Why is ‘Toxic’ Irish Water between 13% – 26% cheaper than ‘non toxic’ NI Water…?

On 21 January Sinn Fein launched their election campaign to abolish water charges in Ireland, which in typically Irish fashion are unnecessarily complicated with headline revenues of €266m a year, €150m in claimable subsidies and a €21m collection cost, netting approximately €95m per year.

It’s an unusual arrangement that reflects much political interference versus the more traditional OECD model of full recovery and profit, with subsidies aimed at the less well off in some jurisdictions.

History of Water charges

In 1977 in the most cynical episode of auction politics in Irish history the electorate endorsed a platform to abolish three solid and stable sources of income: motor tax, domestic rates and water rates, within a few years motor tax was reintroduced followed by revived water rates in 1983, you can’t govern a country without money and in 1983 Ireland running a colossal deficit had no public money.

In 1997 with the coffers overflowing at the height of the tech bubble, water rates were abolished for a second time. Services now paid for by general government funds.

In 2008 a calamitous period arrived where some €100bn was borrowed over a 7 year period into 2014 to pay solely for day to day expenditure such as pensions and public services over and above what general taxation was able to raise in an economy on its knees initially.

Reintroduction of Water Charges

In 2014 water charges were announced as being reintroduced as of 1 January 2015, initially based on a system based on an allowance for the first two adults and first two children and then per 1000 litres above that.

The average charge was calculated as likely to be €240 per household based on two adults and two children, however a major mistake in framing these charges was a failure to give allowances to larger households with say 2 parents, 2 adult children and 4 school age children, which resulted in conspiracy theories being deceitfully spread that very many households would pay an average of €1,000 per year.

Understandably there was a lot of concern which manifested itself in protest marches that achieved a crescendo on 1 November 2014 when RTE estimated that c120,000 protested in most counties from Donegal to Wexford, the largest protest number achieved in Ireland since January 1980, ironically against general tax rising to make up for abolished water rates.

The government climbed down, capping charges for 3 years at €260 per household and  €160 per sole occupancy household. However once people registered with Irish Water they were entitled to claim a conservation grant worth €100 per household for each of the first three years.

It is generally felt that it was a mistake to eliminate metered charges when it was far easier to rectify by allowing all occupants of the house to receive an allowance, as verified by their PPS or national insurance numbers.

Protest numbers fell away gradually over the next 14 months to the extent that on 23 January 2015 crowds at 30 events are likely to have totalled between 10,000 and 12,000, clearly the public have moved on, figures released in January 2015 confirm that 64% of the amount billed was collected in Q3 last year up from 43% in Q1.

Comparable analysis Irish Water versus Northern Ireland Water

 Conventional wisdom is that if you have 34 local authorities each providing water services but confined to the geographical area that amalgamating water service provision into a single nationally managed utility will be cheaper as geographical barriers and duplicity of management structure are removed.

In the case of Ireland this was not straightforward as over 4,000 local authority jobs were protected by existing employment contracts and the planned 1,500 reduction in staff numbers to roughly 3,000 staff is proceeding more slowly via retirements and voluntary departures versus a large redundancy process.  

To October 2015 some 300 staff have left the business and not been replaced, with annual savings targets of 7% in each of 2015 and 2016 with the process seen as completing in 2020 with costs close to 26% or €200m lower than 2014.

In 2014 Irish Water’s current operation cost €794m to run and make allowance for interest and depreciation; net of commercial income totalled c€230m leaving a domestic burden of c€564m.

There are 1.5m households in Ireland using services provided by Irish Water or an average cost to supply of some €376 per domestic household, it is estimated this fell by 7% to €350 per end 2015.

On population basis the cost per person is in the region of €122 per person in 2014 and predicted to reduce by a quarter by 2020, although prediction does not equate to actual.

Now for the hard bit. Northern Ireland is more complicated. Publicly available figures include both current and capital spending, which are not broken down in NI Water’s 2014/2015 annual report.

The Block Grant provides £270m per year to ensure that domestic water charges are not required.  Of this some £213m (€279m) or 79% relates to current expenditure and debt service cost.

The other £57m is not a valid comparison as capital expenditure and must be stripped out, giving us a current services figure of c£118 (€155) per capita.

Northern Ireland Water does not give specific breakdowns between the number of commercial and domestic customers in its 2014/15 report but it is noted that 15% relates to commercial revenues.

Total spending at NI Water in 2014/15 was £435m of which £65m was provided by businesses. A further 14% (or £61m) is borrowed  leaving £309m as domestic/road drainage cost. Of this, 79% is current expenditure relating to domestic supply or £244m (€320m).

NI Water serves 676,000 domestic households giving a current cost per household of £361 (€473). Somewhat confusingly they also give a provision cost of £411 per household. This would cover capital spend but they do not cross reference this figure to revenue or spending figures explicitly.

In itself this would also include provision of road drainage, ignoring road drainage and adopting a 79% current spend the cost per household would be £325 (€425).

Without detailed clarification from NI Water it is only fair to state that costs are in a range of £325-£361 per household (€425-€473). Alternatively cost can be considered on a per capita basis, indicating that the cost at NI Water is in the region of £118 – £136 (€155 – €178) per capita

Conclusion

One can consider that Irish Water is in decent shape after a 2 year period as a national utility with an average cost base of €376 per household versus €425-473 in Northern Ireland or a saving per household of 13% – 26%

Alternatively on a per capita basis the figure is €122 per person under Irish Water and £118 or €155 per capita at NIW or 27% higher.

Last week Sinn Fein described Irish Water as a toxic entity. If it is toxic then how would one describe Northern Ireland Water [which they are in large part responsible for] costs somewhere between 13% – 27% more depending on which metric you apply.

In my view, the most compelling arguments in favour of water charges in Ireland are twofold. Firstly not charging favours people like tax exiles and owners of holiday homes who effectively draw money out of the common pot for other essential services such as health and homeless services.  

The second argument and one reliant on metering is that polluter pays. If you are careful you will pay less.  But if you water an acre of lawns charging forces you to invest your money in your own asset, rather than sapping the less well off to fund a private luxury.

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