COMMITTEE FOR REGIONAL DEVELOPMENT
OFFICIAL REPORT
(Hansard)
Water Policy: Provisional Legislation
16 September 2009
Members present for all or part of the proceedings:
Mr Fred Cobain (Chairperson)
Miss Michelle McIlveen (Deputy Chairperson)
Mr Cathal Boylan
Mr Allan Bresland
Mr Willie Clarke
Mr Tommy Gallagher
Mr Ian McCrea
Mr George Robinson
Mr Brian Wilson
Witnesses:
Mr John Mills )
Mr Paul McKenna ) Department for Regional Development
Mr Ian Maxwell )
The Chairperson of the Committee for Regional Development (Mr Cobain):
I welcome John Mills, Paul McKenna and Ian Maxwell of the Department for Regional Development (DRD). There will be a 10-minute presentation followed by questions from members.
Mr John Mills (Department for Regional Development):
I fear that I am about to repeat the Chairperson’s brief to the Committee. The Minister wrote to the Committee early in September to advise it of the legislation. The Department subsequently provided a draft of what is a short Bill, and I will keep the briefing short.
The draft Bill will extend by three years the period during which DRD is required to subsidise Northern Ireland Water (NIW) in lieu of customer payments. If no change is made, the existing provision will expire on 31 March 2010. In technical terms, the Bill amends article 213 of the Water and Sewerage Services ( Northern Ireland) Order 2006. It extends “the initial period” by three years. The “initial period” is currently defined as the three years from April 2007 to April 2010. Given the expiry of the existing subsidy provision by April 2010, we must replace it before that date.
The Department sent the Committee a copy of the indicative timetable for the draft Bill. Members are aware that the deadline, as the Chairperson pointed out, is tight, although the draft Bill is very simple. We want to work with the Committee to do everything that we can to meet the timetable. As the Chairperson noted, the current position is that, following Executive agreement, the draft Bill is scheduled to be introduced in the Assembly later this month, subject to the Speaker’s agreement. I should say that the extension of the subsidy provision is not a decision on the future of water funding.
The Chairperson:
Thank you. Although the draft Bill is quite short, it has enormous ramifications for the Assembly, whether it introduces water charging or not. Will the Committee get answers to the questions that it has been asking for the past year about how charging or not charging for water will impact on the Budget; on issues around VAT; and whether Northern Ireland Water is to remain a public company? Will all of those issues be addressed as the Bill moves through its Committee Stage?
Personally, there is no way that I will agree to any extensions of anything until I know the potential financial ramifications of doing so.
Mr Mills:
Those issues are wider than the draft Bill and are matters for the Executive. The draft Bill is merely a technical instrument to extend the requirement for DRD to pay a subsidy to Northern Ireland Water. It would be needed whether the Executive decide not to introduce, to defer, or to phase in payments for water. The amended provision would be needed in all circumstances, except if the Executive were to decide to introduce domestic and non-domestic payments in full from April 2010. It is not for the Department to decide on those more weighty matters.
The Chairperson:
However, by agreeing to the draft Bill and extending that power, the Executive will be given the power to enact water charges or not, without coming back to the Committee.
Mr Mills:
It is unlikely that the Executive would take a decision to enact —
The Chairperson:
That is not a decision for the Committee; it is a decision for the Executive. The Committee does not conduct Executive business; it does DRD business. Therefore, if the Executive decide to charge for water, the Committee may be informed, but it would be an Executive decision.
All that I am saying is that it is not as simple as passing a Bill that gives an extension to a power. There are more issues involved. Once that extension is granted, the Executive are given the power to decide whether to charge for water. The draft Bill may be short, but before the Committee decides whether it agrees to it, it is important that unanswered, stalled questions of the past 18 months are answered before the matter goes any further.
Mr Mills:
That may be your position, but I must emphasise that the Bill does not imply those decisions one way or another.
The Chairperson:
Yes, but it may have ramifications. It gives power to the Executive to decide whether to charge for water or not. Is that correct?
Mr Mills:
The Executive have ultimate policy power to decide what happens.
The Chairperson:
Without the Bill they do not have the power to decide whether to charge for water. They will not have the power after 31 March 2010, is that correct?
