Costs of Doing Business in Ireland 2010 Post author By The Irish Economy Post date July 26, 2010 The recently published NCC study on the costs of doing business in Ireland can be found here. Categories In Uncategorized 26 Comments on Costs of Doing Business in Ireland 2010 ← Revisiting the NDP → NIRSA Report on Irish Property Market Planning 26 replies on “Costs of Doing Business in Ireland 2010” The NCC have produced a lot of decent reports in recent years, yet they seem to be labouring in almost total obscurity. Ditto the Competition Authority. It wouldn’t take much to licence new course providers for Barristers, thereby lifting the cap on places and injecting some healthy competition to the setting of legal fees. If an experienced employee be expected to earn more than a junior employee & a young population could indicate a higher proportion of junior employees then these statistics show some interesting imbalances. & a low tax wedge implies that the population can be trusted to manage its own finances (social security) and save for rainy days. Judging by the high indebtedness in Ireland (& some other places with low tax wedges) I think there is a risk that this trust was misplaced. Average wage comparisons are interesting. Another interesting comparison would be to see median wages as well. We have had contented purrs from some of the usual suspects but it’s hardly a big gaisce to have bubble era business costs falling during a subsequent bust. The big question is if there have been any changes to ensure that there won’t be a return to price gouging and uncompetitive practices? High unemployment will keep a lid on private sector wage costs for some time but for some in the private sheltered sector, it’s business as usual. Who would blame the fat cats when their biggest benefactor the government/public sector plays the role of pussycat? Some public work is only given to a small number of big firms and of course they don’t compete on price. The winning tender price may or may not be available via an FOI. There are many examples and one could drone on with a litany but one will suffice: Fees paid by the DPP to 169 lawyers in 2009 were €15.2m in 2009 up 11% on 2008 and from €10.2m in 2004. The Irish Times reported that a DPP spokeswoman said last April that the 8% reduction in barristers’ fees from April 1st meant that counsels’ fees “have been reduced since September 2008 in the order of 22%”. Director of the Bar Council, Jerry Carroll said the cuts in fees since September 2008 “are pretty severe”. He added: “It is a very stringent cut. We want to play our part and have been playing our part and the DPP has recognised this. We would have preferred if the case put forward by the DPP had gained resonance with the Minister.” Is there a market and a market rate? I don’t like how the graphs switch between comparing Ireland with EA15 then EA14 then EA11. If data was not available it should be clearly stated. Otherwise it looks a bit dodgy. @ MH Too right. The legal profession is an utter racket. Its really amazing that they get away with it given almost every other cartel and monopoly, like the taxi business, has been smashed. It really reveals the power of a small well-educated elite and their ability to defend double standards (or is it double-think?). You won’t hear B Lenihan talking about the need for greater competition in the legal profession – competition is for everyone else. And they still insist they should be allowed to self-regulate through the law society! How are Irish farmers/ businesses so supposed to compete when professional fees are so much higher here? With the recession the employment prospects for legal graduates has gone back to what it was in the 70’s/80’s. You have to have very good connections to get anywhere – a closed shop. Fair play to you for drawing attention to their carry on. More of the same please! @Michael H, I can only applaud your persistence and tenacity, but, for me, ploughing a slightly different furrow, I find it very difficult to see how the necessary reforms will be implemented. The mantra for successive governments has been “more competition and better regulation”, but all the effort has been expended in creating the optical illusion without any substance – and the NCC, perhaps unwittingly, has been part of this charade. Compared to competition authorities in other juriscdictions, in particular the US DoJ and the EU’s DG COMP, the Competition Authority is both powerless and toothless. We’ve had financial regulation that didn’t regulate; it’s now working and has slammed the stable door after the horse have bolted – even if a few grubby fingers were caught during the slamming. But the banks, even if we would like them to lend to struggling businesses and start-ups, are not taking any risks that might need supervision and regulation. We have an energy regulator implementing the policies of successive governments which regulates in the interests of the semi-states and enthusiatically implements a deeply flawed model of competition. Water and waste water services are ‘provided’ by 30+ local authorities and the the principal current