Re-casting water charges: a political fix for Fine Gael and Labour but at a price

The debate about water charges will surely be looked back on as a defining issue for this Government. Caught off guard by public opposition to another charge on their income, and to aspects of the way Irish Water was set up, the Government has been desperately scrambling to catch up. By doing so it has certainly addressed some of the key issues highlighted by opponents to the charges, although much more of the long-term funding of the required investment for water will now fall back on the exchequer.

The new charging structure shows very significant changes from what was initially announced. It is, of course, a political fix. It will indeed cut the burden on households significantly, though inevitably it creates the question of where the money for planned investment in water is going to come from in the years ahead. The answer is that more of it will come from general taxation, particularly when the cost of the €100 household refund is counted in.

The revised charges may take some of the heat out of the debate. That said, serious damage to the Government has been done. The mistakes in the establishment of Irish Water and the associated charges are numerous: the initial structure of the company was not designed to minimise costs; spending on consultants and staff pay and bonus arrangements were inappropriate; and the initially announced charges were unclear and likely to be a sizeable burden on some households.

The Government has tried to unpick these various issues one by one. Some of the structural issues in Irish Water have been tackled, though its cost structure will remain high. The charges have been cut to a more manageable level and their introduction delayed. PPS numbers will not need to be provided to register. A long term cap will be put on the level of charges.

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The new proposed charging structure does create questions about the future funding of Irish Water. The company may just about qualify as an independent entity for EU deficit rules, but to be able to borrow money on the market to fund future investment it will have to demonstrate a clear and strong flow of income from customers. It remains to be seen if this is now achievable.

So questions remain about the extent of the investment which Irish Water will be able to afford in future years and what return, if any, its investment in meters will yield. And, initially anyway, there is little in this to encourage households to save water – bar a small possible saving. The fix which the government has attempted is all about politics, but in doing so some of the rationale for this whole new structure has been quietly pushed into the background. Having started with a huge hit to its credibility, Irish Water now faces a major challenge if it is to deliver on its promise actually to improve the level of service and supply to consumers and businesses in the years ahead.