Water Charges and privatisation
This chapter will focus on what the Government
is actually proposing for the Water Service. It will show how water
charges and the re-organisation of the Water Service are a step towards
privatisation. It will also show how local political parties, despite
their protests, have been complicit in their introduction.
(A) Water Charges
To justify the water charges and the re-organisation of the Water Service the Government has put forward a number of arguments. While these could be dismissed it is important for the anti-water charges campaign to refute these arguments and deny them any credibility. In this the work of the academic David Hall, who was commissioned by the trade union NIPSA (Northern Ireland Public Service Alliance) to write a response to the Government’s proposals for the Water Service, is of great value. His forensic and detailed paper(1) comprehensively demolishes the arguments put forward by the Government. The following section draws extensively on Hall’s paper.
Speculation over the introduction of water charges was confirmed in March 2003 with the publication of the Government consultation paper “The Reform of Water and Sewage services in Northern Ireland”. This set out in detail proposals for the re-organisation of the Water Service, and included the introduction of a separate water charge that would average, at least initially, £350 - £400 a year.
New investment needed?
The Government paper claims that charges were required for the increasing level of investment needed to sustain the Water Service into the future. It states a figure of £3bn over twenty years. However, what is significant about this figure is its consistency with other investment projections going back over a decade. Rather than being a new higher figure for future investment, it is no more than had previously been expected and had been budgeted for in existing plans. This works out at around £150m per annum. While this represents an annual increase of £50m, that is already provided for in the Water Service budget. It provides for capital expenditure of £139m in 2003/04, £148m in 2004/05, and £174m the following year (2005/06).(2) Over this three-year period the average level of annual investment that the Government claims is required (£150m) is actually being exceeded. By 2006, the year when it proposes to introduce the new charge, annual investment will no longer be rising, and will not be expected to rise.
The claim that charges are needed to fund increasing investment in the Water Service is false. The Government’s own figures show no dramatic increase in funding projections, and cannot be used to justify introduction of water charges at the level it proposes.
People do not currently pay for their water?
The Government claims that people in the north do not pay for their water and sewage services. While it is true that there is no “direct” payment, this does not mean that people do not pay. Rather they pay “indirectly” for water through the rates system. The distinction between direct and indirect payment is a false one. For example, there are no direct charges for health and education, but no one would accept that people do not pay for these services. They do pay for them, out of general taxation.
How much people actually do pay for water and sewage is a matter of debate, and the Government has been deliberately clouding the issue. However, we do know that the figure was quantified in 1999. In a foreword to a consultation paper of that year, the minister responsible for the Water Service, acknowledged that “the contribution this year by the average domestic ratepayer in Northern Ireland for water and sewerage services is £127”.(3) The total Water Service expenditure for that year was £195m. It came from three funding sources: £150m was provided by the rates, £36m by commercial users, and the remaining £9m came from central government.(4) This means that ratepayers contributed almost three quarters of the Water Service’s annual budget.
The 1999 paper also quantified the expense to ratepayers of a rise in the Water Service budget. It estimated that “increasing the Water Services annual income by an additional amount of £50million would represent an increase of approximately 10% in the average domestic rates bill (roughly £35 per annum…)”.(5) That means that in 1999, the budget of the Water Service, just under £200m, could be increased by £50m to a level of £250m, and be financed by an annual domestic rates bill of £162m. This figure is calculated by taking the then level of £127 and adding the £35 required to fund the extra £50m. In this formula a £35 rise in the rates equates to a £50m rise in expenditure. If you apply this to the Water Service expenditure forecast of £313m for 2005-06, which is £118m above the level in 1999, then households would have to pay an extra £82 in addition to the 1999 level of £127, giving a total contribution of £209.
The Government has put forward a number of reasons for the disparity between the increases in rates it estimated in 1999 and the level of water charges it is now proposing. Firstly, it claims that the earlier figure was based on a funding formula in which households only met 40 per cent of water and sewage service, rather than the 60 per cent they use. This has now been adjusted so households pay their full share. Secondly, it claims that the earlier estimate assumed that the 17 per cent of households not connected to the mains would contribute to the rates increase. Under a direct charging system this would not be the case. Finally, it claims that the annual Water Service budget has risen from £195m in 1999 to £370m in 2004/5. However, even if these claims are accepted they still cannot justify the level of water charges proposed. Making households pay the full percentage for water services takes the original estimate of £35 up to £54. Discounting the 17 per cent of households not connected to the mains makes that £64. Multiplying this by the 90 per cent increase in the Water Service budget gives a figure of £122.(6) This is the amount, accepting the Government’s own formula, that households would have to pay more in the year 2004/05 to fund the Water Service. In total the contribution per household would be just under £250 per year. This contrasts with the average level of the proposed water charges of £400 per year. The level of these charges has no connection with the projected expenditure of the Water Service.