concerns are to levy water charges as a revenue raising exercise that bear no relationship to the costs of providing an efficient supply and to meet EU requirements that these bodies actually do what they are statutorily mandated to do – provide safe-to-consume, potable water. The concept of an integrated transport policy that takes account of the demand for service and the full economic costs of different modes seems to be beyond the comprehension of policy-makers. We have a government that wishes for an ‘innovation hub’ and developing countries are moving ahead of us in terms of an ICT infrastructure. Regulatory bodies and quangoes litter the landscape in other sectors all implementing implicit or explicit government policies – which inevitably pamper vested interests at the expense of consumers – but their existence allows government to distance itself from their decisions. Even if there were a willingness to tackle these issues – beyond the generation of further optical illusions – it appears the capacity does not exist. It seems to have been exhausted in the construction of the NAMA merry-go-round where NAMA stores the banks’ dodgy loans (and collateral) keeping property prices from slumping, issues bonds at a low coupon which the banks can repo (while the window stays open) at the ECB and buy government bonds at a healthy coupon (thereby building their profits) and which allows the NTMA to limit its reliance on the international market. (Why would the banks lend to anyone at a risk-adjusted rate less than the coupon on sovereign bonds?) And, given all this – and the pressing need for thorough-going refrom – we are facing the almost certain prospect of an incoming government comprised of FF-lite and Labour. Does anyone seriously believe we will see the changes required? @Rory O’Farrell, I agree. It’s very important to ensure the basis for cross-country comparison is correct – particularly when one is looking at prices in other countries that incorporate their own specific inefficiencies as a means of avoiding consideration of inefficiencies in one’s own. There has been some discussion above on the “racket” that is supposed to characterise the legal profession. Figure 6.2 on P 45 of the Competitiveness Report shows a big divergence between accountancy and legal serivces: in the former there has been much greater price flexibility compared with legal services, where the very large increase in legal costs between 2007 and 2008 seems to have persisted. On the other hand there appears to be a high and increasing rate of unemployment among solicitors, so the source of the problem would not seem to be entry restriction, but maybe some form of collusion in pricing by legal firms. For barristers, historically there have been a few high earners and a long tail of sometime very low earners, many of whom quickly exit the profession: maybe there is a scarcity of really high-grade talent at the Bar, but once again entry restriction would net seem to be the source of the problem. IF you want to see a real racket, then look at the medics. Fig 7.4.5 (p55) shows that Ireland is a world-beater when it comes to salaries of specialist medical personnel. Here there have been severe restrictions on entry since the 1980s and recent moves to increase entry seem to have been quite limited. And some people think that it is right to provide medical degrees for zero tuition fees! So this is one case where the state has managed to produce some really mind-boggling distortions. A final snippet for Richard Tol: On the subject of waste charges the report remarks on the cost of thermal treatment (p 40): “It is proposed to ntroduce a levy (€20 – €38 per tonne), with potential for this to increase to €120 per tonne over time. The fee for the service would be charged in addition to this levy, potentially resulting in a cost almost twice that of other countries”. Another own-goal in the making. “It wouldn’t take much to licence new course providers for Barristers, thereby lifting the cap on places and injecting some healthy competition to the setting of legal fees.” I think this is a red herring approx 90% of people who sit the bar entrance exam pass approx 75% of people who take the kings inns course pass Ireland has above 2,000 barristers whereas England & Wales has approx 12,000 (approx 30,000 would be scale consistent) More than 50% of barristers who come down to the law library dont last 5 years. They simply don’t get work. You’re pushing an open door by having an extra course provider. @ Christy, you make a convincing case. I concede that numbers alone won’t change anything. Yet, somehow, I feel it must be possible to liberalise the entrance to the Bar, while finding some way to ensure that progression within the profession is rewarded sensibly. The current situation is wrong on several counts -it combines restrictive entry, with punishing apprenticeships, and a ridiculous premium for those who have accumulated a given number of years’ experience. Another problem for legal fees is that Barristers are selected by solicitors (who don’t have to pay their fees), instead of clients (who do). Also, the costs