Irish Water deal thwarts new way to raise money for infrastructure

Analysis

Cliff Taylor

There were two reasons to set up Irish Water, The first was to create a single structure to oversee and coordinate investment in water and waste, replacing the haphazard system run by 34 local authorities. The second was to create a new way to raise money to pay for investment in water infrastructure, separating it from the finances of the central government.

The compromise emerging in the talks between Fine Gael and Fianna Fáil would retain the first of these advantages, but completely undermine the second. This will mean that either there will be less money available to invest in water and waste in the years ahead than if the original plan had been followed through, or less to invest in other areas of the economy or spend on services. Whatever way this is dressed up by the two parties, that is the reality.

It appears charges will be suspended for a period and there is no prospect of any significant level of charging to the public for the foreseeable future, as new free allowances are discussed. So the money will come from the central exchequer - we will pay via taxes rather than charges.

Let’s look at the organisational issue first. Pretty much everyone agreed that the old system had led to years of under-investment and created huge points of vulnerability and risk. ‘Boil water’ notices were commonplace, waste problems were not being tackled and Dublin’s supply/demand balance was - and still is - precarious.

Singe organisation efficiencies

A single organisation was seen as the way to tackle this, as well as generating the efficiencies which would come from one common body. The way the organisation was set up raised big questions about how quickly these savings would emerge, causing huge damage to the organisation and the last government. However it now plans to achieve significant efficiencies in the years ahead, reducing operating costs by a third by 2021, for example and achieving efficiencies in plans to invest around €4 billion between 2016 and 2021.

The emerging deal involves Irish Water being retained, no doubt amid a cloud of verbiage about how it will all be different in the future. This would be a concession by Fianna Fail, who wanted to abolish Irish Water - over a period of years - and replace it by a much smaller coordination body. It appears some party members are unhappy about this. Fianna Fail’s original plan would have handed back significant powers to local authorities and would have raised big questions about whether the efficiencies which should come from a central body could have been achieved.

However the other part of the emerging deal involves a concession by Fine Gael. They had wanted to retain Irish Water as a separate, independent utility able to raise its own money. Now , instead, Irish Water is to become a State agency, albeit one that will still undertake the functions of a utility. It will thus, in structural terms, be more like the National Roads Authority than the ESB.

Stay on the State books

Originally the intention was that Irish Water would gradually become an independent utility, getting less and less from the central exchequer and raising funding from customer charges – and able to raise finance independently from lenders. In turn, like ESB, this would have meant that its debts and its annual borrowing were not on the state balance sheet. The EU had ruled last year that under the current level of water charges Irish Water had to remain on the state balance sheet for the moment, but the original plan to remove it could still have been achieved in future years. Now it will stay on the State books for good.

Removing water investment from the state books would have left the government more scope to invest in other areas - roads, schools, hospitals, even USC cuts - while staying within EU budget rules. It would also have left water investment much less vulnerable to any cutbacks in overall investment by future governments. As we saw during the recession, investment spending is the first area governments cut when times are tight, because it is much less politically sensitive than day to day spending on pay, welfare and the ongoing provision of services.

Turning Irish Water back into a State agency means it will never be an independent entity and thus its finances will always be fully on the state books. The minister of the day will have to fight for investment, albeit that we are becoming better at multi-year budget planning. This raises questions about the priority that will be given to water and wage investment - which will have to wait its turn behind schools and hospitals. It will also leave Irish Water much more open to political influence in terms of where it sets its priorities for investment.

Suspension of charges

And finally there are the charges. Given the paltry amount raised by them already, the negotiators could have abolished them completely, though this would have removed any chance of having a proper charging structure in future years. So instead we are to have a suspension, it appears, and the suggestion of a future system which will raise even less money. The key reasons for keeping open the possibility of charges is that it will offer some fig-leaf against accusations that we are in breach of EU legislation which obliges some level of charging for water.