A right royal mess: why the Irish Water consumer should have been king

Irish Water was once a good idea. It was to be one efficient utility replacing 34 local authorities and spearheading a new investment programme. But the original concept has been slowly strangled.

There is one key issue, largely ignored in the recent debate, that is going to hamper it for years to come. The way Irish Water was established means it is costing twice as much to run as comparable UK utilities. In setting up Irish Water, the agenda of delivering value for money to consumers was set to one side. We will now pay more for this via direct taxation than via water charges – but we will still pay. And less money will be left for badly needed investment.

The way Irish Water was established involved deliberate choices – similar to the decisions made when the Health Service Executive was set up. It shows how “the system” can protect itself and how the interests of consumers and taxpayers can be stymied as this happens. It shows how politicians and administrators, given the choice, will take the path of least resistance. And this is not confined to Irish Water. Social Partnership may be dead as a formal process but it lives on in the way the country operates, with unions, employers and State company bosses still able to the agenda in their own direction.

Costs above international norms

More than 4,000 people in the local authorities were employed in water services. A report by PwC found that the costs of all this were way above international norms. But, despite this, few efficiencies were sought in the negotiations with local authorities and unions on how they would provide local services to Irish Water. So much of the original cost base remains. In particular, service-level agreements signed with the local authorities for the next 12 years cemented in levels of employment and cost structures that leave costs at a high level. Addressing this will take years.

Where has this left us? An organisation called Nera – a UK consultancy – was hired by the Commission on Energy Regulation (CER) to give it some advice on charging structures. Buried deep in its report are calculations that show operating costs in Irish Water are twice those of UK counterparts and 25 per cent above those in Northern Ireland. Nera then ran some economic models plugging in details of Irish Water’s infrastructure and operations. These confirmed that the costs were twice what they should be, and more in some parts of the operation.

The underlying message of its advice to the CER was like the famous one given to the tourist on the country road: “If I was you I wouldn’t be starting off from here.”

Consumers’ voice unheard

You would like to think that it is remarkable that a political and administrative system bruised by the HSE experience – and short of cash – let it all happen again. But unfortunately the consumer voice is not at the table when the bi g decisions are made.

This Government has done – as the last government did – a remarkable job in holding down overall government spending levels, a key step in restoring order to our public finances. This has not been a perfect exercise but it was a big change on the way things used to happen.

This makes Irish Water all the more galling – not only for the public but surely for the Ministers who have found their budgets clipped and clipped again and those who have suffered as a result. While everyone was under pressure to cut – from health, education and capital investment budgets – nobody shouted stop when Irish Water was being set up.

No one put themselves in the place of the consumer, because doing so would have led to a row with the local authorities and the trade unions. The local authorities took some measures to cut their costs as part of the overall budget squeeze but the opportunity to start afresh with the establishment of Irish Water was lost. Prof John FitzGerald, formerly of the ESRI, said the excess cost in Irish Water could amount to the equivalent of more than €90 a year per household. Irish Water will have cash to invest, but catching up on years of under-investment will take years.

This avoidance of conflict with vested interests is evident elsewhere. Look at the endless delays in introducing more competition and ending restrictive practices in the legal sector. Back in 2006 the Competition Authority identified various blockages to competition in legal services.

The Sir Humphrey playbook Despite being pushed by the troika, legislation to allow this to happen will

come into effect only next year. Another report on the concept of multidisciplinary practices looks likely to be needed before anything is done in this key area. It is a solution straight out of the Sir Humphrey playbook from Yes, Minister.

Then there is the slow pace of reform in health, in cutting drug costs and in addressing relative high costs in areas such as electricity. As the troika has pointed out, Ireland’s public finances have moved in the right direction, but reforms aimed at cutting costs to business and consumers have been deathly slow.

There has been talk of a new political party to push this value-for-money agenda and to promote tight control on spending and an easing in taxes. But so far no one has taken the jump.

This Government and the last did the heavy lifting of getting the public finances back on course but baulked at taking on the fights needed to drive through reform. And whether via higher charges, taxes or fees, it is the consumer who ends up paying.