Mr Mills:
I guess one could argue that were the Committee to oppose —
The Chairperson:
John, please answer the question. Is it correct that, after 31 March 2010, the Executive will not have the power to decide whether or not to charge for water? Is that not what we need the Bill for?
Mr Mills:
No.
The Chairperson:
Sorry?
Mr Mills:
The Bill neither removes nor enables the Executive’s power to make a decision. It provides for subsidy to be paid to Northern Ireland Water to ensure that that company remains financially viable and is able to deliver water and sewerage services. That is what the legislation would effect. If the Committee were to oppose the legislation, it could be argued that there would be no means to fund water and sewerage services.
The Chairperson:
That is the point that I am trying to make.
Mr Mills:
One implication might be that charging would have to be introduced from April 2010.
The Chairperson:
If water charging is not introduced by 1 April 2010, what are the financial ramifications of that for the Executive and the people of Northern Ireland?
Mr Mills:
If there is continued public funding of water from 2010-13, as the Minister has said, the cost will be around £1 billion.
The Chairperson:
But where will we get that from?
Mr Mills:
From the Executive’s funds. Around 20% of Northern Ireland Water’s funding is raised from non-domestic payments, and the rest is made up of subsidy.
The Chairperson:
We have asked these questions continually. If we are not going to introduce water charges after 1 April 2010, there will be a number of ramifications, which have already been signalled to DRD and to the Department of Finance and Personnel (DFP) by the Treasury. Is that correct?
Mr Mills:
That is correct.
The Chairperson:
Those ramifications will include the end of Northern Ireland Water as a private company. It will be taken back into the public sector. There are also issues concerning VAT, as the Government have provided a VAT subsidy for 2007. Is that correct?
Mr Mills:
There has not been a subsidy for VAT, but there has been a concession.
The Chairperson:
There has been a deferral of VAT since 2007, because the Department indicated that it would charge for water, and the Treasury decided that it would defer VAT. Is that correct?
Mr Mills:
Northern Ireland Water has been allowed to reclaim VAT.
The Chairperson:
Is that a yes or a no?
Mr Mills:
If HM Revenue and Customs (HMRC) were to decide otherwise, then Northern Ireland Water would not be able to reclaim VAT, and that would have financial implications.
The Chairperson:
It was also stated that HMRC might consider reclaiming the money from 2007.
Mr Mills:
That is a possibility.
The Chairperson:
Before we agree to this extension, is there any possibility of finding out from DRD or DFP what the financial implications might be of the extension of subsidies to Northern Ireland Water after 2010?
Mr Mills:
Those decisions are matters for the Executive.
The Chairperson:
Are they not matters for the Committee?
Mr Mills:
As you know, Chairman, they are matters for the Executive to decide.
The Chairperson:
Thank you. That is the point I am trying to make.
Mr Mills:
I am sure that that will not happen without consultation with the Committee. I must return to my central point that the draft Bill does not imply those decisions, one way or the other.
The Chairperson:
Yes, but does it not give the power to the Executive to extend the decision not to charge for water?
Mr Mills:
The draft Bill provides for the funding of water and sewerage services.
Miss McIlveen:
Given that the issue is so highly charged and contentious, is there any flexibility whatsoever in the Department’s very tight timetable of a 30-day Committee Stage?
Mr Paul McKenna (Depart for Regional Development):
A bit of slippage can be allowed. The timetable was proposed so that everyone would understand how tight time is. The Department is asking everyone to work with it to achieve its aims. Some slippage can be allowed, but not much. For instance, the Committee’s time is tight, but, if it helps or eases members’ concerns, more time could be allowed for the Committee’s report to be printed. At present, the Department has that stage ending on 27 November 2009; however, it could be pushed back to 7 December 2009. Therefore, there is some flexibility, but not a lot.
Miss McIlveen:
The witnesses will realise from the Chairperson’s comments that there will be considerable interest in the Bill. The fact that it deals with water means that many people will want to express their opinions and make presentations to the Committee. What happens if Royal Assent is not given by April 2010?
Mr Mills:
From DRD’s point of view, there will be no legislative provision for the funding of water and sewerage services. From a Northern Ireland Water perspective, there will be no guarantee that its funding is secure. From the Utility Regulator’s point of view, as the office which has a statutory duty to ensure that the company is viable, there will be no guarantee that that is the position.