of insurance to legal professionals is a serious obstacle to cost-cutting. I have often wondered what it would take to set up a clearing house for the conveyancing of property. It would prevent a repeat of the Michael Lynn situation which has cost all solicitors (both the scrupulous and unscrupulous alike) heavily in their insurance premia. Liberalising entry to the bar may reduce the cost of the Kings Inns course, but wont meaningfully reduce the start up costs of becoming a barrister. The real cost is not having an income for the start up years. Importantly, there is no end in sight in this regard – if you could say to a bank manager “I have no income for two years but I will earn x thereafter” – then you might be able to get a loan. The problem is there is no guarante you will ever get going. The key problem is that it is not easy/possible to price yourself in to the market by charging less. I suspect that a contributing factor to this is the fact that if a party wins a case, its costs are, in general and to an extent, paid by the other side as costs follow the event. The best way to reduce legal fees, and the soft spot of the bar, is the taxing master. The taxing master determines what amount of fees have to be paid by the losing party. If this were substantially reduced it would imply that a winning party would still have to pay substantial sums in legal fees that would eat into their judgement. Barristers who charged rates that were low enough to tax would then be in a position where they could charge substantially less then other barristers. As it stands a party only pays if it loses – this ups the ante and pushes the parties in to an arms race. The key problem “Fees paid by the DPP to 169 lawyers in 2009 were €15.2m in 2009 up 11% on 2008 and from €10.2m in 2004” 1 The sums involved here are chicken feed in the context of the government budget deficit. 2 There is no allowance in your implied contrast for an increase in the amount of work performed by these people. @folks, The hard thinking re law has already been done: http://www.tca.ie/EN/Promoting-Competition/Market-Studies/Professions/Solicitors–Barristers.aspx We usually get the same bullsh*t about various professional fees. V Browne runs a mantra on this theme week in week out on his TV roadshow. This is typical head in the sand stuff not related to what is happening in the real economy. If there is no buoyancy of transactions whether in the law,architecture, engineering, accountancy, dentistry etc well then fee levels fall to meet the requirements of the market. The real income of professional fee earners has been falling since 2007 except perhaps those working for NAMA. The only area that I know of where fees have not fallen is in the medical profession and this is because when the private market contracts in medicine the public market replaces it. So doctors get paid by the State when the private patients fall on hard times. If the State decides to fill our Medical Schools with foreigners because the State will not subsidise the course fees well then you get distortions in the market supply of Doctors available to treat patients. More Mary Harney penny pinching pound foolish. Good luck to the Docs. The new Elite in this country that affect the real cost of doing business is the cosseted Public Sector. Whilst there has been much whingeing about pay cuts and pension levies no one has bothered to point out that these same workers are getting pay increases anyway known as increments. If there is one reform needed in the Public Sector is that these insidious pay increases be stopped. Anyone in the Private Sector knows that you have to fight for every wage increase. There are no automatic wage increase provided there. @Ray the issue of public/private sector pay differentials has been debated to death on other threads on this and other fora, and in any case this report does not support your assertion that fees in the sheltered private sector has fallen, in fact it specifically mentions that legal fees have not fallen in the response to the recession. I for one would like to see much more debate on how the consistent fleecing of the Irish public by these professions can e address because I have experienced no fall in medical or legal fees in recent years my experience has been the opposite. The cost of private dentistry in Ireland is a minimum of one third higher than the UK for instance. This is not just because of restricted entry – none of the competition authority’s recommendations about the need for clear advertising of fees to enable the public shop around have been implemented to date. Why are lawyers the only profession which completely controls entry? University law departments should be enabled to established professional training courses for solicitors and barristers. Universities control entry to teaching and social work, why not the legal profession too? @ Ray People like you underpin the existing system by seeing the problems in the ‘cosseted Public Sector’ but being myopic to similar uncompetitive practices in the private sector, paid from the Exchequer. For example, IBEC makes statements on