Newton Emerson: Water charges could solve Stormont’s budget mess

Derry-born musician Feargal Sharkey has done much to highlight the failure of England’s privatised water industry. It is fitting he has become the public face of this issue as it has implications for Ireland, North and South.

Water privatisation and water charging have been hanging over Northern Ireland since the first lengthy Stormont collapse, between 2002 and 2007.

Labour direct rule ministers converted the public utility into a government-owned company, Northern Ireland Water. They legislated to introduce separate domestic charges and contracted a private consortium to collect bills.

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The reasons cited were historic underinvestment in the North’s water system plus the European Water Framework Directive, which requires water to be funded in a way that reflects costs and deters use.

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But this did not add up. Why was NI Water created when public utilities complied with the directive everywhere else? Why was the example of Wales being willfully ignored? Water was privatised there along with England in 1989 but the company went bankrupt in 2000 and was replaced by a non-profit company with no shareholders. This form of mutualisation permits private borrowing, delivering the only advantage of privatisation without its downsides.

Peter Hain, the northern secretary during much of direct rule, was also secretary of state for Wales. Yet all suggestions of mutualisation were blanked, making it laughably obvious NI Water was being set up to be sold off.

Strictly speaking, separate domestic bills exist but Stormont pays them, by giving NI Water £300m (€348m) a year

Political debate at the time distinguished between charging and privatisation. Most Northern Ireland parties conceded “we have to pay more for water”, a phrase heard endlessly. Some suggested this might be done through higher domestic rates —the traditional income source. Privatisation was recognised as a distinct problem, involving monopoly profiteering and an incentive to run down assets.

This distinction became blurred in a larger political game, as London used the prospect of charges to pressurise Sinn Féin and the DUP to return to Stormont. The ploy worked, helping both parties to reach the 2006 St Andrews Agreement.

Strictly speaking, separate domestic bills exist but Stormont pays them, by giving NI Water £300 million (€348 million) a year. This was too little from the outset and has never increased, halving since in real terms.

Sinn Féin, which took the relevant department, initially said rates might increase but water would be itemised on bills to ensure people would not “pay twice”. Once the issue had been fudged, however, it was easier to forget it.

A partial collapse of the water system in the freezing winter of 2010 did not bring matters to a head, nor did a slow strangulation of the economy over the next decade. NI Water now objects to all planning applications in central Belfast and many applications elsewhere due to overloaded sewers.

In the 2020 New Decade, New Approach deal, Stormont parties thought London had pledged £2.5 billion to fix the system. When this promise turned out to be hollow, conversations finally began. An advisory fiscal council created under the deal examined charges. The Welsh model entered the debate — mutualisation has become Alliance and UUP policy.

Northern Secretary Chris Heaton-Harris is now threatening to introduce water charges, mainly as a ploy to force the DUP back to work

Sinn Féin is sensitive on the question due to its opposition to water charges in the Republic but it can have no objection in principle: it supports the mutualisation of housing associations and their state equivalent, the Housing Executive.

Northern Secretary Chris Heaton-Harris is now threatening to introduce water charges, mainly as a ploy to force the DUP back to work. He received a report on it from the civil service last week.

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But the context of the threat has been transformed since it was used before St Andrews. England and Chile are the only countries in the world with full water privatisation. With the experiment failing in England, there is no longer any serious risk of it being extended to Northern Ireland. That makes charges more palatable, as they would be under the Welsh model, or paid to a public utility as in Scotland and elsewhere.

Although Sinn Féin and the DUP might never agree to charges, they could acquiesce to their imposition — a prospect that is increasing.

The Republic would then become the only place in Europe without charges — already a point of aggravation in Brussels

Emerging splits in the DUP over the Windsor Framework mean it may not restore devolution until next year’s UK general election. There will be a deepening Stormont budget crisis in the meantime, followed by an incoming Labour government and a negotiation where water is bound to feature.

A new executive that inherited charges, or was forced to accept them, would be unlikely to reverse the decision. Water charging would solve most of Stormont’s financial problems and address the disastrous bottleneck of underinvestment.

The Republic would then become the only place in Europe without charges — already a point of aggravation in Brussels. Ireland’s main party of opposition, or possibly government, would be administering them north of the Border.

How long then before charges returned to the southern agenda?