Mr Gallagher:
I agree with most of what the Chairperson said. To return to his line of questioning, the Committee has before it representatives of the Department. I do not wish to be disrespectful to anybody, particularly those who gave the presentation. However, as representatives of the Department, they are asking the Committee to stand down its current work programme to shoehorn the draft Bill, which is described as simple, into its work programme to accommodate the Department.
At the same time, the Department is telling the Committee that it really has nothing to do with the draft Bill — that it is an Executive decision. That is amazing. It has everything to do with the Department, which is responsible and answerable for Northern Ireland Water. The draft Bill has major implications. The Committee is entitled to a good deal more information from the Department than the witnesses are prepared to provide here.
If the Committee has to dig that information out of the Department, it will do so. That may delay the legislation, unless the Department adopts a more co-operative approach. The public purse is being discussed here, regardless of how Mr Mills tries to present matters to the Committee or whatever gloss the Department tries to put on it.
To some extent, members are the people who, on behalf of the public, also have a responsibility for the public purse. How much money is involved? How much will it cost to extend the subsidy provision for three years? Where will that money come from? Will it come from DRD alone or from other Departments as well?
Looking at it in another context, if the legislation does not go through — I have confused myself now. Is that how I put it initially? Looking at it from the other side, where is the money going to come from? There are big questions to be answered, and to enable us to approach our work with some sense of co-operation you should be providing that information for us this morning.
Mr Mills:
You have made a number of statements that I cannot possibly let go. You say that the proposed legislation is to accommodate the Department. The decisions on water funding lie with the Executive; it is to accommodate the Executive, not the Department.
Mr Gallagher:
I have listened to that argument, but who is responsible for water? Is it the Executive, or the Department for Regional Development? It cannot be both; it has to be one or the other.
Mr Mills:
DRD is responsible for water, but the Executive are responsible for funding. As it is a cross-cutting issue, it would have to go to the Executive. Nothing in what I said was meant to imply that the Committee does not have a role in the matter. That would not acknowledge the efforts that we have made and the number of briefings we have provided to the Committee on the subject. Many of the decisions that you refer to are political decisions, which I cannot answer for. I think it is correct to say that those are decisions for the Executive. That, of course, does not mean that the Committee and other stakeholders are not intimately involved in, and consulted on, those decisions.
As for the costs, the legislation does not imply costs one way or the other. There is a separate issue between this legislation, which deals with technical issues about how water and sewerage services are funded — a very narrow subject — and the wider questions of water funding. If the Committee wishes us to come before it to discuss the wider issues, then we will put that to the Minister.
Mr Gallagher:
I still do not understand. If we pass the legislation, money from the Assembly’s Budget will go towards paying Northern Ireland Water, whatever the figure is, over three years. Does nobody know what that is going to cost?
Mr Mills:
That is the distinction. The legislation just technically enables that to happen. It does not state that it will happen. If the Executive decide to phase in some sort of payments for water, then perhaps only 1% of the money to fund water and sewerage would need to be provided by the Executive and 99% could be provided by customers. That is the wider policy decision, which the Committee rightly raises as a huge issue, but the proposed legislation that is under discussion is a narrow, technical mechanism to allow that to happen.
The Chairperson:
We are not in conflict here, John. The Committee is trying to perform the role that its members were elected to perform, which is to scrutinise legislation. We are not in confrontation. These are issues that the Committee has raised with the Department over the last 18 months. You were here, and you have given us briefings about the financial implications of the continuation of subsidies for water, amounting to just over £1 billion over the three years. Even though the proposed legislation does not state that water charging will be introduced, it provides a mechanism for the Executive to do that. That is the point we are making. We are not saying that the Executive will charge for water, or that they will not. That is not the issue. The issue is that you are asking the Committee to give — should it be needed — the Executive permission to carry on giving a subsidy for water, without the Committee knowing what the financial implications of that may be.