public sector reform but what credibility can it have when it chooses to ignore State-supported featherbedding in the private sector? Defenders of the status quo also dismiss issues of excess payment, wanton waste and effectively theft in some cases, by arguing that it’s only x% of the overall budget. However, the McCarthy/Bord Snip Nua report revealed the extent of this cancer and its cost. There is a direct link between the culture of limited or no accountability in the system and the human toll for some of people who want to work but will never again. There is no argument that the recession has impacted many professional services firms but for the insiders who get public work and the ones in receivership, examinership and Commercial Court legal cases, the gravy train rolls on. When the Taxing Master cuts a legal bill of €2.14m for the State to 18% of the total and expresses his “disgust and bewilderment” at the level of costs claimed, there is surely need for change. A claim for postage, photocopying, paper and other such costs, of €10,000, was reduced to €1,000. Would that be tolerated in Denmark, Sweden or Germany? I bet it would prompt an official investigation and likely disbarmment proceedings. What had the professional bodies to say about it? Creditors of failed firms are also victims of liquidators/receivers padding assignments with staff and expenses. However, Mr. Justice Kelly of the Commercial Court has put them on notice. One examiner last year charged €1,250 for five hours spent by one employee on “general photocopying, e-mails.” Not only was the hourly charge ridiculous but the number of hours was also likely exaggerated. Sean Byrne, an economics lecturer at DIT, wrote in The Irish Times last month that the system whereby GPs may obtain a contract to provide service to holders of medical cards under the General Medical System (GMS) was, until last year, very restrictive, resulting in the average payment under the scheme being €220,000 with one GP practice receiving more than €1 million in 2008. The Minister for Health removed some of these restrictions in 2009 which will make it easier for young doctors to participate in the GMS scheme, but many restrictions remain. The McCarthy Report recommends that the current GMS contracts with GPs and pharmacists be scrapped and replaced by competitive tendering, a proposal that is being fiercely resisted by GPs and pharmacists. The National Consumer Agency’s recent survey of GP and dentist fees showed that a GP in Dublin 4 charged €70 per visit, twice the fee charged by a GP in Kerry. The charge for a tooth extraction varied from €40 to €150 depending on where the dentist was located. The cost of Irish State financed drugs schemes doubled from 2002 to over €1.6bn in 2008. Fees and other income earned by pharmacists doubled accordingly. It cost the taxpayer an exorbitant €640m to get €1bn of drugs from factory gate to patients in the community in 2008. Even the factory gate prices to start with were high compared with other countries. As for trade unions and the status quo, the Irish Hospital Consultants Association, is one of the most powerful and famously described a salary of €250,000 as “peanuts”. Denial! denial! denial! Fortunately this country has one great potential advantage when it comes to legal fees: we’re right next door to a large, sophisticated common-law jurisdiction. Of the (relatively) large pool of top-flight London QCs, we need to have a significant proportion who can and do take cases in Dublin on a semi-regular basis. The government should therefore identify the barriers that prevent this and eliminate them as much as possible. Think of it as establishing a common market in legal services. Of course, there might be some opposition to this. 🙂 The Competition Authority has compiled numerous market studies since its establishment of the various professions and sheltered sectors (http://www.tca.ie/EN/Promoting-Competition/Market-Studies.aspx) with numerous recommendations for government/ministerial actions. There is a link to a Government statement of Mar. 2010 within this link which asserts that 40% of the CA’s recommendations have been implemented while 9% are being progressed. The statement highlights a few specific actions that have provoked some controversy, but there is no comprehensive list of the recommendations indicating those that have been implemented, those that are under consideration and those that remain to be implemented. In addition, some of the CA’s market studies stretch back over more than a decade and it may be that some of the recommendations are no longer relevant – or that more malign profit-gouging or anti-competitive practices may have emerged in some areas in the meantime. When the government and its agencies are a major source of demand for the services provided by certain sectors and professions – and in the context of a very small economy – it will always prove difficult to ensure that citizens are not being gouged. Full transparency of all government and government agencies’ expenditures is probably the only answer. If wage differentials and working conditions between the public and private continue to favour the former, who can blame young people rushing for public sector jobs? The ‘smart economy’ initiative hasn’t yet confronted the issue of salaries at third level and their impact on private sector start-ups. If the human capital deemed essential to economic growth is locked up in, and increasingly attracted to, third level careers (with risk-free entrepreneurial experimentation built-in), doesn’t this suggest a major competitive contradiction? Petitio principii – why aren’t the same people now in the private sector? Wages, etc. I cant see any recommendation by the comp authority with respect to the taxing master. The taxing master plays a vital role in determing the price of legal representation. .