Belfast Telegraph

Monday 21 April 2014

Water charges: Minister must balance his budget carefully

As Stormont’s purse strings tighten, Economist John Simpson explains the dilemma facing Finance Minster Sammy Wilson over water charges

Postponing water charges has been a popular political choice. What have been badly misunderstood are the knock-on effects of that stance.

The pressure for a reconsideration of how and when to introduce water charges comes not from the way that Northern Ireland Water (NIW) operates but from the impact of the calls on the budget of the Department of Regional Development to finance the existing subsidy of over £260 million per annum.

In turn the cost of that subsidy becomes part of the budget of the NI Executive. Sammy Wilson must balance his budget for 2010-11 and the water subsidy adds to a growing imbalance between his revenue and expenditure.

Another part of the explanation for a reconsideration of the arrangements for NIW flows from the Treasury. The NI Executive was given a short-term waiver on a requirement to make provision for capital charges whilst NIW remains wholly within Government control. NIW will only trade on more normal commercial criteria, including its capital costs, if it trades as a self-accounting entity away from day-to-day Government control.

Even if this apparently simple presentation problem was put to one side, the stronger argument is that the NI Executive is on weak ground when it asks for continued exceptional treatment of NIW in an environment where people in every other region of the UK pay water charges.

Sammy Wilson faces an emerging and growing deficit in his budget for 2010-11. He would receive little sympathy from Treasury to maintain this extra indirect subsidy to local citizens from the UK taxpayer.

Two critical facts must be placed into this debate.

First, there is no pretence that, even now, water is not paid for. It is partly paid for from the regional rates.

Ministers in the Executive have implicitly accepted the advice from the Independent Report on Water Charges that the equivalent of £160 per annum per household should be hypothecated from the regional rates.

Second, even if an Executive decision to introduce water charges is made in the coming weeks, legislatively and administratively the arrangements could not be effective for March 2010: the process must aim at March 2011.

Mr Wilson is facing serious problems which cannot wait for responses until 2011. As he prepares his budget for 2010-11, other adjustments will be needed.

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