The Irish Small and Medium Enterprises (Isme) association has challenged the Government's decision not to split ESB into different components.

Speaking at Isme's annual conference, chairman Daniel Hickey highlighted the fact that production costs in the State were rising at an average of 10 per cent each year, more than twice the current rate of inflation. Over the last five years, Ireland had slipped from its ranking as the world's fifth most competitive country to 21st place, he said.

Mr Hickey stressed that the Government must address "out of control" energy costs, which were undermining business activity and which had a greater impact on the small business sector.

He also questioned the Government's decision on ESB's future. "Isme is flabbergasted that the Government has decided to ignore in its entirety the advice of its own advisor, Deloitte, in relation to breaking the ESB into a number of different entities to generate competition in the sector," he said.

Isme believes that the development of the small enterprises has been seriously undermined by Government policy, which it says is geared towards attracting foreign direct investment. State support given to the small business industry is mainly focused on "high potential" businesses, mainly in the technology area.

Mr Hickey said that, although this strategy makes sense, these companies are being prioritised to the detriment of other small firms. In fact "high potential" start-ups make up just 1 per cent of all small businesses in the State, he said, and the remaining 99 per cent was "left to their own devices". "I firmly believe that these companies still have a huge contribution to make to the domestic and local economies," Mr Hickey said. "They are owned and operated by locals, the capital employed is local and not mobile international monies."

Delegates also heard that over-regulation and red tape have a detrimental impact on small and medium-sized companies.