@ the Alchemist. So 5,000 off (top of head calculation) university lecturing jobs, many of them in Irish, classics, sociology etc. are a key impediment to getting science graduates to start businesses? Get off the stage. In any case unless fees are reintroduced soon, you won’t have to worry about this much longer as there won’t be a single job available in third level for a generation. David McWilliams is right, the key factor which undermines the development of indigenous business in Ireland, including so called smart ones is the supernormal salaries and fees of the sheltered sector. Why do a BSc in biochemistry when you can be a doctor? Returning to the subject of the cost of doing business report, I was struck by the lack of mention of bank charges which are very high in Ireland and growing. Despite the fact that they are all insolvent very few bank workers have been made redundant. To my knowledge none of the banks have implemented pay cuts, in fact the vast majority of bank officials have enjoyed pay rises via the incremental increases so despised by some posters. Increments are not confined to the public sector @ Michelle I have been running a SME business for 30 years and I deal with these professionals particularly the medical profession on a regular basis. When you meet and talk with people at a business level you do find out what is going on out there in the real economy. Gross fee turnover in Architecture,Engineering,Planning and Surveying consultancies are down as much as 90% . Fee turnover in accounting and solicitor practices is down as much as 50% since 2007. Do you not think that these people are reducing their fees to survive ? Of course they are !! I stated in a previous post that the one profession least affected is the medical profession and that has occured due to the incompetence of our Politicians which allowed our Medical Schools and related Teaching Hospital facilities to be populated by foreign students instead of our own talented young people. The result is that there is a shortage of doctors particularly male doctors and also a shortage of post graduation training places for GPs. As doctors take up to 9 years to be trained up as GPs you cannot solve the problem overnight. Result is very minimal competition for medical services. As regards the Legal profession they have learned a hard lesson in this recession that their traditional arrogance will no longer wash with the public and my experience is that they are now quoting keenly to get and retain business in a market where the number of transactions is down substanta lly. Medicine is an area where extra course providers could make a big difference @Ray “they are now quoting keenly to get and retain business in a market where the number of transactions is down substantally” I have had the opposite experience. The number of customers has fallen, but the fees have gone up to compensate for the decline in business. I found this in both accountancy and legal fees. Can’t speak for the others. The report that started this thread seems to give mixed signals on this. @ Christy, the Comp Authority addresses the Taxing Master to assess legal fees on the basis of work done, rather than the size of the award. @all Doctors are neither public service nor public sector workers. They are private agents who do contracts for the State. @michelle norris Salaries in general are too high across the public sector. The Buckley Report, benchmarking, etc have driven up the costs of staffing the public service. Echoing questions raised by Peter Sutherland, can Ireland really afford to fund the third level sector that it has? @Ger I am surprised that you state that lawyers and accountants are raising prices to you. Are you buying these services for business or private purposes. I have a keen quote on my desk from a medium sized legal firm for various services that we require. Why are they quoting when previously this never happened? They clearly want to show that they are giving value for money for the services provided whereas before you found out at the end what the cost was. As regards the status of doctors in Ireland the vast majority are employed in the Public sector whether they are consultants or GPs. Some may carry out Private Practice apart from their State work but they are essentially employed and superannuated by the State through the HSE or the GMS system. Comments are closed.