Sinn Féin and the DUP agreed to govern together at St Andrews in part to avoid being blamed for domestic water charges, so it is no surprise they have ruled charges out again – Michelle O’Neill specifically; Emma Little-Pengelly in more general terms.
Strictly speaking, since St Andrews, Northern Ireland has domestic charges but Stormont pays them by giving NI Water £350 million a year.
If this sum had kept pace with inflation it would be almost £500 million, which explains why the water system has become starved of investment.
Stormont can continue funding NI Water’s day-to-day running costs without severe difficulty. The problem is how to address the investment backlog that has built up over the past 15 years, rendering the system so overloaded it is throttling the economy and poisoning the environment. NI Water now objects to most planning applications in Belfast because the sewers are at capacity.
The five main parties thought they had secured £2.5 billion to fix the sewers in the 2020 New Decade, New Approach deal, until they read the small print. Inflation has already taken that figure to over £3 billion.
This enormous sum does not have to be conjured up all at once – modernising the water system would take a decade or more. However, it would still be an epic challenge to find, say, another £300 million a year. If Stormont will not raise revenue or cut costs, it can borrow. The executive has more scope to do this than is often realised and borrowing is one of the subjects it says it wants to discuss with the government in the coming weeks.
Stormont is not allowed to borrow for day-to-day costs but it can borrow up to £3 billion from the Treasury for capital projects. This debt currently stands at around £1.8 billion.
The £3 billion borrowing power was arranged under the 2006 Reinvestment and Reform Initiative (RRI), a scheme closely associated with private finance initiatives, the idiotically expensive way of keeping loans off the government’s books that tripled the cost of Enniskillen’s South West Acute Hospital, for example. But the borrowing power has no such issues: it is straightforward, cheap and substantial, more than is available per head to other devolved regions.
If its upper limit had kept pace with inflation it would be £5 billion, leaving enough of an unused ‘overdraft’ to modernise water. Although Stormont can only borrow £200 million each year through RRI, this was temporarily raised under the 2015 Fresh Start agreement. These are topics for forthcoming discussions with London.
The executive already lends money to NI Water for investment and receives repayment with interest, funded by charges to business customers. So the cost of more borrowing is something that could be shared with some water users. As sewer upgrades allowed more housing and commercial property to be built, Stormont would collect more rates, further offsetting its costs.
Previous executives have been reluctant to run up their RRI overdraft. Investment is hard to manage and there is a reluctance to become directly responsible.
Now that private finance initiatives are discredited and water privatisation along the English model is an obvious fiasco, the fashionable answer for funding investment has become mutualisation. NI Water would become a public benefit company with no shareholders, reinvesting all its profits and able to borrow from private lenders.
Stormont introduced this model for housing associations just before its last collapse, via Sinn Féin legislation with all-party support. It works and nobody has an ideological objection. The issue is how to give NI Water a separate income stream so private lenders have confidence it can pay them back. Housing associations collect rent. Wales has a mutualised water company but also water charges.
Strictly speaking, since St Andrews, Northern Ireland has domestic charges but Stormont pays them by giving NI Water £350 million a year
The UUP believes itemising water separately on domestic rates bills would be enough to access private loans. Alliance believes otherwise. Former DUP special advisor Lee Reynolds says itemisation would work but borrowing would be a bit more expensive. He believes it could be combined with mutualising the Housing Executive – a mutual mutualisation – to unleash a wave of investment in water and social housing.
After St Andrews, Sinn Féin advocated itemisation to assure people they would not be “paying twice”. Although this was supposedly a key policy, little more was heard of it. We need to hear more on it from Sinn Féin and the DUP today. If they will not bring in charges, what is their position on borrowing?
There is no serious alternative.