Businesses have experienced a number of increased costs in recent years, including statutory sick pay, an additional bank holiday, a rise in employers’ PRSI and the prospect of the new auto-enrolment pension scheme. That’s not even to mention the increases in the minimum wage as we advance towards the living wage.
Given these higher costs, which businesses struggle to pass on to customers, the feeling among some business owners is that it is all too much, too fast, while those competing overseas worry about competitiveness.
“The biggest challenge we’ve had is that that the government brought forward a whole series of labour-market initiatives in the last two years, all of which, on their own, had merit and were sensible measures. But the problem was that they all came together and it is the cumulative impact of these that has really challenged margins across a whole range of sectors,” says Fergal O’Brien, Ibec’s executive director of lobbying and influence.
Over the past year the impacts of these changes on the hospitality sector have repeatedly hit the headlines. But they affect all labour-intensive sectors, including retail and manufacturing.
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“Even though we are long past being a low-cost economy ourselves, we still have cost sensitive manufacturing sectors, whether it’s auto components, general manufacturing or food manufacturing. For anyone selling into an export market, by and large most of them are not going to be able to recover those costs,” O’Brien says.
The reason the general public is not so au fait with the concerns of manufacturers is that we don’t walk in off the street and meet them, as we do in retail and hospitality, he points out. But elements of Ireland’s cost base are now higher than in Germany or France, countries against which we compete internationally.
The aggregate impact of government policies alone has been an increase in labour costs of between 20 and 30 per cent.
“The challenge is they have come together and are happening at a time where we have had high inflation anyway. For many businesses, it has led to a perfect storm in terms of costs to doing business,” says O’Brien.
For business owners, the only relief stems from the fact that some of the planned measures seem to have been held off, at least for now, as the previous government paused some of them.
“We’ve been raising this issue with government over the last year and can see the policy has been shifting, with an extended timeline for implementation of many of the measures,” O’Brien adds.
For example, pensions auto enrolment was initially intended to begin at the start of 2025 and has now been pushed back to September. The government also agreed to pause further increases in salary thresholds for work permits, which had been due to increase quite substantially.
For industries very reliant on work permits for people coming from outside the EU, such as the meat industry, the news that the thresholds were due to rise came somewhat out of the blue and caused enormous consternation, O’Brien says.
“It just popped out last December and was a surprise because government hadn’t engaged with business at all about it, a bit like the social insurance increase. We got a very strong reaction to it from industries that would be reliant on work permits, such as the food processing industry and the care sector,” both of which are very cost sensitive, he explains.
The fact that the minimum wage didn’t go up as much this year as it did last year, allied to the fact that the previous government was reviewing statutory sick pay, all points to a moderation of the various cost increases facing businesses, he suggests.
Ditto the fact that the three largest political parties – Fianna Fáil, Fine Gael and Sinn Féin – had suggested in their manifestos that there should be a reduction in employers’ PRSI for the most affected sectors.
“Essentially, political parties have recognised, and government has itself recognised, that too much cost was put through at the one time and that, while these were desirable policy measures, for things like pensions and sick leave, all together it placed an unrealistic burden on many businesses,” says O’Brien.
“We would hope that the next government, in addition to pausing the further implementation of some of the cost measures, will actually provide some offset through the employer’s PRSI system to give some sort of burden share.”
In an uncertain world in which geopolitical risks are mounting, that’s important.
“The Irish economy is preforming really well but these competitiveness threats are pretty sharp. The most impactful thing we can do is focus on our controllables,” says O’Brien.
