Wednesday, March 29, 2017

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Why Ireland Should Have Water Charges

From Joe's Water Blog, a piece by Joe Dalton which argues that water charges constitute a positive policy.

In my fifth article on the work of the Irish Oireachtas (Parliamentary) Committee on Water Services I again make the case for a progressive charging regime, however unlikely it is to actually happen.

Metering and charging at the household level has proved to be an immensely emotive issue in Ireland, bringing tens of thousands of people onto the streets in protest. Contractors attempting to install domestic meters have often been obstructed by local residents and there has been a widespread refusal to pay water bills. Having endured an unjust austerity program to bail out unsecured investors in European banks, water charges proved to be the straw that broke the camel’s back for many Irish taxpayers.

The establishment of the Expert Commission was the latest attempt to deal with long term political and institutional failure in this area. Charges have been suspended ever since its establishment in July 2016. Despite recognising that a charging system based on metering, combined with a well-targeted affordability program to eliminate water poverty, represented best international practice, the Expert Commission recommended universal free water allowances funded through general taxation with charges based on metering only for so called “Excessive Usage”.

In making this politically expedient recommendation the Expert Commission behaved more like industrial dispute arbitrators rather than water experts. Unfortunately, since the first meeting of the Oireachtas Committee on 10th December 2016, when the Chair of the Expert Commission (former Labour Court Chair Kevin Duffy) presented their report, they have made no further appearance before the Committee. I would love to have seen the Expert Commission questioned on what exactly they considered to be best international practices and why they so easily abandoned them.

As was entirely predictable, defining what exactly constitutes “Excessive Use” has proved to be contentious. This is before we even start to think about administering a charging system based on it. Not a single Committee member has drawn attention to the fact that such a system is contrary to what was recognised by the Expert Commission as best international practice. As such, instead of having a debate on the merits and demerits of a proper charging system, the Committee has been stuck on this needle of “Excessive Use”. It has allowed anti-water charges campaigners to correctly point out the relatively low revenue yield from this system. The fact that the revenue yield would be much higher with a proper charging system hasn’t even been mentioned by the Committee. Such is the measure at how successfully the anti-water charges campaigners have shifted the entire parameters of the debate.
Should Ireland adopt the Scottish model?

The CEO’s of Scottish and Welsh Water both gave evidence to the Committee on their experience, or lack of it, on domestic metering and charging. The Irish water warriors have latched onto the example of Scotland, which has negligible domestic metering. What they studiously ignore is that Scotland has flat domestic water charges at a level considerably higher than Ireland’s short lived experiment with them.

Between 80 to 90% of the costs of water services provision are fixed regardless of the levels of consumption. All the infrastructure that has to be put in place to connect a household has to be paid for before a single drop of water is used. That is the logic of many countries having a fixed and variable element to their charging system. In a combined fixed and variable charging system there is often a usage allowance encompassed by the fixed charge. The fixed charge is usually at a higher equivalent volumetric level than the variable charge and helps the utility pay for its fixed assets.

Scotland have taken this to the ultimate level and have decided to fully obtain their cost recovery through the fixed charge, ditching altogether the variable element and the domestic meters required to measure it. There are advantages and disadvantages to this. The obvious advantage is ease of administration of the charging regime and the maintenance costs associated with it. The disadvantages are lack of knowledge of customer consumption and customer side leakage patterns.

Across England and Wales the level of domestic metering is approximately 50%, with flat charges for those unmetered similar to Scotland. Generally in England and Wales, for sole or limited occupancy it is financially better for the user to be metered, for large families it is better to be on a flat charge. The highest level of domestic metering (80%) in the UK is with Anglian Water. This is not accidental. Anglian Water encompasses the most water scarce part of the UK. The principle of paying for water via a flat charge was already well established prior to this level of customer metering being achieved. Therefore, the decision by Anglian Water to expand the level of domestic metering was not driven by a need to increase revenues, but rather to increase awareness of usage patterns of a scarce resource.

What constitutes a progressive and effective charging system?

In my view, a progressive and effective charging system would encompass an option for either a full flat charge or a combined fixed and variable charge. That would take the best of the Scottish and Welsh, and indeed all other, operating models. It recognises the impracticality of achieving universal metering. The fixed portion could be paid for by the Department of Social Protection for vulnerable users, thus tackling the water poverty issue. Would this not be more progressive than universal free allowances and ensure that the rich pay more? Why should the rich get a free allowance? In recommending this I recognise that it is not remotely on the political agenda.

The Irish anti-water charges campaigners wish to take what they like, lack of domestic metering, but ignore what they don’t, domestic water charges, from the Scottish example. This is a recipe for continued failure and ignores reality. Water infrastructure has been underfunded in Ireland for several decades. Until 2013 water infrastructure was funded based on the annual local government budget for the 34 local authorities. This wasn’t the most effective or efficient way to allocate capital. The layers of bureaucracy between the source of the funds and where the investment was needed increased the likelihood that funds would be captured by some other political priority of the day.

A regular refrain from anti-water charges campaigners is that “we already pay” for water services through our taxes. The truth is that we pay taxes that get spent on something else. With the current political focus on water in Ireland, and the creation of a national water utility that can more effectively lobby for funding (though anti-water charges campaigners want it abolished), there should be an increased likelihood of sustained Government financial support for the sector. However, it is a fact that, as stated to the Oireachtas Committee by John McCarthy from the Department of Finance, Government spending priorities change. The Department of Finance remains opposed to indefinite ring fencing of funds that would reduce their flexibility.

However well-intentioned may be the expressions of financial support for the water sector, the reality is that funding through general taxation would become dependent on the whims of the electoral cycle and the political priorities of the day. This is a water engineer’s nightmare. The politicians, and the public, should remember this the next time they read about raw sewage discharges or high leakage levels. Like Scotland, Ireland needs a stable and predictable revenue steam to ensure that water services are fit for purpose.

3 comments :

menace said...

Couldn't agree more, we do need pay for our utility usage. At the same time the Free State and six county governments can reduce the amounts we pay, in the Free State through vehicle excise duty, in the six through rates, by the amount we pay towards the utility.
On foot of this, we can pay fairly for our usage but, did we really need to be threatened with paying for the same utility twice, just to keep the German's happy?
Time for Irish politicians to grow a pair on behalf of their people.

James Quigley said...

Any county that is progressive should not have water charges. Clean adequate water and a sanitation service should be provided by the state to everybody as a natural and fundamental human right.

As for your other silly and divisive argument about why should the rich etc etc, any progressive country should tax the wealthy proportionally.

The EU should not be allowed to hide behind obtuse environmental legislation to push their draconian and corporate neoliberal agenda, indeed an international practice.

As for this convoluted and political hoodwink of an Oireachtas Ctte, I see the nuts and bolts maybe more as an engineer's wet dream than a nightmare

Joe Dalton said...

James,

I agree that water and sanitation is a human right. That doesn’t mean that it is free at the point of use. This notion isn’t remotely on the agenda of those working to achieve the United Nations Sustainable Development Goal of universal global access to water and sanitation services by 2030. Several countries have recognised the human right to water in their constitutions. They still have water charges.

By your logic, Ireland is the only progressive country in the World. And look at where it has got us. Funding through general taxation hasn’t worked in Ireland for the last several decades. What makes you think it’s going to start working now?