We are looking at this from a completely different aspect from the Department. We know that it is an Executive decision, and that a political decision will be taken. All we are saying is that you are asking the Committee to give the Executive the power to continue subsidising water without knowing the financial implications. On behalf of the Committee, I am saying to you that that is unfair. As I keep repeating, we have asked about these issues for the past 18 months. We have figures on how much it will cost, but we have no idea where the money is going to come from. Huge amounts of money are involved: £1 billion or £1·5 billion over three years. We are stretched already.
All that I am saying to you is that, before a Committee gives permission to do anything, it is entitled to know the ramification of its decision. It may never be enacted, but we are giving agreement for the Executive to do that if it so wishes. That is what we are saying.
Mr B Wilson:
I share your concerns about the whole uncertainty. We are really not clear about what exactly we are doing here. Can you clarify the legislation? Basically, the legislation is keeping all the options open. It is not committing us to any particular thing. The Executive will eventually make the decisions. However, if we withdraw this particular option, does Northern Ireland Water have any powers at present to raise money elsewhere?
Mr Mills:
With the approval of the Utility Regulator, Northern Ireland Water can raise customer charges.
Mr B Wilson:
On what basis?
Mr Mills:
On a legal basis.
Mr B Wilson:
Sorry, I mean would that be based on house size or something else?
Mr Mills:
There has been no Executive agreement on the methodology for raising those payments. Therefore, one cannot say how that would happen if it was simply down to Northern Ireland Water. Northern Ireland Water and the Utility Regulator would not, of course, unilaterally introduce charges without the Executive’s say-so.
Mr W Clarke:
I am trying to clarify this. If I am reading the situation correctly, the Executive took the decision on a review of water charges and said, as a whole, that it would subsidise NIW over that three-year period. The way I see it, we do not have a choice: the Executive either look at charging for water, or they continue to pay the money out of the block grant.
My concern is that, come the start of April 2010, the stability of the whole programme of work that NIW is carrying out, particularly on sewerage provision, and the amount of money that is being spent on that would be seriously hampered. We would then be under immense pressure from Europe, if it was not in place. Therefore, I do not think that we have a lot of choice; we have to get legislation into place, and we have to move as quickly as possible to do that. That is my understanding. There are no other options.
Mr Mills:
I fear that I would be criticised for saying that the Committee has no choice were I to agree with that, but I think that that is an accurate analysis.
Mr W Clarke:
On reading the draft Bill, I simply do not see another option.
The Chairperson:
In order that we are absolutely clear, I repeat that the draft Bill is not the issue. It is the ramifications of the power that we are giving to the Executive. If we agree the Bill, which is a matter for the Committee and not for me, we are giving the Executive the power to extend subsidies for water after April 2010. Is that correct?
Mr Mills:
Yes.
Mr W Clarke:
On that point, it is my understanding that the Executive have always had that power. The Executive carried out the review of water charges, and they are paying the subsidy. Therefore, the Executive have collectively taken that decision and have always had that power.
Mr Mills:
Yes; the legislation is there at the moment. The problem is that it will expire. Mr Brian Wilson put it succinctly when he said that the draft Bill is about keeping options open.
The Chairperson:
The power extends to 31 March 2010.
Mr Mills:
That is correct.
The Chairperson:
The legislation needs to be extended to allow the Executive to have the power not to charge for water. That is what this is about.
All I am saying is that, if the Committee agrees that position, it will be doing so without being able to see the possible ramifications of the Executive’s deciding not bringing in water charges. That is my issue. It is not an issue about giving the Executive power. I would like to see what the ramifications of not charging for water will be, so that I can decide whether I am in favour of the legislation or not. The Executive are asking for the power, but they will not tell the Committee what the outcome will be or what the possible financial implications of having that power may be. They may never use that power, but it is not the draft Bill that I am concerned about. The draft Bill may be only three or four lines, but I am worried about the financial ramifications of agreeing it.
Mr Boylan:
Following on from previous comments, doing nothing is obviously not an option. We have started a process, and work has continued on it. I mean no disrespect, and members have serious questions about finance, but we need to continue. The do nothing option is not on the table. I support my colleague Mr Willie Clarke’s opinion that we need to move the process on.
The Chairperson:
There we are. Thank you very much, John. As the Bill goes through its Consideration Stage, we will have you back, and we will talk to you again. The Committee will agree a timetable and will inform the Department of it, and it will call you back if you are needed. Thank you.