In an attempt to shift responsibility away from itself, the Government has claimed that water charges are required to comply with the European directive on water services. However, the Water Framework Directive (WFD) does not require the introduction of specific user charges. The WFD says (Art 9 para 1) that member states must “take account of the principle of recovery of costs of water services”, and ensure “that water-pricing policies provide adequate incentives for users to use water resources efficiently” and “an adequate contribution”. The definition of what constitutes an adequate contribution is left open, and “member states shall not be in breach if they decide in accordance with established practice not to apply” these requirements (Art 9 para 4). The current system of funding the Water Service through the rates therefore already meets the requirements of the Water Framework Directive.(7) When challenged on this point the Minister responsible, John Spellar, contemptuously replied that he had never actually read the water directive.(8)
People in Britain pay more?
The Government claims that people in the
north pay less tax than those in Britain, and that water charges are a
way to ensure that people here are making a fair contribution towards public
services. While it is true that the average annual combined water
and property charge is higher in Britain, £12,000 compared to £509
in the north(9) , it does not follow that our tax burden is less.
Such crude comparisons fail to recognise that the north remains a relatively
deprived region. Despite talk of economic growth and newfound prosperity,
it still remains one of the poorest regions of the UK.
(B) Restructuring of the
As we have demonstrated above the reasons put forward by the Government for the introduction of water charges are wholly spurious. They bear no relation to investment, expenditure, EU directives, or tax distribution. So what is their significance? To answer this we must look at the proposed restructuring of the Water Service itself. It is only by examining this other side of the water reform package, that we can understand the role that charges play.
The Government proposes that the Water Service be turned into a GoCo (a Government Owned Commercial Operation). This company would take over the Water Service in April 2006, the same date as planned introduction of water charges. By 2008 the new company will have to be almost completely self-financing. While the Government would own this company, the Water Service would cease to be part of the public sector, and those employed within it would cease to be civil servants. The GoCo will operate as a private company. It will be established under company law, operate in the market place like any other for-profit organisation, and be able to contract out services and borrow money. The Government will initially be the sole shareholder, but will be free to sell off all or part of its share anytime in the future. This would effectively be privatisation.(19) Indeed, the Treasury Guidance sates that GoCo’s are only created for “those companies which are on a path to privatisation.”(20) The Minister has already stated that he “plans to investigate the role that the private sector can play in the GoCo.”(21)
Despite these moves the Government has publicly denied that it intends to privatise the Water Service. However, we do know that privatisation of the Water Service has been discussed by Ministers. This was revealed in leaked correspondence between the Secretary of State, Paul Murphy and the Chief Secretary to the Treasury, Paul Boateng. While this letter of 8 July is only one of series, it provides a useful summary of the Government’s approach towards the issue. What it shows clearly is that the Water Service is being steered towards privatisation. In the letter Paul Murphy agrees with Boateng that “privatisation must not be ruled out in the medium term”.(22) What the debate in Government revolves around is not whether the Water Service should be privatised, but how explicit this policy should be and how its introduction should be managed to minimise public opposition. While Boateng argues for an explicit link between investment and privatisation, Murphy warns that this could be “seized upon by the many opponents of water reform as evidence that the Government has a clear privatisation agenda for the water industry in Northern Ireland, against the united opposition of local politicians and the public”. Rather than the “overt pursuit of private sector involvement” that -would “strengthen the hand of those who are opposing the overall water reform package” Murphy urges “flexibility and discretion”.(23) The correspondence between the ministers reveals that the agenda behind water reform and charges is indeed privatisation. However, there is a clear nervousness about making this explicit. They know that privatisation would be deeply unpopular and do not want the battle over water charges to be fought on this issue. The conclusion that the anti-water charges campaign should draw from this is that privatisation is the basis on which water charges can be most effectively fought. For Paul Murphy and the Government privatisation is a battle it does “not need to fight”(24) ; for opponents of water charges it is one they must not be allowed to avoid.
Impact on workforce
The people who will feel the most immediate
impact of privatisation will be the workers within the Water Service.
Over 600 out of a workforce of 1,800 are set to lose their jobs over the
next four years.(25) Those who remain will face the prospect
of deteriorating conditions. The proposed job cuts alone make this
inevitable. Though John Spellar assured staff “that their interests
will be protected”, such assurances are worthless. He also said that terms
and conditions would remain intact with “broadly comparable” pension rights
subject to “independent validation”.(26) However, these commitments
are vague enough to allow for a substantial deterioration. Any new
employees of the government owned company would not be covered at all.
