureaucratic fog between different Government Departments, with no guidance or support being provided to retailers.
5. VAT Reduction – the increase in the VAT rate for food services added directly to the operating costs of retailers offering food to go and led to an increase in the costs of deli sales and hot beverages for consumers. Restoring the VAT rate to 9% would make a significant difference to retailers with a food to go and in-store café offerings.
6. Defer additional increases – given the proven adverse impacts of the business costs, the further implementation of additional measures which will increase business costs needs to be deferred until the State can demonstrate that the support measures have addressed the business challenges that they have created. Employers need certainty on these deferrals rather than vague commitments to conduct “reviews”.
7. SME test – RGDATA notes the recent announcement in the May SME measures that the Government is introducing an enhanced SME test by the Department of Enterprise, Trade and Employment and the Department of An Taoiseach. RGDATA would welcome further information on this Test and some indications of how it can be hardwired into decision making structures. It is alarming that some of the Government measures which have done most damage to SME enterprises in terms of increasing operating costs, have actually emanated from the Department of Enterprise Trade and Employment in the first place, even though that Department has policy responsibilities for SMEs.