It is also claimed by NIPSA that there are “extensive plans to go for yet
more contracting out and Public Private Partnerships in the next few years.”(27)
A move towards privatisation involves a big attack on the terms and conditions
C. Local political parties and water charges
The main political parties in the north all claim to be against water charges. In reality they have been complicit in their introduction. Their genesis can be traced back to the period of the Stormont Executive, and the Reform and Regeneration Initiative (RRI). The RRI was announced at a joint press conference between the British Treasury and the Executive in May 2002. It would allow the Executive to use public money raised locally as collateral for loans that could finance improvements in public services. However, one of the conditions was that these loans would not come from Government but from the private sector. Any increased spending on public services was made dependent on private finance. The only capital schemes receiving capital funding could be those undertaken via a Private Finance Initiative (PFI) route.(28) In addition to having to use private sector finance, the Treasury imposed two other conditions. Firstly, rates bills would have to rise closer to the level they are in Britain; and secondly, the Water Service would have to become self-financing. Local Ministers in the Stormont Executive accepted both those conditions.(29) The Government claims that in agreeing to the RRI, the four main parties implicitly accepted water charges.(30) While this is denied the evidence of the Executive’s final budget suggests that it was preparing for their possible introduction. In his budget report Finance Minster Sean Farren announced a review of public finance, and warned that “sensitive issues” such as rates levels and domestic water charging would be up for examination.(31) While local politicians did not explicitly endorse water charges the policies they were pursuing when in the Executive certainly pointed towards their introduction.
While much of the debate about the complicity
of local politicians in water charges continues to centre on the RRI, the
proposals put forward by the Government for the Water Service have moved
beyond that. This issue has been clouded by Ministers’ claims that
charges are part of a programme to boost funding for public services. The
fact is that the reform programme doesn’t allow money raised through water
charges to be used as collateral for loans as envisaged by the RRI.
This is made clear in the minutes of a July 8 meeting between Speller,
Chancellor Gordon Brown and Paul Boateng. At this meeting, Boateng
told Spellar: “Water charges are not to be used to support RRI borrowing
once the GoCo is introduced.”(32) Once the revenue raised by
water charges goes into this company it becomes private money; the Government
will have no call on it. This again emphasises the point that water
charges are primarily a means to prepare the Water Service for privatisation.
The high level of the charges will enable the GoCo to build up a capital
surplus and attract the interest of private investors.
None of the reasons given by the Government can justify water charges and the high level at which they have been set.
If it was merely to intention of the British government to upgrade the water system as it claims, then it could be achieved through the existing rates system.
The intention is not the upgrading of the Water Service but its privatisation.
It is the move towards privatisation that necessitates that the Water Service becomes self-financing, that it be removed from the public sector, and that a separate water charge be introduced.
Water charges are generated by privatisation; they are essential to create the profits that will attract private investors.
All the main political parties have accepted
the principle of water charges and support the broader privatisation agenda
of which they are a part.
1 David Hall - Response to the consultation document ‘Reform of Water and sewerage services in Northern Ireland’ March 2003
2 Water Service Corporate Plan 2002 – 2005
3 Water and sewage services in Northern Ireland – a consultation document DoEo 1999; p.2
4 Ibid; p.9, para 3.2
5 Ibid; p.16, para 6.2
6 Newtown Emerson – “Don’t put your money into Spellar’s account” Irish News, 25/11/04
7 David Hall - Response to the consultation document ‘Reform of Water and sewerage services in Northern Ireland’ March 2003
8 The Issue UTV, 04/10/04
9 Water Reform Northern Ireland – New Household Charges, Government Information Leaflet, September 2004
10 Family Spending 2001-2002, Office for National Statistics
11 Eamonn McCann – “Minister like a duck out of water in charging debate” Belfast Telegraph, 07/10/04
12 Submission by the Equality Commission for Northern Ireland to the Department for Regional Development on its proposals for Reform of Water and Sewerage Services in Northern Ireland, June 2003
14 Robert McCartney – “Ulster Water charge scam” Belfast Telegraph, 09/11/04
15 GCCNI - Frozen Out: Tackling Fuel Poverty in Northern Ireland, 2002
16 Robert McCartney – “Ulster Water charge scam” Belfast Telegraph, 09/11/04
17 Eamonn McCann – “Minister like a duck out of water in charging debate” Belfast Telegraph, 07/10/04
18 Robert McCartney – “Ulster Water charge scam” Belfast Telegraph, 09/11/04
19 Eamonn McCann - “Are we drowning in sea of GoCO double speak?” Belfast Telegraph 12/08/04
20 Cllr. Mark Langhammer, Speech delivered at public meeting against water privatisation, 04/11/04
21 Eamonn McCann - “Are we drowning in sea of GoCO double speak?”, Belfast Telegraph. 12/08/04
22 “A private matter?” Belfast Telegraph, 20/08/04
23 “Fury over tap tax rates hike proposal” Belfast Telegraph, 20/08/04
25 “Government company to run water charges” UTV News Online, 10/08/04
26 Eamonn McCann - “Are we drowning in sea of GoCO double speak?”, Belfast Telegraph. 12/08/04
27 “Government company to run water charges” UTV News Online, 10/08/04
28 Cllr Mark Langhammer, Speech delivered at public meeting against water privatisation, 04/11/04
29 “A private matter?” Belfast Telegraph, 20/08/04
30 BBC NI Spotlight 26/10/04
31 “Water Charges could be on way” BBC News Online, 19/04/02
32 Eamonn McCann – “All major parties agreed to go with the flow on water charges” Belfast Telegraph, 04/11/04
33 “DRD minister rules out privatisation of water service” DRD Press Release, 5/12/99